What is a Carbon Credit?
A carbon credit is a generic term for any tradable certificate or permit representing one tonne of carbon dioxide or the equivalent amount of another greenhouse gas. Carbon credits aim to reduce the emission of greenhouse gasses into the atmosphere by assigning a monetary value to the cost of polluting the air. They essentially make it more economical for organisations and governments to reduce their emissions rather than simply pay for the credits.
Carbon Credits in the Australian Context
In the Australian context, carbon credits are Australian Carbon Credit Units (ACCUs). The concept is the same, but ACCUs are specific to the Australian emissions reduction framework.
Individuals or organisations that carry out activities that reduce or sequester greenhouse gas emissions under the Australian Government’s Emissions Reduction Fund (ERF) can create carbon credits. These activities can include soil carbon sequestration, reforestation and vegetation management projects and reducing emissions in agriculture and energy production.
Any organisation or individual can purchase ACCUs. Purchasers include companies who want to offset their carbon emissions, investors who wish to trade on the carbon market, and the Australian Government itself, which uses the ERF to buy ACCUs in a competitive process.
The Clean Energy Regulator (CER) is the Australian Government body that oversees the creation, sale, and purchase of ACCUs. They provide the necessary oversight to ensure the integrity of the carbon market, verify the emissions reduction activities, and track the ownership and retirement of all ACCUs.
ACCUs can be used to offset greenhouse gas emissions. An organisation that emits greenhouse gasses might purchase ACCUs to ‘cancel out’ their emissions. These purchases are commonly known as ‘carbon offsetting’. Additionally, organisations might purchase ACCUs to meet regulatory requirements or corporate sustainability goals. The ERF also uses ACCUs to incentivise emissions reduction activities and to help Australia meet its international climate change commitments.
The entire process creates a financial incentive for businesses and individuals to reduce their greenhouse gas emissions and contribute to activities that offset carbon emissions, helping Australia in its goal to mitigate the impacts of climate change.