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Renewable Energy and Net Zero Meaning: Demystifying Australian Carbon Credit Units and Certificates

Renewable energy and achieving net-zero emissions have become pressing matters on the global agenda. Net zero refers to balancing the amount of greenhouse gas emissions produced with the equivalent amount removed from the atmosphere. Amid this growing concern, Australia has been taking significant steps towards addressing its carbon emissions by implementing measures such as the Australian Carbon Credit Units (ACCUs) and Renewable Energy Certificates (RECs).

Renewable energy is an essential component in achieving net-zero emissions. In Australia, solar power and wind energy are driving the growth of renewables, accounting for 35.8% of electricity generation in 2022. Australian Carbon Credit Units (ACCUs) and Renewable Energy Certificates (RECs) incentivize emission reductions and support renewable energy projects. They play a vital role in Australia's transition to a cleaner energy future.

The Clean Energy Regulator is primarily responsible for the issuance of Australian Carbon Credit Units. ACCUs represent a reduction or removal of one tonne of carbon dioxide and are utilised in various carbon market schemes. These include offset projects and voluntary cancellations. Over the first three quarters of 2022, total ACCU holdings have increased by 8.2 million. This brings the total up to 19.7 million ACCUs. The voluntary cancellations of ACCUs in Q1 2022 reached 283,000, indicating a significant increase when compared to the previous year.

In addition to ACCUs, Renewable Energy Certificates also play a crucial role in promoting clean energy in Australia. These certificates are awarded to businesses that generate renewable energy and can be traded in the market to support the growth of the renewable energy sector. With the Australian Government committing a record of nearly A$25 billion through its Powering Australia plan, the nation is set to further strengthen its position as a leader in renewable energy and work towards a net-zero future.

Renewable Energy in Australia

Solar Power

Solar energy has been expanding quickly in Australia. Production of renewables rose by 10% in 2021, mostly as a result of greater use of solar and wind energy. As a result, Australia generated 35.9% of its total electricity in 2022, the greatest percentage ever. The nation has installed numerous solar photovoltaic (PV) systems and solar thermal plants thanks to its enormous landmass and plentiful sunshine. Solar energy has gained popularity in both the household and business sectors as a means of lowering energy costs and greenhouse gas emissions.

Wind Energy

Another important source of renewable energy in Australia is wind energy. Large-scale wind farms may be found all throughout the nation that use the wind's energy to produce electricity. For Australia to meet its net zero emissions objective by 2050, wind energy must be expanded. To stay on pace for this target, the country will need to quickly implement wind and solar power technologies, tripling the National Electricity Market's electricity capacity by 2030.

Geothermal Energy

Although less prevalent than solar and wind energy, geothermal energy also contributes to Australia's renewable energy landscape. Geothermal power plants generate electricity by utilizing the heat from the Earth. Large deposits are present in Australia's isolated locations, which offer substantial potential for the production of geothermal energy. However, obstacles including expenses, technological barriers, and accessibility to suitable areas currently restrict its development.

As Australia continues to work towards a cleaner energy future, its commitment to embracing renewable energy sources such as solar, wind, and geothermal power remains vital for achieving the net zero emissions target by 2050. Initiatives such as the Australian Renewable Energy Agency (ARENA) support these efforts by funding projects to accelerate renewable energy innovations.

Net Zero Meaning and Commitment

Net Zero Emissions

These net zero emissions refer to a balance between the amount of greenhouse gases produced and the amount removed from the atmosphere. In this scenario, the emissions of carbon dioxide (CO2) and other greenhouse gases are offset by corresponding amounts of CO2 being captured and stored through various methods, such as carbon sequestration, reforestation, and technological advancements. This approach to managing climate change helps in limiting global warming. Moreover, this also helps in adhering to the goals set forth by the Paris Agreement.

Carbon Neutrality

Carbon neutrality is another term closely associated with net zero emissions. It means that an individual, company, or country has achieved a state where their activities do not contribute to the overall increase in atmospheric CO2 levels. This is achieved by reducing emissions, using renewable energy sources, and offsetting any remaining emissions through actions like planting trees or supporting projects that reduce emissions elsewhere.

Australia's Targets

Australia has made a firm commitment to contribute to global efforts in combating climate change. The country has set a target to reduce its greenhouse gas emissions by 43% from 2005 levels by 2030. They also aim to reach net zero emissions by 2050. This target has been enshrined in legislation, sending a strong signal to industry and the international community.

Australia's path to achieving these targets includes:

  • Investment in renewable energy: To reach net zero emissions by 2050, Australia needs to significantly expand its renewable energy infrastructure. They need to rapidly transitioning from fossil fuels to clean energy sources.
  • Carbon sequestration: Implementing carbon capture and storage technologies at an unprecedented scale will be essential for offsetting emissions that cannot be immediately eliminated.
  • Australian Carbon Credit Units (ACCUs): These units are issued by the Australian government to incentivise emission reduction activities and promote the use of clean energy. They can be traded and sold, enabling businesses and individuals to offset their emissions.
  • Renewable Energy Certificates (RECs): These certificates are a tool for promoting investment in renewable energy. By creating a market for RECs, Australia aims to increase the share of clean energy in its electricity mix and drive down emissions.

By focusing on these strategies, Australia aims to achieve net zero emissions and carbon neutrality. The country is aligning itself with global climate change goals and contributing to a sustainable future for generations to come.

Australian Carbon Credit Units (ACCUs)

Australian Carbon Credit Units (ACCUs) are a crucial component of Australia's efforts to reduce greenhouse gas emissions and achieve net-zero status. They provide a market-based mechanism for promoting carbon-neutral projects and fostering the growth of renewable energy sources in the country. The Australian government has set a target of reaching net zero emissions by 2050, and ACCUs play a key role in achieving this goal.

Issuance and Cancellation

An ACCU is issued by the Clean Energy Regulator (Regulator) through the electronic Australian National Registry of Emissions Units (Registry). Each ACCU represents one tonne of carbon dioxide equivalent (tCO2-e) that is either stored or avoided by a project.

The total number of ACCUs in circulation can increase or decrease over time through trading or the cancellation of units. In 2022, 23 million units were transacted on the secondary market, three times the volume in 2021. Additionally, 1.5 million ACCUs were cancelled for non-commonwealth demand, an increase of 56% from the previous year.

Carbon Farming Initiatives

A significant aspect of ACCU generation is the Carbon Farming Initiative (CFI). This initiative encourages farmers and land managers to undertake projects that reduce or store greenhouse gas emissions. Participants in the CFI can generate ACCUs and trade them on the market to generate revenue and offset their emissions.

Carbon farming projects can include reforestation, revegetation, and improved land management practices, among others. These projects contribute to the reduction of greenhouse gas emissions. Moreover, they also provide additional benefits such as increased biodiversity and improved water quality.

Renewable Energy Certificates (RECs)

Renewable Energy Certificates (RECs) play a crucial role in Australia's efforts to promote renewable energy sources and achieve its Renewable Energy Target (RET). RECs are tradable certificates representing the environmental, social, and non-power attributes of electricity generated from renewable energy resources. They serve as a market-based instrument that enables businesses, governments, and individuals to support renewable energy development and meet their sustainability goals.

Renewable Energy Target (RET)

The Australian government established the Renewable Energy Target (RET) to encourage investment in renewable energy projects and reduce greenhouse gas emissions. This target aims to make sure that 23.5% of Australia's electricity comes from renewable sources by 2020. The RET scheme comprises two parts: the Large-scale Renewable Energy Target (LRET) and the Small-scale Renewable Energy Scheme (SRES).

The LRET incentivises the development of large-scale renewable energy projects, such as wind farms and solar power plants. Under this scheme, eligible large-scale projects are issued Large-scale Generation Certificates (LGCs) based on the amount of renewable electricity they generate. These LGCs can be sold to electricity retailers. These retailers are then required to purchase and surrender a certain number of LGCs annually.

The SRES supports small-scale renewable systems, including residential solar panels and small wind turbines. They do this by providing eligible participants with Small-scale Technology Certificates (STCs). These certificates can be traded on the STC market or assigned to an agent in exchange for discounts on renewable energy equipment.

By promoting renewable energy through RECs and the RET scheme, Australia continues to work towards a more sustainable energy future.

Emissions Reduction Policies and Schemes

Emissions Reduction Fund (ERF)

The Emissions Reduction Fund (ERF) is a key policy in Australia aimed at supporting emissions reduction projects across the country. Its primary objective is to provide financial incentives for companies, organisations, and individuals to adopt lower-emission technologies and practices. The ERF creates Australian Carbon Credit Units (ACCUs), which are issued to accredited projects that have successfully demonstrated emissions reductions. One ACCU represents one tonne of CO2-equivalent greenhouse gas emissions avoided or removed from the atmosphere.

Safeguard Mechanism

Complementing the ERF, the Safeguard Mechanism serves as a regulatory measure for Australia's largest emitters. The mechanism requires high-emitting facilities to keep their emissions within predefined limits, or baselines. In the event that companies exceed these baselines, they must offset the excess emissions by purchasing and surrendering ACCUs. The aim of the Safeguard Mechanism is to ensure that the emissions reductions achieved through the ERF are not offset by increased emissions elsewhere.

Paris Agreement Commitments

In line with its commitment to the Paris Agreement, Australia seeks to reduce greenhouse gas emissions by 26-28% below 2005 levels by 2030. The Agreement, adopted by almost 200 nations in 2015, aims to limit global temperature rise to well below 2℃ above pre-industrial levels and pursue efforts to limit the increase to 1.5℃. Achieving these targets requires concerted efforts from all sectors of the economy. These efforts include greater deployment of renewable energy, energy efficiency measures, and carbon capture and storage technology.

Renewable Energy Certificates (RECs) in Australia serve as a financial incentive aimed at promoting the adoption of renewable energy generation technologies. Unlike ACCUs, which reflect emissions reductions, RECs are issued for each megawatt-hour (MWh) of renewable energy generated or displaced by eligible systems.

As Australia pursues its emissions reduction and renewable energy goals, the combination of policies such as the ERF, the Safeguard Mechanism, and the issuance of ACCUs and RECs play a vital role in driving progress towards a more sustainable, net-zero emissions future.

Market Mechanisms and Trading

The Australian carbon market utilises various mechanisms and instruments to promote renewable energy and help the nation achieve its net-zero emissions target by 2050. Two key components in this market are Australian Carbon Credit Units (ACCUs) and Renewable Energy Certificates (RECs). These instruments facilitate the trading of emissions reductions and incentives for renewable energy projects.

National Registry and Secondary Market

The Australian National Registry of Emissions Units (ANREU) is a key component of Australia's carbon market. It tracks the issuance, transfer, acquisition, holding, and cancellation of ACCUs and RECs. The ANREU ensures transparency and accountability in trading activities. It also helps maintain a healthy balance between supply and demand in the market.

In addition to the primary market where ACCUs and RECs are initially issued, a secondary market exists where these instruments can be traded among market participants. This secondary market allows for price discovery, liquidity, risk management, and additional investment opportunities.

Some key statistics related to the balance of supply and demand in Q3 2022:

  • ACCU issuance: 5.7 million (18% higher than Q3 2021)
  • Year to date issuances: 13.9 million (compared to 13.6 million in 2021)
  • Projected total issuances for 2022: Over 18 million

Market Intermediaries

Market intermediaries play a significant role in managing transactions and facilitating the trading of ACCUs and RECs. They provide services such as brokering, risk management, and price information to help businesses navigate the complexities of the carbon market. These intermediaries include:

  • Carbon trading platforms, such as CORE Markets, that enable transparent and efficient trading
  • Renewable energy project developers who generate ACCUs and RECs
  • Electricity retailers that purchase RECs to meet regulatory obligations

By engaging market intermediaries, businesses can access useful guidance and information on the carbon market. They can also improve their emissions profiles. Lastly, they can align with Australia's goal of reaching net-zero emissions by 2050.

Clean Energy and Technologies

Electric Vehicles

Electric vehicles (EVs) play a significant role in reducing greenhouse gas emissions and supporting the transition to renewable energy in countries like Australia. By relying on electricity instead of fossil fuels, EVs help in decreasing carbon emissions and dependence on natural gas. As the adoption of EVs increases, they also contribute to the overall sustainability goals.

Carbon Capture and Storage

Carbon capture and storage (CCS) is a technology that aims to mitigate the effects of climate change by capturing CO2 from power plants and other large industrial emitters. The captured carbon will be securely stored deep underground in geological formations, preventing it from being released into the atmosphere. CCS reduces carbon emissions effectively, contributing towards meeting net-zero targets and combating climate change.

Sustainability and Innovation

Reaching net zero emissions requires creativity, collaboration, and investment in cutting-edge technologies. The Australian Renewable Energy Agency (ARENA) is an essential actor in this endeavour. This agency accelerates the pace of pre-commercial innovation and supports projects that can help expand renewable energy in Australia.

Through sustainability and innovation initiatives, Australia aims to reduce its greenhouse gas emissions by 43% from 2005 levels by 2030. Moreover, they also aim to achieve net zero by 2050. One tool aiding in this effort is the issuance of Australian Carbon Credit Units (ACCUs). Each ACCU represents one tonne of carbon dioxide equivalent (tCO2-e) stored or avoided by an emissions reduction project. These credits can be sold or used to offset the carbon emissions of businesses and help incentivise emissions reduction projects.

Moreover, Australia's clean energy regulator promotes renewable energy certificates, which facilitate investments in green projects. These certificates, alongside ACCUs, contribute to Australia's commitment to a clean energy future and advancing sustainable practices.

Frequently Asked Questions

What is the difference between renewable energy certificates and carbon credits?

Renewable Energy Certificates and Carbon Credits are instruments to support the development of renewables as well as reducing carbon emissions. RECs are issued to energy producers when they generate electricity from renewable sources. Meanwhile, carbon credits, such as Australian Carbon Credit Units (ACCUs), are awarded for projects that reduce greenhouse gas emissions or sequester carbon. The two financial instruments serve different purposes in addressing the challenges of climate change, although they promote sustainable practices.

How does the net zero concept relate to renewable energy?

Net zero refers to the balance between the greenhouse gas emissions produced and the greenhouse gas emissions removed from the atmosphere, which means that there is no net increase in global warming. Renewable energy is a significant factor in achieving net zero as it reduces dependency on fossil fuels that emit greenhouse gases. Countries and organisations could become net zero emitters of greenhouse gases as a result of this transition to renewable energy sources in conjunction with increased energy efficiency and carbon capture technologies.

How can one earn Australian carbon credit units?

Australian Carbon Credit Units (ACCUs) are awarded for projects that reduce greenhouse gas emissions or capture and store carbon under the Australian government's Emissions Reduction Fund (ERF). To earn ACCUs, individuals or companies must register a project that aligns with approved methodologies for emissions reduction or carbon sequestration. The Clean Energy Regulator issues ACCUs once the project is successfully implemented and its impact is verified, which can be traded or sold on the market or used to offset one's own emissions.

What is the current value of Australian carbon credit units?

As of Q3 2022, there has been a significant increase in ACCU holdings and a record high of nearly 20 million ACCUs. The 14th ERF Auction saw 7.6 million tonnes of carbon abatement contracted for optional delivery at an average price of AUD 17.35. However, the price of ACCUs may fluctuate over time due to market forces and demand.

Who is eligible to receive renewable energy certificates in Australia?

In Australia, eligible parties who produce electricity from renewable sources or invest in renewable energy systems are issued Renewable Energy Certificates (RECs). There are two different types of RECs: large-scale generation certificates (LGCs) for power plants that generate a significant amount of renewable energy and small-scale technology certificates (STCs) for installations of solar panels, wind turbines, and other small-scale renewable energy systems in homes and businesses. The type of technology used, the project's location, and the size of the renewable energy system all affect REC eligibility.

What is the process for trading Australian carbon credit units?

ACCUs can be traded on the secondary market through the Australian National Registry of Emissions Units (ANREU). To participate in trading, one must hold an account with ANREU and be authorised to transfer emission units. Once this is established, participants can engage in spot trades or long-term contracts, either directly or through brokers and intermediaries. The ACCUs can be sold to entities with compliance obligations under the Safeguard Mechanism or other voluntary organisations looking to offset their emissions.

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