Why Your Business May Need An AFS Licence For Carbon Credits & Regulated Emission Units

Introduction

In Australia’s expanding carbon market, many participants treat Australian Carbon Credit Units (ACCUs) and other regulated emission units as simple environmental commodities. However, under the Corporations Act 2001 (Cth), these units are explicitly classified as financial products. This legal status means that any business involved in trading, advising on, or managing these carbon credits may be subject to Australia’s comprehensive financial services laws.

Consequently, traders, project developers, and founders operating within the carbon market may need to obtain an Australian Financial Services (AFS) licence to conduct their activities legally. This guide details the critical licensing and compliance obligations enforced by the Australian Securities and Investments Commission (ASIC) and the Clean Energy Regulator (CER), providing essential clarity for all participants navigating this regulated landscape.

Interactive Tool: See If You Need an AFS Licence for Carbon Credits

The Legal Classification Of ACCUs As A Financial Product

Why ACCUs & SMCs Are Regulated Emission Units

Under the Corporations Act 2001 (Cth), certain types of emission units are explicitly defined as financial products.

This legal classification is the primary reason why many activities in the Australian carbon market require an AFS licence. It distinguishes these units from other environmental certificates that are not regulated in the same way.

The main types of regulated emission units that are considered financial products include:

• ACCUs: These are issued by the CER for projects that avoid or sequester greenhouse gas emissions under the ACCU Scheme.
• Safeguard Mechanism Credits (SMCs): Introduced as part of the Safeguard Mechanism reforms, SMCs are issued to large industrial facilities that reduce their emissions below their baseline.
• Other Eligible International Emissions Units (EIEUs): This category also includes certain certified emission reductions, emission reduction units (ERUs), and removal units (RMUs).

This classification means that providing services in relation to these units, such as trading or advising, falls under the financial services laws regulated by the ASIC.

In contrast, other environmental units like Victorian Energy Efficiency Certificates or Large-scale Generation Certificates are generally not considered financial products under the Corporations Act 2001 (Cth).

Understanding Derivatives & Managed Investment Schemes In The Carbon Market

Beyond the units themselves, certain arrangements involving carbon credits can also create regulated financial products. This often includes derivatives and interests in a managed investment scheme, which require specific authorisations under an AFS licence.

A derivative is an arrangement where its value is derived from an underlying asset or benchmark. In the carbon market, this can include:

• An option to purchase ACCUs at a fixed price on a future date.
• A forward contract for the future delivery of carbon credits.

These arrangements are considered financial products, even if the underlying environmental unit is not. For instance, a forward contract for Verified Carbon Units, which are not regulated emission units, would still be classified as a derivative and therefore a financial product.

Additionally, many carbon projects, particularly those that pool contributions from multiple parties, may be classified as a managed investment scheme (MIS), a complex area often requiring legal advice on funds and investment management. A scheme generally exists if:

• People contribute money or assets to acquire rights to benefits.
• These contributions are pooled to produce financial benefits.
• The contributors do not have day-to-day control over the operation.

For example, a carbon aggregator who enters into arrangements with several farmers to generate ACCUs from their land could be operating a MIS.

The farmers contribute the use of their land and receive a share of the proceeds from selling the ACCUs.

In this context, the carbon offset developer is effectively an “issuer” of a financial product—the interest in the scheme—and would need to consider if they require an AFSL to offer a managed investment scheme.

Your AFS Licence Authorisation Requirements For The Carbon Market

Determining If You Need An AFS Licence To Participate In Carbon Markets

The key question then becomes, ‘Do I need an Australian Financial Services Licence (AFSL)?‘, and the answer is yes if you are “carrying on a financial services business” in Australia, unless a specific licensing exemption applies. This test is a key threshold for determining if your activities in the carbon market fall under ASIC’s regulation.

Whether your activities constitute a business depends on the specific facts. Generally, you are likely carrying on a financial services business if the financial services you provide are:

• Systematic
• Repetitious
• Demonstrate continuity

A one-off transaction may not meet this test. However, an action intended to be the first in a series of transactions could be considered part of a business.

Financial Services Requiring An AFS Licence Dealing Advice & Market Making

Several types of activities related to regulated emission units are defined as financial services under the Corporations Act 2001 (Cth) and require specific AFS licence authorisations. If your business provides any of these services, you will likely need an AFS licence.

The most common financial services in the carbon market include:

• Providing financial product advice: This involves making a recommendation or statement of opinion intended to influence a person’s decision about a financial product like an ACCU or SMC. Simply providing factual information, such as the current spot price of an ACCU, is generally not considered advice.
• Dealing in a financial product: This includes applying for, acquiring, issuing, varying, or disposing of a financial product on behalf of another person. Brokering a transaction for ACCUs between two parties or acquiring and retiring emission units for a client are examples of dealing.
• Making a market: This service involves regularly stating the prices at which you are prepared to buy or sell regulated emission units on your behalf. If other participants can reasonably expect to trade at these prices, you are likely making a market.
• Providing a custodial or depository service: This occurs when you hold a financial product, such as an ACCU, on behalf of another person. For instance, holding ACCUs in your registry account for more than 20 clients who are the beneficial owners would constitute a custodial service.

Key AFS Licence Exemptions For Carbon Market Participants

While many activities require an AFS licence, several important exemptions may apply to participants in the carbon market. It is your responsibility to determine if you can rely on an exemption for the financial services you provide.

Key exemptions from the requirement to hold an AFS licence include:

• Dealing on your behalf: If you are buying or selling regulated emission units for your use, this is not considered a dealing activity that requires an AFS licence. For example, a company purchasing ACCUs to surrender for its compliance obligations under the Safeguard Mechanism can rely on this self-dealing exemption.
• Providing services to a related body corporate: You are exempt from needing an AFS licence if you provide a financial service only to a related body corporate.
• Dealing for financial risk management: An exemption may apply for certain dealings undertaken to manage a financial risk. This can include, for example, a responsible emitter entering into a forward contract for ACCUs to manage the financial risk of future price fluctuations when meeting its baseline obligations. This exemption only applies if this activity is not the principal part of the person’s business.

Applying Traditional Finance Rules To The Australian Carbon Market

Understanding Market Manipulation & Prohibited Conduct

Because ACCUs and other regulated emission units are classified as financial products, they are subject to the market integrity rules in the Corporations Act 2001 (Cth). This means that conduct prohibited in traditional financial markets, such as stocks and futures, is also illegal in the carbon market.

The prohibition on market manipulation, found under Sections 1041A and 1041B of the Corporations Act 2001 (Cth), applies directly to ACCU transactions. This rule prevents any activity that creates:

• An artificial price for a financial product.
• A false or misleading appearance of active trading.

For instance, arranging trades to create a false price level, such as repeatedly trading small volumes of ACCUs to inflate the spot price, would be considered market manipulation and could trigger an ASIC investigation.

Regarding oversight, the following regulators are involved in monitoring these behaviours:

• The ASIC actively monitors for these behaviours.
• The CER has explicitly stated that market misconduct can result in the loss of registry privileges, adding another layer of regulatory oversight.

How Insider Trading Rules Apply To ACCUs & Emission Units

The prohibition against insider trading under Section 1043A of the Corporations Act 2001 (Cth) is another critical finance rule that extends to the carbon market. This provision makes it illegal for a person to trade financial products, including ACCUs and other emission units, while possessing material, non-public information.

To illustrate, consider a scenario where a carbon project developer learns privately that numerous ACCUs from a project are about to be issued. If they use this information to trade before it becomes public knowledge, they could be in breach of insider trading laws.

The CER also warns that such conduct can lead to being barred from the emissions unit registry.

The Intersection Of Regulators Managing CER & ASIC

The Role Of The Clean Energy Regulator

The CER is the government body responsible for the operational and administrative aspects of Australia’s carbon market. Its primary function is to administer the ACCU Scheme, which involves several key activities.

The CER’s responsibilities include:

• Registering Projects: It assesses and approves eligible offsets projects that aim to reduce or sequester greenhouse gas emissions in accordance with the Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth).
• Issuing Emission Units: The CER issues ACCUs to projects for verified carbon abatement. It also issues SMCs to large industrial facilities that reduce their emissions below their designated baselines.
• Managing the Registry: It operates the official electronic registry for holding and tracking the ownership of all issued ACCUs and SMCs. This system, formerly known as the Australian National Registry of Emissions Units (ANREU), has been migrated to the new Unit and Certificate Registry, which serves as the foundational infrastructure for all transactions in the carbon market.

The Role Of The Australian Securities & Investments Commission

While the CER oversees the creation and registration of carbon credits, the ASIC regulates the conduct of participants who trade these units. Because ACCUs and SMCs are classified as financial products under the Corporations Act 2001 (Cth), ASIC’s role is to ensure the carbon market operates with the same integrity as traditional financial markets.

ASIC’s key responsibilities in the carbon market include:

• Licensing Financial Services Providers: ASIC is responsible for the AFS licensing regime. Any business providing financial services in relation to regulated emission units, such as dealing, advising, or making a market, must be licensed and monitored by ASIC to ensure they operate efficiently, honestly, and fairly.
• Monitoring Market Integrity: ASIC supervises the market to enforce rules against misconduct, such as market manipulation and insider trading. Its goal is to promote a fair, orderly, and transparent market for all participants.
• Regulating Financial Markets: For entities wishing to establish a trading platform or exchange for carbon units, ASIC advises the Minister on the granting of Australian market licences, ensuring these platforms meet stringent operational and conduct standards.

Case Study The Regulatory Risk Of Greenwashing In Carbon Credit Marketing

Making false or misleading claims about the environmental benefits, permanence, or quality of ACCUs can breach both the Australian Consumer Law (ACL) and the Corporations Act 2001 (Cth). This conduct, known as greenwashing, is a critical issue in Australian financial services marketing compliance, posing significant legal and reputational risks and attracting scrutiny from multiple regulators.

Consider a case where a project developer markets ACCUs from a specific project as “guaranteeing net-zero for your business” and ensuring carbon is removed “permanently.” However, these statements can be deemed misleading if:

• The underlying methodology for the project is weak.
• The claims of permanence cannot be substantiated.

The ASIC has made greenwashing an enforcement priority. In early 2026, ASIC’s crackdown on misleading sustainability claims resulted in a court-imposed penalty of $11.3 million against a company for similar misrepresentations. Such actions highlight that overstating the quality or environmental integrity of carbon credits is treated with the same seriousness as mis-selling any other financial product.

Furthermore, the CER also addresses this issue through its administrative policies. The CER’s “Fit & Proper Person” policy, which governs access to the emissions unit registry, explicitly lists “misrepresenting … products or services to seem more environmentally friendly (greenwashing)” as a failure of integrity.

This means that engaging in greenwashing could lead to sanctions from the CER, such as:

• The potential loss of registry privileges.
• Being subject to strict market misconduct rules regarding any deceptive marketing or trading practices involving ACCUs.

Conclusion

ACCUs and other regulated emission units are legally classified as financial products, meaning activities within the carbon market are subject to Australia’s financial services laws. Consequently, participants must navigate complex compliance obligations under both the CER and the ASIC, including AFS licensing, market conduct rules, and greenwashing prohibitions.

To ensure your business operates compliantly within this intricate framework, contact AFSL House’s expert AFS licensing lawyers to secure the necessary AFS licence and turn these regulatory challenges into strategic opportunities.

Frequently Asked Questions (FAQ)

What are regulated emissions units?

Regulated emissions units are specific carbon credits classified as financial products under the Corporations Act 2001 (Cth). This category includes ACCUs, SMCs, and certain EIEUs.

Do I need an AFS licence if I only buy ACCUs for my own company’s use?

No, you generally do not need an AFS licence for this activity. Purchasing regulated emission units for your own company’s use, such as meeting compliance obligations, is typically covered by the “self-dealing” exemption under the Corporations Act 2001 (Cth).

Is a carbon abatement contract a financial product?

No, a carbon abatement contract is not considered a financial product. These contracts, which are for the purchase of ACCUs by the Australian Government, are specifically exempted from the definitions of a financial product and a derivative under the Corporations Regulations 2001 (Cth).

What is the difference between dealing in & making a market for ACCUs?

Dealing in ACCUs involves transacting on behalf of another person, such as buying, selling, or arranging trades for a client. In contrast, making a market involves regularly quoting the prices at which you are prepared to buy and sell ACCUs on your behalf, thereby providing liquidity to the carbon market.

Can my carbon project be considered a managed investment scheme?

Yes, your carbon project may be considered a MIS if it involves pooling contributions from multiple participants to generate financial benefits, such as from the sale of ACCUs. This classification applies when the contributors do not have day-to-day control over the project’s operations, which would require the operator to hold specific AFS licence authorisations.

What is the difference between the CER’s role & ASIC’s role?

The CER is responsible for the operational aspects of the carbon market, including registering projects, issuing ACCUs, and managing the emissions unit registry. The ASIC regulates the conduct of market participants, which includes licensing financial services providers and enforcing rules against market misconduct like insider trading.

Do I need a Product Disclosure Statement to sell ACCUs to retail clients?

No, a Product Disclosure Statement (PDS) is not required when selling regulated emission units directly to retail clients. Instead, an AFS licensee must direct the client to the official description of the unit on the CER’s website, though a PDS is still required for related financial products like derivatives or interests in a MIS.

What happens if I operate a carbon trading platform?

Operating a carbon trading platform may require you to obtain an Australian Market Licence in addition to any AFS licence authorisations. This is because a facility that regularly facilitates offers to buy or sell financial products like ACCUs can be classified as a “financial market” under the Corporations Act 2001 (Cth).

What kind of experience do my Responsible Managers require for a carbon AFS licence?

Your Responsible Managers must collectively have knowledge and skills relevant to both the carbon market and the specific financial services your business will offer, and our Responsible Manager recruitment services can help you find qualified candidates. ASIC considers a broad range of experience, including expertise in the ACCU Scheme, other environmental markets, overseas carbon markets, and the particular financial services you plan to provide, such as dealing or advice.