The Australian Government’s whole-of-economy Long-Term Emissions Reduction Plan indicates that international offsets will be required for Australia to reach net zero by 2050. The ‘Plan’ also assumes that 94 million international offsets will be available to Australian businesses to voluntarily achieve this.

While there are currently no means by which Australia can count international emissions reduction units towards its official climate targets under the Paris Agreement, mechanisms to allow this to happen are being established by the Australian Government.

These mechanisms include the forthcoming Indo-Pacific Carbon Offsets Scheme (IPCOS), a bilateral one-way trading framework being established with Indo-Pacific countries, and voluntary carbon offset purchases by the private sector through the Australian Government’s voluntary carbon neutral certification scheme, Climate Active. The expectation by the Australian Government is that Australian businesses will voluntarily purchase emissions reduction units (carbon offsets) via IPCOS and Climate Active that will count towards the national climate target. A review to assess the international offsets that may be used by Australian businesses is now being carried out.

Proponents of carbon markets often credit them with increasing the climate ambition of participating parties, which in turn should lead to overall improved climate outcomes. However, in practice it is very difficult to establish a relationship between the existence of carbon offsets and a willingness to commit to more climate action at a project or system level.

Instead, carbon markets often simply give the appearance of parties doing something about climate change, while legitimising increasing emissions. Importing countries may use carbon credits to operate on a business-as-usual basis, offsetting instead of making reductions, while exporting countries may sell their emissions reductions instead of using them to meet their own targets and/or issue credits to non-additional activity in the interests of maximising revenue. This scenario is further complicated by the fact that carbon trading often occurs between developed and developing economies, a dynamic that has facilitated cheap offsetting in wealthy countries with dubious outcomes for developing countries.

The UNFCCC states that participation in cooperative approaches such as carbon markets must not lead to a net increase in global emissions. It also requires parties to consider their obligations on human rights, the rights of indigenous peoples, local communities, and the right to development.

To be effective, a review of international offsets used by Australia should take the historical outcomes of carbon markets into account, as well as the overarching requirements of the cooperative approaches under the Paris Agreement. It should also consider Australia’s specific stated claims regarding the aims and outcomes of its participation in carbon markets and whether this will be achieved. The Australian Government has identified carbon trading as a means to “work together to bring down emissions” across the Indo- Pacific region and to “help countries meet and report against their NDCs”. It has also suggested that IPCOS will deliver “direct finance towards countries that need support for urgent climate change action” and “ensure that real benefits are reaching communities on the ground”.

To achieve these outcomes with carbon markets, Australia would need to make dramatic cuts to its domestic and exported emissions. Those Australian industries that genuinely have no choice but to offset would have to be prepared to pay a premium price for a limited number of high integrity carbon credits that result in real reductions and provide genuine social and environmental outcomes on the ground. In addition, Australia would need to look beyond the concept of ‘offsetting’ (which, at best, only ever maintains the status quo) and finance emissions reductions in developing countries that are not dependent on a ‘right to emit’ in Australia.

However, in the current context there is the risk that Australia’s approach to, and participation in, carbon markets will only benefit Australia and ultimately lead to global increases in emissions.

Australia’s emissions are rising across most sectors of the economy. The current Australian Government has no credible strategy to reduce emissions and is actively facilitating the expansion of gas and coal. The Australian Government’s ‘Plan’ states that gas and coal production will continue to 2050 and beyond. Domestically, in the absence of regulation that would see emissions from industry reduced, the government is working actively to increase the supply of carbon credits to industry through the Emissions Reduction Fund (ERF) so that big emitters may ‘offset’ their emissions rather than reduce them.

In the face of projected gas expansion, Australia is now looking further afield for cheap abatement available to industry and has identified the Indo-Pacific region as the source of this. Two small island developing states, Fiji and Papua New Guinea, have so far signed up to IPCOS.

Despite Australia’s stated intention of bringing emissions down across the region and helping Indo-Pacific nations meet their NDCs it is unclear how this will be achieved. PNG, for example, is heavily dependent on fossil fuels with its own expanding gas industry (thanks in part to projects funded by Australian ASX companies and the Australian Government). It has limited means to decarbonise, yet it also has its own emissions reduction requirements under the Paris Agreement. If PNG sells its emissions reductions so that Australia can continue to produce fossil fuels, it gets further away from being able to meet its own targets.

PNG and other countries are already victim to dubious carbon credit projects that appear to be issuing hot air and have questionable legal basis and benefits to customary land holders. Existing carbon credit frameworks, including the ERF, have attracted considerable criticism regarding their integrity. It is concerning that the carbon credits from any of these may be eligible to ‘offset’ emissions from Australia.

A review of international carbon offsets by the CCA should be guided by whether the global goal of emissions reductions will be achieved through their use, along with whether they will bring the benefits to the Indo-Pacific region that Australia has committed to. It should assess the climate ambition and specific emissions reductions policies of both Australia and the countries supplying offsets to Australia, along with the circumstances facing developing economies who may be at risk of being coerced into entering agreements that are not in their best interests.