Going Carbon Neutral
What is Carbon Neutrality?
Carbon neutrality is achieved when greenhouse gas emissions (emissions) from a particular activity, process or for an entire organisation have been reduced to zero.
For business this can be done by reducing emissions as much a possible through improvements in energy efficiency, changes to operations and procurement strategies, and then using carbon credits to compensate for any remaining emissions. This process results in net-zero emissions or carbon neutrality.
Carbon Neutrality is the reduction of emissions and use of carbon credits to compensate for the remaining emissions that cannot be avoided. This results in a net-zero emissions profile, or carbon neutrality.
What is Carbon Offsetting?
In many circumstances it is not possible to reduce carbon emissions from all sources to zero. To achieve carbon neutrality or zero emissions, the remaining unavoidable emissions can be ‘offset’ by preventing or avoiding the same amount of emissions elsewhere in the economy.
Carbon offsetting is therefore investing in projects that reduce emissions or remove them from the atmosphere. Project types include: reforestation, investing in renewable energy, reducing emissions through energy efficiency, and/or more efficient agricultural processes. You can learn about the different types of projects here, and view a comprehensive list of Australian offset projects in our Carbon Project Registry.
Once you have invested money in a project, you receive carbon credits (which represent the emissions reductions created from the project) which can then be used to offset, or balance out the emissions released from your business activities.
Carbon Offsetting: The above diagram outlines both sides of the carbon neutrality equation. Broadly it shows the relationship between an organisation investing in carbon credits, and the project developer earning money from their sale.
Carbon Offset Projects
In Australia there are many different types of projects that can generate different types of carbon credits. To generate credits, project developers must adhere to strict guidelines and scientific methods that govern how a specific project will reduce emissions. In addition there are strict measurement and verification processes to assure emissions reductions are genuine.
The Australian Government’s National Carbon Offset Standard provides a list of offset units (or carbon credits) that are eligible for making carbon neutral claims against the Standard. These offset credits have met the integrity criteria of the Standard that ensure that genuine carbon reductions have occurred. You might want to consider using this list as a basis for making purchasing decision even if you are not seeking carbon neutrality.
When purchasing credits to go carbon neutral and/or meet certification requirements, organisations must engage a broker to ensure the right amount and type of credits are acquired. In many cases the broker will also be the carbon consultant assisting with the measurement, verification and reporting activities undertaken in the carbon neutrality or certification process. You can view a comprehensive list of brokers and carbon consultants in the Market Directory here.
Can I purchase offsets immediately?
Although carbon neutrality and certification have many benefits for organisations, some individuals and businesses may opt instead to purchase offsets in order to take immediate action to negate certain aspects of their emissions profile. For example, some businesses might purchase credits to offset corporate travel whilst individuals might offset household or personal vehicle emissions.
Australia’s voluntary market is growing fast, and as such there are several organisations that you can immediately purchase offsets from public carbon offset retailers. Some of these organisations are featured below and full details of those online retailers operating in the market can be found in the Market Directory’s ‘Online Offset Retailers’ category.
What is Carbon Neutral Certification?
Carbon neutral certification gives businesses a credible stamp against their carbon neutral claim. In Australia, the National Carbon Offset Standard sets the basis for best practice carbon accounting and the rules on offsetting for carbon neutral claims. The Australian Government’s Carbon Neutral Program provides carbon neutral certification against the Standard. Below are shown two of the applications for the Standard – Certification Guidance for Organisations, and for Products and Services. Other categories of certification against the Standard include those for events, precincts and buildings.
The Certification Process: Carbon neutral certification involves an annual cycle of emissions management including: measuring, reducing, offsetting and reporting on emissions.
The Carbon Neutral Certification Trademark
The Australian Government’s Carbon Neutral Program certifies organisations, products, services, events and precincts against the National Carbon Offset Standard (NCOS). The NABERS National Administrator and Green Building Council of Australia provide certification against the NCOS for buildings. The certification trademark is available for use by certified entities that hold a licence agreement.
The trademark demonstrates climate leadership, and that certified organisations, products, services, events, buildings or precincts have achieved carbon neutrality in a credible and transparent way, and gives customers and clients confidence in the validity of the carbon neutral claim.
Carbon neutral certification can result in a range of benefits for organisations and businesses taking the lead in moving towards a low carbon economy, including increased customer recognition; a new competitive edge; enhanced corporate social responsibility; positive social and environmental outcomes; improved employee engagement and community connection; energy and cost savings; networking opportunities with other certified entities.
What types of carbon credits are available in Australia?
There are several types of carbon credits that are currently being generated by projects undertaken in Australia and around the world. Each credit, represents one tonne of carbon dioxide equivalent (tCO2-e). Credits are able to be used to offset emissions against compliance liabilities (in accordance with Australian Government emissions reduction related legislation) or to make voluntary carbon neutral claims and/or become carbon neutral certified.
For the purposes of compliance with national emissions reduction legislation (for Australian business) and managing its emission reduction obligations under the Paris Agreement, the Australian Government tracks the movement of carbon credits through the Australian National Registry of Emissions Units (ANREU). You can find further information about the types of units that can be held and traded through the ANREU here.
Organisations wishing to offset their emissions for a carbon neutral claim against the Australian Government’s National Carbon Offset Standard (NCOS), are able to use a variety of different Australian domestic and international credits. Carbon credits currently eligible are listed below. When using a carbon credit to make a carbon neutral claim, that unit must be cancelled or retired in a public registry at the time of the claim.
Australian Project Types
Australia is home to a diverse range of carbon offset projects from those rebuilding and protecting natural landscapes, biodiversity and agriculture, to those offering emission reduction opportunities for commercial and industrial facilities and operations. With Australia’s significant land mass and abundant natural resources comes the opportunity for our nation to scale up our carbon offsetting project capacity and turn the nation’s domestic carbon offsets industry into a force for international competitiveness and leadership in the creation of high quality, low sovereign risk carbon credits and associated benefits.
Australian carbon offset projects are governed by different national and international methods, legislation and international standards, and consequently generate a variety of different carbon credits units that are accepted under national legislation and fungible in international markets. For more information on the different carbon credits units eligible in the Australian market and under locally used carbon neutrality programs click here.
Although the types of carbon offset projects available in Australia can be found elsewhere in the world, there are a number of project types that are more common internationally. These projects are focused on supporting sustainable development goals for natural landscapes and inhabited regions in developing countries. Additionally, some project types are focused on enabling local developing communities to support and protect natural environments that are unique to their geological location around the planet (particularly large areas of tropical rainforests that are critical to global CO2 sequestration efforts).
What are Co-Benefits?
When businesses purchase offset credits, they are not only lowering global emissions, but are also contributing to social, cultural and economic outcomes for local communities involved in the carbon offsetting project. These outcomes are called co-benefits. Many businesses choose their offset units to align with their own corporate values and as a way to engage employees and staff in the organisation’s carbon neutral story.
It is in this context that emissions reduction is no longer viewed by the global community as an isolated goal – climate change is inherently linked to so many other challenges (and SDGs) that communities around the world now face, and will be affected by in the years to come. Around the world carbon projects are increasingly being viewed in a SDG lens, and incorporating co-benefits is becoming a basic requirement for developing any new projects. Understanding the SDGs and how carbon projects can deliver on each goal is critical for ensuring Australian credits are aligned internationally, as well as promoting sustainable growth in Australia.
For nations, communities and organisations that operate across the globe, combining emissions reduction activities with other SDG projects ensures a more efficient and effective way of dealing with multiple challenges through a single channel, resulting in climate change ‘co-benefits’ – broadly categorised as environmental, social and economic co-benefits.
On September 25th 2015, countries adopted a set of Sustainable Development Goals (SDG’s) to end poverty, protect the planet, and ensure prosperity for all as part of a new sustainable development agenda. Each goal has specific targets to be achieved over the next 15 years to 2030. Click on the image above to learn more.
Why are co-benefits important for business?
Investing in carbon mitigation projects for example not only helps the environment, but depending on the structure, location, technology and community engagement can work towards other SDG’s such as poverty reduction, health improvement, and better water sanitation.
Purchasing carbon credits from verified projects enable organisations looking to offset (or go carbon neutral), to support the delivery of co-benefits associated with the project. Co-benefits are increasingly being seen as commercially valuable aspects of offsetting; as they provide multiple benefits to the communities in which the projects operate, credits from these projects are often valued at a higher price. Research by the International Carbon Reduction & Offset Alliance (ICROA) suggests that every tonne of CO2 offset, can deliver a staggering USD$664 in additional economic, social and environmental benefits.
Selecting projects with certain co-benefits are a way of aligning the offsetting process with an organisation’s culture and values. Companies can derive further value through increased community engagement, stronger internal engagement and cohesion around the offsetting narrative, and improved reputational benefits – supporting communities and initiatives that align with the interests and values of consumers helps to position organisations as a brand of choice in the marketplace.
Here in Australia, Indigenous groups and project developers are beginning to look at ways to value and price co-benefits, to enable wealth creation around sustainable development (environmental, social, economic) goals.
Receiving Financial Advice
Holding an Australian Financial Services License (AFSL)
In light of the information supplied throughout the Marketplace pertaining to the trading of carbon credits in Australia, it is important to review the below information about requirements for an Australian Financial Services Licence (AFSL). Make sure to check the whether the third party you engage must hold an AFSL to conduct its advisory or trading services.
Updated Regulatory Guide RG236 released on 20th May 2015 details new carbon market licensing requirements:
In summary the fundamental requirements remain unchanged.
- ACCUs and EIEUs are financial products.
- Derivatives on regulated emission units and voluntary (non-regulated) emission units such as RECs, ESCs, VEEC’s, EUAs, NZUs, VCUs are also financial products.
- Certain project aggregation arrangements could qualify as a Managed Investment Scheme. The units of such arrangements, depending on structure, could also be considered financial products.
- Providing financial advice relating to, and dealing, making a market, operating a registered managed investment scheme, provide custody services in the above-mentioned products will require an Australian Financial Services Licence (AFSL). Please be aware that certain exemptions may exist.
A new development, as flagged in the initial consultation paper, is that Abatement Contracts are no longer considered a financial product. Abatement contracts are contracts between project proponents or aggregators and the Clean Energy Regulator (CER), to sell ACCU’s generated under the Carbon Farming Initiative (CFI) for the Emission Reductions Fund (ERF). At the moment, Abatement Contracts are awarded through an auction process. Any forward transaction component in these contracts, which would normally be classified as a derivative, are no longer defined as financial products.
Consequently, it is no longer a requirement to hold an AFSL to be able to provide advice and deal in ACCU’s in transactions with the CER in relation to the ERF.
It is important to highlight that all other ACCU related financial services still require an AFSL. This would include providing financial advice on projects where the ACCU’s won’t be offered to the ERF, small transactions with third parties to compensate for a shortfall in an Abatement Contract, or to sell ACCUs generated by a project past the term of the Abatement Contract.
View ASIC Regulatory Guide 236
Frequently Asked Questions about Offsetting
Below are the answers to some of the most asked questions about offsetting and procurement of carbon credits. If you have additional questions about this process you can connect with a wide range of professionals to assist in the Market Directory here.