EnergyAustralia issued the statement early on Monday following a lawsuit launched by Parents for Climate that had been scheduled to be heard in the NSW Federal Court on Wednesday last week.
The group, with more than 20,000 members, called EnergyAustralia's acknowledgement a win for Australian consumers but said it could also set a standard for the use of carbon offsets and environmentally friendly marketing by other companies.
The lawsuit, filed in August 2023, claimed the energy generator and retailer misled customers using its Go Neutral products that were marketed as "carbon neutral" due to the purchase of carbon offsets and claimed consumers would have a "positive impact on the environment".
In its statement, EnergyAustralia apologised to customers who felt the marketing claims were unclear and acknowledged carbon offsets did not reverse environmental harm.
"While offsets can help people to invest in worthwhile projects that may reduce greenhouse gas emissions elsewhere, offsets do not prevent or undo the harms caused by burning fossil fuels for a customer's energy use," the statement said.
"Even with carbon offsetting, the emissions released from burning fossil fuels for a customer's energy use still contribute to climate change."
EnergyAustralia withdrew its Go Neutral plans from the market in 2024, and chief customer officer Kate Gibson said the company would focus on direct efforts to reduce emissions in future.
"Carbon offsets should not be used to delay or diminish the important work that needs to be done to actively decarbonise," she said.
The energy giant's acknowledgement should herald a fresh approach to the use of carbon offsets in Australia, Parents for Climate chief executive Nic Seton said, as greenwashing had become too common.
"Parents have spent too long trying to make careful, considered decisions about where their money goes, especially in a cost-of-living crisis, but corporate greenwashing has pushed them off track," he said.
"This isn't just about EnergyAustralia – it's about holding companies to a higher standard across the board."
Australian regulations for corporate environmental claims were not strong enough, Mr Seton said, and the government should consider ending Climate Active carbon neutral certification that had been under review since October 2023.
The outcome of the court case could set a standard for corporate environmental claims in Australia, Equity Generation Lawyers principal lawyer David Hertzberg, who represented the charity, said.
"Today's outcome is a watershed moment in greenwashing litigation in Australia," he said.
EnergyAustralia ranked as Australia's third-largest emitter in 2023-2024, according to statistics from the Clean Energy Regulator, and has more than 1.6 million customers.
