The Beginning of the End for Carbon Offsets? Parents Take Energy Giant to Court
Court case could upend Australia’s carbon offset industry and reshape corporate climate claims.
A lawsuit launched by a group of Australian parents against one of the country’s largest energy companies could be about to deliver a mortal blow to Australia’s carbon offset industry and the carbon neutral certification scheme run by the Australian Government.
Climate action group Parents for Climate are suing EnergyAustralia – one of Australia’s ‘Big 3’ energy retailers and the owner of two coal fired power stations – alleging the energy company misled customers about the environmental benefits of its ‘carbon neutral’ energy services.
If successful, the case could have profound implications that ripple through the Australian market for carbon offsets and fundamentally change the way companies can promote themselves and their products as climate friendly.
In submissions to the Federal Court, Parents for Climate allege EnergyAustralia misled or deceived its customers – breaching the Australian Consumer Law - when promoting two electricity and gas products that it claimed were carbon neutral.
Advertising material produced by EnergyAustralia claimed that by purchasing “Go Neutral” branded electricity and gas services, the customer’s energy purchases would “make a real difference to the environment”, “support global efforts to address and mitigate climate change” and that the emissions associated with the products had been “cancelled out” or “negated”.
EnergyAustralia’s claim that the products are carbon neutral is based on the certification it received through the Federal Government run Climate Active program. Under the Climate Active scheme, companies can obtain a carbon neutral certification for the company itself or the specific products and services it sells by offsetting greenhouse gas emissions using carbon credits.
The case against offsets
In bringing the case to the Federal Court, Parents for Climate alleges that EnergyAustralia had misled its customers about its Go Neutral products because the carbon offsets used to secure the Climate Active carbon neutral certification were not backed by any meaningful reductions in emissions.
Principal Solicitor at Equity Generation Lawyers, the firm representing Parents for Climate in the case, David Hertzbergsays EnergyAustralia’s use of carbon offsets potentially resulted in an overall increase in emissions.
“Our case includes a simple argument,” Hertzberg said. “Burning fossil fuels creates emissions; offsets do not permanently remove them. That means that offsets cannot undo the climate harms caused by burning fossil fuels. Burning fossil fuels always contributes to climate change, with or without offsets.”
Director of the Climate & Energy Program at The Australia Institute, Polly Hemming, says the evidence of the effectiveness of carbon offsetting remains lacking.
“The onus is ultimately on proponents of carbon offsets to show that they permanently offset greenhouse gas emissions and ultimately lead to an economy-wide reduction of emissions, and they have consistently failed to do this. Carbon markets have been around for decades and it has proven impossible to unequivocally demonstrate or verify claims of carbon neutrality using carbon offsets,” Hemming said.
“Conversely, there is a rapidly growing catalogue of independent investigations exposing fraud, misadventure and non-additionality in carbon credit projects and revealing how carbon offsets are used by industry to maintain or increase their emissions.”
Parents for Climate is seeking two key outcomes; a declaration that EnergyAustralia had misled its customers about the greenhouse gas emissions associated with their electricity and gas usage, and an order preventing EnergyAustralia from making further “carbon neutral” claims about its Go Neutral electricity and gas products.
Such an outcome would have substantial consequences for the government-run Climate Active program and the Australian market for carbon offsetting more broadly. Companies would no longer be able to rely on Climate Active’s government-backed stamp-of-approval for their carbon neutral claims, and companies would not be able to make claims that products have a positive impact on the environment if they have relied heavily on carbon offsets.
“If we succeed, it will send a clear message: the era of unchecked greenwashing using so-called "offsets" is over,” Parents for Climate CEO Nic Seton said.
“Polluters will need to come clean in their marketing and develop genuine emissions reductions plans that consumers and the community expect. And government and regulators will need to catch up with guidance and schemes that propose offsetting as a decarbonisation pathway.”
“This case could raise the bar for transparency, integrity, and real impact in setting standards for any further use of carbon markets - because parents who want a safe climate for their kids won't settle for smoke and mirrors when it comes to climate action.”
The Defence
EnergyAustralia is mounting a defence to the claim, with a company spokesperson saying the company had continued to undertake efforts to reduce its emissions.
“EnergyAustralia is decarbonising by investing in and supporting assets that enable the clean energy transformation, and helping our customers to directly reduce their emissions,” the EnergyAustralia spokesperson said.
“While our focus is firmly on direct decarbonisation measures, EnergyAustralia will require offsets for the abatement of residual emissions to ultimately reach Net Zero.”
“Carbon credits are not used by EnergyAustralia to delay or diminish the work we are doing to invest in assets that will allow us to directly decarbonise our underlying operational emissions.”
In the defence filed by EnergyAustralia, the company stresses the fact its carbon neutral certification scheme was issued by the Australian Government backed Climate Active program. Additionally, EnergyAustralia argues that the carbon credits it has used to offset emissions of the electricity and gas products were “verified by independent auditors through internationally recognised standards” to ensure the credits “represent real and actual emissions sequestered or avoided.”
EnergyAustralia is, by-far, the largest participant in the Climate Active scheme, offsetting as much as 1.6 million tonnes of emissions each year. According to the public disclosure statements produced by EnergyAustralia and published by Climate Active, almost 99 per cent of the carbon credits EnergyAustralia used to offset these emissions were Certified Emissions Reduction credits, which are issued under the Clean Development Mechanism.
Despite being overseen by the United Nations, the Clean Development Mechanism has been the subject of intense scrutiny and criticism. There is a growing body of research that finds most credits did not contribute to any real-world reductions in greenhouse gas emissions. This includes a study commissioned by the European Commission that found the Clean Development Mechanism had “fundamental flaws in terms of overall environmental integrity.”
Reflecting their questionable environmental value, and the ease at which projects have been able to generate vast volumes of the credits, CERs generally sell for less than one dollar per credit and have been labelled “junk credits”. Nonetheless, CERs represent around half of all carbon offset credits used by companies under the Climate Active program.
A further one-quarter of the credits accepted by Climate Active are produced under an international voluntary carbon offset scheme known as the Verified Carbon Standard. The Verified Carbon Standard has also faced criticism for overstating emissions reductions achieved by offset projects, leading to claims it generates “phantom credits”.
EnergyAustralia has ceased offering the Go Neutral products to new customers, and says it will be phasing out the product for existing customers.
Hertzberg says companies making claims of carbon neutrality could be putting themselves at risk of breaching consumer protection laws.
“We’ve seen many businesses make questionable carbon neutral claims based on carbon offsets. If our client is successful, this case would set a precedent which may discourage other businesses from making carbon neutral claims about polluting activities,” Hertzberg said.
“Our client’s hope is that this case, and legislative and regulatory intervention, will stamp out the dodgy claims. But, if companies continue to greenwash by making claims that don’t stack up to reality, they will continue to face the risk of legal action.”
Is this government sanctioned greenwashing?
In an implicit recognition of the issues facing the Climate Active program, in October 2022 the Albanese government instigated a review and potential overhaul of the design of the Climate Active program. A consultation paper released by Climate Active proposed new restrictions on the types of international carbon offsets that could be used and went so far as proposing to abandon and replace the ‘carbon neutral’ terminology used by the Climate Active scheme.
But no reforms have been implemented and with the government now in caretaker mode ahead of the election, the Climate Active scheme operates unchanged.
“A decision about the future direction of the Climate Active program is yet to be made,” a spokesperson for the Department of Climate Change, Energy, the Environment and Water said.
“The Australian Government is carefully considering the future direction of the Climate Active program, including how to drive effective voluntary climate action and provide consumers with confidence about business’ climate claims.”
More than one hundred companies have withdrawn from the Climate Active program in recent years, including Afterpay, Jetstar, Ovo Energy and the federal government’s green bank; the Clean Energy Finance Corporation. Telstra announced its withdrawal from Climate Active alongside a commitment to make greater investments in directly reducing its emissions.
Hemming argues the involvement of the Australian Government in administrating the Climate Active scheme encourages companies to prioritise using carbon offsets, rather than investing in reducing their emissions.
“In the case of Climate Active, businesses have been allowed, and actively encouraged, by government to use carbon offsets rather than having to reduce their absolute greenhouse gas emissions in line with science. Government has also endorsed claims about these businesses being climate leaders and encouraged consumers to seek them out,” Hemming said.
“Yet it has become clear that these businesses are often not reducing their absolute emissions (some have increasing emissions), they are not climate leaders, and the carbon offsets they are using are not actually storing or avoiding the claimed amount of carbon in many cases.”
The substantive hearings in the case Parents for Climate v EnergyAustralia scheduled to start in mid-May. Parents for Climate argue a successful outcome would empower consumers and the broader community to demand companies take greater efforts to avoid producing further emissions.
A win for Parents for Climate would not be an outcome without international precedent. In 2024, a group of Dutch climate campaigners, working with the organisation Fossielvrij, successfully sued KLM Royal Dutch Airlines with a Dutch court finding the company had misled customers when it claimed its carbon offsetting measures were “creating a more sustainable future”.
“Any company that continues to rely on offsets to market their products as somehow "carbon neutral" is at risk of challenges like this one,” Seton adds.
“Parents and consumers are waking up to the fact that "carbon neutral" claims are bogus. We want companies to take constructive and responsible action to market their wares honestly and to take genuine steps to reduce pollution.”
That we have emissions 'reductions' policy that is highly dependent on Offsets seems more like evidence of how comprehensively mainstream politics has sought to evade reducing dependence on fossil fuels. There is so much obviously wrong with Offsetting I find it mind boggling that it has become so widely accepted.
Not sure to what extent proponents have sought options that don't require limiting fossil fuels (or aggressive deployment of RE to the detriment of FF's) and use it to fork 'green' activism, which gets faced with an option to preserve some forests and engage in re-forestation based in carbon offset funding as that or nothing, the illusion that it is strongly supported by climate activists (aka 'greens' - apparently no-one else cares) for the emissions 'reductions'. It reinforces the illusion that it is up to 'greens' (because they care) to fix the problem. Which, in the persistent absence of mainstream leadership has enabled so much of climate and energy politics to be about opposing the 'extremists'.
At best I think such schemes should count against Land Use emissions and more specifically apply to the effects of deforestation, past and present. In order to actually offset FF emissions we need to see persistent, irreversible growth in total vegetation biomass above and beyond forest cover recovery. But that must inevitably top out - and seems to me it is unlikely to top out above the pre-industrial biomass, as far too much land cannot be returned to forests due to the demands for agriculture. And what increases in forest cover we are seeing seem more driven by agriculture getting more efficient - where less land is needed.
But re-forestation tends to happen all on it's own where we stop using the land for agriculture, at least where the land clearing is relatively recent and soil seed stores are still present. Plus weeds will grow there, like it or not. Counting that as 'emissions reductions' that provide permissions to fossil fuels, and worse in Australia's case, as permissions for expanding fossil fuel mining looks like scam, not solution.
Which leads me to think the single biggest impediment to effective climate action is political corruption, with the 'soft' corruption of undue influence that remakes the laws worse than the baksheesh to look the other way sort.
Building an abundance of renewables to displace fossil fuels seems to be the best climate/energy option by far, addressing emission at their source rather than attempting to save fossil fuels and deal with the emissions later, by other means. And I think we only got renewables because mainstream politics gave empty gesture (and enough rope) funding to what 'greens' proposed, in the overwhelming expectation their wind and solar would fail and discredit them. For that misjudgement, thank you. But the ones most deserving of thanks are the scientists, engineers and entrepreneurs who have made RE work, much better than even most 'green' optimists imagined.
Thank you again, Michael. This is indeed an important action, and I wish the plaintiffs every success. If they are successful, there could be ramifications beyond the Climate Active program. The Tasmanian government claims that the whole State has achieved net zero emissions, on the basis that estimated carbon sequestration in the island’s native forests exceeds the real emissions from fossil fuel burning, agriculture, cement production, etc. Several years ago I was sitting across the table from the environmental adviser to the then state minister with responsibility for responding to climate change. The advisor rejoiced in the net zero “achievement” and claimed that Tasmania could happily take no action on climate mitigation for the next two decades while the rest of the world caught up.