Mechanism for industrial pollution hangs in the balance

The idea of giving billions of dollars of taxpayer-funded carbon credits to the largest industrial emitters to control pollution and develop new technology is a real head-scratcher.

The scheme set up by the coalition to cap greenhouse gas emissions, and tightened under Labor to cut emissions, aims to maintain economic growth.

But critics fear the number of carbon credits used to offset pollution means genuine emissions reduction won't happen.

Allowing fossil fuel companies access to unlimited offsets would green light coal and gas production, boost emissions and threaten Australia's ability to meet climate targets, Climate Analytics warns.

New analysis reveals what is described as the fundamental scientific shortcomings of tree planting and forest regeneration, which account for more than half the carbon offsets generated to date.

Most of these fail to deliver genuine or additional emission reductions, according to the report commissioned by advocacy network Solutions for Climate Australia and the Australian Conservation Foundation.

"Regenerating and protecting forests is fundamentally good for the climate and the environment," campaign director Barry Traill says.

"However, even for the highest integrity offsets there is a risk the trees may be lost through fire and drought.

"Our first priority needs to be reducing climate pollution directly."

The coalition says there won't be enough carbon credits on the market under Labor's scheme.

But carbon market expert Raphael Wood says there isn't a shortage of supply, with a burgeoning industry of high-integrity land and coastal carbon abatement projects.

The opposition is also riled by proposed speed limits on emissions, which would be required to reduce by 4.9 per cent a year.

Laws before parliament to tighten the scheme also reflect work under the former government to add a type of carbon credit to reward facilities for over-performance on cutting emissions.

The draft bill before parliament could be debated this week but a vote isn't expected until March.

Climate Change Minister Chris Bowen is confident it can be passed in time for the arrangements to take effect from July.

Simultaneously, complex rules about how it works in detail are being thrashed out.

Industrial plants can still buy and surrender carbon credit units to offset emissions and stay below their limits, or opt for technology to clean up operations.

For some high-heat refineries and manufacturing, there may always be some emissions that can't be eliminated and need carbon offsets.

But for others, it will make commercial sense to opt for processes and renewable energy sources to go carbon neutral.

The safeguard mechanism established in 2016 covers 215 industrial plants that emit more than 100,000 tonnes of greenhouse gas emissions a year, with limits - known as baselines - set on this pollution.

Under the scheme, plants can still be expanded, developments added and baselines can be varied if production changes.

Refineries for critical minerals, food production or fossil fuels can be added, but they would need to operate under world best practice to reduce emissions.

Electricity generation is dealt with separately with one sector-wide emissions limit and a suite of federal and state policies designed to accelerate the closure of coal-fired generators and expansion of solar and wind power.

Australia's biggest emitter AGL Energy is adamant the mechanism must proceed.

"We absolutely support the safeguard mechanism, we see that as driving further decarbonisation," AGL CEO Damien Nicks tells AAP.

"Across the Australian market, which then means the industry perspective, we're all on the same pathway to decarbonisation."

When the Morrison government adopted the climate policy of net zero by 2050, then emissions reduction minister Angus Taylor vowed he would not tighten the safeguard baselines.

He also rejected calls by the Business Council of Australia to expand the mechanism to 500 industrial facilities.

Instead, Mr Taylor made it cheaper for big polluters to buy offsets.

Labor went to last year's election promising to reform the mechanism and said business and industry groups were on board.

The Greens are unhappy about the scheme allowing an expansion of coal and gas, but the party hasn't vowed to block what could be a once-in-a-generation chance to govern a third of Australia's emissions.

"We're open to good faith discussions on the safeguard mechanism - and the government will need our votes to pass their legislation and prevent regulations from being disallowed," Greens leader Adam Bandt says.

"Labor will need to recognise we don't support the opening of new coal and gas."

Leaving no room for negotiation, the Liberal and National parties have agreed to oppose the bill - leaving its fate in the hands of the Greens.

Coalition spokesman Ted O'Brien says the Albanese government is rushing into one of the world's biggest carbon taxes without modelling the impact on businesses, workers and regional communities.

"The coalition will not support government policy that aims to decapitate the economy instead of decarbonising it," he tells AAP.

"Some manufacturers will survive the tax by passing the cost on to consumers while others will shut their doors or offshore their operation to higher emitting nations like China or India."

Either way, he says jobs will be lost, regional areas will lose their industries and the country will lose competitive advantage and sovereign capability.

Department of Climate Change senior official Kath Rowley recently told a carbon market industry seminar emitters won't have a bigger burden from day one, because the reforms will come in gradually.

Nor do the changes penalise growth, as baselines for emissions can rise and fall with changes in annual production, she says.

Lawyer Ilona Millar, who leads a climate change and sustainability team, says technology investment, not just offsets, will be important.

A large number of emitters are expected to get federal help to clean up their operations, to keep up with rivals overseas.

But the design of the funding will be also be crucial to safeguard access to finance, she says.

Some $600 million has been set aside to partner with industry in energy efficiency upgrades and lower carbon processes.

Australian Associated Press