Australia’s big polluters rely on carbon offsets for climate credibility. But the system looks like a house of cards | Adam Morton

The fight within the Greens that led senators to cross the floor last week over koala protection in a national park may have finally put a spotlight on a bigger issue – one at the heart of much of Australia’s promise to act on the climate crisis. It’s this: the country and its polluting industries are too reliant on carbon offsets. The more reliance is placed on them, the more they look like a house of cards.

Offsets can be a mind-deadening subject, but they matter. In Australia, they are known as Australian Carbon Credit Units. Each credit is said to represent one tonne of greenhouse gas that isn’t in the atmosphere and otherwise would have been. They are mostly generated from government-sanctioned projects that are meant to regenerate forests or capture and burn methane released from landfill sites.

These type of projects have plenty to recommend them. With global heating moving into increasingly dangerous territory, the world needs to retain and regenerate all the forests it can, and create new ones. It also needs to sharply reduce how much methane and carbon dioxide is poured into the atmosphere.

But we need to be realistic about what these carbon credits can and can’t do.

Australian carbon credits are treated as a like-for-like alternative for emissions cuts by fossil fuel producers, factories and other big polluting sites. Under the climate policy applied to big industrial facilities responsible for about a third of national pollution – the safeguard mechanism – there is no requirement that businesses make direct emissions cuts. They can just buy an unlimited number of offsets and claim them as their own reductions.

This flexibility makes life easier for the owners of industrial sites that, under changes introduced by Labor three years ago, need to cut emissions intensity – the amount of pollution pumped out per unit of production – by between 1% and 4.9% a year. But it also creates problems.

Geologically stored carbon that is dug up and used as coal, gas or oil has been underground for millennia. When it is brought to the surface and set on fire it releases heat-trapping gas that otherwise couldn’t escape. That gas can persist in the atmosphere for thousands of years.

Carbon stored in nature operates on a much shorter timescale. It’s prone to fire and decay and destruction. There is no guarantee it can be kept out of the atmosphere.

The extraordinary forest and peat fires burning on the Indonesian islands of Borneo and Sumatra are a case in point. They are estimated to have released nearly 20m tonnes of carbon dioxide in the first week of September alone.

It echoes the vast amount of carbon released in Australian bushfires, particularly the black summer infernos of 2019-20. With a record-breaking El Niño under way, the odds of a version of that repeating in the next year or two are shortening.

This is a significant problem in its own right, but not the biggest issue with relying on offsets.

The Guardian has reported for years on the mountain of evidence that shows limiting the systemic damage from rising temperatures and accelerating extreme weather events requires immediate and sustained direct emissions cuts. A UN Environment Programme report earlier this month that found global heating will reach 1.8C in a best-case scenario is just the latest example.

We will also need strategies to draw CO2 from the atmosphere. But the latter is not a substitute for the former. It is an “and”, not an “or”.

This is not a new problem, and the climate change minister, Chris Bowen, has acknowledged direct cuts are necessary. But this is largely not yet reflected in the design of the safeguard mechanism.

It is easy enough to understand why this might be the case. Transformational change is hard, and climate policy has been a political killing field in Australia for most of this century. Fossil fuel interests dedicate huge resources to slowing climate action. No political leader wants to be the next victim of the climate wars victim. And the science-denying right is rising again.

But those political considerations don’t change the problems with the system.

Research in peer-reviewed journals has found the biggest Australian carbon credit methods have provided only a fraction of the emissions reductions that are claimed, while producing tens of millions of offsets. This is disputed, but there has been no project-level investigation to disprove it.

The flood of carbon offsets being created means the price of credits is low (less than $40 a tonne of CO₂). It gives polluters an incentive to meet their obligations under the safeguard mechanism by paying for credits representing cuts elsewhere rather than directly reducing their footprint.

There was striking evidence of this earlier this year when the Guardian and ABC’s Four Corners revealed BHP had scrapped and delayed projects to cut emissions, including stalling plans to replace diesel vehicles at iron ore mine sites with electric trucks. The world’s biggest miner decided it was cheaper to buy new polluting trucks and pay for carbon offsets.

The issue is even more acute with coalmines and fossil gas facilities. While they can take some steps to reduce onsite emissions, they ultimately need to be phased out to cut their pollution.

Neither appears to be happening on a meaningful scale. Data from the Clean Energy Regulator, a government agency, shows about two-thirds of the offsets sold in Australia in the last reporting year were bought by fossil fuel companies. Meanwhile, direct pollution from coalmines increased.

The government has a chance to address this. A review of the safeguard mechanism, required under law, is under way.

There is a compelling argument that the best course would be to start again. Policy experts at Naru Research and Climate Analytics have detailed flaws that go beyond those listed here. The Superpower Institute made a strong case the safeguard should be replaced with a “polluter pays levy” on companies that extract or import fossil fuels consumed in Australia.

But assuming the safeguard survives, at least three things should happen.

The emissions caps on big polluters, known as baselines, should be tightened to avoid ridiculous cases where some companies are rewarded for pumping out more CO₂ than in the past. There should be a audit to remove any low-integrity offsets. And there should be limits on the number of offsets companies can buy.

It might help if the government also acknowledges the safeguard should not just encourage industrial sites with a future to clean up their practice, but also push fossil fuel producers that can’t cut their pollution to close earlier than planned.

If that doesn’t happen, the safeguard won’t have done its job.