The Reef Credit Scheme

Summary

The Reef Credit Scheme is a voluntary nature market that was designed to improve water quality across the Great Barrier Reef catchment in Queensland, Australia. The scheme was developed by GreenCollar, an environmental markets investor and managed by Eco-Markets, an independent administrator which is responsible for registering and verifying the projects before they are sold. The scheme incentivises farmers to undertake land management activities which in turn generates Reef Credits. One credit is worth one kilogram of dissolved inorganic nitrogen, or 538 kilograms of sediment. Once a project has been verified, the Reef Credits are issued and can be purchased by governments, philanthropists and private sector including financial institutions.

The health of Australia’s Great Barrier Reef is both an environmental and an economic issue. It is one of the seven natural wonders of the world, the world’s largest living structure covering over 348,000 km2, and home to over 25% of all known marine species; while its economic, social and iconic value is AUD 56 billion (USD  37.21 billion), according to the Great Barrier Reef Foundation. It also supports more than 64,000 jobs. Today, however, the Great Barrier Reef is under threat, both from the effects of climate change, resulting in rising water temperatures as well as deteriorating water quality. Delivering water quality improvements at speed and scale are a priority to meet the targets under the Reef 2050 Water Quality Improvement Plan.

Reef Credits is a voluntary Australian nature market that incentivises landholders to undertake land management activities that improve water quality in the Great Barrier Reef catchment. These improvements, in turn, generate Reef Credits – tradable units that each represent a quantifiable volume of nutrient or sediment prevented from entering Great Barrier Reef catchments, which can be sold to buyers.

A Reef Credit is a quantified and verified amount of pollutant that has been prevented from entering the Great Barrier Reef. One Reef Credit equals one kilogram of dissolved inorganic nitrogen, or 538 kilograms of sediment, as per the below diagram:

The programme is independently managed and administered by Eco-Markets Australia. It uses a Standard, accounting methodologies, independent auditing and a Registry to measure, verify and track pollutant reduction. Reef Credits are earned when all the programme criteria have been met, measured and independently verified [1].

Reef Credits were developed in response to the emerging consensus that a market mechanism to incentivise water quality improvements across catchments of the Great Barrier Reef was urgently needed. In 2017, natural resource management organisations, Terrain NRM and NQ Dry Tropics partnered with GreenCollar, an environmental markets investor and project developer, to guide the development of the Reef Credits and serve as the Interim Steering Committee.

Funding to support the development of the programme, its governance and  the registry was provided by the partnership between the Australian Government’s Reef Trust and the Great Barrier Reef Foundation, and Queensland Government. Eco-Markets Australia was subsequently established as an independent entity and launched as a not-for-profit to manage and administer the Reef Credit program in 2020.

Administration of Reef Credits

Eco-Markets Australia manages and administers the programme, ensuring that rules verifying water quality improvements are enforced, and that the water quality improvements are real, measurable and permanent. Eco-Markets Australia also manages a public registry where all Reef Credit projects, credit issuances, transfers and retirements are logged and published to maintain the transparency and integrity of the program. Reef Credit projects are independently audited by an approved third-party verifier/auditor, who verify the outcomes claimed in accordance with the project methodology used.

The Reef Credit Standard and supporting documents set the rules and requirements of the program including the development of methodologies, the validation, registration, monitoring, verification, crediting, issuance and transaction requirements for all Reef Credit projects.

The program currently has four approved methodologies that Project Proponents can use to develop Reef Credit projects, represented in the table below:

The DIN Method, also called the Nitrogen Uptake Efficiency Method, measures the reduction of Dissolved Inorganic Nitrogen (DIN) through soil and nutrient practice change activities. These projects generate Reef Credits annually over a 10-year crediting period [2].

The Gully Method measures the sediment reduction entering the waterways in the Great Barrier Reef catchment. Project activities under this methodology include landscape rehabilitation and construction. Projects under this methodology generate Reef Credits on a rainfall event and has a project crediting period of 25 years.

The Grazing Land Management Method is designed to reduce fine sediment runoff into waterways within the Great Barrier Reef catchment by improving grazing land practices. Its primary aim is to enhance pasture ground cover ahead of high-intensity rainfall events, preventing soil erosion. Using a refined sediment delivery model based on the Revised Universal Soil Loss Equation (RUSLE), as applied by the Commonwealth and Queensland Governments, the method ensures accurate measurement of sediment reduction. By integrating Dynamic Reference Cover Modelling (DRCM), the GLM Method accounts for seasonal variations and ensures credits are awarded solely for improvements in grazing land management. Projects following this methodology can generate Reef Credits based on rainfall events, with a 25-year crediting period.

The Wastewater Method measures the reduction of Dissolved Inorganic Nitrogen (DIN) entering the waterways in the Great Barrier Reef catchment through wastewater treatment plants. This methodology uses algal bioremediation technology within wastewater treatment plants to reduce the amount of DIN entering the Reef catchment waterways. Projects under this methodology issue Reef Credits quarterly and projects have a 15-year crediting period.

Eco-Markets Australia is currently assessing additional methodologies for the generation of Reef Credits.

As independent administrator, Eco-Markets Australia can develop Standards but does not develop the Methodologies that underpin them. Anyone can develop new methodologies for Eco-Markets Australia to assess for potential inclusion within the Reef Credit program. Each new Standard or Methodology undergoes a strenuous, science-based assessment process including review by Eco-Market Australia’s Technical Advisory Committee, independent peer review and public consultation to ensure the methodology will uphold the integrity of the programme.

Generation of Reef Credits

The following steps outline the process that a Project Proponent follows to generate, issue, and sell Reef Credits.

Source: Eco-Markets Australia

Any Project Developer can work with landholders and farmers to develop a Reef Credit project. Their role is to evaluate a project’s suitability and viability to achieve the water quality improvement using one of the approved methodologies.

Where a methodology specifies farm practice change, such change is typically implemented directly by the landholder, and the revenue generated from the sale of Reef Credits can be applied as the landholder chooses. The cost of implementation is dependent upon the type of project and the applicable methodology.

Once the water quality outcomes achieved are independently verified, Reef Credits are issued by Eco-Markets Australia and can be sold to anyone seeking to purchase water quality improvements, such as the government, corporations, philanthropists and other ESG investors. Buyers can be confident that each Reef Credit represents a measurable, audited water quality outcome, tracked against internationally recognised targets. In limited circumstances in Queensland, and where approved, Reef Credits may be applied as a water pollution offset.

The sale of Reef Credits takes place between the credit owner and the buyer. Eco-Markets Australia is not involved in the transaction and does not control the price of the credits. A Reef Credit can be traded by the owner or buyer.  The credit must be retired to claim the environmental outcome represented by the credit. All Reef Credits are auto retired after five years of issuance, if not retired prior.

The First Reef Credits Issued

In October 2020, the first Reef Credits were issued to a project in the Tully River Catchment, south of Cairns in Queensland. The Tully Nutrient Run-off Reduction Project #1, a pilot project developed by GreenCollar, working with a local cane farmer, generated 3,125 Reef Credits between January 2018 and December 2019. HSBC and the Queensland government purchased the first credits.

As of mid-2024 over 50,000 Reef Credits have been generated, representing over 50 tonnes of Dissolved Inorganic Nitrogen being prevented from entering the waterways leading to the Great Barrier Reef. Over 40,000 of those credits have been retired which has generated more than USD 1.8 million (AUD 2.7 million) in returns [3].

Challenges

While the Reef Credit Scheme has been successful in helping farmers implement land management activities to reduce sediment and nitrogen pollution, demand remains a challenge. As a voluntary market there is limited incentive for buyers to purchase credits beyond Corporate Social Responsibility objectives. While demand could be driven by mandating compensatory offsetting of nutrient and sediment pollution, that approach may present its own challenges. The initial impetus of the scheme was to support the achievement of water quality improvement targets set by the Queensland Government. Promoting the use of the credits for offsetting could slow the decline in water quality but may not lead to a net improvement. Other ways to stimulate demand could be placing additional value and recognition on the credits, such as bundling, which could attract a wider range of buyers while still contributing to the environmental objectives of the scheme.

Steps have already been taken to stimulate demand such as the Queensland government committing to purchasing AUD 10 million (USD 6.4million) of Reef Credits over the next three years [4]. This is a positive signal and has provided confidence to farmers undertaking these projects that the credits they generate will be purchased. By the government committing to the purchase of credits, it can help the Reef Credit Scheme reach critical mass which will raise further awareness and stimulate demand.

Updated as of October 2024

Sources:

1. Eco-Markets Australia (2023) Reef Credit as Market-Based Incentive Mechanism
2. Eco-Markets Australia (2024) Methodologies
3. Eco-Markets Australia (2023) EMA Quarterly Market Snapshot
4. Eco-Markets Australia (2023) QLD Government commits $10m investment in Reef Credits

Interview with Tom Deane, Communications and Market Education Officer and Hannah Tilakumara, Reef Credit Scheme Secretariat at Eco-Markets Australia

Interview with Bart Dryden, Head of Water and Pierre Josset Chief Strategy Officer at GreenCollar