Australia's carbon crediting scheme plays an important but evolving role in Australia's climate action, according to the Climate Change Authority's fifth review of the Scheme. The scheme gives carbon credits to eligible projects that cut emissions or store carbon.
According to Climate Change Authority CEO Kath Rowley, the scheme remains fundamentally sound, but it must continue to evolve in line with the wider policy and market context.
"Most credits are now purchased by Australia's biggest industrial emitters rather than the government. They use those credits to offset excess emissions under the Safeguard Mechanism. That raises new questions, including whether credits from some carbon storage projects are sufficiently durable to be used for Safeguard compliance," Ms Rowley said.
"More broadly, as Australia strengthens its emissions reduction efforts towards net zero, all sectors need to contribute. Carbon credits will remain important, but play a more targeted role. The government should signal where it considers credits the right tool - and where other policies are a better fit."
The Authority recommends 6 targeted improvements which include:
- reviewing the rules about credits from projects that store carbon for 25 rather than 100 years, so the risks of storage being reversed are well understood, and credits align with the emissions they are used to offset
- prioritising real public and First Nations benefits when the Australian Government buys credits setting out a roadmap for new ways to earn credits (known as methods), to give investors and project developers more certainty
- making information clearer and more accessible about credits and their attributes.
The review does not call for major overhaul
"Stakeholders across the board told us policy stability and predictability is crucial to making long-term, large-scale investments in reducing emissions. Policy instability is a poison pill for investment," Ms Rowley said.
"The Authority is recommending targeted and practical improvements to make sure carbon credits continue to play the right role in meeting Australia's climate goals," Ms Rowley explained.
"We want to improve transparency, build confidence and support new ways of creating carbon credits. It's about keeping the scheme credible and effective as Australia works towards net zero by 2050."
The findings reinforce the Authority's earlier work
"Like our 2023 review, and the 2022 Chubb Review, we find that overall, the scheme is working well," Ms Rowley said.
"The government is making steady progress on the recommendations made by us and by Professor Chubb.
"A record 21.7 million credits were issued in 2025, representing the sequestration or avoidance of emissions roughly equivalent to the annual emissions from Victoria's transport sector. As credits play an important role in cutting emissions across the economy, keeping trust in the market matters more than ever. Regular reviews like this give projects, investors and the market confidence to keep going."
