Fundamental questions of integrity have been raised by the Australia Institute and the Australian Conservation Foundation in regards to the Emissions Reduction Fund’s avoided deforestation method. Rather than investigate the method in question, the regulator has sought to discredit the analysis, and revealed an alarming lack of understanding of its own methodology.

A full statement in response to the Clean Energy Regulator can be found below:

This week the Australia Institute and Australian Conservation Foundation released a joint report, Questionable integrity: Non-additionality in the Emissions Reduction Fund’s Avoided Deforestation Method, which revealed that one in five carbon credits generated under the Australian Government’s Emissions Reduction Fund is unlikely to represent additional emissions abatement, and that over $300 million has been spent using public funds purchasing these credits.

These findings represent a failure by the Clean Energy Regulator and the Emissions Reduction Assurance Committee to ensure that all Emission Reduction Fund methods meet the offset integrity standards.

The report’s analysis found that NSW landholders with clearing permits (formally known in this context as Invasive Native Scrub Property Vegetation Plans (INS PVPs)) were being awarded Australian Carbon Credit Units (ACCUs) for retaining vegetation that it is unlikely they ever intended to clear and that the method is based on a flawed assumption that landholders with these permits would clear the eligible areas within 15 years (the duration of the permits).

The Clean Energy Regulator seeks to discredit The Australia Institute and Australian Conservation Foundation’s analysis, arguing the Avoided Deforestation method is not based on the assumption the relevant areas would be cleared within 15 years, consistent with the lifetime of the INS PVPs. In the Clean Energy Regulator’s words:

A deep flaw in the TAI-ACF analysis is that it assumes land clearing prevented by the method needed to occur during the 15 years of the clearing permit. This is not the case. … The 15-year timeframe for crediting Australia carbon credit units (ACCUs) is not about mimicking the life span of the clearing permit. [Emphasis added]

Elsewhere, the Clean Energy Regulator argues that:

Almost all avoided deforestation projects that have been credited with ACCUs opted for a 100-year permanence period, which means scheme participants are unable to clear their land for 100 years, irrespective of the duration of the NSW clearing permit. 

The Carbon Market Institute, an industry group which represent generators of ACCUs including under this method, makes similar claims, stating:

The report appears to confuse clearing rates and crediting periods. Avoided Deforestation projects are eligible to receive credits over 15 years, with clearing rates modelled across the 100-year permanence period required by the project, not a 15-year period as the report suggests.

The Clean Energy Regulator and the Carbon Market Institute appear to be confused.

They are confusing the permanence period with the period over which abatement is assumed to occur (and is credited). The permanence period (25 or 100 years) is intended to ensure the abatement associated with sequestration projects is not lost (or reversed) over a prescribed period. It is unrelated to crediting and is only intended to address the risk of reversals.

Crediting is meant to occur after the abatement occurs – in this case, following the period when the forests would have been cleared without the incentive provided by the ERF. This is one of the foundational principles of the ERF. As the ERF White Paper states (at page 76):

ERF methods will provide for emissions reductions to be credited after they have occurred. This will avoid the risk that funds will be expended without achieving emissions reductions.¹

Under the Avoided Deforestation method, the abatement (i.e. the avoided clearing event) is assumed to have occurred within 15 years from the date of project commencement. This is reflected in the fact that the method requires the credits to be issued over 15 years in equal portions. The logic behind the 15 year period is outlined in the Explanatory Statement to the Method:

Section 6 provides that projects covered by this Determination have a 15 year crediting period. This represents a revision in the crediting period from 20 years, as provided for with the original Avoided Deforestation method, to better reflect when abatement occurs. [Emphasis added]²

The Clean Energy Regulator’s own guidance on the method states:

The crediting period in the original version was 20 years. In version 1.1, it is 15 years. This change reflects the lifetime of the clearing permits most commonly applicable for these projects. [Emphasis added]³

These statements completely contradict the Clean Energy Regulator’s claim that the 15-year crediting period ‘is not about mimicking the life span of the clearing permit’.

If the Clean Energy Regulator and Carbon Market Institute were correct, and the method was based on the assumption the avoided clearing events would occur at some point during the 100-year permanence period, the credits should be issued over 100 years, not 15 years. Issuing the credits over 15 years when the abatement was projected to occur at some point over the following 100 years would be contrary to the principle that abatement is only credited once it has occurred.

If the Clean Energy Regulator and the Carbon Market Institute believe this, they should support a proposal to amend the method to ensure the existing projects are credited over 100 years. This would result in most of the existing projects not receiving any further credits until sometime after 2060.

Confusingly, after suggesting the method avoids clearing events that would have occurred at some point over the 100-year permanence period, the Clean Energy Regulator then states that the method is based on the assumption that the abatement occurs ‘when a decision is taken not to clear land’ (i.e. at project commencement). It then states that, when this decision is made, ‘all the emissions from removing vegetation are avoided at once, so all the credits could be issued at once’. If this was the case, the assumed rate of clearing would need to be significantly higher than concluded in The Australia Institute/Australian Conservation Foundation’s report.

The Clean Energy Regulator asserts the report is based on a ‘serious misunderstanding of the ERF Avoided Deforestation Method’. In its public statements, the Clean Energy Regulator has demonstrated a profound lack of understanding of the methods it is responsible for administering. It has also engaged in behaviour that is extraordinary and totally at odds with the standards expected of a professional government regulatory agency.

Regulators are meant to be impartial and at arm’s length to the industries they regulate. The Clean Energy Regulator seemingly sees its role as defending the interests of the carbon industry at all costs and making methods that generate credits for non-existent abatement.

In its most recent review of the ERF, the Climate Change Authority recommended the Commonwealth Auditor-General conduct an audit on the ERF’s governance arrangements.

The Australia Institute calls on the Commonwealth Auditor-General to initiate this audit as soon as possible and asks that it include the integrity of the ERF’s methods and extent to which they satisfy the offsets integrity standards.

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¹ Australian Government (2014). Emissions Reduction Fund White Paper, https://www.industry.gov.au/sites/default/files/2020-08/erf-white-paper.pdf

² ibid

³ Clean Energy Regulator (2015). A guide to the avoided deforestation 1.1 method, http://www.cleanenergyregulator.gov.au/DocumentAssets/Pages/A-guide-to-the-avoided-deforestation-1-1-method.aspx