What’s new in ACCUs

The carbon market in Australia

The carbon market in Australia, primarily governed by the Australian Carbon Credit Unit (ACCU) Scheme, presents significant opportunities for a broad range of stakeholders, including carbon project developers, landowners, and investors and more recently larger emitters. The growing importance of carbon credits is driving a renewed focus on advancing emissions reduction initiatives across multiple sectors. Such initiatives not only have the capacity to stimulate economic development in rural areas but also play a vital role in promoting biodiversity conservation, while contributing to Australia’s net-zero goals.

In light of the policy and legislative reforms implemented under the ACCU Scheme (Scheme), the past year has seen strong market activity spurred on by significant increases in ACCU trading volumes and a notable growth in the total number of participants in the Scheme. In 2024, there were 425 projects registered under the Scheme, an 18% increase from 2023, driven largely by soil carbon projects. These projects use a range of methodology determinations, or methods, which set out the eligibility criteria, monitoring, reporting and verification requirements needed to demonstrate and measure carbon abatement under the Scheme.

More recently the demand for ACCUs has significantly grown as large emitting facilities captured under the Safeguard Mechanism prepared to meet reduced emissions baseline requirements in their first compliance period, necessitating the surrender of ACCUs to offset their emissions. As a result, we have seen a recent uptick in our resources clients pursuing carbon projects, particularly those resource companies with facilities covered by the Safeguard Mechanism who are continuing to explore options to comply with emission reduction requirements.

Commercial divers and key issues for carbon project investment

Investment into carbon projects is being driven by the growing demand and increasing price of ACCUs which is expected to lead to improved profitability of carbon projects registered under the Scheme and managed by the Clean Energy Regulator (CER).

Despite the increased appetite in the market, carbon project investors must ensure that they are seeking out credible projects that are capable of generating genuine credits. To achieve this, entities are encouraged to undertake thorough due diligence investigations into a project prior to investment to understand the key risks to the project. Comprehensive due diligence requires consideration of:

project status and standing, including the validity of the project methodology, permanence period and whether the proposed project proponent has the ‘legal right’ to carry out the project;
any interests in the project land, including registered mortgages or overlapping Native Title claims or determinations which would require eligible interest holder consent;
solvency risks associated with the project proponent;
overlapping mining or petroleum tenements; and
the standing of the current entity that owns the project.

In addition to the above investigations to determine the viability of the project, investors should consider how ACCUs generated by the project will be managed with respect to corporate ownership, auditing requirements and tax treatment.

If ACCUs are issued to a joint venture vehicle, ownership of these ACCUs should be clearly set out in the contractual arrangements between the parties, particularly where one or more of the parties control facilities that have obligations to surrender offsets to meet Safeguard Mechanism requirements.

Tensions between the resources, and agricultural industries have heightened, and governments need to balance the interests between landholders, tenement holders, pastoralists, renewable energy developers and carbon project proponents.

Careful consideration should also be given to whether the project investor intends to become the project proponent, and the requirements and risks that come with this responsibility. Namely, the project investor should be aware that the project proponent is responsible for demonstrating that the project is achieving methodology outcomes. The project proponent is also responsible for meeting audit requirements, where a failure to meet reporting deadlines for a project may result in the project being revoked and entitlements to ACCUs being affected.

If the project investor is not the project proponent, it should consider whether the project proponent is effectively compelled through contractual arrangements to comply with requirements under the Scheme, to ensure that the project can successfully generate ACCUs and that the project investor does not face risk of liability in connection with the project. The investor should also consider whether it has the legal right to carry out the project, in the instance where it wishes to become the project proponent.

Project investors should note that there is risk that the carbon abatement achieved from each carbon project may not reach the estimations initially provided to the CER. Revenue generated from carbon projects under the Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth) (CCA) can vary depending on a range of factors, and consideration should be given to:

(a) decisions on who will own and manage the project;
(b) the type, scale and location of the project;
(c) the crediting strategy (when to report and apply for ACCUs); and
(d) the potential for the project to generate additional benefits and revenue streams.

Opportunities for landholders and key contract considerations

Carbon projects also offer opportunities for landowners to diversify income streams by hosting projects on their land, usually in accordance with a carbon service agreement undertaken with a carbon service provider.
While entering into a carbon agreement with a service provider may offer a landholder the opportunity to generate income by selling ACCUs on the market, landholders will need to be aware of the regulatory requirements for ACCU issuance and the legal obligations for monitoring, reporting and transparency with respect to carbon data.

Prior to entering into a carbon agreement, landholders should give careful consideration to key issues, particularly given that the permanence period for these projects over which sequestration must be demonstrated is typically 25 – 100 years.

In our experience, landholders seeking to enter into a carbon agreement with a service provider will need to consider:

which party is best placed to be the ‘project proponent’, who bares most of the risk in the project;
whether all eligible interest holders have provided relevant consent;
whether the terms of the agreement provide the landowner with adequate protections if the service provider does not perform its obligations, or goes out of business;
which party is liable for the relinquishment of ACCUs in the instance that there is a reversal of carbon sequestration; and
the ability to assign or novate the agreement to a new landholder if the land is sold.

Project investors and carbon service providers who are seeking to engage with landholders for the purpose of entering into a carbon project should be aware of the these issues as they will drive the landholder’s interest in entering into a carbon project agreement.

Risks with increased ACCU demand

Potential shortfalls of ACCUs

As we see demand for ACCUs increase, there is some concern that the number of ACCUs required may not always be met by the number of ACCUs generated by registered projects. There are several factors which are likely to contribute to future shortfalls in available ACCUs, creating increasing tightness in the market, such as:

long delays in the production of ACCUs;
land unavailability to generate ACCUs due to competing land use priorities;
limited approved methodologies that result in robust and viable ACCUs; and
administrative constraints and issuance processing delays.

While the ACCU market is currently well supplied, the timing and availability of credits remain sensitive to supply side constraints. For facilities covered under the Safeguard Mechanism, it will be critical to explore solutions to operationally reduce emissions below their baseline, to avoid any risks of requisite ACCUs being unavailable when it comes time to comply with baseline requirements.

Land availability

Investors and project developers are already experiencing significant competition over land that is suitable for carbon projects impacting the potential profitability of a proposed project. Tensions between the resources, and agricultural industries have heightened, and governments need to balance the interests between landholders, tenement holders, pastoralists, renewable energy developers and carbon project proponents.

We anticipate that the scarcity of suitable land will drive innovation in carbon project methodologies, which will be critical to keep up with the rising demand for ACCUs and address the need to reduce emissions. We are currently observing an increase in land-efficient methodologies or practices that can coexist with existing land use. For example, one of the newer proposed methods prioritised for development is the Integrated Farm and Land Management (IFLM) method which enables land managers to carry out activities from various ACCU framework methods on the same project site, allowing landowners to optimise carbon sequestration on their properties while reducing registration and auditing fees. There is still some uncertainty regarding this methodology, although we expect to see an update later in 2025 as to the future of this proposed methodology in the Scheme.

Methodologies

In addition to the IFLM method, new approaches for managing landfill gas and savanna fires are currently being developed and are expected to be delivered in 2025. Furthermore, in October 2024, the Australian Government announced the prioritised development of the following Scheme proponent led methods:

the Improved Avoided Clearing of Native Regrowth method;
the Improved Native Forest Management in Multiple-use Public Forests method;
extending savanna fire management to the northern arid zone (variations of the savanna fire management methods); and
reducing disturbance of coastal and floodplain wetlands by managing ungulates.

A recent method that was introduced into the Scheme in 2025 following the approval by the Albanese Government was the Environmental Planting method “Reforestation by environmental or mallee plantings FullCAM method 2024” which replaces the expired 2014 method.¹

The following methods are currently under review by the CER:

Alternative waste treatment method;
Animal effluent management method;
Beef herd management method;
Coal mine waste gas method;
Landfill gas method; and
Landfill gas (generation) method.

It is expected that delivery of these methods (once reviewed and updated) will lead to an increase in the ACCU supply pipeline later this decade.

Credibility of Scheme and investing considerations

When considering investment in a carbon project, it is essential to ensure that the methodology being implemented is genuine and will result in real and additional emission reduction. This is crucial for maintaining integrity, as various methods have been revoked or otherwise heavily criticised for being inadequate and failing to achieve genuine emission reductions. It is also important to note that the CER can modify the method related to a Scheme project at any time, which may significantly impact the delivery of the carbon project. The long-term credibility of ACCUs generated under the current Scheme faces some uncertainty due to the inherent risks associated with the reliability of these credits.

To minimise risks arising from uncertainties associated with the Scheme, any party interested in investing in a carbon project must first conduct thorough due diligence. This process should encompass an evaluation of critical factors, including the project’s current status, land ownership or the legal right to carry out a carbon project and the requirement for eligible interest holder consent.

Market forecast and future of Scheme

As entities seek to comply with the Safeguard Mechanism, and companies with voluntary emissions targets head towards their 2030 and 2050 targets, an increased demand for ACCUs is predicted in the coming years which will present challenges and opportunities in the carbon market over the coming years.

Those seeking to invest in carbon projects to maximise the opportunity presented by the growth in the carbon market must consider the key risks and issues associated with carbon projects, as well as the commercial drivers and considerations under the Scheme which underpin carbon project investment.

1 Joint media release: new Environmental Plantings method to strengthen Australia’s carbon market | Ministers Reforestation by environmental or mallee plantings FullCAM method 2024 | Clean Energy Regulator