Carbon Markets

Australia’s net-zero target and COP26 – The key issues for the local carbon market

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The Australian Government has formally announced a net-zero emissions target by 2050, but no stronger commitment to reduce emissions by 2030 – or new policies to drive deeper emissions cuts. Instead, the government proposes to rely on advancements in technology (both defined and unspecified) to reach net-zero emissions, along with the purchase of between 62-125 million international and/or domestic carbon offsets to balance residual emissions in 2050.

The government’s use of carbon offsets will be highly dependent on the outcomes of the 26th Conference of Parties (COP26), running from 31 October to 12 November, which – among other things – will seek to reach agreement on a “rulebook” for the development of an international carbon market. This will include how countries (and private sector entities) may use carbon offsets, and avoid double counting, while claiming the benefit of emissions reductions inside or outside the scope of their Nationally Determined Contributions (NDCs).

Negotiations will also consider how carbon offsets created under the former Kyoto Protocol – including Certified Emissions Reductions (CERs) – may transition to the new system. This remains an area of interest for Australian market participants, with Australian companies voluntarily surrendering over 24 million CERs since 2012 – and almost 9 million this year – despite criticisms over the low additionality of some projects and claims of corporate greenwashing under the scheme.

In this update, we provide analysis of the Australian Government’s recently released net-zero statement, and the implications for COP26, including the double counting of offsets at the country and corporate level, and the growing push for a contribution-claim model where companies may help countries to meet their NDCs.

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