The second batch of figures under Labor's reworked safeguard mechanism reveals a growing reliance on offsets, up 45 per cent on 2023/2024, alongside modest cuts of roughly two per cent in onsite emissions.
While the scheme targeting more than 200 of Australia's mines, factories and other emissions-intensive facilities is designed to ratchet up gradually and give companies time to buy clean equipment, critics were concerned by growing reliance on offsets.
The safeguard mechanism forces polluters to lower emissions against legally binding limits - known as baselines - via genuine cuts through electrification or efficiency, or by buying carbon credits to offset their pollution.
Companies have a few different options for offsetting emissions above the cap.
Safeguard mechanism credits can be purchased from other polluters that have trimmed their onsite emissions.
Alternatively, emitters can buy Australian Carbon Credits Units (ACCUs), which include projects that absorb carbon - predominantly land-based ones such as planting trees.
University of Melbourne researcher Kate Dooley said safeguard mechanism credits had been generated in the past few years but few were changing hands between companies.
Instead, companies had been buying up carbon credit units at scale.
Beyond the integrity and effectiveness problems plaguing the long-running trading scheme, Dr Dooley said it was not scientifically sound to balance industrial emissions with land-based offsets.
Carbon stored by planting trees does not represent permanent reductions in atmospheric carbon and cannot counter the additional long-term emissions released by burning fossil fuels that would otherwise have remained underground long-term.
Dr Dooley would prefer polluters stick to trading safeguard mechanism credits and see carbon credit units phased out, or at least capped.
"With SMCs, you're trading like-for-like. To some degree, you're trading industrial reductions with industrial emissions," she told AAP.
The safeguard mechanism is due for review in the upcoming financial year.
Climate Change and Energy Minister Chris Bowen has indicated the work could commence later in 2026 rather than mid-year.
Anticipating criticism of offset use under the scheme, Mr Bowen on Wednesday touted the 5.8 million tonnes of onsite emissions cuts in two years.
"This is good policy working well," he told reporters in Sydney.
Carbon Market Institute director of corporate transition Kurt Winter said the safeguard had generated moderate net and gross emission cuts and was on track to deliver its legislated 2030 goals.
"The government's review later this year provides an opportunity to strengthen investment signals towards achieving Australia's 2035 ambition".
He also highlighted 2025 as the first year covered emissions were higher than baseline pollution allowances, suggesting the market incentive to invest in decarbonisation was intensifying.
Climate Integrity executive director Claire Snyder said the safeguard mechanism was allowing emitters to "buy their way out of their obligations", a sentiment echoed by the Climate Council.
"Too many polluters are treating our climate like a credit card - loading up on cheap offsets instead of actually cutting their pollution," senior advocacy advisor Ben McLeod said.
