The Australian Government's greenhouse gas emissions reduction targets, now codified in the Climate Change Act 2022 (Cth), mean that energy products will be an increasingly important part of the Australian business and legal landscape. Indeed, at the time of writing, the Clean Energy Regulator (CER), the body responsible for the administration of the Australian Carbon Credit Unit (ACCU) scheme, and the Australian Securities Exchange (ASX) are working to establish an exchange for the purchase and sale of carbon units.
In this article we take a brief look at the regulation of the ACCU scheme.
What are ACCUs?
ACCUs are a type of carbon credit. The ACCU scheme operates as part of the Emissions Reduction Fund (ERF) and is designed to incentivise projects which either reduce or avoid greenhouse emissions (avoidance projects) or remove and store carbon from the atmosphere (sequestration projects).
In contrast to the European Union's Emissions Trading Scheme (EU ETS), where entities are required to hold carbon credits (known as 'EU Allowances') to cover their emissions during a period, participation in the ACCU scheme remains voluntary for now.
One ACCU can be obtained for every tonne of carbon dioxide offset by an eligible project. These credits serve dual purposes:
- offsetting – entities that have earned ACCUs can use those credits to 'offset' their carbon emissions
- income generation – entities that have produced ACCUs but don't want or need to offset their emissions can generate income by selling their ACCUs, either to the Federal Government under a Carbon Abatement Contract, or to other entities on a secondary market.
The ACCU/ERF scheme also contains a 'safeguard mechanism' to ensure that emissions are not shifted around the economy. Under this mechanism, entities that produce more than 100,000 tonnes of carbon dioxide per year must comply with certain baselines to keep track with Australia's net-zero by 2050 commitment. Any emissions exceeding the relevant baseline must be managed by surrendering ACCUs.
How can I participate?
ACCUs can be created through an 'eligible offset project' which is both carried out in Australia and covered by an approved methodology determination for carbon abatement. The relevant methodology determination will set out the technical rules for running the project and calculating emissions reductions.
In order to be eligible to participate in the ACCU/ERF scheme, a number of eligibility criteria must be met. For example, a project must:
- not have already begun
- go beyond 'business as usual' activities
- not be required by law.
Additionally, all project proponents must undergo a 'fit and proper person' test.
Where a project results in emission reductions, the project proponent may apply to the CER for a 'certificate of entitlement'. Tradeable ACCUs can then be issued by the CER to the holder of that certificate.
Characteristics and transfer of an ACCU
An ACCU is personal property. Ownership of ACCUs can be determined by consulting the Australian National Registry of Emissions Units (ANREU).
As personal property, ACCUs are transferrable and may be traded on the secondary market. The Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth) (CFI Act) establishes broadly two separate mechanisms for the transfer of ACCUs for which there is an entry in the ANREU account.
Transmission by assignment
This requires:
- the transferor to instruct, via 'electronic notice', the CER to transfer the unit
- the CER to comply with that instruction. Relevantly, the CER is under an obligation to comply with such a request 'as soon as practicable'.
Until the instruction is complied with by the CER, there has been no transfer of the ACCU at law.
Transmission by operation of law
For example, by a will. The transfer won't have legal effect
until the ACCUs are transferred by the CER. To compel the CER to do
so, the transferee must give the CER within 90 days after the
transmission:
- a declaration of transmission
- evidence of the transmission (e.g. the grant of probate).
Any declaration of transmission must be:
- made in writing
- identify the serial numbers of the ACCUs to be transferred
- set out the name, address and registry account number of the transferor and transferee
- include a brief description of the circumstances that resulted in the transfer
- be signed by the transferee.
Additionally, where the transferee does not already have a registry account, the declaration of transmission must be accompanied by a request for the CER to open an account.
Eligible projects and the transport industry
The transport sector represents a major source of emissions within the economy. According to the Department of Infrastructure, Transport, Regional Development, Communications and the Arts, in 2023 the transport sector made up 23 per cent of Australia's overall greenhouse gas emissions. Without intervention, the sector is projected to be Australia's largest source of emissions by 2030.
In seeking to reduce the amount of emissions produced by the transport sector, the ACCU/ERF scheme implements as a methodology determination, the 'land and sea transport method'. This method aims to alleviate greenhouse gas emissions in the transport sector by switching fuels or using energy efficient transport practices. By undertaking such practices, transporters can earn ACCUs which can either be used to offset emissions or generate additional income. One notable exclusion from the land and sea transport method is transport activities that have an international usage element, such as export shipping.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.