Telstra ditches carbon credits... why the celebration?

What happened?

Telstra , The largest telecommunication company in Australia, announced on the 14th of June that it would abandon the use of carbon credits in favour of direct emission reduction. This decision has been touted by media outlets and climate activists as a win for the environment. Scratch beneath the surface and a very well-crafted curtailing of climate ambition is unearthed.

In total between now and 2050 this means they will directly reduce an extra 6.1 million tonnes of emissions, in exchange for cancelling 27.4 million tonnes worth of environmental compensation (also known as offsetting).

Telstra has effectively swapped a very minor increase in decarbonisation ambition for the complete cessation of compensation payments to the environment.

To be fair to Telstra, they should be applauded for leading the way on climate action in their sector. Analysis of their publicly available data since 2019 (great transparency!) shows they have decreased their total emissions by 29%. They have also purchased and retired 8.3 million carbon credits to compensate for unavoidable emissions. So credit where credit is due!

There are many other companies quietly sailing under the radar and doing absolutely nothing! These companies deserve much more scrutiny than Telstra.

How did they managed to garner such widespread support for scaling back their ambition?

Prior to the announcement, Telstra had already committed to a robust 50% reduction in carbon emissions by 2030. Alongside emission reduction they had also adopted a commonsense strategy of using carbon credits to compensate for emissions released along the way. The consensus within the scientific community holds this two-pronged strategy as the optimal approach to achieving a net-zero global economy.

On Friday 14th of June, Telstra announced a reorientation of this strategy. The funds previously spent on compensating for their emissions would be redirected towards direct decarbonisation activities. Touting a shift from a 50% to 70% emission reduction from 2019 levels by 2030, in relation to their directly controlled emissions (scope 1 and 2). But how does the new approach stack up?

First let's look at emission reduction

Scope 1 emissions are greenhouse gases (GHG) generated by things or processes a company controls, and scope 2 are those arising from electricity, heating or cooling, while scope 3 are indirect emissions generated by others in a company's supply chain.

This was the clever part. By focusing the press release on the increase in ambition from 50% to 70% for scope 1 and 2, Telstra was able to steer the narrative in a positive direction.

Most media outlets swallowed the bait hook line and sinker! But the good news story falls apart when you consider that there has been no change in ambition on scope 3 emission reduction targets.

So, when you consider the new ambition as part of their total emissions (scope 1, 2, AND 3), encompassing the broader value chain – the new reduction target is only a modest shift from 50% to a 57.2% reduction by 2030 (see appendix for data and assumptions).

Dig even deeper into Telstra's media statement and it reveals that theses extra emission reductions will come almost exclusively from the transition to renewable energy. If Australia achieves its target of 82% renewables by 2030, Telstra will easily hit the new target without lifting a finger. Add to this that Telstra also touted that they have secured offtake to hit 100% renewables by 2025, meaning that the new target is already all but achieved.

Notably, the switch also means abandoning the third-party scrutiny of a carbon-neutral certification scheme. We must now trust Telstra to invest equally in new decarbonisation initiatives as previously expended on carbon credits.

Now onto the carbon credit side:

It takes a fair bit of digging through sustainability reports and Telstra's Climate Active carbon neutral public disclosure statements to determine exactly what emissions have been compensated for. The best data that could be found reveals that between 2020 and 2023 Telstra have compensated for around 68% of unavoidable emissions (when considering the whole of scope 1, 2, and 3 emissions).

This is because their carbon compensation commitments did not technically extend to all emissions, just those within their control. So what we see in the graph below is a slightly more nuanced story than presented earlier in this article.

Was Telstra's approach perfect?... of course not. There are many areas to improve, many (myself included) would like to have seen them:

1. utilising more nature-based and removal-based carbon credits
2. being clearer on exactly what proportion of emissions have been compensated for each year (offset)
3. Increasing to compensate for 100% of total unavoidable emissions each year

Despite all of this, it is still very hard to see how the newly announced strategy is in any way a net-improvement for the environment. When you multiply the net difference in greenhouse gas abatement out to 2050 you get:

• 6.1 Million tonnes of extra direct emissions reductions, in exchange for
• 27.4 Million tonnes of compensation payments cancelled (assuming only 68% of unavoidable emissions are compensated for, as per image above)

That is without going into the broader environmental and social benefits associated with carbon credit programs.

Why the change?

1. Cost cutting

The first possible reason for this change, is cost cutting. A quick estimate reveals that in 2021-22 Telstra could easily have spent more than four million Australian dollars on purchasing carbon credits. As carbon prices increase and public pressure mounts to purchase higher quality carbon credits, Telstra may simply have decided that the cost imposition would be too great, when compared to reducing emissions based on renewable energy procurement.

A review of Telstra's publicly available data shows Telstra has historically purchased carbon credits in the lower price ranges of $2- 5 AUD range. Carbon prices are expected to increase rapidly, with high-integrity Australian Carbon Credit Units (ACCU's) for biodiverse tree planting projects already commanding above $55 AUD.

2. Avoiding media pressure

The potentially more likely reason for the decision is to avoid further public scrutiny associated with carbon offsetting and carbon neutrality claims. Both approaches have weathered significant criticism in relation to the integrity of carbon credits, or how “real”, the associated emission reductions are. Some headlines constructive and valid, some sensationalised.

Carbon markets, like any market, require critique to ensure success and improve over time. But the current media landscape has become highly hostile to any company attempting to make positive change.

Telstra have been no exception. Their choice of carbon credits has been called into question in the media along with their use of the term "carbon neutral" in relation to their direct business operations (scope 1 and 2). There a tendency in media reporting to associate ALL carbon credit methodologies with certain methodologies that are receiving scrutiny (despite the fact that hundreds of different methodologies exist). There is also an assumption that companies using carbon credits will do so instead of decarbonising (proven wrong by recent studies and also seen here in Telstra's track record).

It is understandable that Telstra may have decided that it is currently easier from a PR perspective to back away from public claims around carbon neutrality or carbon offsetting, rather than trying to navigate ongoing media scrutiny while improving on their existing approach.

The world heads towards higher quality carbon credits, Telstra heads for the exit.

Telstra’s decision to abandon carbon credits is out of lockstep with the global response to these integrity concerns.

The global trend has shifted towards a focus on improving the quality of carbon credits, rather than abandoning this vital climate action tool.

We have seen a steady increase in demand and prices for higher quality carbon credit projects based on removal of carbon from the atmosphere, such as biodiverse tree planting.

This month the US government released guidelines on high integrity credits and reaffirmed the critical role of the voluntary carbon market. The Integrity Council for the Voluntary Carbon Market (ICVCM) announced the first projects certified under its high-integrity Core Carbon Principles (CCPs) program. Global heavyweight companies 微软 , 谷歌 , Meta Facebook and Salesforce , have combined forces to release a clear set of guidelines for procurement of high-quality carbon credits. All are constructive responses that will help to improve the carbon market and to drive real world climate action.

Telstra’s decision represents a risky strategic gamble ?– opting to backpedal on their climate commitment and to cease compensating the environment for unavoidable emissions.? As the carbon market evolves, Telstra will likely lose its position as a climate leader. There is a gap here for competitors to step up and take the mantle from Telstra by adopting the commonsense strategy of reducing and offsetting emissions simultaneously, with a focus on highest possible quality of carbon credits.

What does this mean for the carbon market?

There is no sugarcoating the fact that this is disappointing news that doesn't help investor confidence.

From a materiality perspective, Australian Carbon Credit Units (ACCU's) accounted for less than 1% of the credits purchased by Telstra. So it won't have any impact on supply demand dynamics in the Australian market.

From a global market perspective, Telstra's annual purchasing is not likely to be large enough to be material. For example, just four days after Telstra's announcement, 微软 announced the largest offtake agreement ever, to acquire 8 million nature-based carbon units. So there is little expectation that this news will have a lasting impact.

The last word

We need companies like Telstra to stand strong and hold the course, rather than abandoning ship to save a few dollars or to hide from media scrutiny when things get hard. In the race to net-zero, there is no place for watered-down climate commitments disguised as the opposite – shareholders and the public can’t accept this PR sleight of hand.

Meanwhile there is much for climate activists, whistleblowers, academics and other companies to learn from this decision, and the net-negative outcome for the environment. We can do better!

Companies like Telstra should be encouraged and not criticised for their climate action (let's save that for the many companies who are doing nothing!). We need to create conditions that encourage companies to improve over time and give it their best shot, instead of being scared to take the slightest misstep.

The best possible outcome is that public sentiment around the appropriate use of carbon credits matures and Telstra realises the error in their new strategic choice - reverting back to their previous and highly commendable approach that is more aligned to other global companies.

At such a critical time for climate action, we need all companies to adopt a two-pronged strategy of reducing emissions and compensating for all unavoidable emissions at the same time.

APPENDIX: Some data

The projection utilised is based on the following assumptions

• Actual data used for years 2019-2023
• The pre-announcement scenario required a year-on-year emission reduction rate of 4.9% to reach the prescribed target of 50% reduction in scope 1, 2, and 3 emissions from 2019 levels by 2030
• The post-announcement scenario required a year-on-year emission reduction rate of 6.98% to reach the new prescribed target of 57.2% reduction in scope 1, 2, and 3 emissions from 2019 levels by 2030
• It has been assumed that 20% of total emissions are hard to abate emissions and cannot be reduced feasibly by 2050 (emission floor). This is a judgement call, in the absence of data.