Australia will fail on emissions reduction without changes to the carbon credit scheme that was set up to shrink industrial pollution, new research shows.
Modelling prepared by research firm RepuTex Energy for the Carbon Market Institute examines what changes are needed for the so-called Safeguard Mechanism to achieve net zero emissions by 2050, or sooner.
Designed under the coalition government to give industry a soft-landing, the scheme for Australia's heaviest industrial polluters has failed to reduce national emissions, the latest official greenhouse gas data shows.
If left unchanged, emissions from the 212 facilities covered by the current mechanism will reach 140 million tonnes by 2030, which would be 18 per cent or 170 million tonnes above 2005 levels, according to RepuTex.
The Albanese government intends to retain the scheme that covers almost 80 per cent of Australia's emissions but has confirmed it will gradually toughen allowed pollution levels - known as emission baselines.
Emissions cuts across industry will be critical for Australia to be carbon neutral by 2050, and for Labor to achieve its promises of deeper emissions cuts this decade.
Releasing the report on Thursday, RepuTex executive director Hugh Grossman said the mechanism would work alongside other federal policies to reduce emissions, resetting climate and energy policy.
These include Labor's Rewiring the Nation plan to transmit more renewable energy across the economy, and the latest Integrated System Plan which provides a road map for developing the National Electricity Market.
Mr Grossman said the current low price for carbon credits would help the cost of compliance in the short term.
But he doesn't expect companies to rely on buying credits to offset emissions, year after year, through to 2050.
"That would be an incredibly expensive way to reduce your net emissions," he said.
"We'll see industrial action.
"There's a lot of low hanging fruit out there, even for hard to abate sectors - electrification is the obvious one and fuel switching in different processes."
Mr Grossman said past ideas about needing to ease the carbon liabilities for industry may be out of date, because they are already running with more ambitious targets than the government.
But there is uncertainty around whether there will be new limits for individual plants, factories and refineries or whether emission expectations would be imposed as industry-wide speed limits.
The mechanism is not an emissions trading scheme, rather it uses a "carrot and stick" approach.
Large polluters are required to buy carbon credits if they breach the set limits, and earn credits paid for out of federal coffers for cleaning up operations or offsetting emissions with new environmental projects.
Labor will need to pass new laws for changes to the mechanism, which are expected to take effect from July 1 2023.
"What's very important is we're sending clear signals to boardrooms on what's coming at them, on reductions and responsibilities, which of course can be scaled up over time," institute head John Connor said.
A government consultation paper is due soon, and is expected to face intense industry and public scrutiny.
Energy Minister Chris Bowen must also answer ongoing questions about the integrity of Australia's carbon credits, despite the regulator's arms-length committee finding this month that recent criticism is unfounded.
But whistleblower Andrew Macintosh and his academic colleagues are standing by research that questions the integrity of three-quarters of the carbon credits issued under the federal Emissions Reduction Fund.
The RepuTex report comes ahead of Mr Bowen's keynote speech on Friday to mark the 10-year anniversary of the start of Australia's carbon-pricing mechanism.
Australian Associated Press
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