Keynote presentation at the Climate Integrity Summit.

Alongside concerns about inadequate levels of mitigation ambition on climate action there are increasing concerns about the integrity of net zero targets and in particular the use of offsets instead of real action to cut emissions.

I’m going to talk about the international context and then drill a bit into the Australian situation, which is emerging as central to the issue of integrity in action on climate change.

There’s no doubt that Australia’s positioning on climate change both politically and substantively has dramatically improved since the election of the Albanese government last May.

The strengthened 2030 target and climate legislation has improved Australia’s international standing on climate action, which was very low.

The context of course is that over the last decade Australia had developed a very bad reputation internationally for both low ambition and manipulating emissions accounting systems.

This reputation started with the so-called Australia clause, inserted at the last minute in the 1997 Kyoto Protocol, which almost uniquely gave Australia a large benefit from historically high deforestation in 1990.

More recently Australia was famously called out publicly for its attempt to use carry over Kyoto credits to meet its already weak Paris targets at Madrid in 2019.

In other words, Australia had developed a reputation for questionable integrity, one which the Albanese Government has well and truly begun to put behind us.

However, as I will outline in this talk, the government’s proposed approach to offsetting under the Safeguard Mechanism risks winding this situation back.

The paramount need for integrity in emission policies and actions is driven very much by the urgency of meeting the Paris agreement’s 1.5°C degree limit.

The 1.5˚C warming limit is the guardrail governments agreed under the Paris Agreement in 2015.

Its importance has since been reinforced multiple times at high-level meetings and in IPCC reports.

To limit warming to 1.5˚C, the world has to make deep, real cuts in emissions of at least 50% by 2030 and reach net zero by 2050.

But even at 1.5˚C global average warming the world – and Australia – will see serious climate impacts like we haven’t witnessed before.

It is by no means clear that our coral reefs, including the Great Barrier Reef, would survive a 1.5 degree hotter world.

We also can’t say for certain if several of our most vulnerable land-based ecosystems will survive this level of warming intact.

We are now at 1.1 degrees of warming globally and we’re already seeing serious impacts play out, from catastrophic floods in Pakistan to wildfires raging across Siberia and the US, rising seas and king tides and cyclones hitting small island states, and unprecedented heat waves and drought in China, Europe and parts of Africa.

And close to home warming to date is higher than the global average, at 1.4˚C.

We have seen extreme wildfires and floods from which many peoples, communities and ecosystems have yet to recover.

Australia needs to play its part both politically and substantively in the global effort to halve emissions by 2030 because we have real skin in the game.

Any policies that essentially enable ongoing and increased fossil fuel production and export work against this.

Before diving into the issue of offsets in Australia, I wanted to go through a few key issues.

It’s important for people to understand that there’s a very long hangover from fossil fuel emissions.

Fossil fuel emissions linger in the atmosphere for a very long time.

Around 40 percent of what we emit today will still be in the air in 100 years time, 20-25% will remain for 1,000 years, and up to 20% for 10,000 years.

In Australia, we emit about 20 tonnes of CO2 from burning fossil fuels per person each year – this doesn’t even count our international emissions from fossil fuel we exports, which are much higher.

In 100 years, about 8 tonnes out of each person’s annual emissions of 20 tonnes will remain in the atmosphere. In 1,000 years, five tonnes will remain and in 10,000 years up to four tonnes.

There are some very difficult issues with land-based offsets.

Offsets generated from activities in the land sector are very popular in Australia.

Yet, it is well known that land-based offsets are reversible and particularly susceptible to integrity issues, specifically whether the emission reductions claimed are genuine, additional, and permanent.

Compared to the thousands of years that fossil fuel emissions stay in the atmosphere, Land-based offsets do not and cannot guarantee sequestration of carbon on such timescales.

Another difficult issue is that land has a limited ability to take up carbon.

These limits are ultimately determined by the climate, local soil and topographic considerations, and by how depleted the land is from use.

The ability of the land to store and sequester carbon also appears likely to be reduced as a consequence of climate change.

Worsening drought and extreme fire conditions are already affecting forests in Australia and are likely to reduce the ability of our forests and soil to take up, store and hold carbon.

Hotter, and drier Australian landscapes will absorb less carbon in trees and soil and at the same time jeopardise the carbon stores that are already there.

A critical issue with carbon offsets overlooked in Australia is the need to ensure permanence over a long period of time.

Carbon offsets need to be permanent to truly offset the climate effects of fossil fuel emissions.

In Australia carbon offset projects need to guarantee permanence of emissions reductions for just 25 or at most 100 years.

There is no requirement for carbon to be stored any longer than this.

There is also no requirement to replace carbon from projects lost after this ‘permanence’ period-

If carbon is ultimately lost after a project’s permanence period ends – as is likely over longer timeframes – the atmospheric CO2 concentration would be higher than if the offset scheme had never existed.

So, even if an offset scheme is fully additional and perfectly offsets fossil CO2 emissions over 25 or 100 years, in the long run it could likely do more harm than good from a climate perspective.

Offsets need to be additional to what would otherwise have happened to have any benefit.

Establishing whether emission reductions from land sector offset projects are ‘additional’ to what would otherwise have happened has proven very difficult.

Without real additionality, even if all other aspects of an offsetting system are perfect the system could lead to more CO2 being emitted than would otherwise have been the case.

Emission reductions used to generate offset units need to be genuine.

Independent experts have shown that several methods for generating offsets often don’t result in genuine emissions reductions at the levels claimed, or in some cases at all.

Avoided deforestation and human induced regeneration are two of the most popular methods in Australia but have been singled out as inadequate in independent assessments.

The complexity and resource-intensity of measurement approaches required by some land sector offset methods has also been highlighted as a potential barrier to ensuring genuine emissions reductions.

Nature based solutions as a complement to emissions reductions at source.

The storage of carbon in ecosystems, both natural and managed, is often termed “nature-based solutions”.

Maintaining the storage of carbon in ecosystems and soils is widely recognised as important in efforts to limit warming to 1.5˚C.

Measures to achieve this include stopping deforestation and land clearance, reducing degradation of ecosystems, restoring ecosystems, building up soils in agricultural and pastoral areas and a range of other activities.

What appears to be not well understood is that this needs to be done in addition to emission reductions at source, not as an alternative.

The offset-based system in Australia treats this as an alternative to emissions reductions – if you save a tonne of CO2 emissions in the land sector, you can emit an extra tonne in the fossil fuel sector.

Scientists have developed some useful guides to policymakers to help ensure that nature-based solutions provide multiple benefits for biodiversity, indigenous people and local communities.

Paramount amongst these from a climate perspective is that nature-based solutions are not a substitute for the rapid phase out of fossil fuels.

The proposed Safeguard Mechanism approach of allowing unlimited offsets from the land sector essentially throws out this principle, contradicting the objective of a rapid phaseout of fossil fuels and thereby undermining the climate benefits of action in this sector and risking making global warming worse.

The real-world experience of offsets is not great.

Real world experience has shown a tendency of offset projects to create negative outcomes for food and water security, ecosystem biodiversity, and the wellbeing of traditional landowners.

The Four Corners expose on Monday of serious issues with a variety of offset projects in Papua New Guinea is an illustration of this.

Many, if not most, developing countries do not have resources or capacity to regulate and enforce offset project integrity.

But even developed countries struggle.

In California for example about 30 MtCO2e of offsets worth about USD 410 million were found not to represent genuine emissions.

Also in California, a buffer mechanism was established to insure against reversals due to wildfires with a view to guaranteeing permanence over at least 100 years.

Unfortunately, wildfires have already depleted nearly one fifth of the total buffer pool in less than 10 years, which is equivalent to 95% of the programme-wide buffer pool contribution intended to manage all fire risks for 100 years.

There is rising international concern over offsets

The size of voluntary carbon markets based around offsets has risen markedly in recent years – 2020 saw a 30% growth in the number of VCM credits issued.

Several international organisations have attempted to produce criteria to ensure “high quality” offsets that deal with their fundamental shortcomings (impermanence, non-additionality, genuineness), but real-world experience shows it’s very difficult.

In addition to the issues mentioned previously, there are significant potential issues with double counting for international projects, if emissions reductions counted in NDCs are also used for corporate targets.

International concern has escalated as more and more corporates, notably from the fossil fuel sector, attempt to use voluntary carbon market offsets to create carbon neutral products, such as carbon-neutral LNG, to avoid emission reduction action.

Spurred by these concerns the United Nation’s Secretary General established a High Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities in March 2022 to report to him on a range of matters, including the role offsets.

The Group’s report on net zero targets delivered in November 2022 recommends offsets not be used to meet a company’s 1.5°C aligned targets for 2030 and beyond.

In other words the Group found that offsets should not be counted toward a company’s interim emissions reductions and instead companies should focus on making real emission reductions.

From another direction the International Standards Organization has set new net zero guidelines which states that offsets should only be used where there are no viable alternatives, and should not be used for 2030 targets.

There is also strong and growing opposition to the use of offsets particularly from within the climate and environmental not-for-profit sector.

The Climate Action Network International is a coalition of over 1,900 civil society organisations from 130 countries – including Australia – and which has been engaged in the international climate process since it began.

CAN has recently published its strong opposition to offsets.

A recent sweeping investigation into the world’s leading carbon offset certifier, Verra, found serious concerns that potentially 90% or more of rainforest credits may not represent genuine emissions reductions.

The recent ABC Four Corners investigation into several offset projects in New Guinea found serious issues and anomalies which appear to mirror those found in other parts of the world.

In Australia, the proposed Safeguard Mechanism reforms would allow unlimited offset use, while independent concerns over the integrity of the offset methods and the system operation do not seem to have been adequately addressed.

The Government sponsored Chubb review into offset schemes found that these were “essentially sound” despite extensive criticisms from independent experts, including the former chair of the offset scheme regulatory body.

These criticisms were mostly ignored, leading experts to question the Chubb review’s findings

The proposed policy of allowing unlimited offsets under the Safeguard Mechanism is at grave risk of enabling ongoing fossil fuel production and growth.

The unfettered use of offsets under the Safeguard Mechanism will likely allow real emission increases (as opposed to reductions) from the totality of facilities covered by the Mechanism.

Under the present proposals, new fossil fuel facilities with no limitations on the use of offsets would be able to bring significant new emissions into the scheme and force the cost of their emissions burden onto other industries.

All this would have adverse implications not just for Australia’s total emissions but also globally.

As an example, one ACCU tonne used to offset one tonne of emissions from LNG production in Australia would lead to about 8.4 tonnes of CO2 equivalent in total lifecycle emissions globally.

For coal mining, one ACCU tonne used to offset one tonne of emissions from mining would lead to 58-67 tonnes of CO2 equivalent in total lifecycle emissions globally.

Concluding remarks

In the nine months or so since the Albanese government came to power it has made substantial strides and improved Australia’s positioning and policy stance on climate change.

The adoption of a 43% reduction target from 2005 levels by 2030 is a major improvement on the previous government’s 26 to 28%, although it is well known that it falls significantly short of the emission reductions needed to be consistent with Australia playing its full part in global efforts to limit warm into 1.5 degrees.

The adoption of climate legislation to consolidate this target strengthens the legal basis for action.

The government has made great strides ratcheting up power sector investments as it works towards an 82% renewable power system by 2030, which is quite close to the level needed to be on a 1.5-degree pathway for this sector.

However, a key element of the proposed reforms to the Safeguard Mechanism – which covers the most energy intensive industrial facilities in Australia – allows essentially unfettered use of offsets.

This raises at least four serious concerns

Firstly, by allowing unlimited use of offsets by companies to meet their emissions reduction obligations, the Government is very likely sanctioning a large-scale continuation and expansion in fossil fuel production and its associated emissions.

Secondly, a likely result of the unlimited use of offsets is to provide a green light for new coal and gas production.

This contradicts what the science is telling us and what organisations like the International Energy Agency are saying – that we cannot afford new coal, oil or gas production capacity if we are to limit warming to 1.5 degrees.

Thirdly, because offsetting emissions leaves carbon intensive equipment in place, so companies are locked into future emissions over the equipment’s lifetime.

This slows and undermines Australia’s transition towards a zero-carbon economy.

Finally, the international community and the growing ecosystem of actors around decarbonisation, notably the finance sector, will not be fooled by offsets.

There is rising international concern and opposition to companies and countries using offsets to meet their obligations.

This concern could translate into serious reputational risk for Australian companies and ultimately for the Australian economy.

There are already allegations of greenwashing due to corporate use of offsets in many contexts and it will just be a matter of time before greenwashing could become a label attached to Australia’s climate policy due to the unfettered use of offsets.

Countries will not be fooled if the proposed unlimited offset system enables our industrial emitters to maintain or increase emissions and Australia tries to create a smoke screen about increased fossil fuel production with this system.

Kazakhstan appears to be the only other country that has an unlimited approach to offsets.

It should not be overlooked either that the EU ETS has discontinued use of international credits since 2021.

It is my feeling that the integrity of what Australia does at the next step is going to be the subject of great international scrutiny, not just by governments but by banks, financial institutions and those purchasing Australian commodities who need to clean up greenhouse gas emissions along their supply chains.

The unfettered use of offsets to allow fossil fuel emissions to remain the same or increase could become one of the major integrity issues in climate policy and action globally and unfortunately it looks like Australia could be in the lead unless the present direction is changed.

— Dr Bill Hare, CEO of Climate Analytics. Delivered at the Climate Integrity Summit, 15 February 2023.