The relative importance of carbon markets to the waste management sector’s future contribution to climate change commitments under the Paris Agreement: insights from Australia

Abstract

This paper presents research that analyses the relative importance of carbon markets to sustainable waste management projects in Australia. It identifies that a large proportion of carbon credits issued have been generated by landfill to electricity projects, which effectively rely on the continuation of landfilling practices. More ambition is needed to realise the potential of circular solutions that reduce, recover and utilise waste before disposal.The research also shows that, through modelling the financial performance of two theoretical waste to energy projects that would result in diversion of waste from landfill, simultaneous use of revenue support mechanisms (carbon markets and renewable energy certificate programs), cost of capital support programs (like concessional finance) and avoided landfilling levies in the deployment of waste management projects can be justified. The paper illustrates the significant contribution carbon revenues can make to project additionality at the investment-decision stage, adding between 2–10% to ex-ante estimates of pre-tax equity returns. This shows that a project’s additionality is not invalidated in cases where it accesses more than one support mechanism.There are many policy and practice applications for these findings in Australia and globally. They include within ongoing international efforts to define modalities for the new Article 6.4 mechanism under the Paris Agreement, reforms to how developing countries access to climate finance (including, but not limited to, the Bridgetown Initiative 2.0 (The Bridgetown Initiative 2.0: https://www.un.org/sustainabledevelopment/blog/2023/04/press-release-with-clock-ticking-for-the-sdgs-un-chief-and-barbados-prime-minister-call-for-urgent-action-to-transform-broken-global-financial-system/)); and through the domestic policies and mechanisms countries adopt so they are fit-for-purpose to support implementation of Nationally Determined Contributions (NDC).