When Emissions Targets Backfire

In Australia, corporate boards are getting used to the new lexicon of carbon accounting. Mandatory emissions reporting is being phased in, forcing firms to quantify and disclose their greenhouse-gas footprints. Regulators hope that transparency will shame laggards and reward climate leaders. Yet a nagging question remains: will these measures cut carbon, or simply encourage companies to game the system?

The problem is as old as performance measurement itself. Goodhart’s law—named after Charles Goodhart, a British economist—warns that “when a measure becomes a target, it ceases to be a good measure.” Once a metric is linked to reward or punishment, behaviour changes. Metrics improve, but reality may not.

History is littered with examples. Colombian soldiers were once rewarded for enemy kills; civilian deaths rose as corpses were misclassified. American schools linked teacher pay to standardised-test results; some teachers cheated on behalf of their pupils. Hospitals in the United States, pressured to boost patient throughput scores, turned away the sickest patients.

Emissions reporting could fall prey to similar perverse incentives. Companies might focus narrowly on the numbers that regulators scrutinise most closely, even if that distorts reality. A firm could shift high-emitting activities offshore, outsource dirty processes to suppliers, or structure acquisitions to reset its “base year” emissions, all without cutting a gram of carbon from the atmosphere.

Nor is creative accounting the only risk. Scope 3 emissions—those from suppliers and customers—are notoriously hard to measure. As firms strive to meet public targets, they might prefer to exclude inconvenient data, or adopt methodologies that flatter their footprint. When annual performance bonuses hinge on percentage reductions, the temptation grows.

To be fair, mandatory reporting has its virtues. Transparency can make carbon visible to investors and customers, forcing boards to take it seriously. But the lesson of Goodhart’s law is that metrics need careful design and vigilant oversight. If reporting frameworks are too rigid, companies may optimise for the number rather than the outcome.

One solution is to complement quantitative disclosures with qualitative assessments—evidence of credible transition plans, investment in low-carbon technology, and genuine reductions in physical emissions. Another is to adapt metrics as behaviour evolves, closing loopholes before they become entrenched.

Emissions disclosure is no panacea. Without a carbon price or other hard incentives, companies may treat it as a box-ticking exercise. The danger is that Australia’s reporting regime creates the illusion of progress while real-world emissions continue their upward march. Policymakers should remember Goodhart’s warning: you get what you measure, but not always what you want.