Net Zero Fraud: How carbon markets conceal Australia’s fossil fuel expansion

by Polly Hemming

Last week I attended the International Conference on Fossil Fuel Supply and Climate Policy to present on Australia’s state-sponsored greenwash and how carbon markets are being used by the Australian Government and industry to facilitate fossil fuel expansion.

It was a delight and inspiration to meet so many of our international counterparts – all of them working across supply-side policy and experts in their fields. Below is some of what I presented at the conference.

Australia’s fossil fuel expansion

It’s no secret that Australia is a problem when it comes to fossil fuel supply, being the third largest exporter of fossil fuels in the world. When combined with our domestic emissions, Australian-sourced fossil fuels account for around five per cent of global emissions.

What’s less well-understood is the role that carbon ‘markets’ and carbon credits have in facilitating and maintaining this dubious honour. Australia is a case study in the way carbon credits are increasingly used by the fossil fuel industry and governments to conceal the contradiction between commitments to reduce emissions and actions that increase fossil fuel supply.

Industry is often credited with greenwashing fossil fuel production, whether it is through the promise of carbon capture and storage, clean coal or carbon neutral gas. However, in Australia the government not only enables greenwashing, it is as deeply involved as industry, if not more so.

The climate wars are not over

For background, in Australia, we have just had a change of government after what has been termed a ‘greenslide’ election – a clear call for climate action by voters.

Accordingly, one of the first jobs of the newly elected government was to increase Australia’s Paris target which is now 43 per cent by 2030 up from the previous 26-28 per cent.

However, despite this nominal increase in ambition, the new government has expressed strong support for gas and coal expansion in Australia. The new government has not ruled out continuing the subsidies for fossil fuels that cost Australians over $10 billion every year. This ideological and material support may be explained by the fact that, even though industry contributes little in terms of employment or tax, both our major political parties receive significant donations from the gas industry, including the newly-elected government.*

So, if you scratch beneath the surface of Australia’s climate policy, very little has changed aside from a change of brand.

What has changed is that the pressure to conceal this inherent contradiction between a commitment by government to reduce emissions – but also support fossil expansion – has now increased significantly. Australia’s updated NDC neglects to mention that there are over 100 new gas and coal projects in development in Australia. The emissions from which represent over 150 million tonnes of onshore emissions every year and 1.7 billion tonnes of total emissions every year.

A similar conflict occurs within the industry itself, where most gas companies have set net zero targets and expressed public support for the government’s climate ambition while also continuing to push governments to support gas expansion.

Greenwashing fossil fuels with carbon credits

The key to bridging this ever-widening gap between climate ambition and increased fossil fuel production is literally an unlimited supply of carbon credits. The Australian government’s preferred approach to meeting its climate target is not regulation or incentives that result in the absolute reductions in emissions so desperately needed. Central to the government’s climate policy is generating millions of carbon offsets – which may or may not represent real reductions – available to carbon intensive industries.

Participation in carbon markets by the fossil fuel industry is not new. What is new however is how sophisticated the industry and government is becoming in this space. In the face of increased scrutiny, climate litigation and accusations of greenwashing, the industry knows that simply buying carbon credits or paying someone to plant trees is no longer enough.

The fossil fuel industry is no longer just on the demand side of carbon offsets. It is now involved in, and in some cases controlling, all aspects – design, supply, demand – of carbon credits. However, while this is largely in the voluntary domain, increasingly the industry is working with governments and inserting itself into the growing compliance markets, including Australia’s Emissions Reduction Fund.

Industry and government working together

Carbon credits are theoretically designed, regulated, and administered by the Australian Government as a key part of its climate policy (which is not to reduce emissions, but to offset them).

Australia’s fossil fuel industry has become deeply involved in the supply of carbon credits through this scheme (such as tree planting and other government-approved methods or buying up existing carbon credit project developers) not only to have ready access to carbon offsets but also to sell them to others. Santos, Woodside and Shell’s involvement in the supply of government-approved offsets, also positions them to claim that they are part of the ‘climate solution’.

Fossil fuel industry designing carbon credits

The fossil fuel industry also works in partnership with government to actively design carbon credit methods through the Australian Government’s ‘co-design‘ process for carbon credits. Nowhere is this more evident in the manifestation of a government carbon credit method for carbon capture and storage.

Research by the Australia Institute shows that the government consulted almost exclusively with Santos and the fossil fuel industry to design a way to award carbon credits for capturing reservoir CO2 – a tiny fraction of emissions – from gas developments. The former government minister promoting the method at the time was bold enough to say the quiet part out loud – that a carbon credit method for CCS would allow gas production to “scale-up” in Australia. Santos of course was the first company to sign up to the scheme it had helped developed.

[It’s worth noting that the Australian government is also designing a one-way bilateral carbon trading scheme under article 6.2 with Pacific Nations called the Indo-Pacific Carbon Offsets scheme. Gas company Woodside has claimed publicly that it has been involved in the design of the scheme.]

Offsets are more than carbon though…

To be clear, Australia’s carbon credit scheme has not reduced emissions. Since its inception, emissions from industry have increased by 7 per cent. In fact, this is true of carbon markets globally. Thirty years of global carbon trading has failed dismally. Carbon offsets have increased emissions – providing polluting industries and governments with social license to continue operating, while the literature is riddled with stories of perverse outcomes.

However, the response to this has not been to abandon the concept of carbon offsetting, but for government and industry to abandon the idea that carbon is the sole focus of offsets, with the narrative shifting to the non-carbon or ‘co-benefits’ of carbon credits (some industry proponents are now even referring to ‘core benefits‘). The way the Australian Government, carbon farming proponents and fossil fuel companies describe offsets has shifted to become very emotive – carbon offsets are now a one-stop shop of warm and fuzzies: biodiversity, conservation, employment and cultural benefits (all the things the government should be funding directly). Partnerships with NGOs, farmers, Indigenous communities and green groups not only assign a higher ‘moral purpose’ to carbon offsetting, they cleverly co-opt these actors to become vigorous defenders of a flawed scheme. [Below is the way the Australian Government, Ampol, Woodside and Santos describe ‘co-benefits’]

Carbon neutral fossil fuels!

Beyond the actual machinations of designing and generating carbon offsets in Australia, the Australian Government also plays a role overseeing and endorsing voluntary offsetting claims by the fossil fuel industry, giving social licence to fossil fuel companies, and literally promoting them as “progressive climate leaders”.

This is carried out through Climate Active, a carbon neutral certification program that certifies fossil fuel companies (that have offset some of their emissions) as either ‘carbon neutral organisations’ or as selling ‘carbon neutral products’. Two gas companies and a coal seam gasification project have offset the emissions from their business operations – predominantly running their offices – and can now use a trademark saying they are carbon neutral organisations. [See below]

Some of Australia’s biggest fossil fuel emitters—including AGL, Energy Australia, Ampol and Origin Energy—sell retail petrol, fossil gas and/or coal-fired electricity products that have been certified carbon neutral by the Australian Government’s Climate Active scheme. While in the Netherlands Shell was required to remove advertisements for carbon neutral petrol on the basis that it was greenwashing, in Australia carbon neutral fossil fuel products are advertised online and on billboards and other media with no repercussions, accepted as legitimate government-endorsed products.

State-sponsored greenwash is going to be a global trend

State-sponsored greenwash in Australia is not limited to carbon credits, but Australia’s carbon credit system, over all its other forms of greenwash, should serve as a warning to the rest of the world. As governments look for means to achieve international climate targets, regulatory focus on carbon markets is going to increase. Unlike the technocratic promise of ‘future’ carbon removals from carbon capture and storage, direct air capture and other fantasy technology, carbon offsets offer government and industry a real-time solution to ‘balancing’ emissions in a spreadsheet.

What we’re seeing with carbon credits in Australia is indicative of what is likely to become a global trend, with industry and government working in partnership to design regulatory carbon market regimes designed not to reduce emissions, but to facilitate fossil fuel expansion.

* The gas industry has been involved in a lot of key policies in Australia. A pattern has emerged in Australia where the federal government’s solution to all policy issues – no matter how disparate – is to facilitate gas expansion. Our roadmap out of covid was to increase gas for export. Our energy security policy has been more gas. And the ‘independent’ government body appointed to advise Australia on its ‘ambitious’ new climate policies is led by former gas executives.

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