Doubts about the soundness of Australian carbon credits have not been fully addressed, conservationists say.
In January, the federal government released the Independent Review of Australian Carbon Credit Units (ACCU) report, which found the scheme was "sound" but recommended some changes around transparency and information sharing.
Since then, market participants have been working with officials on how the review's recommendations, all accepted by federal Labor, will work in practice.
But proposed principles fall short of what is required and could be "entirely disregarded" by federal ministers, the Australian Conservation Foundation (ACF) has warned on the closing day for ideas on tightening the scheme.
"Integrity cannot be compromised at any stage. That needs to be a bottom line," the foundation said.
The ACF urges it be made clear that avoiding and mitigating emissions at source - not offsets - are the top priorities for the safeguard mechanism and the broader carbon credit scheme.
The safeguard mechanism covers Australia's 215 largest industrial facilities and allows unlimited carbon credits to meet emissions reduction requirements.
Instead, offsets should be used as a last resort and limited to the hardest to abate industries, with strict limits imposed as soon as possible, the ACF said in a submission released to AAP.
Each carbon credit unit is meant to represent a tonne of carbon emissions, or the equivalent of a more potent greenhouse gas such as methane, and allows some pollution to be offset through nature-based projects.
The units can be sold as a new income stream, either to the federal government through a carbon abatement contract, or to companies and other private buyers in the carbon market.
"It would be a perverse outcome for climate to allow government-held ACCUs, which are predominantly low-integrity, to enter the market and become offsets for real industrial emissions from safeguard mechanism facilities," ACF said.
The organisation said it remains concerned that integrity issues "have not been fully addressed and that existing projects under these methods risk generating further ACCUs that lack integrity".
The review has not addressed the risk that low-integrity carbon credits remain in the market, it added.
Nor should the government extend "pilot arrangements" brought in under the coalition that allowed contract holders to pay exit fees to get out of decades-long commitments struck at a lower price than the current market rate, ACF said.
The latest official quarterly carbon market report forecast a record 18 million Australian carbon credit units would be issued in 2023.
The Clean Energy Regulator (CER) report said the first units have been issued under a soil carbon method, with 151,000 issued to two projects in Queensland for improved grazing practices.
Some 4.1 million ACCUs were released in the third "pilot exit window" for contract holders.
Far from the peak at $57 in early 2022, spot prices have recovered off lows of $24 in July 2023 to around $30, although contracts with environmental and First Nations credentials are attracting a premium.
