Despite the recent mainstream media angst around the integrity of carbon offsets, the fundamental divers are only getting stronger, according to Carbon Market Institute chief executive John Connor. He tells The Fifth Estate it’s all part of a necessary evolution.
When a big business like Telstra or Australia Post says it’s quitting a certification scheme like Climate Active, it’s tempting to believe it’s game over. However, while some participants are exiting due to concerns including cost, complexity and uncertainty around the credibility of Australian Carbon Credit Units (ACCUs), Carbon Market Institute chief executive John Connor says new participants continue to sign up.
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John ConnorThere have been around 100 organisations leave the scheme in the past 12 months or so, he told The Fifth Estate in an interview this week. However, the total number of participants at the end of 2024, around 550 – is roughly the same as the number at the end of 2023.
Property and agriculture businesses continue to seek Climate Active credentials. For property it is driven by the desire to have buildings certified carbon neutral, which is becoming a major selling point for big business tenants and attractive for institutional investors.
For agriculture, the motivations include retaining competitive status globally as exporters, particularly with the new European Union Carbon Border Adjustment Mechanism coming into effect.
Welcome to 2.0
While the original carbon neutral policy pathway of safeguard mechanism plus offsets and otherwise continuing business as usual gave us what Connor terms “carbon market 1.0” it is now time to progress to “carbon market 2.0”.
A key element of this is policy certainty and having the appropriate regulatory drivers, he explains. The voluntary-only approach is not going to take us to a where we need to go, nor will it provide a solid foundation for investment to flow into projects and initiatives.
Another major priority needs to be coupling carbon with nature repair, and to advance this the Carbon Market Institute and NRM regions have released a joint report, Carbon for Nature, which outlines how carbon farming investment can deliver additional nature benefits.
It’s a way of tacking both the climate crisis and the biodiversity emergency simultaneously, and it could unlock some major capital too.
While Connor says he is “disappointed” the federal nature positive development legislation didn’t get across the line, the idea of nature positive development generally is gaining traction, including in the property sector.
Shifting capital to staple nature and carbon
“Current estimates based on ACCUs generated through activities in the agriculture and land sector quantify the investment at around $1.7 billion. If we direct at least a portion of these ACCU investments into explicit carbon for nature project outcomes, we could begin to bridge the biodiversity financing gap,” Connor said.
The goal is to achieve “carbon negative and nature positive” development.
“To us, biodiversity and landscape health outcomes are the core benefits, but we wanted to explore if that was the case generally – we wanted to find out how carbon farming projects are benefitting nature – and how they might do more.”
This aligns with global trends such as the Taskforce for Nature-Related Financial Disclosures, which Connor observes is following a similar trajectory to that of the initial Taskforce for Climate-Related Financial Disclosures.
Just as the TCFD led to the new IFRS and AASB mandatory reporting requirements, the TNFD may in the near future stimulate a regulatory approach for nature impacts.
Policy needs to get with the program
While Connor says he is “disappointed” the federal nature positive development legislation didn’t get across the line, the idea of nature positive development generally is gaining traction, including in the property sector.
“If we are seriously to have nature positive development, for us to have a sense of place and healthy country embedded in law, practices and policy, it can’t just be done top down, nor loosely from the bottom up. We need a durable (policy) response for carbon and for biodiversity.”
The NRM perspective
NRM Regions Australia is the peak organisation for all 54 local Natural Resource Management organisations that oversee and coordinate land use planning for the entire continent. From waterways, forests and nature reserves through to agriculture, mining and urban expansion, NRM Regional Plans are the foundation of development decisions.
In the media statement for the report launch, NRM Regions Australia chief executive Dr Kate Andrews said nature outcomes are a key reason regional NRM organisations are involved in carbon farming.
“To us, biodiversity and landscape health outcomes are the core benefits, but we wanted to explore if that was the case generally – we wanted to find out how carbon farming projects are benefitting nature – and how they might do more.”
Nations including the UK and Singapore are looking to Climate Active as an example of how a sovereign scheme can function, Connor says.
The report found that current policy settings for carbon have prioritised lowest-cost abatement. Optimising projects to benefit biodiversity costs more, and there have been no clear commercial or regulatory drivers to overcome a general reluctance in the market for paying more.
“The report sets out a number of considerations, not only for the Government, but all stakeholders,” Dr Andrews said.
“Providing a framework to better support transparency, price-discovery and verification of biodiversity co-benefits can direct investment to high integrity carbon farming projects that can achieve additional outcomes for nature.”
Export dollars on the table
Connor hopes the report will kick-start necessary conversations at a time when environmental policies generally need a reboot. Evolving the carbon market and the regulatory environment around it is part of this.
In addition to benefits for the climate and for nature, he argues that there is an export market advantage to be had.
Nations including the UK and Singapore are looking to Climate Active as an example of how a sovereign scheme can function, Connor says.
Improving it will therefore bring multiple benefits.
“Long gone are the days when a simple cap and trade across the whole economy could fix everything,” Connor says. “We’re going to need a toolbox.”
“We need to transition to carbon market 2.0 for fair dinkum decarbonisation plans, and as we are doing it, take responsibility for other emissions. And we need to reward carbon solutions in other parts of the economy.”
“Climate impacts can’t be wished away by an executive order, the physics will catch up with you,” he says.
The development of the nature and biodiversity repair market can be part of this, he says, as the pricing of ecosystem services can be linked with carbon in costings and in opportunities.
“(Nature disclosures) are following down similar railway trails as carbon disclosure, so it is critical we can deliver a framework.”
The framework we need
The framework must guarantee integrity and ensure projects are investing in place and health country, he says. Importantly, it needs to answer the question organisations like banks and law firms ask, “is it investable?”
These organisations need to have policies and see potential for investment to scale. And while the CMI is looking at tools that can aggregate small nature projects with stapled carbon, it will need policy to support wide uptake.
Might Trumpism kill the dream?
As to whether the current political example of the USA may shape the agenda for the next Australian government, he says there will be “setbacks and blows to momentum from what’s happening in the US.”
Nonetheless, he believes we are somewhat more secure here in Australia in terms of progress.
“Climate impacts can’t be wished away by an executive order, the physics will catch up with you,” he says.
“The real tragedy for the US is it will put off the prosperity that can be built from a nature positive and carbon negative future.”
Here the mission is to “fix what you’ve got” in the way of carbon market schemes and policies and “double down”.
“It is important the property sector is there to support the government to expand the (Climate Active) program. It is important for Australian business credibility and for our export capability.”
