By implicitly agreeing with Energy Australia that offsets don’t neutralise fossil fuel emissions, is the government signalling an overhaul of the Safeguard Mechanism? David McEwen reports.
Will the Government now consider phasing down unlimited ACCU (carbon credits) use by Australia’s big emitters?
Late last week, the Albanese Government quietly announced it was retiring the Climate Active scheme – the Commonwealth’s official certification program, which is used by companies to claim their business or product is “carbon neutral”.
The announcement landed without fanfare – in a consultation paper about how the scheme should end – but its implications could be significant.
Some quick terminology. A carbon credit can be created when someone does something that either removes or avoids a tonne of carbon pollution. An offset is when someone buys a credit and then surrenders (cancels) it, supposedly to neutralise a tonne of their own carbon emissions.
Real problem? Unreal credits
For a removal credit, the offset calculation for the buyer is: “my tonne of emissions minus your tonne of removals equals zero tonnes.” Which is theoretically OK if the carbon is permanently removed from the atmosphere, with no other consequences. In the case of an avoidance credit, however, it’s “my tonne of emissions minus your non-emission equals… one tonne of emissions.” Which is somewhat problematic.
Climate Active was the government’s flagship endorsement of voluntary offsetting. Its demise signals a potentially major shift: Canberra no longer believes voluntary carbon offsets can credibly underpin climate claims.
State sanctioned greenwash
This decision didn’t come out of nowhere. It follows a series of blows to the credibility of carbon offsetting in Australia, culminating in Energy Australia’s extraordinary admission – made last year in response to legal action by the advocacy group Parents for Climate – that carbon offsets “do not prevent or undo the harms caused by burning fossil fuels for a customer’s energy use”.
When one of the country’s largest energy retailers concedes that
offsets cannot neutralise the damage caused by fossil fuels,
the political ground shifts.
The Climate Council welcomed the announcement, calling Climate Active a “greenwashing scheme” that should be “put in the bin”.
For years, critics argued that Climate Active allowed companies to buy cheap, low‑integrity credits from the voluntary carbon market and claim carbon neutrality without reducing their own emissions. At last, the government has agreed.
Whither the Safeguard Mechanism?
But this raises a much bigger question: if voluntary offsetting is no longer credible enough for government endorsement, what does that mean for the Safeguard Mechanism – Australia’s mandatory emissions reduction scheme for major industrial facilities?
Unlike Climate Active, the Safeguard Mechanism allows unlimited use of the government’s regulated Australian Carbon Credit Units (ACCUs).
High emitting facilities can meet their entire emissions reduction obligation by buying and surrendering ACCUs rather than reducing their own pollution.
And the government has just commenced a statutory review of the scheme.
The question is now: will the government consider phasing down unlimited ACCU use? And if not, is its position still defensible?
The integrity defence: ACCUs vs voluntary credits
One argument the government will certainly lean on is that Climate Active’s problem was not offsetting per se, but the type of offsets it allowed. Climate Active permitted a wide range of voluntary credits from international registries – including categories with well‑documented integrity issues such as avoided deforestation and REDD+ projects.
ACCUs, by contrast, are created under Australian law, overseen by the Clean Energy Regulator, and were declared “essentially sound” by the 2022 Chubb Review (apart from the scheme’s own avoided deforestation credits: existing credits of this type were honoured, but the category has been discontinued for new projects).
On paper, they are higher‑integrity offsets.
This gives the government a narrow but plausible defence: Climate Active failed because voluntary credits are too variable and too risky. The Safeguard Mechanism, however, relies on ACCUs – allegedly a more trustworthy class of offsets.
But this defence is becoming harder to sustain.
Energy Australia’s admission changed the landscape
In its apology, Energy Australia did not say “some offsets are bad”. It said offsets, as a category, “do not prevent or undo the harms caused by fossil fuel use”. That is a systemic critique, not a methodological one.
Unlimited offsetting unsustainable
Parents for Climate’s litigation forced a major energy retailer to acknowledge that offsetting is not a substitute for real emissions reductions. That admission now sits uncomfortably beside a national compliance scheme that allows unlimited offsetting.
The government’s retirement of Climate Active implicitly accepts the same logic: offset‑based climate claims are not credible enough for public endorsement. It builds on the European Union’s ban on product-level carbon and climate neutral claims.
If voluntary offsetting is unreliable, why should unlimited offsetting remain central to Australia’s mandatory emissions reduction framework?
The Safeguard review: a moment of truth?
The statutory review of the Safeguard Mechanism is now underway. Its terms of reference explicitly include examining: “the future role of Safeguard Mechanism credits, ACCUs and international units”, and whether the scheme is “appropriately incentivising onsite abatement”.
These are not minor questions. They go directly to whether unlimited ACCU use is compatible with Australia’s climate goals.
Unlimited offsetting suppresses investment in real emissions reduction. It allows facilities to delay capital upgrades, avoid electrification, and maintain business‑as‑usual operations while meeting their obligations on paper. It also creates competitive distortions between facilities that invest in abatement and those that simply buy credits.
Internationally, the trend is clear: compliance schemes are moving away from offsets. The EU Emission Tracing Scheme prohibits them entirely, as does the UK. California limits them to 6% of obligations.
Australia is now an outlier.
Meanwhile, a record number of new ACCU’s were issued in the first quarter of 2026, representing a claimed 5.5 million tonnes of abatement and helping keep prices relatively low to help Safeguard facilities meet their obligations with minimal fuss.
And late last month, the government approved a new crediting method – the “Improved Native Forest Management in Multiple-use Public Native Forests (INFM) method – allowing state or territory governments to create ACCUs by stopping or reducing native timber harvesting in defined public forests. This was established in part to provide a replacement for forestry revenue due to the gazetting of the Great Koala National Park on the NSW mid North Coast.
Can the government defend unlimited ACCUs?
It will, but its argument seems increasingly narrow:
- ACCUs are high‑integrity credits, unlike many voluntary credits.
- Unlimited ACCU use keeps compliance costs manageable, protecting trade‑exposed industries, especially given ACCU costs are capped by the government..
- Because the number of offsets a Safeguard facility needs to buy increases each year, it encourages investment in real emissions reductions, even if some facilities rely heavily on offsets.
- The ACCU Scheme is under continuous improvement, with method reviews underway.
- And crucially, the government can claim that ACCUs represent real abatement in the National Greenhouse Gas Inventory, the official ledger of Australia’s carbon emissions.
But this last point is where the defence starts to fall apart.
The permanence problem with nature-based credits
There is no direct traceability between ACCU issuance and the National Greenhouse Gas Inventory (NGGI). ACCUs are issued based on project‑level modelling and method rules, while the NGGI reports national emissions using sector‑wide measurement and estimation frameworks. This includes satellite measurements of vegetation cover to assess changes in the carbon content of the country’s biomass.
That’s a good thing, because it provides an independent cross-check regarding the efficacy of ACCUs, the majority of which relate to changes in land management practices that are intended to sequester more carbon in our forests and soils.
The problem is that when you look at the land‑use data in the NGGI (a category going by the initials LULUCF), the signal is dominated by climate, not human intervention.
In the NGGI data, Australia’s LULUCF sector swings many tens of millions of tonnes from year to year, from a strong carbon sink during cooler, wetter La Niña years before abruptly halving the following year when conditions change.
These movements are predominantly driven by rainfall, drought, heatwaves and fire cycles, dwarfing the scale of credited ACCU abatement and making it difficult to detect any stable sequestration signal attributable to credit projects.
This volatility highlights the permanence problem.
Carbon pollution from fossil fuels is effectively permanent on human timescales – nearly half of what is emitted today will still be warming the planet in a thousand years. To genuinely ‘offset’ that kind of long‑lived pollution, nature‑based sequestration would need to be equally durable.
But in a heating Australia, forests and soils are becoming less reliable carbon stores. Extreme fire seasons like 2019–20 can release decades of accumulated biomass in weeks. Drought reduces tree growth and increases mortality. Excessive heat suppresses photosynthesis. There is no evidence that land sector ACCUs can achieve satisfactory permanence to be considered a reliable offset for fossil-based emissions.
Yet under the Safeguard Mechanism, these same credits can be used without limit to meet compliance obligations. That contradiction is becoming increasingly difficult for the government to defend.
A policy reckoning is coming
The retirement of Climate Active should be a signal that the Commonwealth is no longer willing to endorse offset‑based climate claims given the fundamental issues with nature-based credit schemes. The logic cannot be quarantined to voluntary schemes. It inevitably flows into the Safeguard Mechanism.
The Safeguard review should confront the core question: should Australia continue to allow unlimited offsetting in a mandatory emissions reduction scheme?
Either way, the retirement of Climate Active marks the beginning of a much larger conversation. The era of unquestioned offsetting is over. The question now is whether the Safeguard Mechanism will evolve with it.
Bulk of emissions reduction from Safeguard Mechanism is smoke and mirrors
David McEwen is a Director at Adaptive Capability, providing climate risk and emissions reduction strategy, program and project management. He works with businesses, community leaders, policy makers, designers and engineers to deliver impactful change. His book, Navigating the Adaptive Economy, was released in 2016. He holds an MBA from the Australian Graduate School of Management and a certificate in Sustainability and Climate Risk from the Global Association of Risk Professionals.