Australia’s biggest industrial emitters could face tighter restrictions on the use of carbon offsets as the Federal Government reviews the Safeguard Mechanism.
The scheme requires around 200 large industrial facilities to progressively reduce their emissions or surrender Australian Carbon Credit Units to cover excess pollution.
The government is examining whether companies should face limits on the number or types of offsets they can use, or whether some emissions could require more than one credit to offset.
Supporters argue the existing system allows major emitters to rely too heavily on carbon credits rather than investing directly in cleaner technology.
Industry groups, however, warn that restricting offsets before affordable low-emissions alternatives are available could make Australian manufacturing and resources projects less competitive.
The issue also has implications for agriculture because around half of Australia’s carbon credits originate from rural land projects.
Farmers can earn credits by changing land management practices, planting vegetation or storing additional carbon in soils.
Restrictions on offset demand could reduce the value of those credits and weaken incentives for environmental restoration projects.
The government has not yet made a final decision.
Draft policy changes are expected in early 2027 as part of the scheduled review of the Safeguard Mechanism.
The review will also examine the rate at which emissions baselines decline after 2030 and whether the system provides sufficient incentives for companies to reduce emissions directly.
The debate highlights the challenge facing Australian climate policy: cutting industrial pollution without driving investment, production and jobs to countries with weaker emissions requirements.
