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Carbon Credits in Australia: An Overview of Incentives for Emissions Reduction and Renewable Energy

20-02-2026

Introduction

Carbon credits in Australia are financial instruments that reward projects and activities that reduce greenhouse gas emissions or generate renewable energy. They play a key role in supporting the nation’s transition to a lower-carbon economy by providing income for farmers, businesses, households, and project developers. The two primary categories are Australian Carbon Credit Units (ACCUs) and Renewable Energy Certificates (including Large-scale Generation Certificates or LGCs, and Small-scale Technology Certificates or STCs). While they both contribute to climate goals, they operate under different schemes, serve distinct purposes, and have unique rules.These credits are administered by the Clean Energy Regulator and can be traded on secondary markets or used to meet compliance obligations. They help bridge the gap between voluntary action and mandatory emissions reduction targets.

Main Types of Carbon Credits and Incentives

  • Australian Carbon Credit Units (ACCUs)

ACCUs are Australia’s primary carbon credits. One ACCU represents one tonne of carbon dioxide equivalent (tCO₂-e) emissions that are either avoided or removed from the atmosphere through an approved project.

Projects eligible for ACCUs include reforestation, soil carbon improvement, methane capture from landfills or livestock, energy efficiency upgrades, and savanna fire management. The scheme is voluntary, though ACCUs can also be surrendered under the Safeguard Mechanism for large emitters. ACCUs come in two subtypes (Kyoto and non-Kyoto) depending on whether the abatement counts toward Australia’s international climate commitments.

  • Large-scale Generation Certificates (LGCs)

LGCs incentivise large renewable energy projects such as wind farms, solar farms, and hydro installations with a capacity over 100 kW. One LGC is created for every megawatt-hour (MWh) of renewable electricity generated. Liable entities (large electricity retailers) must surrender LGCs annually to meet the Large-scale Renewable Energy Target.

  • Small-scale Technology Certificates (STCs)

STCs support small-scale renewable installations (under 100 kW), such as residential and small business solar PV systems, solar hot water, heat pumps, and batteries. Certificates are “deemed” upfront based on expected energy production rather than actual generation. One STC is roughly equivalent to 1 MWh of renewable energy.

Key Differences

  • Purpose and Focus — ACCUs reward actual, measured emissions reductions or carbon sequestration across many sectors (agriculture, land use, waste, industry). LGCs and STCs specifically promote renewable electricity generation and do not directly measure carbon abatement.
  • Scale — ACCUs and LGCs are suited to larger or more complex projects; STCs are designed for smaller, household-level installations.
  • Compliance vs Incentive — ACCUs can be used for both voluntary offsetting and mandatory compliance. LGCs and STCs primarily fulfil the Renewable Energy Target (RET) obligations for electricity retailers.
  • Calculation and Longevity — ACCUs are issued based on verified project performance over time. LGCs are generated as electricity is produced. STCs are calculated using a “deeming period” that assumes future generation.

Important Note on STCs

The Small-scale Renewable Energy Scheme (SRES), which creates STCs, is scheduled to end on 31 December 2030. The number of STCs issued per installation has been gradually declining each year through a shortening deeming period. By 2030, the incentive will cease entirely, with no new STCs created after that date. This planned phase-out encourages early adoption of small-scale renewables while transitioning the market toward longer-term mechanisms like ACCUs and market-driven renewable energy.

Benefits

Carbon credits and certificates provide multiple advantages:

  • Financial incentives that improve project payback and make clean technologies more affordable.
  • Support for rural and regional economies through land-based ACCU projects.
  • Contribution to Australia’s emissions reduction targets and renewable energy goals.
  • Market-driven innovation in carbon farming, energy efficiency, and renewables.

Conclusion

Australia’s carbon credit system combines targeted incentives for renewable energy (LGCs and STCs) with broader emissions reduction opportunities (ACCUs). While STCs will end around 2030, ACCUs and LGCs are expected to remain central tools for driving investment in low-carbon projects. Understanding the differences helps individuals, businesses, and land managers choose the most suitable pathway to participate in Australia’s clean energy transition and contribute to national climate objectives.