Climate Active Reforms: dumping “carbon neutral” and getting real with direct emissions reductions

On Friday 20 October, the Commonwealth Government announced its proposed updates to the Australian Government’s Climate Active certification program.

We anticipate that the proposed updates will have significant implications for the Australian voluntary carbon market, including:

An end to the use of the term “carbon neutral” to provide more clarity on what certification under the Climate Active program means. The Government seeks input on what the new term should be.
The proposed new program will require more reporting of progress with respect to direct emissions reductions targets. This may increase the compliance burden on certified entities and services.
Proposals to tighten the use of carbon units to achieve certification status (e.g. that the carbon units used need to have 5-year rolling vintage). The Climate Change Authority considers that a five-year rolling vintage: ^[1]
- assists the transition towards units that meet standards and rules of the Paris Agreement as they evolve;
- mitigates the risk that any problematic units could flood the market and adversely impact confidence in integrity long term; and
- discourages speculative 'unit banking', which impedes liquidity and diverts units away from the primary purpose of enabling mitigation.
International offsets will continue to play a large role within Australia’s voluntary carbon market because under the proposals certified entities would still be required to purchase offsets to reduce the net emissions of their activities to zero.
As the proposed amendments to the climate active program appear to be quite wide-ranging, a transitional arrangement may be needed for existing certified business and services to facilitate the revised climate active program and certifications.

Set out below is a brief explainer of the Climate Active program and the proposed changes.

What is Climate Active?

Climate Active is a carbon neutral certification scheme managed by the Department of Climate Change, Energy, the Environment and Water. The scheme purports to incentivise voluntary climate action by offering certifications for businesses and organisations that achieve ‘carbon neutrality’ by meeting the requirements of the Climate Active Carbon Neutral Standard (the Standard).

As of October 2023, Climate Active has over 700 certifications, which includes local governments, large and small businesses, not for profit organisations and law firms (including King & Wood Mallesons). Certified entities can use the certification trademark, with the aim of supporting consumer confidence about voluntary climate claims. You can find a list of certified entities here.

Key Changes to Climate Active

The program direction consultation paper issued by the Department proposes 8 key reforms to the Climate Active program. In the table below, we set out the key updates to the Climate Active program.

Timeline

The consultation closes Friday 15 December 2023, and we can expect updates to the Standard and other guidance materials throughout 2024 and onwards. Please find the consultation webpage here.

Let us know if you have any further questions on these developments or would like assistance drafting a submission. We are here to help.

Further background

The reforms to Climate Active follow the Governments reforms to the Safeguard Mechanism and the ACCU Scheme, the development of mandatory requirements for disclosure of climate-related financial risks and opportunities by Treasury, and the regulator crackdown on greenwashing. For more information on these developments see our previous insights here

	Current Program	Program Post Reform	Example uses 2
Gross emissions reduction	Climate Active certification at present is based on reaching carbon neutrality, which relies on offsetting any emissions that participating entities do not reduce in other ways. There is not however any requirement for members to demonstrate a minimum level of gross emissions reduction.	Climate Active would require participating entities to set a near-term (between 2025-2035) and long-term (between 2040 and 2050) gross emissions reduction target aligned with Australia’s Nationally Determined Contribution (NDC). The gross emissions reduction targets would include scope 1, 2 and 3 emissions. To remain certified, participating entities would need to demonstrate that they are on-track to achieve their near-term gross emissions reduction targets. Reductions will be averaged over a 3-year period to reflect that emissions can fluctuate from year to year.
No more ‘carbon neutral’ Certification	Climate Active currently allows members to use the term “carbon neutral” to describe their certification.	The Government proposes to replace “carbon neutral” with a new term and seeks input from stakeholders as to what term might be appropriate.
Tightening the use of offsets	The program currently accepts a range of carbon offset units which have been assessed, at the scheme-level, against offset integrity principles to ensure the abatement is credible. Under current settings, all units must have a vintage year later than 2012.	While no changes to the list of eligible international units is proposed, the reforms would tighten the use of offsets by requiring all eligible international carbon offsets used under the Climate Active program to meet a 5-year rolling vintage requirement. This means that all units must have been issued no more than 5 years prior to their cancellation and use under the program.
Mandating renewable electricity consumption	There is no requirement for participants of the program to source a minimum amount of renewable electricity or set their emissions liability using the market-based approach.	It is proposed that participating entities seeking certification will be required to source a minimum percentage of renewable electricity. Participating entities would be required to use the market-based accounting method to set emissions liability. The consultation paper notes that participating entities could meet this requirement by matching electricity consumption with onsite and offsite renewable electricity, such as behind-the-meter generation, Large-scale Generation Certificates and GreenPower. The consultation paper seeks input from stakeholders as to what the minimum percentage should be.
Certification pathways	Climate Active currently provides ‘carbon neutral’ certification. There are no alternative certification pathways.	The Government has proposed a staged approach to obtaining certification (e.g., ‘Starting out’, ‘Pending’, and ‘Certified’) to maximise participation in the program. See diagram below. It is unclear what the implication is for existing entities that are certified carbon neutral. At this stage, the Department has only flagged that it will need to consider “transition arrangements for existing certifications”.