Ensuring the long-term success of Australia’s Carbon Market

By Amy Duong, The University of Sydney, UNFCCC, 2022

Amy is studying at the University of Sydney. Her policy paper is on Ensuring the long-term success of Australia’s Carbon Market 

Executive Summary

This paper seeks to analyse the impacts of the Australian Government's Safeguard Mechanism (Crediting) Amendment Bill 2023 (‘The Bill’) on Australia’s carbon market and its capacity to contribute to Australia’s emission reduction targets. The Bill was passed by Parliament on the 28th March 2023 with the amendment taking effect from 1 July 2023. This policy paper supports the current centrality of the Safeguard Mechanism in Parliamentary debate where the Department of Climate Change, Energy, Environment and Water (DCCEEW) is embracing stronger climate policy for Australia. This paper proposes that Australian carbon market policymakers should continue to capitalise on strong private sector support for reform and implement policy levers that guarantee the integrity of the carbon market and firmly signal the necessity of carbon abatement. At present, policy levers have a strong emphasis on flexibility for industry considering the 7-year deadline to reach the legislated 43% reduction by 2030.

This paper provides two recommendations. The first recommendation urges for increased transparency around the creation and surrender of Australian Carbon Credit Units (ACCU) and Safeguard Mechanism Credits (SMC). The second recommends an accumulative cap for ACCU usage to communicate the temporal role of offsetting in Australia’s net-zero journey. By implementing these recommendations, the Safeguard Mechanism can act as a mechanism for market certainty and climate ambition. This can help overcome current perceptions of the mechanism as a punitive tool for industry or a getaway card for carbon emitters.

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