Slam carbon scams

From 1 July 2012, ‘regulated emissions units’ are deemed to be “financial products” under the Corporations Act 2001, namely: carbon units, Australian carbon credit units and eligible international emissions units.

One challenge for ASIC is licensing. Many carbon market participants do not have a traditional financial services background. As a Carbon Market Institute executive explained to it in early April, developing this new market was “a journey for regulators and the participants.” Giving “financial instrument status over carbon credits creates a number of operational challenges” as participants “do not, nor like will have the necessary systems, financial wherewithal and processes” to meet ASIC licensing requirements. ASIC subsequently established an early registration system to assist transition to its licensing regime.

How are emissions units created?

Akey driver of emissions permit prices will be the legislated volume of supplied permits. So signing off on the integrity of the government’s unit creation process – and all the assumptions underpinning it - is another big challenge for ASIC.

Consider the ‘Carbon Farming Initiative’ (CFI) it passed on 23 August last year. It established a voluntary scheme to credit greenhouse gas abatement in the land sector and from “legacy waste emissions”.

“Abatement”, by definition, can be achieved by (i) reducing or avoiding emissions, for example, through capture and destruction of methane emissions from landfill or livestock manure; or (ii) removing carbon from the atmosphere and storing it in soil or trees, for example, by growing a forest or farming in a way that increases soil carbon.

“Australian carbon credit units (ACCUs) will be issued in respect of each tonne of abatement generated by such activities. These units can then be sold to people and businesses wishing to offset their emissions.”

How will this be done in practice? Issuance depends on a new bureaucratic black art, “methodology determination”. It is meant to act as gatekeeper to the government’s Positive List.

The Commonwealth, incidentally, “does not accept responsibility for the accuracy or completeness of the contents or any inferences, and expressly disclaims liability for any loss, however caused and whether due to negligence or otherwise, arising directly or indirectly from the use of, inferences drawn, deductions made, or acts done in reliance on, this document [Positive List] or the information contained in it, by any person.”

A sum of $19.6 million is funding development of CFI methodologies, with $7.2 million “available as grants for methodology development projects.”

The government has established a six-person Domestic Offsets Integrity Committee (DOIC) “supporting the “environmental integrity of (CFI) carbon offsets”. Its role is to assess proposals for the Minister for Climate Change and Energy Efficiency, who decides whether they qualify for the Positive List.

There is no ASIC representative on the Committee. Yet from a consumer protection and investment perspective, the process surely could benefit from ASIC’s presence and due diligence?