As record-breaking heatwaves scorch the northern hemisphere and another El Niño summer is predicted here, new research from The Australia Institute (TAI) said Labor’s safeguard mechanism is failing.
Labor said in 2023 that its “Safeguard Mechanism” would reduce emissions. Critics warned then that its unlimited “offsets” would allow polluting corporations to buy relatively cheap and ineffective carbon credits, instead of decarbonising their operations.
The TAI has found that the Safeguard Mechanism is “failing to drive real emissions reductions across Australian industry” and that the reliance on offsets “benefits the fossil fuel companies that are the biggest emitters covered by the scheme”.
It produced the report in the lead-up to a federal government review of the safeguard mechanism.
Report co-author Fergus Green told Green Left that while emissions did fall over 2024-2025, it was largely due to accidental causes. “Actual emissions from all of the facilities that are covered by the scheme, fell 2.3% [in 2024-25] compared to the previous year”, the last year for which data is available.
He said the government’s Climate Change Authority had said “those emissions reductions came from things that had nothing to do with decarbonisation”. Instead, industrial accidents, temporary closures of facilities or, in some cases, permanent closures due to market conditions were the main causes.
“Once you control for those factors the Climate Change Authority says emissions across the covered facilities were steady”, Green said. In a climate emergency, this amounts to a “failure to drive emissions reductions” in the sectors regulated by the scheme.
Green pointed to BHP, which was found to have cancelled, or delayed, its decarbonisation plans. The Guardian reported on May 27 that “leaked documents show [that BHP] has scrapped an iron ore processing plant that would have prevented 1.7m tonnes of emissions each year, the equivalent of removing 350,000 cars”.
The company also delayed “vast renewables projects”, rejected planned new electric vehicles in favour of new fleets of diesel vehicles and pushed other decarbonisation projects back decades. BHP needed to pay less than $9 million for carbon “offsets” under the Safeguard Mechanism, the leaked documents said. Yet, it received $622 million in diesel tax concessions from the federal government (one of the many fossil fuel subsidies paid to polluting industries).
Green said the Safeguard Mechanism should be driving the corporate decision-making to replace diesel with electric vehicles. “The safeguard mechanism should be incentivising companies like BHP to actually invest in decarbonising their facilities. But because BHP had this ‘Get out of jail if not free, then cheaply, card’, because they could buy offsets, that’s exactly what they did.”
Green said the lack of incentive to decarbonise means that the fossil fuel industry is the primary beneficiary from “this ability to meet obligations using an unlimited amount of so-called offsets”. Carbon offsets have “been around for more than three decades in different guises in different parts of the world” and experience shows that “way more credits are issued than actually represent real or additional emissions reduction”.
In Australia, experts have found that around 90% of carbon credits issued for avoided reforestation and Human Induced Regeneration of native forests are not reflective of actual emissions reduction.
As Andrew McIntosh, a former head of the government’s Emissions Reduction Assurance Committee, put it: “People are getting credits for not clearing forests that were never going to be cleared; they are getting credits for growing trees that are already there; they are getting credits for growing forests in places that will never sustain permanent forests and they are getting credits for operating electricity generators at large landfills that would have operated anyway.”
Even in cases where carbon credits produce real emission cuts, it does not follow that these actually offset new emissions from fossil fuels.
The kinds of activities that can remove carbon from the atmosphere, for which carbon credits could potentially be offered, often store atmospheric carbon for time periods measured in decades or perhaps a century at most. By contrast, burning fossil fuels brings carbon, which has been locked deep underground for millions or hundreds of millions of years, into the surface carbon cycle and a large portion of the resulting carbon dioxide stays in the atmosphere for thousands of years.
In addition to these general problems with carbon offsets, Green said that the Safeguard Mechanism includes another type of credit, called a Safeguard Mechanism Credit (SMC). If a company produces emissions less than the baseline set in the scheme, they get SMCs as credit. However, many of the baseline levels have been set artificially high which means that a company can then sell these credits, or use them later. This means the company can avoid decarbonisation.
Green cited Tim Baxter’s research on the Prelude LNG facility as as example. It had its baseline set artificially high due to some production accidents and safety issues in the years leading up to the beginning of the scheme. “That meant that when its production returned to normal it was able to generate lots of SMCs because its normal emissions intensity was well below its baseline emissions intensity.”
The fact that the Safeguard Mechanism measures emission “intensity” and not actual emissions is one of the reasons that Green Left called for the mechanism to be rejected in 2023.
According to Baxter’s research, one in six of the SMCs issued under the scheme have gone to Prelude, owned by Shell. The artificially high baseline will mean that Shell is likely to get $200 million worth of SMCs over recent and coming years, in what Green describes as “effectively a fossil fuel subsidy”. “This is not an isolated example,” Green said.
[Watch the full interview with Green at the Green Left website and read the full report and other material at The Australia Institute.]