Investing in carbon credits or
carbon credit projects
Australians have been able to trade in carbon credits for a few
years. Here we outline how carbon trading works, how it is
regulated in Australia and how to check if a carbon investment is
What is carbon trading?
Carbon trading is when you buy and sell carbon credits (also
called carbon offsets). Carbon credits are tradable units that
often relate to emissions reduction or sequestration activities,
such as tree planting, improving energy efficiency or capturing
methane from landfill.
Emissions Reduction Fund
Carbon trading can also involve households, small businesses and
farmers participating in carbon credit projects that are set up to
generate carbon credits and compete in tenders to sell them to the
Commonwealth Government's Emissions Reduction Fund. These projects
usually involve a project promoter (an aggregator) who oversees
individual emissions reductions or sequestration activities as part
of a single, umbrella project (an aggregation) that shares in the
revenue from carbon credit sales.
Project promoters can also set up separate projects for
individual businesses and farmers. The promoters can then oversee
the generation and sale of carbon credits from each project.
The Clean Energy Regulator has more information about the Emissions
Which carbon credits are
Unregulated carbon credits
Some carbon credits are not regulated in Australia as financial
products. These are usually bought online from suppliers or through
companies that operate a carbon trading platform and are used to
offset people's personal household or travel emissions.
Just because these credits are unregulated doesn't mean that
they are illegal or invalid. It means that the people promoting or
selling them don't need to be licensed by ASIC.
Carbon credits, including regulated carbon credits, are not
backed by any assets and don't pay any dividends or interest. The
value of different types of carbon credits can be very different
depending on how they are created and issued and what they are used
for. If you are offered an investment in 'cheap' carbon credits, be
suspicious. A seller may suggest you are getting a bargain compared
to the price of other carbon credits but that doesn't mean they
will rise in price to match the value of other types of carbon
Regulated carbon credits
The only types of carbon credits that are regulated by ASIC in
- Australian carbon credit units ( ACCUs) -
Issued for Australian emission reduction or sequestration projects
regulated by the Clean Energy Regulator.
- Eligible international emissions units
(EIEUs) - Issued under the Kyoto Protocol, also known as
certified emission reductions (CERs) and emission reduction units
(ERUs) and removal units (RUs).
Projects that are aggregations may be regulated as managed
investment schemes, particularly where the returns from the project
area share in the collective revenue from ACCU sales. The Clean
types of units webpage gives more details about regulated
Types of aggregations
Aggregations can vary from relatively simple arrangements for
households to more complex projects for small business or
For example, a household may upgrade to more energy efficient
appliances that have benefits such as energy savings. This kind of
project usually does not involve revenue from the sale of
More complex projects for small business or farmers may be more
reliant on ACCU sales to make the project worthwhile. There may
also be upfront and ongoing costs for the project and financial
penalties payable to the aggregator if the agreed or expected
emission reduction targets are not met.
To learn more about aggregation and how it works see the Clean
Energy Regulator's webpage Aggregation
under the Emissions Reduction Fund.
Questions to ask about
Before you agree to participate in an aggregated project make
sure you do your research so you know what is required of you, the
features, risks and benefits of the aggregation. Here are some of
the questions you should ask before you invest in an aggregation
- Who you are dealing with - What are the
skills, experience and track record of the promoter or aggregator?
If they cannot demonstrate experience and expertise, you should be
- Income - What income or benefits do you get
from participating in the project? For example, will you get a
pre-agreed payment from the aggregator, a share in the sale of
ACCUs, a reduction in energy costs or a mixture of these?
- Costs - What is the upfront investment and
what are the ongoing costs?
- Timeframe - Is there a certain amount of time
you must remain in the project?
- Registration - Is it the type of project that
is able to be registered with the Clean Energy regulator? Is the
project already registered? What happens if the project doesn't get
registered by the Clean Energy Regulator?
- Risks - How certain are the future financial
benefits? If your activity or the other participants' activity
doesn't generate the agreed emissions reductions, will this affect
how much you will get paid? Will you have to pay penalties to the
Many aggregations are structured as managed investment schemes.
If an aggregation is a managed investment scheme you should read
its product disclosure statement to help you
answer the questions above. If you have further questions about an
aggregation you may also consider getting professional financial advice.
Check for a licence or
registration before you trade
Financial advisers, project promoters and investment companies
must generally hold an Australian Financial Services (AFS) licence
or operate on behalf of a licensee if they:
- advise you to trade in regulated carbon credits
- offer to sell you regulated carbon credits
- invite you to participate in an aggregation
- invite you to invest in a managed fund that earns any
type of carbon credit
You can check their names on ASIC Connect's Professional
Registers to make sure they hold an AFS licence or are
authorised to provide services on behalf of a licensee. Financial
service providers that are not licensed or authorised by a licensee
are operating illegally.
If you are concerned that a person is operating without a
licence, or if you have problems with a licensed person you should
complain to ASIC.
You can find out if a project is registered by the Clean Energy
Regulator by viewing the Emissions
Reduction Fund project register.
Documents you must be
Before they provide you with any services, the promoter or
financial adviser must give you their financial services guide
which will explain:
- the financial services being offered
- the fees charged
- how the person or company providing the service will deal with
If the financial services relate to carbon credits, they must
also tell you how to find the Clean Energy
Regulator's concise descriptions of the units.
If you are considering participating in an aggregation that is a
managed investment scheme, the project promoter or your financial
adviser must give you the product disclosure statement of the
Be wary of calls or emails out of the blue offering you carbon
credits for sale as they could be scams.
If the caller claims they can generate Australian carbon credit
units through a carbon offset project, check if the project is
listed on the
Clean Energy Regulator's Emissions Reduction Fund project
register. If it is not it could be a scam. If you think someone
is making false claims about a carbon offset project you should complain to ASIC.
You can also complain to the Clean Energy Regulator by emailing
Find out more about investment scams.
Investing in carbon credits or carbon credit
projects can range from simple investments to more complex
arrangements. Before you invest make sure you understand the
features, risks and benefits. If you are unsure seek professional
financial advice to help you decide if carbon trading is right for
Last updated: 29 Jul 2016