Manufacturers may invest in cheaper offsets, rather than lower emissions technology. Credit:Kate Geraghty Calling it a victory for common sense over ideology, Mr Willox said: "There is simply no reason to waste efforts on higher-cost domestic abatement options when credible, high-quality and less expensive alternatives are available abroad." The Australian Aluminium Council also supported the proposal for international credit trading. "A tonne of CO₂ is a tonne of CO₂. It's a global issue," the council's executive director, Miles Prosser, said. He said this provided another emissions reduction option, which, combined with operational efficiency and low emissions technology, allowed for greater choice in slashing carbon dioxide output.

Concerns have been raised over the potential for cheap carbon credits to reduce investment in new energy generation. Credit:Martin Meissner "We support the flexibility of going internationally for permits to reduce emissions at the lowest cost." Power and policy International credit trading could also support the government's national energy guarantee (NEG), but damage future renewables investment. Manufacturers and smelters may soon look overseas to buy carbon credits to reduce their emission levels. Credit:MICK TSIKAS

"It could help energy retailers meet the emissions standards under the NEG, as it may be cheaper for them to buy these credits rather than supplement their energy mix with new wind or solar," an industry source said. One Australian energy retailer believed these credits weren't needed for the electricity industry. A tonne of CO2 is a tonne of CO2. It's a global issue. Australian Aluminium Council executive director Miles Prosser "While there's a role for them in trade-exposed industries, in terms of energy we have the means and technology to reduce emissions by replacing coal with gas and renewables," an energy insider said. "It sends the wrong investment signals, if you want to encourage investment then international credits are the wrong way to go about it."

Australian Energy Council chief executive Matthew Warren said the proposal supported the NEG as a process for energy reliability. "Our perspective is that these permits can be used as a balancing mechanism," Mr Warren said. He said it would be a short-term response, and there remained the need for the replacement of old energy generation. "We're struggling to see how you can rebuild the grid without evolving the assets and then buy permits for 50 years. They can help, but they shouldn't be the cure." Concerns have also been raised over their ability to actually play a role in reducing wholesale emissions.

"Given that the rules are still being negotiated for the use of international units, we'd be concerned about the efficacy of their use to meet our Paris Agreement commitments," Market Forces analyst Daniel Gocher said. "We'd prefer the government focused on the domestic market, particularly reducing land clearing. Permits can also act to delay more meaningful action, particularly in the electricity sector." Federal Environment and Energy Minister Josh Frydenberg said it would have no impact on the NEG, which operates through existing energy market mechanisms and there are "no subsidies or certificates involved in this guarantee and in this sense it does not involve a price or tax on carbon". Australia's credit industry The policy may also be a double-edged sword for Australian carbon abatement companies, as it widens their potential reach beyond Australia's smaller domestic market, but could also drive them out of business as buyers look overseas for cheaper credits.

"Pollution is going up, we won't meet even our paltry Paris targets and the government's only plan is to make things worse by allowing companies to buy dodgy permits from pig farms in China instead of cutting Australia's emissions," Greens climate change and energy spokesman Adam Bandt said. Carbon Farmers of Australia director Louisa Kiely said the review was a mixed bag, which might put the fledgling carbon credit industry at risk. "International prices for carbon credits are very cheap, and they may or may not be as rigorously verified as they are in Australia," Ms Kiely said. "The threat is that these cheaper credits could damage Australia's highly-monitored and verified industry, and there's the risk the market may be flooded with these cheaper carbon credits," she said. However, she noted there was also the potential for Australian companies to export their more-verified credits.

Loading The policy would also impact indigenous groups that run native land management carbon businesses, such as those facilitated by the Kimberley Land Council. Since 2014, four North Kimberley native title groups have run carbon farming operations, generating almost half a million Australian Carbon Credit Units through traditional land management and maintenance, providing these carbon offsets to companies such as Qantas.