Whither Goest Carbon Credits

In Australia, the concept of a thing’s existence being dependent upon it being recorded in a register has its roots in the Torrens Title system of land tenure administration. This is commonly known as a ‘system of registration of title’.

The Australian National Registry of Emissions Units (ANREU) is a system of registration of title.

Fundamental to a system of registration of title is the principle of indefeasibility. This means the ANREU is the definitive record of all interests in relation to an emissions unit, and thus, the registered proprietor of that emissions unit is immune to claims contrary to the register.

Another fundamental principle is that an emission unit does not exist until it has been registered on the ANREU. It follows, therefore, because ‘carbon offset’, ‘carbon reduction’ and ‘carbon credit’ are terms synonymous with emissions unit, a carbon reduction or a carbon credit does not exist if it is not registered on the ANREU.

From these two principles we can see that a voluntary market in emissions units, carbon credits, carbon reductions or carbon offsets is fraught with risk.

By way of example consider the following case. A metropolitan city council contracted at an undisclosed contract price with a rural landholder in Western Australia to plant 85,000 trees which would sequester an estimated 62,500 Tonnes of CO2 equivalent over a period of 40 years. The council then promoted that that they had acquired 65,000 carbon offsets and were thus well on their way to becoming ‘carbon neutral’.

Because title to the carbon offset is not registered anywhere, title is not indefeasible and thus the city council is not immune to claims contrary to their perceived title. As a consequence, for the city council to prove at some future time that it has an interest in the 62,500 Tonnes of CO2 equivalent it must maintain a ‘chain of title’ for a minimum of 40 years.

Given that the carbon offsets were not registered on the ANREU then the carbon offsets do not exist. Apart from some ill-defined intangible altruistic ‘feel-good factor’, there is no real benefit to the city council.

The contract price paid by the council can be viewed as nothing more than a donation to a rural landowner to assist with defraying the cost of tree planting.

Thus we can see that, despite there being some trees planted and some carbon sequestered, the city council cannot claim that they have achieved any carbon offsets against their car parks because there is no emissions unit record on the ANREU.

The opposite is also true.

A carbon offset exists if it has an emissions unit record on the ANREU – whether or not any carbon was actually removed from the atmosphere.

– Russell