Australia’s big polluters must cut emissions by nearly 5% a year, but can use offsets to get there | Greenhouse gas emissions

Australia’s big polluting sites will have to reduce greenhouse gas emissions by nearly 5% a year but will face no limits on the use of carbon offsets under the Albanese government’s plan to deal with industrial emitters.

The climate change minister, Chris Bowen, on Tuesday released the government’s plan to revamp the safeguard mechanism, a Coalition policy that was promised to limit emissions from more than 200 industrial facilities, but in practice has failed.

Starting from 1 July, big polluters would be expected to cut their emissions intensity – how much they emit per unit of production – by 4.9% a year until 2030. That was forecast to cut industrial emissions by at least 30% between 2021 and 2030, from 143m tonnes a year to no more than 100m tonnes.

The positions paper said the government had opted to set limits on emissions intensity, and not outright emissions, to encourage businesses to move to cleaner practice rather than reducing their production in Australia.

Big-emitting facilities would initially get site-specific emissions intensity limits – known as baselines – reflecting their local circumstances. The system would move to industry-wide baselines by 2030.

New polluters, including coal and gas mines, would be allowed to open, and would have to fit within the annually reducing industrial emissions total. The government said their baselines would be “set at international best practice, adapted for an Australian context”, reflecting that they have the opportunity to immediately use the latest clean technology.

The paper said facility emissions targets would be set at a level that would allow the countrywide reduction target to still be met if production growth from existing and new polluters was higher than expected.

Some industries that are considered trade-exposed – at risk of losing business to overseas competitors not required to cut emissions – could apply to cut their emissions more slowly. The government has also promised an initial $600m from a $1.9bn “powering the regions” fund to help trade-exposed polluting facilities to adopt cleaner technology.

The paper proposed no limits on businesses relying on carbon credits, rather than cutting emissions on site. Polluters would be able to use both Australian carbon credits from the existing system and new safeguard credits.

Carbon credits are used by the government and polluting companies as an alternative to cutting carbon dioxide emissions.

Instead of reducing their own pollution, they can choose to buy carbon credits that are meant to represent a reduction in emissions elsewhere.

Each carbon credit represents one tonne of carbon dioxide that has either been stopped from going in the atmosphere, or sucked out of it.

Methods approved to generate carbon credits in Australia include regenerating native forest that has been cleared, protecting a forest that would otherwise have been cleared (known as “avoided deforestation”) and capturing and using emissions that leak from landfill sites to generate electricity.

Credits are bought by the government through the $4.5bn taxpayer-funded emissions reduction scheme or by polluters on the private market. 

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What are carbon credits?

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Carbon credits are used by the government and polluting companies as an alternative to cutting carbon dioxide emissions.

Instead of reducing their own pollution, they can choose to buy carbon credits that are meant to represent a reduction in emissions elsewhere.

Each carbon credit represents one tonne of carbon dioxide that has either been stopped from going in the atmosphere, or sucked out of it.

Methods approved to generate carbon credits in Australia include regenerating native forest that has been cleared, protecting a forest that would otherwise have been cleared (known as “avoided deforestation”) and capturing and using emissions that leak from landfill sites to generate electricity.

Credits are bought by the government through the $4.5bn taxpayer-funded emissions reduction scheme or by polluters on the private market.

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Safeguard credits would be issued to companies that emitted below their individual limit and could be bought by polluters that are above their baseline to help meet their target. The government introduced legislation to create a safeguard crediting system to parliament late last year. It is yet to be debated.

The government said it would consult on whether to amend legislation to also allow international carbon credits deemed to have high integrity to be used to meet safeguard targets “at a future time if warranted”.

The extent to which carbon credits should be made available to help meet government and corporate emissions reduction targets is contested. A UN group set up to crack down on the greenwashing of net zero pledges last year argued commitments must prioritise cuts in absolute emissions by 2030 in line with limiting global heating to 1.5C, with offsets to be used only for further reductions above and beyond that .

A review of Australia’s carbon credit scheme led by a former chief scientist, Prof Ian Chubb, on Monday recommended significant changes to how it is managed, but dismissed claims the system lacked integrity and was not delivering genuine climate action. Prof Andrew Macintosh, a former head of the emissions reduction assurance committee who has alleged that more than 70% of carbon credits might not represent legitimate cuts, said the review panel had not addressed many of his criticisms of his.

Polluters covered by the safeguard mechanism are responsible for 28% of national emissions. Industrial emissions have risen over the past decade largely due to the expansion of the gas export industry.

The overhaul of the safeguard is central to the government meeting its target of a 43% cut in emissions by 2030, compared with 2005 levels.

Bowen launched the paper at a Rio Tinto alumina refinery in Gladstone. He said the reforms would “help create an effective, equitable and efficient trajectory” to net zero emissions by 2050.

“We know that 70% of facilities, representing over 80% of scheme emissions, already have corporate commitments to net zero by 2050. This reform helps deliver the framework to get there,” he said.

React to the changes

The Greens, who the government may need to pass its safeguard crediting legislation, said on Tuesday that the changes did not go far enough. The party’s acting leader, Mehreen Faruqi, said it wanted to work with Labor to ensure the safeguard mechanism delivered deep cuts to pollution.

“Coal and gas can’t be allowed to just buy their way out of real pollution cuts with dodgy offsetting,” she said. “The more we let coal and gas off the hook, the more everyone else will have to do.”

Business groups offered qualified support. The Business Council of Australia, which Bowen quoted as suggesting the safeguard mechanism reform, said the plans were a “measured step” that would provide greater certainty for companies and put the country on track to meet emissions targets.

The Australian Industry Group’s chief executive, Innes Willox, said the changes were pragmatic, but more work was needed over coming years “before these major climate policy reforms are fully bedded down”.

He said the proposed measures to help trade-exposed companies would be “helpful” and should mean there was no risk Australia would lose industries in the short term, but dealing with trade exposure would become more challenging.

Willox backed the government, saying it would consider a carbon border adjustment mechanism to impose a cost on polluters importing into Australia if they did not face one at home. The European Union plans to introduce a carbon border adjustment mechanism, known as a Cbam, in October.

Climate and environment groups criticized the inclusion of unlimited offsets and the potential ongoing fossil fuel expansion. The Australian Conservation Foundation said the proposed changes would continue to allow “an increase in climate-heating emissions from Australia’s biggest polluters”.

Barry Traill, director of Solutions for Climate Australia, said offsets should be a last resort. “Unfortunately, we’re seeing loopholes you could drive a coal truck through.”

The Australasian Center for Corporate Responsibility, a shareholder activist group, said the government had ignored “the billion-tonne elephant in the room” by not addressing Australia’s fossil fuel exports. Alex Hillman, a lead analyst at the centre, said emissions overseas from burning Australian coal and gas dwarfed domestic industrial emissions and should be a higher priority.

The Carbon Market Institute, representing businesses that generate carbon credits and companies that buy them, said the changes were an important step, but a review planned for 2026-27 should happen sooner and the pace of emissions cuts should accelerate.

“The scheme should be designed to help meet and beat the 43% 2030 target to help achieve at least 50% reductions by 2030,” the institute’s chief executive, John Connor, said.

The government has called for feedback on its plan by 24 February.