The decarbonisation challenge

The third event in our series of Sustainability Networking Forums focused on the approaching problem of how we decarbonise our society, the role of carbon credits in decarbonisation and why capital is moving away from carbon-heavy industries. Our panel chair, Catherine Bell - BDO Sustainability Principal, was joined by David Carter (CEO of Austral Fisheries), Dr Chris Lund (Director of Decarbonology) and Michelle Rhodes (Director of Decarbonology) for this interesting discussion.

What is decarbonisation and how do we do it?

There’s been significant discussion recently about the effect humans are having on the global climate. If the current trends in our greenhouse gas emissions continue, we are expected to reach human-induced global warming of 1.5°C by around 2040. In response to this, governments around the world have set a target of net-zero emissions by 2050, with interim targets for 2030 to benchmark the progress being made. Australia currently plans to reduce emissions by 43% by 2030, primarily through investment in renewable energy and an increased share in the National Electricity Market to 82% by 2030.

Businesses will need to determine the decarbonisation approach that provides them with the greatest benefit for the cost, which can include but is not limited to:

• Replacing fossil fuels for electricity generation with renewable sources,
• Changing the feedstock in industrial processes into more carbon-neutral sources, and
• Capturing the carbon dioxide in the atmosphere.

Other considerations include the less direct forms of decarbonisation, which aim to reduce emissions from existing processes through increased efficiency in production systems and increased circularity of resources (reuse or recycling).

Decarbonisation is not a one size fits all approach. It will be easier for some industries than for others. Regardless of the scope of opportunity for decarbonisation for a business, it’s essential to collectively start the decarbonising process now so carbon credits can be generated and used to offset industries that cannot decarbonise as quickly.

How do carbon credits assist with decarbonisation?

While shutting down every coal-fired power station would do wonders for the environment, it would have an enormous impact on society as we know it. A more measured approach is needed to decrease our reliance on fossil fuels. Carbon credits provide a way to offset the environmental cost from difficult industries to decarbonise, through emission reductions or sequestrations in other sectors.

Each carbon credit represents one tonne of carbon dioxide equivalent stored or avoided by a project. Within Australia, they are called Australian Carbon Credit Units, or ACCUs, and are issued by the Clean Energy Regulator (Regulator) for projects that are deemed eligible under the Emissions Reduction Fund (ERF). ACCUs are purchased by companies and surrendered to offset their greenhouse gas emissions.

Recently the integrity of ACCUs was brought into question by a former employee who served as the inaugural chair of the ERF assurance committee, claiming that “The available data suggests 70 to 80 per cent of the ACCUs issued to these projects are devoid of integrity - they do not represent real and additional abatement”. While the Regulator has rejected this, the new Government has announced that they will investigate these claims and ensure that Australia’s carbon credits meet the global standard. This will be important as voluntary carbon markets, such as the one announced by the London Stock Exchange, are being created to encourage investment in climate mitigation projects, providing opportunities for Australian companies to offer a premium product to a global market.

Where is the capital going?

Even with the global push to decarbonise, we are still seeing large amounts of funding for carbon-heavy industries, despite pledges made by the finance industry to meet net-zero targets. Coal alone has seen over US$1.5 trillion channelled across the supply chain since 2019. This focus on short-term gains has led to growing concern that investors will be left holding stranded assets as we transition to renewable energy.

Encouragingly there has been an increase in clean energy investment, with the average growth rate in investment rising 12% since 2020. In 2022 it is expected that green investment will exceed US$1.4 trillion, underpinned by government policies supporting the green transition and increasing the cost competitiveness of renewable technologies. Even traditionally fossil fuel-focused companies have increased their expenditure in clean energy, with oil and gas companies’ capital expenditure increasing from 1% in 2019 to around 5% in 2022.

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