DCCEEW review highlights  carbon offsets shortcomings

The Australian government’s key net zero 2050 emissions policy relies principally on increasing renewable energy production alongside the Safeguard Mechanism where large emitters reduce emissions or offset them by trading in Australian Carbon Credit Units. The offsets market is a black hole of assumptions, models, formulas, projections, exemptions, third party investment and disputed science around an ACCU’s equivalence to fossil fuel emissions. Accelerating offset demand by Safeguard Mechanism entities threatens to downsize the nation’s food export sector and with it regional communities viability. By Patrick Francis

The Australian government’s policy charge towards a 43% reduction (below 2005 levels) in greenhouse gas emissions by 2030, 62 – 70% reduction by 2035 and net zero emissions by 2050 is by its own admission under threat from large emitters trading carbon offsets. The issue is the integrity of the offsets to ensure the 1 tonne CO2e in a purchased offset is equivalent to the one tonne of CO2e released into the atmosphere by the polluting entity.

Figure: Australia’s Federal government emissions targets are based around models, projections and assumptions that can be interpreted with greenwash spin, but their reliance on trading carbon offsets produced mainly on agricultural land is their achilles heel. Source: DCCEEW Australia’s emissions projections 2025.

The problem for the integrity of the government’s greenhouse gas policy arises when entities greenwash their emissions accounts with offsets that do not actually have the net impact of limiting the build-up of CO2 stock in the atmosphere to ensure global warming above 2C does not happen. The policy can pretend emissions strategies are working but the reality is the possibility that CO2 continues to increase so global warming eventually exceeds 2C.

The Australian government is pinning its staged emissions reductions and Net Zero Plan on the nation’s largest emitters continuing to grow the economy while changing their processes through a clean energy transformation. The Safeguard Mechanism has been developed for these entities to account for and lower their emissions.

In its August 2026 ‘Safeguard Mechanims Review Consultation Paper’ the Department of Climate Change, Energy, the Environment and Water (DCCEEW) states the Safeguard Mechanism limits the emissions of over 200 biggest emitters covering around 30% of the nation’s emissions. Baselines are set to fall by 4.9% each year “with a target to reduce emissions from 139 million tonnes (Mt) to 100 Mt by 2030”.

The Safeguard Mechanism cover “mines, oil and gas fields, steelworks, cement plants and other manufacturers—as well as airlines, trucking, rail and landfills. These are key industries with some of the ‘hardest-to-abate’ emissions.” It is claiming that as a result of the Safeguard Mechanims these facilities “are expected to save 18 billion litres of diesel and over 1,000 petajoules (Pj) of natural gas use to 2035”.

Figure: Fossil fuels supply approximately 90% of Australia’s energy consumption with increasing use trends for gas and oil.

Figure: Will the Safeguard Mechansism have negative impact on Australia’s manufacturing sector, making cost of doing business under the government’s emissions reduction policies too expensive? Businesses could shut down or move offshore with the net effect being CO2 emissions continue to rise but not accounted for in Australia.

Even if such fossil fuel reductions are achieved there is little evidence that total Australian oil, coal and natural gas use will be reduced significantly. As population and GDP increase associated fossil fuel use may outdo emission reductions made.

Figure: The trajectory of Australia’s consumption based CO2e emissions is flat lining while GDP increases and follows a similar trajectory to China but USA and UK have declining emissions while GDP increases.

Airline fuel use highlights how potential adoption of so-called renewables fuel (Sustainable Aviation Fuel or SAF) and other engine and flight logistics efficiencies can be negated by the exponential increase in passenger numbers and subsequently total fuel use by 2050. In 2024 there were 4.5 billion passengers, by 2042 the prediction is 9.4 billion.

Figure A: The aviation industry is relying on doubling passenger numbers by 2050 to remain viable and in doing so its CO2e emissions will continue to increase or at best flat line but are never anticipated to be net zero by 2050; purchasing carbon offsets of variable integrity will be required to make up the emissions difference.

Figure B: Tourism is intrinsically connected with air travel and in Australia relies on international passengers for growth. Tourism makes an important contribution to Australia’s GDP and in 2024-25 contributed $81.4 billion.

Figure C: Airline passengers growth and CO2 emissions can be curtailed by weaker economic growth so individuals in western countries who are responsible for around 80% of world passengers have less discretionary spending.

Despite the projected passenger increase airline industry makes greenwash claims that it can be carbon neutral by 2050. For individual airline’s purchasing carbon credits will be increasingly relied upon to offset the impossible to eliminate emissions to achieve net zero emissions claims. Emissions from SAF and fossil fuels will continue with a net zero claim based on purchasing carbon offsets but how will the land based offsets stack up for  equivalence with the airlines emissions? How long will land based offsets remain available before cleared farming land devoted to carbon abatement offsets becomes responsible for reduced food exports and contribution to GDP?

Figure: Qantas is projecting SAF will reduce its greenhouse gas emissions by approximately 50% by 2050 but will require around six million ACCU equivalent offsets per year to claim net zero emissions status. It’s SAF will compete with food grains for farm land to feed the world’s increasing population while its carbon offsets purchases will have to compete with demand from other Safeguard Mechanism businesses. Has consideration been given to carbon offsets equivalence to the airlines SAF and fossil fuel CO2 emissions?

For airline fuel pollution to reach net zero by 2050 without carbon offsets airline travel needs to be curtailed, a scenario no western democracy government would consider as tourism has become a significant contributor to GDP. In Australia tourism GDP was worth $81.1billion in 2024/25 with growth driven by short-term international visitors. Tourism filled jobs rose 2.0% to 696,000. Curtailing airline based tourism would be a recipe for losing votes and political power but may be necessary to limit increasing natural disaster impacts of global warming while retaining sufficient cleared agricultural land to feed the world’s projected population.

Politics is why during the US/Iran war with its impact on world oil supply, the Australian government’s response was to engage with oil refining countries to guarantee diesel and petrol supply was not disrupted, so Australia fossil fuel consumers did not have to curtail driving. The government launched a National Fuel Security Plan so that “fuel supply continues as normal”. It prepared strategies drivers could implement “to help keep fuel available for the people, places and essential services that need it most”. The tips were positive feel-good driving techniques (which should be standard practice) without actual requirements to reduce fuel use. In fact travel as usual was facilitated by the government removing fuel excise to lower the cost at the bowser.

Lower road speed limits

The most obvious strategies for reducing diesel and petrol consumption is firstly not exceed road speed limits and secondly to lower rural highway and connecting road speed limits. A 20k/h reduction from the 110 and 100km/h speed limits has potential to reduce fuel consumption by 20% with only a small impact on commercial vehicles travel times. Not only does slower traffic reduce greenhouse gas emissions, particulate pollution and noise pollution, it significantly reduces fatal and serious injuries and their costs in hospitalization and recuperation.

Figure: Slower highway speeds reduce fuel consumption and lower fossil fuel CO2 emissions, but are too voter unfriendly to even be suggest for driver adoption in the Australian government’s National Fuel Security Plan. Source: CE Delft Netherlands 2010.

A US study into the impact of drivers not exceeding the speed limit on highways found “Driving the speed limit would save an average of 6.7 million gallons of fuel, 57,000 metric tons of carbon emissions, and $22 million in fuel costs daily across the United States”, And the extra time spent on the roads by doing this averaged one minute per driver. The Australian Road Safety Foundation 2025 survey found 49% of drivers exceed the speed limit and in Victoria the Transport Accident Commission quotes 62% drivers exceeding speed limits.

Despite the easily achieved and obvious environmental and road safety benefits it is unlikely any Australian state government would entertain lowering maximum highway speed limits to minimise CO2 emissions and save lives and serious injuries because the voter backlash would be immense and threaten its grip on political power. Not even global warming is sufficient incentive for politicians to lower speed limits.

Figure: State and Territory governments set maximum highway speed limits but despite knowing around 80km/h is the optimum speed for minimising fossil fuel emissions and to reduce collision fatalities and serious injuries, lower speeds are politically unpopular so the consequences of 100 and 110km/h speed limits are ignored in the hope that drivers won’t be distracted or make mistakes.

Just like airlines all industrial and mining facilities with hard-to-abate emissions will be chasing carbon credit offsets to meet Safeguard mechanism annual targets.

According to the Clean Energy Regulator in Q2 2026, 5.4 million ACCUs were issued, 16% lower than the 6.5 million in the same period last year. The quarterly result was driven by 2.7 million ACCUs issued to vegetation projects and 1.5 million ACCUs issued to waste projects. It includes a record 0.4 million ACCUs issued to agriculture projects which include animal effluent management, soil carbon sequestration, and beef cattle herd management methods.

Figure: ACCUs from vegetation and waste management projects dominate annual issuance reaching approximately 21 million in 2025. Source: Clean Energy Regulator  June 2026 Quarterly  Carbon Market Report (QCMR). 

Figure: Farm management  to increase soil carbon has become a dominant player in ACCU projects but is a relatively small carbon credit contributor and has questions surrounding its equivalence over 25 years to annual CO2 emissions from Safeguard facilities.

The DCCEEW contends offsets give Safeguard facilities an additional source of abatement which may be cheaper than reducing their own emissions. As a result the Safeguard Mechanism businesses have become the main source of demand for ACCUs principally supplied by revegetation projects on cleared agricultural land and waste management projects. There is growing interest in generating ACCUs from joint Nature Repair and carbon farming projects. This approach provides businesses with feel good publicity around restoring biodiversity but hybrid ACCU-Nature Repair credit projects without a eucalypt forestry component in the medium to high rainfall farming zone will be high cost management projects generating low ACCUs.

Figure: Existing Safeguard facilities emissions are projected to decline to 2040  but will still require around 80 MtCO2 abatement per year.

Figure: Existing Safeguard mechanisms facilities are rapidly building their ACCU holdings to offset the emissions they cannot reduce through alternative strategies.

ACCU demand is anticipated to increase over the projections period reaching 25 million in 2030, 35 million in 2035, and 37 million in 2040. Existing Safeguard Mechanism businesses are likely to consume all the ACCUs generated to meet their legal obligations.

Figure: Demand of ACCUs will continue to rise as Safeguard facilities purchase them to meet their legal obligations for Federal government’s emissions policy target in 2030, 2035 and 2040

The federal government spins this as a win-win for industrial facilities as they can drive emissions reductions outside the scheme at a lower cost than reducing their own emissions on-site while supporting regional development and employment opportunities. How is not explained as once a revegetation project is completed employment is limited to basic property maintenance for the projects duration, a far lower employment requirement compared to cropping or livestock production in association with nature repair. And large, high rainfall zone farms which have the greatest potential for carbon projects offsets are being purchased by offset investors as well as the Safeguard Mechanism companies.

Rushy Lagoon in Tasmania which was a significant dairy and beef cattle business and Cobungra Station in NE Victoria a beef cattle business have been sold in 2026 to carbon offset investment companies. Farmers for Climate Action have begun to realise that agriculture is under threat from Safeguard Mechanism facilities demand for ACCUs. In its September 2026 report ‘Shifting the Burden’ it states “Rushy Lagoon shows how carbon values, forestry incentives and public climate finance can change land-use economics on productive country, and displace agriculture. “

Figure: Conversion of farming land to forestry represents the greatest opportunity to reduce agriculture’s emission profile, but it also provides the greatest source of carbon credits for Safeguard Mechanism companies .

Farmers for Climate Action further state “Carbon markets can bring opportunities for farmers, but they should not be the first port of call for emission reduction. Agricultural land for sequestration is a finite resource, and offsetting should be a last resort when direct emission reductions aren’t possible, not simply a default least-cost option”.

The ‘Shifting the Burden’ report author Oscar Pearse concluded “The industrial polluters will always prefer to pay for food-producing land to be planted to carbon plantings, instead of reducing their pollution at the source. What’s best for Australia is to maturely fix the Safeguard mechanism, drop least-cost abatement principles, and consider the wider picture.”

How many hectares of Australian farm land can be consumed for revegetation offsets which generate the greatest number of ACCUs before food production for domestic and export markets becomes limited keeping in mind projects have a minimum duration of 25 years? That question is not considered by the Review authors nor do they consider the ACCU equivalence between the credits generated on land and emissions from burning fossil fuels.

The Safeguard Mechanism’s offset use enters a black hole of uncertainty when the Review states “There are no restrictions on the quantity or type of ACCUs that can be used, but enabling legislation makes it clear that offsets are intended to supplement, not replace, efforts to reduce industrial sector emissions. But a facility that surrenders ACCUs totalling more than 30% of its baseline must explain what is preventing it from reducing emissions on-site”.

Figure: Australian carbon credit unit (ACCU) and Safeguard Mechanism credit unit (SMC) safeguard surrenders. Safeguard surrenders are made by safeguard entities to meet Safeguard Mechanism compliance. ACCUs dominate annual surrenders in line with Safeguard Mechanism facilities meeting their legal obligations in quarter one each year since 2023. Source: Clean Energy Regulator  Quarterly Carbon Market Report (QCMR) data workbook 

Once explainers become a substitute for emissions it is highly unlikely action will be taken by government as the probable outcome is either a facility with hard to reduce emissions downsizes production or closes or relocates overseas to where emissions reductions are less onerous financially and legally. Such company actions will impact regional employment and the nation’s GDP.

Figure: A 2025 survey of businesses found nature based removal carbon credits as the most important for their abatement with an important co-benefit of being able to highlight to the wider public and lenders their concern for nature and biodiversity conservation. Source: SE Advisory Services Carbon Credit Outlook 2025

The review authors know that unrestricted ACCU offset use means business can defer actions to reduce fossil fuel pollution on-site and this could put in jeopardy the government emissions reduction targets. They know Australia’s ACCU project sector currently holds 59 million ACCUs with 20 million being added each year, roughly equivalent to the Safeguard Mechanism’s abatement target of 140 Mt by 2030.

ABARES calculated in its 2025 report ‘Sequestration on Agricultural Land’ there will be 119 million tonnes of CO2 land based sequestration mainly through reafforestation and managed revegetation by 2050. This figure highlight show important land based abatement is to the government’s goal of Net Zero by 2050. ABARES estimates this abatement will take place across 18 million hectares up to 2050 which it considers is only 4% of agricultural land. That calculation is misleading as it uses Australia total agricultural land area, 420 million hectares , as being suitable for vegetation carbon abatement either as environmental plantings or native species regeneration. The reality is 40% of the agricultural area is low rainfall pastoral zone unsuitable for environmental planting which ABARES admits. Reafforestation to generate profitable carbon abatement projects will take place across the medium to high rainfall cropping and modified pastures zone comprising 106 million hectares. That’s where the majority of the 18 million hectares of carbon farming will be located and that area equates to 17% of the most productive and profitable farming land.

Infographic: Investment in environmental plantings carbon farming which produces highest rates of carbon abatement per year will take place across Australia most productive and profitable cropping and modified pasture zones with unintended negative consequences for export income and community well being.

Figure: Environmental plantings for carbon abatement and trading offsets in the medium to high rainfall cropping and modified pasture zones will have much more investor appeal than low sequestration rate managed regeneration across vast expanses of low rainfall and climate change exposed pastoral zone.

Even within the cropping and modified pasture zones sequestration rates are highly variable due to soil type and carbon farming investors will be most attracted to purchasing carbon farms in the greater than 500mm rainfall districts.

Table: Medium to high rainfall zones will be targeted by Safeguard Mechanism carbon offset investors as high eucalyptus percentage plantations and pine plantations optimise CO2e abatement rate per hectare per year but outputs are far more variable than models suggest. When environmental planting projects for carbon offsets are combined with Nature Repair biodiversity offsets eucalyptus species form a minority of the vegetation present and abatement is correspondingly lower so these combined projects are likely to consume significantly more farmland but will give their investors environmental good will to promote to consumers.

The ABARES report is also misleading in its assumptions around existing farmers being the major beneficiaries of Safeguard Mechanism entities demand for ACCUs. “Land-based sequestration is estimated to generate profits for landholders of $9 billion annually in 2050, with some landholders deciding to change their land use entirely to sequestration and others diversifying into a mix of agriculture and sequestration”. There are two question marks around this statement. Firstly who will be future landholders? Evidence from farm sales suggest investors and Safeguard Mechanism entities with no interest in producing food are purchasing properties for generating ACCUs. Secondly, what are the unintended consequences of 17% or more of farm land being removed from the cropping and modified pasture zones. ABARES seems to have ignored that farmland removal for revegetation must continue post 2050, because the planted areas will have declining abatement with age and new areas planted in to compensate.

Environmental planting with its accompanying improved biodiversity value has potential to become part of the nation’s forest estate unless silviculture is introduced as part of reafforestation management. Silviculture assists is revitalising carbon abatement from a given project area providing the harvest can be converted into long-life timber products such as housing.

Despite the please explain requirement, around 10% of Safeguard Mechanism facilities surrendered  ACCUs totalling more than 30% of their baseline. Around 75% of the credits surrendered were ACCUs and 25% SMCs. Despite the so-called legislation deterrents to using carbon credit offset in lieu of reducing facility emissions, the authors admit “Australia’s emissions projections forecast that businesses will continue to rely on ACCUs to 2040 to meet their compliance obligations”. Furthermore, “The unrestricted use of offsets lowers the cost of meeting climate targets in the short term, but could create risks to the achievement of national emissions goals over time”.

The government doesn’t know the solution to this Safeguard Mechanism offset use dilemma and is hoping feedback from industry and carbon market players will have some suggestions about how to restrict ACCUs trading for Safeguard compliance. If that happens the unintended consequences could be an ACCU price drop due to less Safeguard facility demand. In contrast SMC prices are likely to increase which may lower demand for them.

Associated with ACCU integrity for equivalence is the issue of ACCU vintage – another uncertainty. “Credits circulating in the market today could represent abatement that took place up to 15 years ago”. Back then ACCU integrity standards were lower meaning the 1 tonne CO2e claimed may not be 100% real. So the government is looking for new rules such as a five year rolling average for ACCUs issued in the previous five years. Special arrangements would have to be made for the vintage ACCUs value.

Another compounding issue for ACCU carbon trading value being considered is acceptance of international carbon offsets. Once again the issue of offset integrity is raised. Currently the government’s Net Zero Plan including the Safeguard Mechanism prioritises domestic generated ACCU’s “…to ensure the benefits of decarbonisation remain in Australia”.

The problem for this policy is that international trading “…remains a mechanism under the Paris Agreement to enable the action required for achieving net zero globally. Any future consideration of international units in the Safeguard Mechanism would be limited to high integrity units”. This highlights that not all carbon trading offsets are equitable. Its seems the government will be compelled to include international units for the Safeguard Mechanism at some point. The impact of such a policy change on ACCU price needs to be considered.

The authors note that the international market carbon trade is dominated by voluntary methods offsets which are not aligned with the Paris Agreement and these cannot be counted against a country’s total emissions.

Transport facilities emissions

The regulatory and cost implications of the Safeguard mechanism to assist achieving greenhouse gas emissions targets is highlighted by the road and rail transport system.  Facilities can report on a state basis or on a national basis, most report on a state basis as emissions can be split between different states so avoiding regulatory baseline requirements. This reporting also presents issues comparing emissions from rail (national reporting) versus road transport (state based) with the unintended consequence of an incentive to “transfer the freight task to road resulting in increased emissions”, because of lower or avoided Safeguard Mechanism costs with a lower state based emissions profile. The government’s solution is requiring national reporting for all transport facilities.

Figure: Despite the significant uptake of electric and hybrid motor vehicles, the transport sector emissions are projected to remain above the 2005 level by 2035.

Add smaller emitting businesses

Another strategy to increase the Safeguard Mechanism coverage is to reduce the existing facility threshold of 100,000 tonnes CO2e emissions per year which covers about 30% of national emissions. Lowering facility threshold to 25,000 tonnes of CO2e per year is being considered and would cover around 68% of national emissions and an additional 291 businesses. But what is the cost to businesses and ultimately to consumers? What would be the impact on food production as more ACCUs from the land sector will be required?

The review authors don’t describe compliance costs but contends more businesses covered would “…better distributes the costs and effort of meeting Australia’s climate goals. Any decision to expand coverage would need to balance these benefits against the additional costs, which include increased regulatory requirements and compliance costs for newly covered facilities. These are smaller facilities that may have less capacity to absorb these costs. There may also be additional administrative costs and potential complexity relating to the need to develop new production variables if a lower threshold brings in new industries or activities”.

No mention is made of the impact of increased ACCU demand on its impact for food production and rural communities.

According to DCCEEW well over half of Australia’s emissions are now covered by legally binding emissions reduction policies. The emissions projections show Australia’s total emissions are projected to decline by 84 Mt CO2-e over next the five years to 2030. This is because of key federal policies like the Safeguard Mechanism, and the 82% on-grid renewable electricity target, are all calibrated to the 2030 target. The cost to the 200 facilities covered by the Safeguard Mechanism for achieving target emissions reductions to 2030  was estimated in July 2025 by the Institute of Public Affairs (IPA) to be $11.7 billion to the year 2030. Capturing more businesses by setting the baseline at 25Mt CO2e will add considerably to the cost for industry and ultimately consumers.

IPA contends that by 2029/30 it is estimated around 90% of covered facilities will be required to purchase carbon credits, as the mandated emissions threshold will decline below their gross emissions.

ACCU integrity was recently commented in a Safeguard Mechanism review by Energy Supply Australia whose editor noted “ that the ACCU market is better than it was in 2021, but not yet as reliable as the scheme’s designers need it to be. If Safeguard compliance rests significantly on ACCU purchases, and a meaningful share of those ACCUs represent questionable abatement, then the mechanism’s real-world emissions reduction is lower than the compliance data implies”.

UPDATE 2 OCTOBER 2026

Coal mining extended, more carbon offsets needed

A 30 September 2026 decision by the NSW Independent Planning Commission to approve plans that will allow Hunter Valley Operation to continue operating its coal mine until 2045 highlight the black hole state and federal governments operate in with respect to Net Zero Emissions 2050 polices and maintaining a functioning economy employing people.

The Commission’s report even states “The Commission also accepts the evidence of the NZC that continued coal mining emissions place additional pressure on the State’s emissions trajectory.” It also states “The Commission acknowledges that the intent of Commonwealth and State legislation and policy is that offsets are a core component of the achievement of net zero targets, and that the Project’s reliance on offsets is consistent with that intent.”

According to the report the decision means approximately 1400 jobs at the mine, 800 suppliers jobs and more than $1billion per year revenue will be retained. The emissions generated to 2045 from an estimated 429 million tonnes of coal are 809 million tonnes CO2e from mining and coal combustion overseas. It is estimated 98% of the total emissions generated will happen overseas, meaning the state government’s net zero emissions policy is not seriously impacted (an additional 15 million tonnes CO2e over 19 years).

The Commission stated “the residual impacts of the Project are, on balance, outweighed by its benefits to the Hunter region and NSW, including continued employment, economic activity, support for local business, ongoing royalties and taxation revenue”.

As with all Safeguard Mechanism businesses purchasing carbon offsets (for the mine’s domestic emissions) have been made a condition of the approval, alongside maximising the use of renewable energy at the mine, and the intended sale of coal into countries that have policies for reducing greenhouse gas emissions. How many ACCUs per year will be needed and how many hectares of farm land would be converted to carbon abatement with resulting loss of food production and rural jobs was not indicated by the Commission.

Figure: With over half of Australia’s emissions covered by legally binding emissions reduction policies, their impact is relatively small compared to projected emissions to 2040. Most of the decline in emissions since 2015 and its projected decline to 2040 is being contributed by the agricultural farm land sector where revegetation and nature repair will compete with food production.

Table: Agriculture is projected to be a net greenhouse gas emitter to 2040 and beyond. An issue for trading carbon offset produced on farms to Safeguard Mechanism polluters is how it further distances the agricultural sector from achieving its own climate neutral status. Individual farm business cannot double dip ACCUs generated on farm, that is, sell them and then claim climate neutral livestock and/or grain production status. If markets develop  for climate neutral foods, businesses that have already sold to Safeguard Mechanism entities will be excluded.

Figure: CSIRO modelling shows how the agriculture sector will require all the offsets generated in the land sector to achieve its own net zero emissions status by 2046 under the current Australian government target with a global warming target less than 2C by 2050. A more ambitious target requires significantly higher carbon abatement across the sector leaving less land available for food production.

References:

Department of Climate Change, Energy, the Environment and Water (DCCEEW) September 2026 ‘Safeguard Mechanims Review Consultation Paper’

Jayaprakash B. and W. F. Northrop. et al. “Speeding incurs substantial environmental and economic costs nationwide for negligible travel time savings.” Communications Sustainability 2026.

Farmers for Climate Action September 2026,  ‘SHIFTING THE BURDEN: How to cut the industrial emissions which are hurting farmers, without passing the responsibility onto them’.

HVO North and South Open Cut Coal Continuation Projects, Independent Planning Commission NSW Statement of Reasons for Decision, 30 September 2026