Australia\u2019s flagship climate policy is failing to reduce actual emissions because major polluters are relying on unlimited carbon offsets, according to new research.<\/p>\n
The Australia Institute report<\/a> argues Labor\u2019s Safeguard Mechanism<\/a> has failed to drive reductions in gross emissions from Australia\u2019s largest industrial facilities.<\/p>\n Instead, it says the scheme allows some companies to increase pollution while still claiming progress on climate action.<\/p>\n \u201cThe Safeguard Mechanism is so poorly designed that you can drive an enormous diesel-fuelled haulage truck through it,\u201d Australia Institute co-CEO Richard Denniss said.<\/p>\n \u201cThe policy was supposed to make our biggest polluters pollute less. That is simply not happening.\u201d<\/p>\n The findings come as the Albanese government prepares to review the scheme, which covers around 200 of Australia\u2019s biggest industrial emitters and accounts for about 30 per cent of the nation\u2019s greenhouse gas emissions.<\/p>\n Independent MP Dr Sophie Scamps said the policy had become a \u201cmonumental smokescreen\u201d that was allowing major polluters to continue increasing emissions.<\/p>\n \u201cWe know that many of those offset systems are deeply flawed,\u201d she said.<\/p>\n \u201cIt\u2019s time we really look at the offset system and see whether it is actually doing what we need this policy to do, and that is reduce our climate pollution emissions.\u201d<\/p>\n The report warns the scheme\u2019s biggest flaw is its unlimited use of carbon offsets, which allow facilities to purchase credits rather than reduce their own pollution.<\/p>\n Worse still, some of the polluters regulated by the scheme can generate credits despite increasing their emissions, and sell these to other polluters as offsets for their emissions. According to the Australian Financial Review (AFR), the loophole has allowed Shell\u2019s Prelude offshore gas facility in Western Australia to earn more than $90 million in carbon credits<\/a> in the last two years even though it increased its total emissions over the same period.<\/p>\n While the government highlights the reductions in \u2018net emissions\u2019 driven by the scheme, the report argues the figures rely heavily on carbon offsets \u201cthat are not a substitute for genuine emissions reduction\u201d.<\/p>\n While gross emissions fell by 2.3 per cent in the last financial year (2024\u201325), the Climate Change Authority noted this decline was mainly due to facility closures, temporary shutdowns, and production fluctuations unrelated to decarbonisation.<\/p>\n \u201cWhile millions of Australian homes and businesses are doing the right thing, installing solar panels and batteries, and buying EVs, many of our biggest polluters are using dodgy offsets to pollute more than ever,\u201d Dr Denniss said.<\/p>\n Report author Dr Fergus Green noted Australia had become a \u2018global outlier\u2019 by allowing unlimited offset use under the scheme.<\/p>\n \u201cAustralia is one of a small handful of jurisdictions, including Kazakhstan, that allow polluters to pollute as much as they want, and then purchase an unlimited amount of offsets to meet their obligations,\u201d he wrote.<\/p>\n The report found fossil fuel companies were the biggest users of offsets under the Safeguard Mechanism, with research showing they account for more than two-thirds of offset use.<\/p>\n \u201cOffsets have been scientifically discredited,\u201d Dr Green told reporters at a Parliament House press conference.<\/p>\n \u201cBecause offsets are dodgy, they\u2019re cheap, and that is why so many companies are choosing to use offsets rather than reduce their own emissions,\u201d he said.<\/p>\n \u201cSo, it seems that the Safeguard Mechanism is really safeguarding the fossil fuel industry\u2019s expansion plans.\u201d<\/p>\n While the Albanese Government campaigned on climate action during the 2025 federal election, it\u2019s faced sharp criticism for continuing to sign off on fossil fuel developments.<\/p>\n