Australia’s Flagship Climate Policy Is Failing to Cut Emissions

Australia’s biggest industrial polluters are supposed to be reducing their greenhouse gas emissions. That is the purpose of the Safeguard Mechanism, the federal government’s flagship policy for cutting emissions from large industrial facilities.

On paper, it sounds like a sensible approach. The country’s largest emitters are each given an emissions limit, and those limits become progressively tighter over time. The expectation is that companies invest in cleaner technologies and reduce the pollution coming from their operations. Unfortunately, there’s a major flaw.

Companies that exceed their emissions limits don’t have to reduce their own pollution. Instead, they can purchase carbon credits to meet their obligations. In effect, they can continue emitting while paying for emissions reductions that are claimed to occur elsewhere.

A new report by The Australia Institute has just unpacked how this loophole is undermining the entire scheme. Rather than driving genuine decarbonisation, Australia’s central climate policy has become little more than an accounting exercise. The numbers tell the story. Nearly three-quarters of the facilities covered by the Safeguard Mechanism are exceeding their emissions limits and rely on carbon credits to comply with the scheme. The Australia Institute estimates that, beneath the headline figures, the scheme is delivering real emissions reductions of just 0.4%.

To be clear, offsets should not inherently be off the table. There will always be industries where emissions are difficult to eliminate immediately, and genuine carbon projects can play a role during the transition. The problem is that under the Safeguard Mechanism, there’s effectively no meaningful limit on how heavily companies can rely on them instead of reducing pollution at the source. The quality of offsets that are allowed is also a serious concern.

Nor are offsets the scheme’s only weakness. It covers less than one-third of Australia’s emissions, contains carve-outs for emissions-intensive industries like agriculture and takes no account of the emissions from Australia’s exported coal and gas.

Climate change is driven by greenhouse gases accumulating in the atmosphere. The atmosphere doesn’t distinguish between emissions that have been “offset” on paper and emissions that have been physically avoided. If a coal mine or gas processing plant continues releasing millions of tonnes of carbon dioxide each year, Australia’s contribution to climate change continues unless those emissions are actually reduced.

This matters because the Safeguard Mechanism isn’t a minor policy. It’s the centrepiece of Australia’s strategy for reducing emissions from its largest industrial facilities. It’s failure to drive real emissions reductions, creates a fundamental weakness in Australia’s climate policy. And the challenge becomes even greater while new coal and gas projects continue to be approved. Every new fossil fuel development increases the task of reducing emissions elsewhere in the economy. If existing facilities are also allowed to rely heavily on offsets, the transition becomes slower, more expensive and less certain.

Australia needs a Safeguard Mechanism that genuinely safeguards the climate. That means requiring real emissions reductions at facilities themselves. Carbon credits could remain a tool of last resort for emissions that genuinely cannot yet be eliminated, not the default pathway for continued pollution.

Australians understand the principle of personal responsibility. If we make a mess, we clean it up ourselves. We don’t pay someone else to clean up their mess elsewhere and kid ourselves that somehow our mess has been tidied up. The same principle should apply to Australia’s biggest polluters.

The Safeguard Mechanism was designed to reduce industrial emissions. It should be judged by one simple question: are Australia’s biggest polluters actually emitting less greenhouse gases into the atmosphere? If the answer’s no, then the policy needs fixing.

Read the Australia Institute’s recent report, Safeguarding the Fossil Fuel Industry, which explains why the current design of the Safeguard Mechanism is failing to deliver the emissions reductions Australians expect.