Australia used to have a Carbon Farming Initiative, the name given to a policy invention of the Gillard government for a voluntary carbon abatement scheme. The policy ran for three years from 2011. Not a ‘great big tax’ as the opposition labelled it but the labour government’s version of an emissions trading scheme.
The idea was that if emissions of greenhouse gases were measured and accounted for, the amounts could be reduced by making emitters pay for their emissions, a carbon price.
Entities with an obligation, or those with an eye to the green credentials, reduced emissions where possible. If not, they offset their emissions by buying a carbon credit from the equivalent of a carbon bank, in this case, the Clean Energy Regulator set up by the government.
For this carbon abatement to work, credits were deposited in the bank for emitters to purchase. This is still how it works.
Australian Carbon Credit Units or ACCUs are each one ton of carbon dioxide equivalents (tCO2e). They are created through approved activities known to either reduce emissions (eg energy generation from the methane released by a landfill) or sequester carbon (eg regeneration of forest). The number of ACCUs per activity is measured and accounted for through a carbon offset methodology developed by experts to apply to specific actions and approved by the regulator.
On the change of government, the Carbon Farming Initiative became the Emission Reduction Fund with essentially the same structure but with the government offering to buy credits from projects through a reverse auction process. The first auction ran in 2015.
Selling approved ACCUs to the government is done through a carbon abatement contract for up to 10 years or an immediate, one-off transaction with the requirement to deliver the agreed amount of ACCUs following the agreed contract terms.
ACCUs can also be sold directly to businesses and entities wanting to offset their emissions on a secondary market. This unregulated market sees ACCUs bought and sold through private commercial contract arrangements.
Voila, a product and a means of exchange. Simples.
Apologies for all the technobabble.
The point was to illustrate how easy it is for a straightforward concept—a punitive price on a pollutant to reduce pollution—to get out of hand.
Energy use is still a significant source of greenhouse gas emissions.
Carbon abatement is a simple idea.
Suppose you can capture carbon or reduce carbon emissions through an agreed method. Why not make that abatement available as a credit for sale to entities that cannot reduce their emissions?
I buy credits to offset emissions that I cannot avoid because no matter how I try, my aluminium smelter still emits greenhouse gases.
You sell, I buy, to balance emissions.
The problem is in the little phrase, ‘no matter how I try’.
Before I purchase a carbon credit to offset my emissions, I should have done everything possible to avoid and reduce emissions in my manufacturing process. Reducing my carbon footprint will cost me money, but if my accounts staff crunch the numbers and I realise the carbon credits are cheaper than the cost of changing production…
Well, my shareholders will want to know why I’m not buying credits if they are cheaper than reducing the carbon footprint at the factory.
The price of credits is critical to whether I choose to reduce emissions or buy offsets.
What should happen is that the supply of credits should be squeezed to raise their price. Then the aluminium smelter and any company with an emission liability will try harder to reduce emissions because changing their manufacturing process is cheaper than buying carbon credits.
An emissions trading scheme works to reduce and avoid emissions if the credit price is high enough to change the behaviour of emitters forced to pay for their emissions.
Enforceable penalties for pollution—bringing that nasty externality onto the balance sheet—is crucial.
One more thing.
Emission reduction or sequestration
Carbon abatement schemes involving carbon credits have appeared in various guises worldwide with the collective aim of reducing greenhouse gas emissions.
Depending on your worldview, emission reduction is essential to prevent severe climate change or it means that fossil fuel use can continue without adding to the net greenhouse gas level in the atmosphere.
The distinction is important.
Avoiding making locked in climate change worse might happen if the net emissions do not rise too much. So preventing and reducing emissions could be enough. This is the emission reduction strategy that we are familiar with as net zero.
Alternatively, avoiding severe climate change requires a reduction in greenhouse gases already emitted. Some of that carbon dioxide needs to be taken out of the atmosphere through sequestration into vegetation and soil or through speculative geoengineering projects.
Realistically both have to happen—emission reduction and carbon removal.
Carbon removal by industrial processes, commonly called carbon capture and storage, is technologically attractive and fits nicely into both an engineering and an investment paradigm. What is not to like about a new factory for economies run on factories?
Bob the builder and his developer mate Rodney.
Sequestration is the capture of carbon into vegetation and soil through photosynthesis.
Sequestration activities—growing trees, encouraging perennial grasses, cover cropping, grazing management—are essential because they put carbon back into landscapes where food is produced. A category of carbon offset activities called AFOLU (agriculture, forestry and other land use) re devoted to sequestration through plants.
Global food security and environmental health are in peril from the intensification of agriculture that clears native vegetation and runs agri-food production with fossil fuel inputs.
What sustainably FED suggests
The technobabble is indeed out of hand.
Most people are confused by what was a simple enough idea to use market mechanisms to change the behaviour of industry and businesses that emit greenhouse gases, so they emit less.
Rather than tax directly, offset credits are a way to put a price on carbon emissions with all the nuance and money-making potential of a market mechanism.
Let the people play, and they will.
The problem was not the technobabble needed to nuance the offset markets. The problem was offsets were (and still are) cheaper than changing behaviours.
No matter if business-as-usual is a little more expensive. Buy a few credits and claim carbon neutral while production continues as before. A little spin and the credit purchases can even sound green.
Most companies like this option.
Hero image from a photo by Roberto Sorin on Unsplash