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NSW Government Submission into the
Independent Review of Australian Carbon Credit Units (ACCUs)
Contents
Summary (page 1)
NSW Government priorities and actions (page 2)
NSW Government comments on the ACCU Review (page 3)
Appendix 1: Input on biodiversity co-benefits (page 7)
Appendix 2: Input on soil organic carbon sequestration (page 8)
Appendix 3: Input on human-induced regeneration (page 11)
Summary
The NSW Government welcomes the opportunity to provide input into the independent review of Australian Carbon Credit Units (ACCUs).
The NSW Government has a clear objective to achieve net zero emissions by 2050. The Net Zero Plan Stage 1: 2020-2030 is the foundation for NSW’s action on climate change. It acknowledges the important role primary producers and landowners play in reaching net zero emissions through cost-effective carbon abatement, and supports the further development of income streams emerging from this role. The Plan also recognises offsetting as an important instrument for providers and consumers of goods and services to reduce their climate impact.
The NSW Government relies on ACCUs being robust and trusted by the community and has an interest in ensuring that confidence in the integrity of credits generated under the Emissions Reduction Fund (ERF) is high. Many NSW Government climate policies and programs interact with the ERF and the market for ACCUs. The review must ensure that ACCUs effectively serve federal and state/territory emissions reduction targets, enable synergies across jurisdictional and sectoral policies, and consider the needs of participants, purchasers and the broader community.
The NSW Government recognises the importance of a revised ERF scheme with ACCUs that are:
governed by integrity and transparency, with clearly defined government agency roles, guided by technical expertise, and scrutinised by the public
generated by an enhanced scheme which optimises economic, social and environmental (including biodiversity) co-benefits, and takes broader impacts into account
based on improved and newly developed methods that are scientifically sound and provide truly additional and permanent carbon abatement
supporting a more effective and transparent Climate Active program
providing additional opportunities for economic development of First Nations people through ACCU-credited land management, carbon farming and cultural burning.
NSW Government priorities and actions
NSW is committed to net zero emissions by 2050
The NSW Government has a clear objective to achieve net zero emissions by 2050. The Net Zero Plan Stage 1: 2020-2030 is the foundation for NSW’s action on climate change. It outlines the NSW Government’s plan to protect our future by growing the economy, creating jobs and reducing emissions by 50 per cent by 2030 compared to 2005 levels.
The Net Zero Plan highlights the importance of transitioning to renewable and low emissions energy sources and includes economy-transformational policies such as the NSW Electricity Infrastructure Roadmap and the NSW Hydrogen Strategy. However, mechanisms such as ACCUs are crucial for both short-term emissions reduction ambitions and achieving and maintaining net zero by 2050.
The Net Zero Plan acknowledges the important role primary producers and landowners play in reaching net zero emissions through cost-effective carbon sequestration, and supports the diversification and increase of income streams emerging from this role. The Plan also recognises offsetting as an important instrument to provide providers and consumers of goods and services with options to reduce their climate impact.
The NSW Government will continue to collaborate with the Australian Government in the pursuit of our emissions reduction targets, and to seek alignment between our respective climate change policies and programs.
NSW relies on ACCUs for many of its policies
The NSW Government relies on Australian Carbon Credit Units (ACCUs) being robust and trusted by the community and has an interest in ensuring that confidence in the domestic carbon market is restored. Ensuring effectiveness, integrity and transparency must be key principles for the Emissions Reduction Fund (ERF) scheme.
Many NSW Government climate policies and programs interact with the ERF and the market for ACCUs. Changes to the federal parameters will impact policies and programs at the subnational level. Key NSW policies and programs relevant for the ACCU market include:
the Primary Industries Productivity and Abatement Program (PIPAP), which supports NSW farmers and land managers to optimise productivity, reduce emissions, access carbon markets and seize new market opportunities. This includes developing trusted and actionable data sets, metrics, frameworks and tools to enable abatement action and credible reporting, to complement ERF resources and to support land managers in enhancing their skills, capacity and finances to adopt carbon farming
the Vehicle Emissions Offset Scheme, which will provide consumers with the opportunity to offset their CO2 emissions at the point of registration renewal. The NSW Government will be purchasing ACCUs on behalf of consumers who have chosen to offset their vehicle emissions
the National Parks and Wildlife Service, under the Carbon Positive by 2028 plan, will generate revenue for park management through the sale of premium carbon credits (ACCUs with biodiversity co-benefits)
programs that work with stakeholders who purchase ACCUs or other carbon credits as part of their decarbonisation pathways, such as the Net Zero Industry and Innovation Program and the Business Decarbonisation Support Program
NSW Government agencies who currently or may in the future purchase ACCUs to offset their emissions
the NSW Biodiversity Offsets Scheme, which provides a framework for offsetting unavoidable impacts on biodiversity from development can complement, rather than compete with, the generation of ACCUs.
NSW Government comments on the ACCU Review
The NSW Government welcomes the independent review. Recent media attention has highlighted the need to enhance the integrity of the ERF. Addressing these concerns will enable the effective functioning of the scheme so that its intended function, in encouraging climate change mitigation, can be delivered.
In particular, the assessment of additionality in all methods under the ERF could be tightened to ensure that credits are not awarded for abatement that would have been delivered without the scheme. Paying for non-additional projects means that funds are diverted from supporting action that delivers genuine abatement. This makes it harder to meet national and subnational emissions reduction targets.
The scheme can ensure that positive impacts (co-benefits) are optimised and negative impacts minimised. ACCUs can effectively serve federal and state/territory emissions reduction targets, enable synergies across jurisdictional and sectoral policies, and consider the needs of participants, purchasers and the broader community.
Integrity and transparency in ACCU governance is important
Separation of powers: The Clean Energy Regulator (CER) is responsible for all processes associated with ACCUs, i.e. developing the method as well as awarding and purchasing the ACCUs. A reconsideration of the governance arrangement would help to avoid any real or implicit conflicts of interest and create clear separation between policy development and implementation responsibilities.
Technical expertise: The re-establishment of technical working groups, comprising industry and related experts, would assist with the methods development to ensure robustness of methods in the future.
Technical review: Mistakes in the past regarding the technical detail in the legislation relating to the quantification procedure have delayed crediting. A contracted technical reviewer could increase scrutiny and assure the quality of the draft legislation.
Public scrutiny: Transparency could be increased across the ERF scheme to enhance confidence. Criteria for the prioritisation of method development and review could be published. Project documentation including reports, location of carbon estimation areas (CEAs) and audit reports could be made publicly available, such as the Verra Verified Carbon Standard does. The consultation process could be better documented under a process where comments are received, publicly listed, considered and responded to.
Data management: Data generated by ERF projects (e.g. for vegetation, soil organic carbon) could be collated in a database (with an option for upfront landholder consent for voluntary projects). It could include appropriate metadata. The database could be a resource for agencies and researchers to use to test and improve models, so modelling approaches can be applied in the future. This would maximise the cost-effectiveness of measurement, reporting and verification.
NSW welcomes further targeted consultation on how to enhance the ACCU scheme
Optimisation of co-benefits: Generating ACCUs can provide a range of environmental, economic, social and cultural co-benefits, adding value to suppliers, purchasers and communities. For example, land-based carbon farming options can provide co-benefits in terms of food security, environmental sustainability and farm income. The NSW Department of Primary Industries has undertaken research to identify indicators for co-benefits, and to document the co-benefits of carbon farming. The generation of ACCUs could encourage, enable or at least not hinder the creation of co-benefits. This means the scheme could aim for complementarity rather than competition between different, potentially ‘stackable’ certification schemes. Standardised methods for valuing co-benefits are necessary for rigor and market demand. The Australian Government could investigate whether there is a role for the ERF to drive best practice in carbon offset project development by setting and over time increasing minimum co-benefit requirements.
Complementarity of biodiversity co-benefits: The proliferation and fragmentation of third-party, private and public schemes attempting to quantify environmental assets and ecosystem services across Australia risks resulting in market confusion. The review could consider how ACCU co-benefits could interface with existing biodiversity assessment and offsetting schemes in Australian states and territories. For example, the NSW Biodiversity Assessment Method quantifies the additional biodiversity value, is scientifically robust, repeatable and transparent. The method has been endorsed by the Australian Government and could be adapted for national application to assess ACCU biodiversity co-benefits. More detailed comments are provided in Appendix 1.
Ease of participation: If ERF methods, registration and reporting processes are sufficiently clear, with supporting guidance provided, individual landholders and other self-operating ERF project proponents can undertake projects without needing to engage a carbon project developer or third-party operator.
Review of tax treatment: The ACCU Review could consider whether existing tax treatments, including the treatment of credit generation as a capital gains tax event, may impede the uptake of ACCUs and the realisation of co-benefits. The 2020 report of the independent review of the Environment Protection and Biodiversity Conservation (EPBC) Act 1999 (Samuel Review) notes that “the Australian Government should investigate opportunities to further incentivise restoration through changes to the tax code. This investigation should consider any additional tax incentives, including tax smoothing, tax deductions, and investment write-offs.”
Consideration of broader impacts: The Australian Government could assess the aggregate impact of ERF projects in economic, social and environmental terms, particularly for regional and rural areas. This assessment could inform the future direction of the scheme and support an adaptive management approach. The environmental assessment could include effects on climate, land degradation, biodiversity, water quality and hydrology. A socio-economic assessment could include employment and the resilience of individuals, families and communities. Research suggests that the perceived loss of future land use flexibility associated with vegetation methods may create social divisions and negatively affect resilience. The effectiveness of recently introduced measures intended to address this issue, namely limiting the size of projects, could be assessed. Broader impacts also include opportunity costs and ‘carbon leakage’, e.g. when agricultural production and associated emissions are shifted elsewhere due to ERF projects.
ERF methods could be improved and new methods developed
Soil organic carbon (SOC) sequestration: The SOC-related methods credit increases in soil carbon as a result of new or materially different management activities in grazing or cropping land (including perennial woody horticulture). These methods have several issues that affect their integrity including: their baselines do not take external factors such as climate change into account; soil analysis in an independent, accredited laboratory is not required for all analytical methods; and the estimates of achievable abatement could be more accurate. More detailed comments are provided in Appendix 2.
Human-Induced Regeneration (HIR) and Avoided Deforestation (AD): This method includes activities to manage livestock, feral animals or non-native plants, or to cease certain activities, in order to induce native forest regrowth or avoid clearing. Over-crediting occurring under the Full Carbon Accounting Model (FullCAM) can be avoided. Its additionality criteria could be reassessed so that counterfactual projections and latest insights from research are accounted for, particularly for the credits related to avoided deforestation and avoided clearing. More detailed comments are provided in Appendix 3.
Integrated farm management: This method under development will encourage a more widespread adoption of abatement opportunities by reducing project establishment and management costs. There may be merit in including farm forestry (via the plantation forestry method) and mitigation through biochar (which reduces N2O emissions and increases soil organic carbon through negative priming) to encourage greater abatement.
Biochar: Pyrolysis of biomass to produce biochar for use as a soil amendment, or constituent of road base or concrete, is a form of carbon capture and storage recognised by the Intergovernmental Panel on Climate Change (IPCC). Developing a method for biochar which determines credits based on the stability of the biochar carbon at the point of production could be considered, using the IPCC 2019 refinement method for the quantification of abatement. The 2013 proposal funded by the Australian Government (through the Department of Industry, Science and Resources) could be used as a basis with an expansion of the feedstock and eligible applications.
The Climate Active program can enable complementarity
Climate Active is a federal program that certifies businesses that have credibly reached a state of carbon neutrality by measuring, reducing and offsetting their emissions. Certification is available for organisations, products and services, buildings, events and precincts. Climate Active program settings could support and complement state and territory programs and instruments to reduce emissions.
Inventory inclusions and offset restrictions: Climate Active participants could be permitted to include carbon sequestration activities under their control in their inventory to determine net emissions. Participants could be restricted to purchasing offsets generated by Australian projects through the ERF (or Indo-Pacific Carbon Offsets Scheme when operating) that include carbon sequestration and emissions reduction projects.
Special Activation Precincts: Special Activation Precincts in regional NSW are zones with explicit carbon neutral commitments. Uncertainty under the Climate Active program about how to attain carbon neutral certification for eco-industrial precincts could be removed so that businesses are supported in their efforts to reduce emissions. Incentives could be available to catalyse and expedite progress and further incentivise tenants’ efforts (see 20-Year Economic Vision for Regional NSW).
Including First Nations people meaningfully
The impact of ACCUs on First Nations communities could be viewed through policy and project work implementing the National Agreement on Closing the Gap.
The National Agreement is the primary policy agreement between First Nations people and organisations and all Australian governments. The objective of the agreement is to work in partnership to overcome the inequality experienced by First Nations people while improving the quality of life of the entire community. It includes targets for employment, enhanced economic participation and increased First Nations management of lands and waters. First Nations practices that meet both the objectives of the National Agreement as well as ACCUs include land management, carbon farming and cultural burning. This alignment presents an opportunity for the implementation of further projects that meet both policy objectives in an efficient and effective manner.
Carbon sequestration provides additional opportunities for employment and economic development of First Nations people through ACCUs. Such opportunities could be explored and enacted where appropriate, but only in active consultation and partnership with First Nations people and organisations. First Nations practices that meet both the objectives of the National Agreement as well as ACCUs include land management, carbon farming and cultural burning. Opportunities include:
The NSW Primary Industries Productivity and Abatement Program (PIPAP) builds the capacity of Aboriginal communities, landowners and managers to understand the opportunities presented by carbon activities, and identify how carbon outcomes can be achieved in a way that aligns with cultural practice and heals Country. PIPAP will also provide financial support for implementing ACCU projects.
The NSW National Parks and Wildlife Service (NPWS) leads work to enact joint management of national parks with First Nations organisations and communities. Cultural knowledge and expertise leads to enhanced management of parks. The National Parks and Wildlife Act 1974 (NSW) was amended in late 2021 to allow for carbon credits on the national parks estate. NPWS will be working in partnership with Aboriginal joint management custodians for any carbon credit proposals in joint managed parks. NPWS is consulting with the Aboriginal community on developing a new joint management model over the next 18 months with the aim of rolling out joint management to the entire national parks estate over the next 15 to 20 years.
More generally, the ACCU Review could consider how Aboriginal people’s native title and other rights are considered in the carbon credit market, and how Aboriginal landowners and rights holders can be supported to participate in the carbon credit market.
NSW would like to collaborate on the ACCU Review
The NSW Government would like to collaborate with the Australian Government on the ACCU Review. The NSW Office of Energy and Climate Change is the lead agency for this matter. Please contact Dr Kate Wilson, Executive Director Climate Change and Sustainability, at Kate.Wilson@environment.nsw.gov.au.
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Appendix 1: Input on biodiversity co-benefits
The NSW Government welcomes further consultation on the ACCU Review’s consideration of co-benefits including for biodiversity. The ERF can complement rather than compete with other jurisdictions’ regulatory schemes.
The NSW BAM is flexible, modular and can be adapted and scaled to different contexts
Measuring and reporting on biodiversity co-benefits is a challenging task given the proliferation and fragmentation of third-party, private and public schemes attempting to quantify environmental assets and ecosystem services across Australia. Increasingly, entities that produce or purchase carbon credits are facing scrutiny not just in relation to the integrity of carbon claims, but also of co-benefits.
Any consideration of biodiversity co-benefits could be based on a scientifically robust, repeatable and transparent method, such as the NSW Biodiversity Assessment Method (BAM) or comparable schemes in other jurisdictions. The NSW BAM has been endorsed by the Australian Government which could make it suitable for potential national application.
The NSW BAM assesses losses and gains in biodiversity values and provides a framework for considering additionality. It underpins the legislated NSW Biodiversity Offsets Scheme, which requires the offsetting of unavoidable impacts on biodiversity from development.
To offset development, biodiversity credits are created through in-perpetuity agreements that run with the land title and set out the required management actions to deliver biodiversity gains. When credits are sold, a proportion of the funds are held in trust to fund the ongoing management of the site. Annual management reports are required to receive the management payments.
There is an inherent administrative burden in compliance-based approaches to biodiversity offsetting with associated legislative frameworks. For voluntary markets involving co-benefits, it may be appropriate to utilise the NSW BAM to calculate biodiversity gains without triggering the compliance requirements of the mandatory offsetting scheme.
ACCUs and biodiversity crediting could aim to complement each other
Biodiversity credits generated under the NSW Biodiversity Offsets Scheme and its predecessor have a combined market value of over half a billion dollars.
Markets need to have integrity and be founded in robust data, metrics and systems to allow for confident investment. The ACCU Review could consider how the scheme can best support businesses, civil society and governments to meet their environmental, social and governance (ESG) commitments and philanthropic purposes as well as continuing to offset impacts from development.
Multiplicity of schemes for the measurement of biodiversity values can lead to market confusion, reinforcing the need for effective collaboration between national and state/ territory jurisdictions. The ACCU Review could consider how ACCU co-benefits will interface with biodiversity assessment and offsetting schemes in Australian states and territories. The intent of this review could be to:
understand the increasingly complex landscape of environmental stewardship programs
consider how schemes with differing priorities can complement rather than compete with each other
ensure some level of consistency and rigor in environmental assessment and monitoring of outcomes.
Bundling or stacking ACCUs and biodiversity credits could be considered
Provided additionality could be robustly accounted for, there may be benefits in bundling or stacking the ecosystem services achieved at a site, including:
maximising environmental outcomes
maximising incentives for landholders to generate these services
future-proofing industries and regional communities as the global economy transitions to a net zero and no net loss basis (i.e. increasing sustainability).
The Australian Government could review the practical consequences of section 27(4A)(b)(i) of the Carbon Credits (Carbon Farming Initiative) Act 2011 (CFI Act), and clause 20A of the CFI Rules, which exclude projects that are required to be carried out by or under an Australian law, and in particular, an examination of:
whether there are situations where additionality in this context can be adequately accounted for, and
whether these exclusions are impeding the supply of ecosystem services (such as ACCUs and biodiversity credits).
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Appendix 2: Input on soil organic carbon sequestration
The soil organic carbon (SOC) sequestration methods credit increases in soil carbon as a result of new or materially different management activities in grazing or cropping land (including perennial woody horticulture) that store carbon. The SOC Sequestration Using Measurement and Models method (2021) and Measurement of Soil Carbon Sequestration in Agricultural Systems Method have several issues that affect their integrity. An independent review of the earlier measurement method (2018) determined that it is the most robust method currently available globally. However, issues with additionality and permanence were identified indicating that the integrity of the method could be improved. These issues persist after the 2021 revision.
Management options: Not all management options are applicable everywhere. There is the potential for carbon loss due to eligible management activities, if undertaken on an unsuitable landscape. Approval for activities could consider the appropriateness of the activity for the geographic location and the potential for erosion. For example, clay delving is essentially profile inversion and is commonly and often successfully applied in the South Australian wheatbelt. If this or deep ripping was undertaken in areas of sodic soils or steeper slopes, there is an increased erosion hazard and the potential for reducing soil fertility and carbon sequestration.
Baselining method: The change in soil carbon stocks under the project could be compared with a baseline that accounts for external factors, e.g. allows exclusion of changes due to climate. For illustration, the current scheme could result in farmers receiving benefits for La Niña and being penalised for El Niño climate patterns. Excluding climate effects can be achieved by using a BAU reference site in which previous management is continued, or with a modelled projection.
Independent sample analysis: The scheme currently allows anyone – e.g. the people that are going to benefit financially from the generation of ACCUs – to develop their own statistical calibration for the spectroscopy and run their own spectroscopy analysis. Considering the significance of this result to the quantification of ACCUs, all samples used to develop the calibration could be analysed in an independent, accredited laboratory. The calibration could be developed by an independent organisation, to ensure the process is independent of the people that benefit from it. Alternatively, the audit process could require that:
a random subset of samples used to develop the calibration are re-tested at an independent laboratory, which would also develop a calibration
the numbers of ACCUs be amended where discrepancies between results are found.
All laboratories involved in soil testing, including facilities using spectroscopy methods, could be required to participate in the Australasian Soil and Plant Analysis Council (ASPAC) Inter-Laboratory Proficiency Programme and be certified for soil carbon measurement. ASPAC has recently begun including total soil organic carbon through infra-red spectroscopy in their testing program, and certification is likely to be available in the near term. Laboratories undertaking soil carbon assessment using spectroscopy could therefore be required to participate in the ASPAC proficiency program, and seek certification when available. Audit procedures could include evaluation of the laboratory’s procedures for quality control, including corrective action procedures triggered by ASPAC results.
Additionality: Whether SOC sequestration projects are truly additional has been called into question. Purchase of ACCUs through the ERF from SOC management can only be justified to the extent that there are public benefits beyond private benefits. This ensures that public money is directed towards real change (i.e. additional actions). This is both complex and uncertain to achieve in practice and other ways of facilitating improved SOC management could be supported (e.g. research and development into management practices that are privately profitable).
Financial risk: Removing the regression approach to quantifying credits after the first sampling has exposed participants to greater financial risk associated with possible reversal. Credits could be awarded against a BAU reference site or a modelled BAU to avoid this risk.
Aggregator conduct: Some aggregators are providing landholders with inflated estimates of sequestration and returns and are not informing potential participants of the risks of participation (e.g. loss of sequestered and credited SOC, lack of sequestration capacity). Currently, proponents only need a statement from an expert to justify expected SOC increases. Proponents could be required to provide an evidence-based justification that activities proposed in the land management strategy will result in SOC sequestration. This justification could address the climate, soil texture and current SOC content, relative to maximum SOC content, of the site.
Cost effectiveness of soil sampling: The cost of participation has been identified as a key barrier to participation in the soil carbon method. Accordingly, the CER has set a target for sampling to cost less than $3 per hectare. However, the method discounts the number of ACCUs awarded based on the uncertainty of the estimate of SOC. This uncertainty is inversely proportional to the number of samples taken and, therefore, the cost of sampling. The metric that could determine the cost effectiveness of any sampling approach for the benefit of participants is not the cost per hectare but the cost per ACCU that is generated. The metric could be changed from cost per hectare to cost per ACCU generated, in the research and development being funded to support the ERF.
Accessibility of data: Soil data generated by soil carbon projects, where possible, could be made available to publicly accessible databases, i.e. the NSW Soil and Land Information System (SALIS) and the Australian National Soil Information System (ANSIS, under development). This will contribute to reporting and record-keeping requirements (D.3 S.36); is key to transparency and monitoring the effectiveness of the ACCU program; and would provide data to improve SOC predictions and models. Soil data submitted to SALIS will flow to ANSIS.
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Appendix 3: Input on human-induced regeneration
The human-induced regeneration of a permanent even-aged native forest (HIR) method includes activities to manage livestock, feral animals or non-native plants, or to cease certain activities, in order to induce native forest regrowth or avoid clearing.
The NSW Department of Primary Industries (DPI) Climate Research Unit would welcome further collaboration and information sharing with the Commonwealth on the findings below.
Integrity: Following claims that the Full Carbon Accounting Model (FullCAM) has resulted in over-crediting, the NSW DPI has considered options to avoid over-crediting by:
excluding areas of existing native vegetation
adjusting maximum carbon stock (“M”) based on the stock of existing vegetation (“C”) at project commencement
quantifying credits based on a modelled counterfactual, which would also exclude response to seasonal climate variation, rainfall trends and CO2 fertilisation.
Additionality: The requirements could be tightened for demonstrating management during the baseline period, and that eligible activities have been undertaken during the project period. A property management plan could be required that details the basis for assuming the activities will generate abatement in this specific context.
The abatement in a vegetation project could be determined by comparison with a counterfactual projection (modelled in the absence of the intervention). Credits could be earned only if there is greater sequestration under the project than the BAU counterfactual baseline. This would avoid credits being awarded for growth that occurs independently of management change, such as due to good seasons, CO2 fertilisation or age distribution.
In response to the concern raised about the capacity of changes in grazing management to influence forest regrowth in the semi-arid rangelands, the NSW Department of Primary Industries is doing a literature review with recommendations for the circumstances when grazing management will significantly influence woody growth and recruitment.
Avoided Deforestation (AD) and Avoided Clearing (AC) methods: The additionality of AD projects has been questioned, with suggestion that the land would most likely not be cleared even though a clearing permit had been issued. While the opportunities for AD projects have essentially been exhausted, the AC method is available, and has similar integrity issues with respect to additionality. There is no certainty that any particular land parcel would have been cleared.
The Climate Research Unit of the NSW Department of Primary Industries has completed an analysis of trends in native vegetation across NSW’s agricultural land, using a range of environmental spatial data. This study could inform the assessment of additionality associated with avoided clearing proposals. The study results provide a preliminary quantification of feasible abatement potential from retention of native vegetation and provide insights into feasible carbon abatement by examining trade-offs in agricultural land use (Simpson et al, in preparation).
