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Carbon Markets

Confused about carbon credits?
Let us help you.

As well as being a force for environmental good, carbon credits offer attractive opportunities to entrepreneurs and investors.  These opportunities include providing advice or project development services for those wishing to generate carbon credits, acting as a broker in relation to carbon credits, and offering investors exposure to carbon credits via managed funds.

What are carbon markets or carbon credits?

Carbon markets are systems for buying and selling carbon credits.  In Australia, there is a national market for Australian carbon credit units (ACCUs), administered by the Clean Energy Regulator (CER).  There are also international carbon markets administered by non-government organisations.

A carbon credit represents the reduction, sequestration or avoidance of emissions.  In Australia, ACCUs are issued by the CER for projects that avoid or sequester greenhouse gas emissions.  This avoidance or sequestration is known, under the relevant legislation, as ‘carbon abatement’.

A company or individual can purchase carbon credits and trade them to make a profit or use them to offset their own emissions.

How do carbon credits work?

In Australia, the CER issues ACCUs for carbon abatement activities.  An ACCU issued is either a Kyoto ACCU (which is eligible to be used to meet Australia’s climate change targets under the Kyoto Protocol) or a non-Kyoto ACCU (which is not eligible to be used in this way).

In Australia, another type of carbon credit is the safeguard mechanism credit unit (‘SMCU’).  Certain facilities may apply for SMCUs to be issued where they have kept their emissions below a regulatory limit or ‘baseline’.  SMCUs can be sold, surrendered or banked.  A facility which emits more than the applicable baseline can use SMCUs issued to another facility to offset its excess emissions.

Further types of carbon credits include certified emission reductions, emission reduction units, and removal units.

Examples of carbon credits

  • Kyoto ACCU
  • Non-Kyoto ACCU
  • Safeguard mechanism credit unit
  • Certified emission reduction
  • Emission reduction unit
  • Removal unit

Activities related to generating, trading or investing in carbon credits can also involve interests managed investment schemes, facilities for making a financial investment, or derivatives.

Our expertise

Our team has extensive experience in relation to financial services law, including in relation to carbon credits.  This includes advising whether an AFSL is required and, if so, what authorisations apply.  It also includes assisting with preparation, lodgment and post-lodgment communication with ASIC in relation to AFSL applications.  We provide ongoing legal and compliance support to AFSL holders, including those conducting activities in relation to carbon credits and carbon markets.

See below for examples of our work in relation to carbon credits.

How people use carbon credits

The business opportunities in relation to carbon credits begin with the generation of carbon credits through carbon reduction and sequestration activities.  These credits can then be sold to generate income.  Parties advising or developing projects to reduce and sequester carbon can generate income from these activities.  Further opportunities can be found in the trading of carbon credits.  Acting as an intermediary in this space on behalf of those who wish to purchase or sell carbon credits provides further possibility for revenue generation.  There are also opportunities for funds wishing to generate revenue from trading in carbon credits.

What you might need to know to legally trade carbon credits.  Do you need to be licensed?

Legal

Whether or not you need to hold an Australian financial services licence (AFSL) will depend on whether you are carrying on a financial services business in Australia.  If you are, and no licensing exemptions apply to you, then you will need to obtain an AFSL authorising you to provide the relevant financial services.

Activities relating to carbon credits frequently require careful legal consideration to identify which financial services are being provided and the financial products to which they relate.  While your business may sound simple, it may be complex from a regulatory perspective.

Financial products involved might include ACCUs, eligible international emissions units (EIEUs), managed investment schemes, derivatives, or facilities for making a financial investment.  Financial services involved might include providing financial product advice, dealing, making a market, or providing a custodial or depository service.

Holley Nethercote Lawyers can advise you on whether you will require an AFSL and what authorisations will be required.

Licensing

Once you have identified what authorisations are required, you will need to apply for an AFSL.

Applying for an AFSL is an involved process, best undertaken with assistance from professionals experienced in the area.

Holley Nethercote Compliance can assist you with the licence application process from start to lodgment, and beyond.

How we can help

  • Provide you with legal advice on whether you need an AFSL to participate in carbon markets and, if so, what authorisations will be required under the AFSL
  • Assist you with preparing and lodging your application for an AFSL, and during the post-lodgment process if desired
  • Provide ongoing legal and AFSL compliance support on an ongoing basis once you are operating under your AFSL

Useful resources

Examples of our carbon markets work

We have helped with:

  • Advising on the supply to organisations of ACCUs with co-benefits
  • Advising project proponents on obtaining ACCUs on behalf of landowners
  • Advising on entering into fixed and floating price contracts in relation to ACCUs
  • Advising on conducting activities in relation to SMCUs
  • Assisting entities to obtain AFSLs in relation to carbon credit activities
Carbon Markets

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