Carbon credits are a mechanism to sell and buy the 'credit' for achieving carbon emission reductions.
In Australia, carbon credits are called ACCUs — Australian Carbon Credit Units.
1 x ACCU represents 1 x tonne of carbon dioxide equivalent (CO₂-e) prevented from being in the atmosphere, because it is stored or avoided.
The life of a carbon credit can be divided into three parts: it is created, traded, and used. Let's break it down.
Creating ACCUs
ACCUs are created when individuals or businesses do things that are recognised as avoiding emissions or storing carbon.
- Eligible activities include planting trees to establish permanent forests, capturing methane at landfills, or upgrading industrial equipment to be more energy efficient.
- Australia's Clean Energy Regulator (CER) issues ACCUs to approved projects.
Trading ACCUs
Once ACCUs have been issued, they are tradeable financial products that can be bought and sold.
- The ACCU scheme is designed to incentivise carbon abatement activities by giving them financial value.
- Who buys ACCUs? The Australian Government or companies that need to reduce their net emissions. In theory, this should make it more expensive to pollute.
- The ACCU market is said to function like any other market: when demand for ACCUs is high, their price rises. When supply exceeds demand, the price falls.
Using ACCUs
Companies that buy ACCUs can use them to offset or reduce their net emissions. They can also hold onto them indefinitely and use them in the future.
- When a company uses ACCUs, this process is known as ‘surrendering’ or ‘extinguishing’ the credits.
- Surrendering an ACCU means it is permanently removed from the market and cannot be reused.
Credits versus Offsets
Carbon credits and carbon offsets are related but not exactly the same. Here's a breakdown of the distinction:
- Carbon credits are like a permit to emit 1 tonne of CO₂ (or equivalent greenhouse gases). They are typically used by governments to faciliate emissions caps. If companies go over their cap, they can buy credits to cover excess emissions. If they emit less than their cap, they can sell their credits to others.
- Carbon offsets are like a swap, where one party 'neutralises' (or 'offsets') their own emissions by paying for emissions reductions elsewhere. They are often part of voluntary markets.
Integrity Questions
Carbon credits and offsets are part of an evolving and often contested field.
The core premise—that activities like planting trees can offset the release of carbon locked away in fossil fuels for millions of years—is a matter of debate.
Critics point out that:
- Carbon stored in forests may not be permanent, as wildfires, logging, or land-use changes can release it back into the atmosphere.
- The timescale mismatch between burning fossil fuels and storing carbon raises questions about true equivalence.
The integrity of other methods is also under scrutiny. For example:
- In March 2024, the Australian government revoked the ‘avoided deforestation’ method after concerns arose that areas credited as protected might never have been at genuine risk of clearing.
Another criticism is over-reliance on carbon credits and offsets. In 2023, Carbon Brief reported that two-thirds of the world’s biggest companies with net-zero targets are using carbon offsets to meet their climate goals.