Legal risks stack up under Australia’s failed carbon market
We’re in the midst of a major integrity crisis in Australia’s carbon market: a multi-billion dollar industry whose legitimacy is being seriously questioned. As it becomes increasingly clear that schemes like Human Induced Regeneration (HIR) are not removing carbon as promised, companies – and government organisations who regulate the industry – are exposed to increasing legal risks.
Carbon credits not fit for purpose
In the wake of 100 companies withdrawing from the government’s Climate Active program, a recent series of investigative reports published in Nine papers, highlights the extent to which the Clean Energy Regulator’s Australian Carbon Credit Units (ACCU) are failing to deliver.
Under the government’s Safeguard Mechanism, companies are given the option to either reduce emissions or purchase carbon credits. As Kirsty Ruddock from the Environmental Defenders Office points out, companies have been buying ACCUs in good faith – but the product is simply not fit for purpose.
“Businesses thought this product was going to produce additionality because it was government-backed and provided for under legislation,” she explains. “But the reality is, after the initial credit assessment of the land, these agencies haven’t checked the integrity of these credits in reducing emissions. That is problematic and is now extremely difficult for the government to undo.”
A $1billion problem
The scale of trade that is impacted by this integrity crisis is significant. HIR projects cover 42 million hectares – an area significantly larger than Japan – and, to date, they have received more than 45 million ACCUs. This represents 30% of all ACCUs issued under the Australian carbon offset scheme, worth approximately $1 billion.
The legal risks for businesses mount
Buyers of ACCUs use them to make representations about how carbon removals are helping them to deliver their net zero goals, if that’s not true they are at risk of misleading customers and shareholders.
“The scientific evidence suggests that these products do not do what they say,” explains Kirsty. “Therefore, companies who are claiming these removals benefit their emissions or net zero plans are at risk of misleading or deceptive conduct under the Corporations Act 2001 and Australian Consumer Law.”
Company directors also have legal obligations to manage risks. With the increasing risk profile of HIR carbon credits, directors must be doing their due diligence to manage the escalating risk of these assets. Once companies have been made aware of the evidence of over-crediting, they need to be extremely careful with how they continue to claim or market these offsets.
A legal conundrum for the government
How long can you continue to keep selling a misleading product after the whistle has been blown, without consequence? We are at a pivotal moment in this industry – the evidence of over-crediting HIR projects is now so clear, it’s likely we will start to see companies who have purchased these credits in good faith asking for answers in the courts.
We’ve already seen the emergence of legal action challenging carbon offsetting claims, with Parents for Climate challenging EnergyAustralia’s carbon neutral claims in the court. While Fortescue’s chief climate scientist, Dr Shanta Barley, recently suggested that legal avenues against the government may be pursued by companies who felt duped by the scheme.
What’s the solution?
To avoid legal implications companies need to double down on getting rid of fossil fuels from within their value chain and reaching real zero as fast as possible. Ultimately, the responsibility for Australia's carbon offset scheme, and this integrity crisis, rests with assistant minister for Climate Change, Josh Wilson.