'You can't offset your way out of emissions' - for once a Teal gets it right.

Imminent changes to the pricing rules for carbon offsets are reminders of a serious weakness in policies to encourage the exit from fossil fuels.

Sometimes there may be no substitutes.

That possibility is simply ignored in present climate policy.

The current changes concern the so-called "safeguard mechanism", a harmless-sounding name for a policy that requires the 215 biggest-polluting (i.e. CO₂-emitting) facilities to cut their emissions below a progressively declining baseload level.

One way those businesses can comply is to buy carbon offsets available on both local and international markets. Offsets are created when other businesses manage to remove extra CO₂ from circulation either by specific means like growing vegetation or raising soil carbon content, or by surpassing their own emission reduction targets.

The proposed safeguard reform would involve government compensation for the big emitters when they have to pay a carbon offset market price above $75 per tonne. The Grattan Institute warns that this policy creates the potential to cost in the "$billions". The government is confident that won't happen.

But the proposal faces another problem. Some crossbenchers are threatening to defeat it in Parliament.

This could all be seen as a relatively trivial matter in the broader scheme of things. The trouble is that it exposes the very foundations of climate/energy policy. It's not a pleasant sight. Here's why.

Those big emitters include companies like BHP, Orica, Newcrest, Ampol, Shell, Qantas, Origin, AGL, and Incitec Pivot. They all provide essential products and services like mining, fertilisers and aviation transport. And all 215 depend on using fossil fuels, in huge quantities. That has to stop, eventually. Climate/energy policy is meant to help or enforce that objective. Economic incentives are part of the policy arsenals of governments worldwide.

The basic problem is that all those economic measures to discourage fossil fuel use, like carbon pricing, are predicated on the assumption that ultimately there will be substitutes. There are other measures available, like fostering cooperative attitudes to climate policy and supporting innovation. But heaviest reliance is placed on economic measures for encouraging businesses to find the best and cheapest substitute technologies for reducing emissions.

In the meantime industries are allowed to buy offsets or credits. On that path emissions at a company's operations don't physically disappear. This inconvenient truth now seems to have been recognised by Teal independent, Wentworth MP Allegra Spender. "You can't offset your way out of a climate crisis and so we shouldn't be allowing unlimited access to offsets for our biggest polluters" she says. Accordingly she is putting an amendment to the House of Representatives that would remove, by means of aproposed subsidy, the effective capping of a carbon offset market price at $75. This, she says, would "ensure the cost of carbon is reflected in investment decisions".

"You can't offset your way out". Indeed. It neatly recognises that an offset subsidy might hit a dead end, never to be removed, never rendered superfluous by technical progress. Or even worse, offsets might discourage a business in its quest for alternatives to fossil fuels. Unintentionally perhaps, Spender has hit on the single most important question in emissions policy. Will elimination of fossil fuel usage by industry always be feasible?

Economists say yes. Carrots and sticks are sure to do the job.

Clean electricity is the favourite example for the role of economic measures. With some political encouragement plus the threat of carbon pricing we can now produce clean electricity in more or less unlimited quantities. And clean electricity is expected by many to be the key to clean alternative process routes for every industrial activity.

The big question now is, could all of those 215 businesses eliminate their fossil fuels and emissions by switching to clean electricity? Governments and economists are amongst those who seem to think so. I think they're wrong; there's a genuine feasibility issue.

This opinion may seem at odds with the daily flow of self-congratulatory good news stories about the energy transition. Success in cleaning up the electricity sector does deserve a cheer. But it is best seen as the exception, not the rule.

Cutting emissions from electricity generation has been, relatively speaking, child's play. Clean electricity was first cab off the rank as soon as cutting out fossil fuels became an important aim. We already had the science and early-stage alternative technologies. Wind turbines date from the 19^th century. The first commercial nuclear power generation began in 1957. Research into solar photovoltaic energy conversion was well underway for example half a century ago at the University of New South Wales.

Since those early days there has been a series of huge strides in these technologies. Making abundant clean electricity is now feasible via several technologies. And the prospect of eliminating fossil fuels from electricity generation is now real.

Is the rapid evolution of clean technology for electricity the appropriate model for every industry sector? Could clean electricity be used to displace every application of fossil fuels?

I believe not. Clean electricity can obviously do everything that electricity does now. But that's not everything, by a long shot. In fact, Australian energy statistics show that only 38% of our fossil fuel usage goes towards generating electricity. 62% does not! Most of those 215 businesses are in that 62%.

It is not at all clear why that huge component of fossil fuel usage should somehow be amenable to replacement by electricity. In fact there's a strong case for the opposite. Many or most of those businesses are in existence solely because of fossil fuels. Nitrogenous fertilisers come from ammonia made out of natural gas. Explosives like ANFO, TNT and dynamite essential to the mining industry all originate in fossil fuels. Plastics all come from fossil fuels too. There are thousands of products made from crude oil that rely entirely on that source, especially on the complex organic molecules created by the action over geological time scales of pressure and heat on decaying vegetable matter.

If these essential and valuable products exist almost entirely because fossil fuels exist, and those fossil fuels did not in the early days of that industry replace some other source of energy, then it's quite logical to expect that replacing those fossil fuels could be an overwhelming technical challenge, not feasible at any price. Indeed, looking around it's hard to see such substitution anywhere in the world.

Transportation comprises a separate category. Motion can arise from any energy source converted to mechanical energy to perform work. Electricity does the job well; electric cars using portable stored battery energy have existed for well over a century. A single major breakthrough in battery technology has allowed their dramatic growth. That was not particularly surprising. Battery scientists long expected products based on the lightest metal lithium to do the trick.

Aviation is a tougher nut to crack. It relies on fuels with exceptionally high energy contents (high "specific energy"), liquid fuels now derived from crude oil. Synthetic substitutes are feasible but there is a huge problem of reaching the required scale.

Are we hearing any of this glum news from the industries themselves? After all, they should be best positioned to know.

Not really. They earnestly proclaim they're tackling the job. They can seem genuinely optimistic. However in the current atmosphere they are unlikely to confess publicly that they don't know what to do. The consequences are clear. Shame, even punishment, awaits them.

Sound energy/climate policy should recognise the bind facing essential industries with no practical alternatives to using fossil fuels, like air travel, fertilisers, explosives, plastics. For those, offsets act as penalties that won't affect emissions. Policies that could only force those industries out of business reflect wishful thinking rather than facts and logic.

You can't offset your way out of an industry crisis.