The government has admitted that dodgy offsets hamper climate action

The 2026 review of the Australian Carbon Credit Unit scheme, published by the Climate Change Authority (CCA), contains an analysis that neatly demonstrates that future scenarios with high levels of offsetting result in significantly lower on-site decarbonisation for facilities in this scheme. Scenarios with lower levels of offsetting result in higher levels of on-site decarbonisation. 

That is to say: more offsets equals more emissions, and it’s not a secret: 

What the CCA recognises as future risk is already the biggest problem for the Safeguard Mechanism (SGM). Our analysis shows that reliance on the unlimited use of carbon offsets as a substitute for real pollution management has worsened in the SGM’s second year. This has been detailed in the Australia Institute analysis paper “Safeguarding Fossil Fuels”.

The number of ACCUs surrendered in FY23, the year prior to the Albanese government reforms, was 964,636. In FY24, it was 7,052,904, and in FY25 it was 10,549,152. This is a more than 1,000% increase in carbon offset use, driven obviously by the establishment of targets for polluters that can be “met” using these offsets.  

If the Safeguard Mechanism was successfully pushing covered facilities to reduce their emissions, we would not be seeing a shocking rise in carbon offsetting reliance in the scheme. Indeed, there is an inverse relationship between the use of carbon offsets and real-world emissions reductions. And all new future gas proposals will need to demonstrate the ability to offset their emissions to meet reduction targets.

It is worth highlighting here the vast body of work examining whether the companies that generate and sell carbon offsets are delivering the emissions reductions they promise.

While the SGM would still be functionally ineffective if they were, The Australia Institute has covered in a broad array of prior work3 the details of how many of the existing methods for generating these offsets are ridden with controversy and deep questions of efficacy from highly credentialed experts.

Most recently, the creation of an entirely new method of generating carbon offsets (Improved Native Forest Management, or INFM) will further increase supply of low integrity carbon offsets at a time when all heavy emitters should be reducing their reliance on these greenwashing tools. This method will allow the generation of a suite of new carbon offsets in New South Wales in exchange for the protection of koala habitat for the 100 year period the INFM applies to these forests; a dirty deal that Australia Institute polling has found is deeply unpopular.

As stated by Fergus Green, Associate Professor in the Department of Political Science and School of Public Policy, University College London, in a recent briefing titled ‘Koalas for Coal’ for the Australia Institute, “the INFM Method will cause more climate change than would otherwise be the case”, due to a weakened requirement for additionality and the temporary nature of carbon storage in trees in the park. Most troubling is the former issue, where a precedent has now been set that allows state governments to claim forest protection that was set to go ahead anyway can be said to be ‘additional’ emissions reductions. Ultimately, this means a polluting facility can claim to have undone their emissions under false pretences.

The NSW government did recently state that “ACCUs from the Great Koala National Park will not be able to be sold to coal and gas projects”, which would go some way to alleviating the risks. We consider this to be a basic principle (“The Minns Principle”, for NSW Premier Chris Minns) that should be applied more widely, given the stark prominence of fossil fuel companies specifically in the carbon offset economy and carbon trading market, notwithstanding the other, deeper issues with the IFNM method.

The DCCEEW’s Safeguard Mechanism consultation paper mentions a facility surrendering more than 30% of its baseline in ACCUs must explain what is preventing it from reducing emissions. It is clear from the data above that this requirement serves precisely zero deterrence to companies looking to offset their way into compliance.

The suggested reforms in the consultation paper (quantitative limits, discounting, or qualitative restrictions) each scratch at the edges of this issue. There is also a tacit admission by the DCCEEW in here that any level of offset use will always deter mitigation, no matter the industry, offset vintage or offset cost.

But the real problem is simply that the worst emitters are the most addicted to unlimited carbon offset use.