For decades, federal politics has been plagued by fights over carbon pricing – the conceptually simple idea of imposing a cost on greenhouse gas emissions to incentivise reducing them. Between 1995 and 2009, there were five failed attempts to establish a national scheme. Things looked up momentarily in 2011 when the Gillard government created the carbon pricing mechanism with the support of the Greens. It ran for two years before being repealed by the Abbott government.

In its place, Tony Abbott instituted a Frankenstein policy known as the safeguard mechanism that was designed to achieve nothing – and it succeeded. Abbott’s safeguard remained in place until March 2023, when the Albanese government overhauled it; reforms described at the time as a momentous change that would set the economy on the path to net zero.

The enthusiasm for the revitalised safeguard has since waned. It has kept big polluters happy but, three years on, belief that it will drive rapid decarbonisation has dissipated and many environmental groups are pushing for significant changes.

Into this charged political environment comes the recently initiated 2026-27 safeguard mechanism review – with a consultation period that closed on Friday. Promised during the 2023 reform process, the review is meant to ensure the safeguard is “effectively delivering emissions reductions and that scheme settings are operating as intended”.

While presented in dull bureaucratic terms and smothered in technocratic jargon, the review has set the scene for yet another lively scrap over climate policy.

The safeguard imposes emissions caps on large facilities that release more than 100,000 tonnes of emissions a year. It covers about 220 facilities, with most emissions coming from coal and gas operations – the likes of Yancoal, Woodside Energy and Santos. Grid-connected electricity generators are excluded.

The scheme imposes a price on emissions by requiring operators of the covered facilities to buy and surrender tradeable credits to cover any emissions that exceed their caps.

Under Abbott’s safeguard, the caps were generally set well above the facilities’ actual emissions. This meant they were rarely penalised – it was a carbon price in name only. The Coalition had no plans to reduce the caps.

Anthony Albanese’s reforms reset the caps to levels based on historic average emission intensities at each facility and then set them on a downward trajectory over subsequent years. A new type of credit was also introduced. Where previously facilities could only use carbon offsets known as Australian Carbon Credit Units (ACCUs) to meet liabilities, now they earn Safeguard Mechanism Credits (SMCs) if their emissions are below their caps. Facilities that earn SMCs can sell them to other facilities, who can use them to cover their excess emissions.

So, has the revitalised safeguard worked? The short answer is no.

In decarbonisation terms, three years is not a long time. Generally, the large emitters have expensive, long-lived equipment that takes time to replace or upgrade. Even accounting for the resulting expected lag in emissions reductions, it is clear the safeguard is not up to the task of driving emissions reductions in line with our climate targets.

Since the revitalised safeguard started, it has done almost nothing to reduce emissions. Covered emissions have fluctuated between 130 million and 143 million tonnes since 2017, with the ups and downs largely attributable to facilities dropping in and out of coverage and swings in production. Where abatement has occurred, by and large, it has been as a result of factors other than the safeguard, including via ACCUs and direct government support.

For the scheme to work, the financial penalty on emissions must be big enough to motivate the shift to low-carbon technologies or, where there are no viable abatement options, the closure of the facilities.

Therefore, the safeguard’s effectiveness depends on two main factors: the stringency of caps and the magnitude of the carbon price.

The caps determine facilities’ exposures to the carbon price. If the caps are too high, only a small proportion of their emissions will be subject to the penalty, meaning there is little incentive to reduce them. Buying credits becomes a cost of doing business rather than a motivator of change.

Under Labor’s revitalised safeguard, the emissions caps are set to fall by between 1 per cent and 4.9 per cent a year through to 2030, with a scheme-wide average annual decline of 4.3 per cent. However, last financial year, only 10 per cent of emissions from covered facilities were subject to the carbon price because the caps are still too high. Further, almost seven million SMCs were issued to covered facilities, most of which stemmed from artificially inflated caps rather than genuine abatement efforts.

The other hole in the safeguard is the price of credits. Whether facilities choose to decarbonise, or opt to buy and surrender ACCUs or SMCs instead, depends on the cost of cutting onsite emissions relative to the credit price. If the credit price is below the marginal cost of cutting onsite emissions, businesses will logically choose to rely on ACCUs and SMCs.

As any basic economic textbook tells us, prices are a function of the interaction of supply and demand. With the caps on emissions set to fall, demand for credits should increase and prices should rise, pushing more facilities to reduce emissions.

While this is true, consideration needs to be given to the supply side of the market. Herein lies the problem. Successive Australian governments have manipulated the ACCU scheme to ensure it throws out a seemingly endless number of cheap, low-integrity credits.

By law, each ACCU is supposed to represent one tonne of genuine abatement that would not have occurred without the incentive provided by the scheme. In practice, this legal requirement has meant close to nothing.

The ACCU scheme is now generating more than 23 million credits a year, the overwhelming majority of which do not represent genuine emissions reductions.

Many ACCU projects are farcical. This financial year, more than 10 million ACCUs will be issued for fake reforestation projects in desert and semi-desert areas that have never been cleared of native vegetation. In other words, they are claiming to reforest areas that were never forested or that already had forests when the projects started. Some of these projects are in the Nullarbor, a place that derives its name from the Latin, nullus arbor, meaning “no trees”.

About five million credits a year are going to companies to capture and combust methane emitted from tips – even though most of the sites would do so anyway. More than 60 per cent of the soil projects that have been credited to date have somehow achieved sequestration levels that are between four and 11 times what is scientifically possible.

The scheme is a rort and it is wrecking the safeguard by artificially lowering the carbon price as the market is flooded with phoney credits. The result is the big emitters face a carbon price, currently about $38 per ACCU, that is less than half of the minimum necessary to keep global warming to below 2 degrees Celsius above pre-industrial levels. The international target being pursued under the Paris climate agreement is 1.5 degrees.

The artificially suppressed credit price is driving big emitters to rely on junk credits rather than cutting their own emissions. Since those credits do not represent genuine emissions reductions, there is no abatement – the offset providers pocket the money but Australia drifts further from its targets. Not only that, the suppressed credit price makes good projects unviable, creating an unvirtuous cycle where the market is increasingly dominated by “lemons”.

Time is now short. Decades of delay mean the option of gradual transition is gone. The Albanese government’s instincts are to tinker, but substantive reform is needed.

Reflecting this, the safeguard’s emissions caps should be beelined to zero no later than 2030; either that or the scheme should be converted into a cap-and-trade scheme – the same as planned in Gillard’s carbon pricing mechanism and as occurs in the pricing schemes in Europe, California and South Korea. This would ensure all emissions are penalised.

Offsets have failed. Almost 30 years of experience has shown they rarely work and that the failings are systemic, arising not from technical issues but the governance dynamics that develop around them – principally, the incentive to use them to manipulate prices.

If the safeguard is going to work, offsets need to be excluded from the scheme. In its place, a standard cap price should be instituted, allowing big emitters to pay a set, transparent amount per tonne of emissions into a decarbonisation fund. The decarbonisation fund could then be used to finance emissions reductions in hard-to-abate facilities and in the land, waste and agricultural sectors.

This is not radical. The Albanese government created a similar arrangement for biodiversity under national environmental laws late last year.

This structure would strip away the incentives driving the corruption of the ACCU scheme, while ensuring good offset projects could continue to be financed through the fund. It would also provide a pool of resources that, working with the newly created biodiversity fund, could be used to restore the cleared and degraded ecosystems that support most of our threatened biodiversity.

It is time for our political leaders to heed and act on the climate science, both in relation to what is needed to avert dangerous climate change and what works in driving emissions reductions.

The author thanks Professor Don Butler and Dr Deb Wilkinson for their assistance with this piece.

This is how AI should be used, to improve monitoring and management. Great to see that it is available open source and to run on your own machine.

Of course I wish this had been available when I was still working, especially seeing people in other countries with access to systems like it. The worst part about using the field cameras was counting the images as they downloaded knowing how few would have images of the critters we wanted. DigiVol was a lifesaver then and has been since, but still took weeks to setup and get results. Instant id........ Luxury.