Emission Trading Schemes Implementation: Carbon Credits And Carbon Markets

Carbon Credits and Carbon Markets

Discuss about the Emission Trading Schemes Implementation.

In the contemporary era, human race is facing with global warming that has become a significant concern all over the world. The rise in the temperature in the atmosphere and oceans of the earth is due to global warming. Carbon markets and carbon credits are considered as part of the international and nation attempts to alleviate the rise in the level of greenhouse gases (GHGs).  These measures aim at introducing market mechanisms to influence commercial and industry processes to adopt procedures that results in low or less carbon emissions. The industrial and commercial processes must adopt intensive approaches that are used when no expenses is incurred while emitting GHGs and carbon dioxide into the atmosphere. Several companies sell carbon credits to individual as well as commercial customers who intend to reduce the carbon footprints voluntarily.  

In regards to the emission markets, climate exchanges have been established to provide a Spot market in allowances and a Future as well as an Option Market in order to discover a market price and maintain liquidity (Urry, 2015). The carbon prices are normally estimated in Euros per tonne of carbon dioxide or its corresponding. Although other greenhouse gases can be traded but they are quoted as regular multiples of carbon dioxide in terms of their potential to cause global warming.

The notion of carbon credits have emerged because of growing awareness of the need for controlling emissions. According to the Intergovernmental Panel on Climate Change [IPCC], the policies that provide implicit or real price of carbon may develop incentives for the consumers and producers encouraging them to make significant investments in the low-GHG products, processes and technologies. Such policies may include regulation, economic instruments and government funding. The observation was made in reference to the trading permit system that has evolved as one of the policy instruments that has been proved effective in the industrial sector. The trading system shall be effective as long as there are reasonable levels of certainty regarding the long-term price and initial allocation mechanism (Seinfeld & Pandis, 2016).

Several forms of carbon credits are presently generated by the projects that have been undertaken by Australia and other nations across the world. Each credit represents one tonne of carbon dioxide, which is equal to (tCO2-e).  The credits or permits facilitate to counterbalance the emissions against the compliance liabilities as per the Australian Government emissions reduction related legislation. It also enables to initiate carbon neutral claims or become carbon neutral certified. The organizations that intend to balance their emissions for a carbon neutral claim against the Australian Government’s National Carbon Offset Standard [NCOS] may use various forms of credits. However, while making any carbon neutral claim relating to carbon credits, that particular unit must be retired or cancelled at the public registry at that time.

Kyoto Protocol and Carbon Credits in Australia

Under the Kyoto Protocol, the ‘quotas’ or ‘caps’ for Greenhouse Gases that are developed for countries which is known as Assigned Amounts. The quantity of the initial assigned amount is divided into individual units, which are known as Assigned Amount Units where each of such units represents an allowance to release one metric tonne of carbon dioxide equivalent and are entered into the national registry of nations. Consecutively, the nations set their quotas on the emissions of the installations that are operated by organizations and other local businesses known as the ‘operators’. Every operator has credit allowance where every unit provides the owner with the right to release one metric tonne of carbon dioxide or other equivalent greenhouse gas.

The Clean Energy Regulator issues the Australian Carbon Credit Units [ACCU] to a person by recording an entry of the unit and such record is maintained in the electronic Australian National Registry of Emissions Units. The ACCU issued corresponds to one tonne of carbon dioxide equivalent to (tCO2-e) that is avoided or stored by the project. The ACCU can be issued to a person having registry account that can be opened by a person after he or she is deemed fit and proper by the ACCU to open such account.

The permission of selling and purchasing allowances, an operator may adopt the most cost-effective way of alleviating emissions either by purchasing emissions from another operator who already has excess ‘capacity’ or by making investments in ‘cleaner’ machinery and practices.

The thesis statement for this research paper is to explain the mechanism of the carbon offset market with reference to the relevant legal provisions set out in the Corporations Act 2001 and other relevant legislative provisions that ensure that the individual companies put in deliberate efforts to use more renewable energy and produce low wastes.

The purpose of this research paper is to highlight the significance of carbon credits as an effective means to reduce carbon emissions leading to alleviation of the GHGs emissions. The carbon credit being a financial instrument permits its holder, which includes the energy companies, in general, to release one ton of carbon dioxide. These carbon credits are awarded to groups or countries that have successfully alleviated their respective GHGs below the emission quota of their respective nations. The carbon credits are perceived as a medium of exchange that is highly regulated and is used to counterbalance or ‘offset’ the emissions of carbon dioxide. A single carbon credit is used to represent the right to emit one metric ton of carbon dioxide or mass of another GHGs that is equivalent to the emission from one metric ton of carbon dioxide. 

• What significant role do carbon credits play in controlling emission?
• What are the reasonable measures undertaken to reduce carbon dioxide emissions?
• How Carbon credits is complying with the legal provisions to exercise control over the carbon emission?

In order to obtain information relevant to this topic, the researcher have used secondary resources which includes journals, articles, books, etc as it is less time consuming and the secondary resources are reliable and ensures certainty. The researcher has discussed about various legislative provisions that have been obtained from certain governmental sites and legal statutes that are applicable in Australia.

Clean Energy Regulator and ACCU

The notion of trading permit in case of carbon dioxide emission enables a GHGs emitter country or firm purchase or sells a permit to reduce a certain amount of emissions to or from other GHGs emitter. The scope of this research paper is to comprehend the trading or scrutinizing mechanism of carbon credits using the Management information system (MIS) in reference to relevant legislations in Australia.  The concept of carbon neutrality or having a net zero carbon footprint aims at obtaining net zero carbon emissions by counterbalancing a measured amount of carbon that is released with an equal amount that is balanced or purchasing sufficient carbon credits to make a difference. The concept of carbon neutral describes the actions of businesses, organizations and individuals to remove excess of carbon dioxide from the atmosphere thus, aiming to attain a zero carbon footprint. In order to manage the GHGs emissions, an emission trading system (ETS) has been developed wherein trade and Caps encourages operational excellence and motivates by providing incentives and path for using advanced and prevailing technologies.

The issues pertaining to the rapid incline in the carbon emission is alarming and required an affect measure in place to prevent further emission. Carbon credits are an effective measure that exercises control over emission. The research paper shed some light on the efficacy of the concept of carbon credits in regulating the emission level that too, in compliance with legislative provisions.

This research paper aims at discussing the concept of carbon credits and the types available in Australia under the theoretical approach. It shall also discuss about the carbon farming initiatives that has been undertaken with an objective to reduce carbon dioxide emissions. The theoretical approach shall also explain the concept of MIS and the manner it is used in trading as well as in scrutinizing the carbon credits in Australia.

This paper shall entail the legal perspective of trading and evaluating the carbon credits with respect to the legal provisions set out in Corporations Act 2001 (Cth) and other relevant legislations. It further assesses the pros and cons of the implication of the legal provisions and its pros and cons from the perspective of various stakeholders.

Carbon trading is a convenience way to refer to every aspect of purchasing and selling of right to release greenhouse gases and carbon dioxide into the environment. It is like a farmer market where the farmers grow vegetables and fruits and bring them into the market to trade them with people who need to purchase food (Villoria-Saez et al., 2016). Similarly, in carbon market, large corporations that emit carbon dioxide come to the market to trade with enterprises that are engaged in reducing or eliminating carbon from the atmosphere through several activities like generating electricity using wind turbines, planting forests or reducing emission of methane from landfills, etc. This is called offsetting of carbon and forms the foundation of carbon trading.

A market is formed where quantity of carbon is balanced which is also known as carbon credits that is offered for sale in metric Tonne of Carbon dioxide Equivalent [mtCO2e] and the same is undertaken for a particular project that has been approved by certain mechanism as a valid contribution to GHGs mitigation. Other purchasers who though are not obligated but they purchase the carbon offsets to reduce the effect of global warming as part of their corporate social responsibility [CSR] policy. The carbon emitting companies purports to come to the carbon market for three essential reasons:

1. to balance the emissions voluntarily;
2. to invest in the carbon market in anticipation of incline in the value;
3. to balance their emissions for environmental compliance purposes;

Carbon Neutrality and Emission Trading System

The regulator issues ACCUs for Greenhouse Gas Abatement activities that form a part of the Emission Reduction Fund of Australian Government. Every ACCU represents one ton of carbon dioxide, which is equal to net abatement through reduction in emission that is achieved by eligible activities (Bailey & Inderberg, 2017). These eligible activities are known as eligible offsets projects and in order to consider a project as an eligible offsets project, several requirements must be satisfied. Such requirements include the following:

1. the supporter of the project must qualify the ‘fit and proper person test’;
2. the project must deliver abatement in addition to what could happen in the absence of the project;
3. the project must comply with the additional requirements that are applicable;
4. the supported of the project must report to the Regulator regarding the operation of the project and the abatement achieved and the methodology used for conducting the project must be approved;

After the Emissions Reductions Fund Project has formed carbon abatement, one may apply for the ACCUs that can be sold to the Clean Energy Regulator if the applicant has carbon abatement contract. In order to establish that abatement is created by the project and to support the application for ACCUs, one must submit the project offset report.

The Clean Energy Regulator shall process the crediting applications within 90 days from receipt of an accurate and complete application (Addis, 2015). After the approval of the application, ACCUs will be deposited and if the applicant has a carbon abatement contract, the same can be delivered to the Clean Energy Regulator to fulfill the contractual obligations and receive payment. In the absence of a carbon abatement contract, the ACCU may be sold on the secondary market.

Carbon trading may engage in small businesses, farmers and households who participates in the carbon credit projects which have been developed to generate carbon credits and compete in tenders. Such carbon credits are usually sold to the Commonwealth Government’s Emission Reduction Fund. These projects usually involve a project proponent who supervises individual farmers and businesses (Zakeri et al., 2015). The supporters of such projects may develop separate projects for farmers as well as individual farmers.

The CFI permits farmers and other land managers to obtain carbon credits by storing carbon or by reducing the GHGs on the land. The participants may earn carbon credits by developing a project under the methodology approved by CFI that stipulates the rules for the activity (Addis, 2015). The credits may be sold to businesses and people who intends to balance their emissions. The landholders and farmers are not obligated but may participate in the CFI voluntarily.

It provides economic rewards to the landholders and the farmers who undertake measures to alleviate GHGs. The activities or which such farmers and landholders may be able to earn carbon credits include the following activities:

1. enhancing efficiency of fertilizer use;
2. reducing livestock emissions;
3. storing carbon through reforestation and re-vegetation;
4. increasing carbon in agricultural soil;

These carbon-farming activities are referred to as abatement activities as they tend to reduce greenhouse gas emissions either by reducing carbon emissions and other harmful GHGs or by storing carbon in soil (Pinkse & Kolk, 2017). In order to be eligible, projects must deliver additional reductions in GHGs, which is known as ‘additionality’ and is a requirement of all offset schemes. The establishment of the CFI aims at preventing adverse impact on communities, water, and environment while working to disengage important Greenhouse Gas abatement opportunities all over regional Australia.

Research Questions

The legal provisions relevant to the carbon credits trading in Australia include Corporations Act 2001 (Cth) and Carbon Credits [Carbon Farming Initiative] Act 2011 and Carbon Credits [Carbon Farming Initiative] Act 2011 (CFI Regulations 2011) and the Carbon Credits [Carbon Farming Initiatives] (CFI Rule 2015).

According to subdivision, 4.1A of Part 7.9 of the Corporations Regulations 2001 states, that as per part 7.9 of the Corporations Act 2001, which requires a Product Disclosure Statement to be given, does not apply to an ACCU. However, Part 19 of Schedule 10A of the Corporations Regulations 2011 amends Part 7.9 of the Corporations Act 2001 requiring the Product Disclosure Statement with respect to ACCU should direct its clients to this statement.

The enactment of the Carbon Credits [Carbon farming initiative] Act 2011 legislation permits for ‘credit trade’ related to Australian carbon credit units and eligible international emissions units from the Australian land-based actions that aims at storing or reducing carbon pollution after satisfying the conditions stipulated under the relevant statutes (Schuur et al., 2015).

Further, since the regulator (Clean Energy Act) 2011 issues ACCUs and regulates the carbon unit, the Clean Energy (Consequential Amendments) Act 2011 was enacted to regulate the carbon units issued by the regulator. The financial products regime established by the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001 shall regulate the units. Amendments have been proposed to be made with respect to the Corporations Regulations 2001 to address the unique characteristics of the carbon units and avert any unwanted compliance expenses.

The CFI 2011 (The Act) was enacted to governs the Carbon Farming Initiative which is a legislated offset scheme enabling the farmers and the landholders to earn carbon credits by reducing greenhouse gas emissions on the land.

The laws that govern the various stakeholders like businesses, farmers and land holders have been enacted with an objective to put in deliverable efforts to reduce carbon emissions and other harmful GHGs to alleviate the impact of the GHGs on the community.

In regards to the carbon farming initiative, Change (2016) states that it encourages landholders and farmers to participate voluntarily in the initiative to reduce carbon emission by undertaking eligible activities which facilitates in releasing low or less carbon emissions. The rationale for establishment of the CFI is that it would enable the farmers and the stakeholders to sell or purchase carbon credits and earn additional income by storing carbon.

According to Change (2016), the advantage associated with this initiative is two-old. Firstly, carbon in soil is important as it makes the land more fertile and by storing the carbon, the farmers could sell the same in the carbon market and earn good income, thus, it forma an additional source of income.  Secondly, while carbon in soil is good for the soil, but an elevated amount of carbon along with an increase in other GHGs in the atmosphere is equally harmful, as it tends to change the climate. Hence, creating projects that includes carrying out of ‘eligible activities’ like reduction of carbon content in soil, enhancing effective use of fertilizers, etc will prevent emission of the GHGs on the land. An unstable, warmer climate is detrimental to the Australian agriculture and food production and given the fact that agriculture sector of Australia contributes about 18 percent to these emissions; storage of carbon shall amount to a potential contribution to the growing concern.

Justification of the Research

However, Pittock (2017) argues that though this initiative is advantageous but since the participation of the framers and the landholders is voluntary, it might not attract farmers who are least concerned about the concern. If the initiative had been made obligatory, it was likely to ensure that their participation will amount to a significant contribution. Blasing (2016) further argues that even if it is a voluntary scheme but since it provides economic rewards to the stakeholders, it is likely to attract more participants as they will earn incentives.

In regards to the other stakeholders like the businesses and the organizations, Urry (2015) states that the legislations governing the companies, especially the energy companies, obligates them to undertake measures that will reduce the emissions of the carbon and other harmful gases. Besides, the corporations  who are not subject to compliance, also participates in purchasing carbon credits in the anticipation of future rise in the global temperature, to comply with the corporate social responsibilities.

Conclusions

From the above discussion, it can be inferred that abatement activities that being undertaken to reduce the carbon emission all over the world and the governments of the countries are estimating methodologies that are necessary to conduct the abatement project. Besides the methodologies, the governments are also evaluating the outcomes of such methodologies in reducing the GHGs and Carbon emissions.

In order to develop several initiatives that aims at reduction in harmful emissions, nations globally are working with government agencies, industry bodies and scientists to create appropriate methodologies that are effective in achieving the GHGs emission reduction objective.  In order to ensure that the carbon credits trading is performed smoothly without having any adverse impact on the community, the methodologies are scrutinized  by expert committees, that are independent and impartial further reaffirming that they are based on sound science and are environment-friendly. The value of the carbon credits is dependent on its credibility within the international carbon markets as well as in the domestic markets. The regulator acts as guidance to ensure whether the projects undertaken are being conducted with an approved methodology to prevent any adverse impact on the community.

References

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