Australia risks being a ‘state sponsoring greenwashing’ if it relies on carbon offsets, expert warns

The Australian government risks becoming a "state sponsoring greenwashing" if it keeps allowing companies to use carbon offsets without much tighter regulations, according to a member of an expert panel advising the UN on net zero climate pledges.

The UN panel released recommendations at the Cop27 climate summit in Egypt for corporations, regions and policymakers around the world on credible net zero pledges.

Experts said many Australian companies' pledges would fail to meet the panel's recommendations, which said continued fossil fuel exploration and production and unlimited use of carbon offsets were incompatible with net zero plans.

Dr Bill Hare, an Australian climate scientist, adviser and member of the High-Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities, told the Guardian the main implication from the report was "whether or not Australia will bite the bullet and move away from relying upon offsets".

"If the government doubles down on the present system whereby offsets are allowed to be used to do all of the so-called emission reductions, then there is a serious risk that the Australian government becomes a state sponsoring greenwashing," he said.

Policymakers, regulators and boardrooms will be examining the expert group's report closely. It stressed companies should be making deep cuts in absolute pollution by 2030, in line with the global goal of aiming to limit heating to 1.5C above pre-industrial levels, and using high-integrity offsets only for additional reductions beyond that to "balance out" remaining emissions.

The report also said companies with net zero plans must building or investing in new coal, oil and gas supplies, and fossil fuel businesses need to account for "scope 3" emissions - those released through the use of their products by their customers - as well as their direct pollution.

Hare said the group had called for a taskforce to be developed to ensure the recommendations were incorporated into regulation and law around the world. In Australia, he said that should involve federal and state governments and corporate and consumer watchdogs.

"There needs to be regulation," Hare said. "The wild west approach to corporate net zero targets needs to end so that public, consumers and investors have confidence that net zero claims of companies are real and not greenwashing.

"We've reached a point in time where we cannot afford to cheat on the climate. It's too important and the implications for future generations too great."

The use of carbon offsets and the rules that govern them is a major focus at the talks in the Egyptian city of Sharm el-Sheikh. The US climate envoy, John Kerry, who last week announced the creation of a carbon offset plan known as the Energy Transition Accelerator, promised to help developing countries move more rapidly away from fossil fuels.

The plan was criticised by environment groups, which said it would delay genuine efforts to cut emissions. Kerry responded that fossil fuel companies would not be allowed to participate in the program.

In Australia, there has been a rapid expansion of net zero pledges in boardrooms, including at many major fossil fuel corporations. Polly Hemming, a climate researcher at the Australia Institute, said the lack of regulation meant it was "like a choose-your-own adventure".

She said most fossil fuel companies relied on buying offsets to reduce their reported emissions in their net zero plans. "There's a complete over-reliance from the private sector on offsets and the government is allowing that," Hemming said.

The Albanese government is consulting with industry on changes to a Coalition-era scheme - known as the safeguard mechanism - that is promised to cap and gradually reduce greenhouse gas emissions from the country's 215 highest-emitting sites.

In a consultation paper, the government said it intended to allow the companies to buy and surrender Australian offsets "as an alternative to reducing their onsite emissions" - a step explicitly ruled out by the UN expert group.

Erwin Jackson, policy director at the Investor Group on Climate Change, said the group's recommendations would help to establish benchmarks to assess company commitments and would ultimately be "the regulatory system that governed greenwashing".

"This science-based assessment will be how every Australian company's commitment to addressing climate change will be judged," he said.

He said investors had shown at fossil fuel annual general meetings in Australia that they already considered new fossil fuel development to be incompatible with credible net zero plans. "You can't say you're committed to the Paris agreement and go out and expand fossil fuels, and you can't offset your way to net zero," Jackson said.

A recent review of 187 companies on the ASX200 by the Australian Council of Superannuation Investors - a group that represents investment funds and asset owners in boardrooms - found nearly half had net zero commitments, but only 3% counted all emissions caused by the company's activities.

The council's chief executive, Louise Davidson, said it found "a higher reliance on offsets than we were comfortable with".

"The research found a lot of targets have been set and there's growing corporate ambition," she said. "But commitments on disclosure around those didn't give us confidence that corporate Australia is heading for 1.5C."

The climate change and energy minister, Chris Bowen, said through a spokesperson that "abatement is still delivered" where offsets were used and the government was committed to ensuring "confidence in the integrity of climate-related commitments of Australian companies".

"The government stands by its safeguard [mechanism] reforms, which allows facilities to use offsets to meet reductions in their baselines," the spokesperson said.

Bowen has commissioned a review of the Australian carbon credit scheme led by a former chief scientist, Prof Ian Chubb.

The review is considering allegations by academics, including a former head of a carbon credit integrity assurance body, Prof Andrew Macintosh, that up to 80% of credits approved in Australia were not delivering a genuine reduction in emissions due to flawed management of the system by the government regulator. It is due to report by the end of the year.