The Federal Government has released proposed reforms to the Safeguard Mechanism, as well as proposed details of the $1.9 billion Powering the Regions Fund, for further consultation.
Reforms to the Safeguard Mechanism have been proposed by heavy industry and big business, like the Business Council of Australia and Australian Industry Group, to end policy uncertainty and enable a predictable emissions reduction pathway to net zero by 2050.
The proposed package is based on extensive feedback over nearly 6 months of consultation with Safeguard businesses, industry associations, climate and community groups, academics and private individuals.
It balances the need for emissions reduction in the industrial sector, while strengthening competitiveness and providing flexibility in managing new obligations. The package proposes:
- retention of the intensity baseline framework, which helps decouple emissions growth from economic growth by allowing baselines to grow and fall with production.
- a hybrid approach regarding the setting of baselines for existing facilities, heavily weighted towards site-specific levels at scheme commencement – giving facilities time to transition to industry average benchmarks by 2030. New facilities will be expected to meet a new ‘best practice’ benchmark.
- tailored treatment for emissions-intensive, trade-exposed (EITE) facilities based on the principle of comparative impact, to ensure competitiveness and that emissions do not ‘leak’ overseas – noting that international competitiveness will increasingly depend on low emissions production.
Overall, these changes decline emissions baselines of Safeguard-covered facilities by 4.9 per cent each year to 2030.
A reformed Safeguard Mechanism is expected to deliver 205 million tonnes of abatement to the end of the decade, equivalent to cutting emissions from Australia’s cars by two-thirds over the same period.
The Safeguard Mechanism was put in place by the previous Coalition Government.
It requires facilities that produce over 100,000 tonnes of greenhouse gases annually (around 215 facilities) to keep their net emissions below a baseline.
However, under the former Government the Mechanism had been ineffective at driving emissions reduction, which is why industry, business and experts had been calling for reform.
To support businesses and regional communities with this transformation, the Government has announced an initial $600 million in funding from the Powering the Regions Fund for trade-exposed Safeguard facilities.
The Government has also begun further consultation on detailed design and implementation of the broader $1.9 billion Powering the Regions Fund.
The Fund will ensure the regions seize the benefits of Australia’s net zero transformation by supporting decarbonisation, new clean energy industries, workforce development and credit purchase by the Commonwealth.
Minister for Climate Change and Energy Chris Bowen said this was an important next step in ensuring the Safeguard Mechanism delivered meaningful outcomes and was fit for purpose.
“These proposed reforms have been carefully calibrated to deliver the policy certainty and support Australian industry needs through decarbonisation,” said Minister Bowen.
“We’ve been extremely encouraged by the level of engagement in the process to date, and look forward to continued constructive engagement as we finalise the design of these critical reforms for Australia’s net zero pathway.
“Reforms to the Safeguard will help create an effective, equitable and efficient trajectory to net zero. We know that that 70% of facilities, representing over 80% of scheme emissions, already have corporate commitments to net zero by 2050 – this reform helps deliver the framework to get there.”
Recognising strong stakeholder interest, the Government will also conduct a review to consider how best to prevent international carbon leakage risks, while protecting Australia’s reputation as a reliable and secure trading partner.
Some trading partners, including the European Union, have proposed introducing carbon border adjustment mechanisms (CBAMs) to help ensure trade competitiveness does not compete with decarbonisation objectives.
The Climate Council welcomed the government’s focus on stronger penalties for polluters as a top priority for 2023, saying there was no time to waste and that Australia’s big polluters were on notice to pull their weight on emissions reductions.
Dr Jennifer Rayner, Head of Advocacy at the Climate Council says: “For too long, major polluters like multinational coal, oil and gas giants have had a free ride on their harmful emissions. This must stop.
“Cutting down the artificially high caps on carbon pollution given to these corporations by the Morrison Government is a welcome step to kickstart emissions reduction.
“Capping the total emissions which can be produced by facilities in the Safeguard Mechanism is also important for driving towards net zero.
“However, allowing facilities in the Safeguard Mechanism to use cheap and easy offsets to write off all of their emissions will send completely the wrong signal.
“This will simply incentivise Australia’s heavy industry to engage in tricky carbon accounting to cover up pollution as usual instead of investing in genuine transformation.
“If this issue is not fixed, big industrial polluters like Woodside, Santos and Chevron will continue to rake in eye-watering profits while worsening climate change, which is supercharging the floods and fires that have ravaged communities across Australia and the world in recent years,” Dr Rayner added.
However, Greenpeace said the proposed changes to the Safeguard Mechanism were too weak and had to be strengthened for the policy to be fit for purpose.
Glenn Walker, Head of Advocacy and Strategy at Greenpeace Australia Pacific, said the Safeguard Mechanism must be significantly strengthened and rule out handouts to the fossil fuel industry.
“While it’s an improvement on the Coalition’s failed policy, the revised Safeguard Mechanism is still a licence to pollute. There’s a lot of work to be done to make it fit for purpose, including closing some loopholes you could drive a coal train through,” he said.
“We need the Federal Government to raise its ambition and bring Australia’s big corporate polluters to heel. This includes capping the use of offsets and setting a zero emissions baseline for new entrants.
“It’s imperative that Minister Bowen does not give any of the $600 million earmarked for ‘trade exposed’ industries to fossil fuel companies. Coal and gas companies got us into this mess and Australian taxpayers should not pay to bail them out of it.
“It’s good that the Federal Government has ruled out use of dodgy international offsets, but we’re concerned about the proposed unfettered access to Australian offsets, which have serious integrity issues.
“This means corporate polluters can buy carbon offsets to avoid and delay actually reducing or removing harmful greenhouse gas emissions in their own operations.
“Massive new entrant gas projects like Woodside’s Burrup Hub could blow Australia’s emissions baseline out of the water under the current policy proposal.
“This places an unfair burden on other Australian businesses and sectors, which would need to do more heavy lifting to reduce emissions.”
Greenpeace Australia Pacific’s recommendations for a strong, effective Safeguard Mechanism:
- Set an ambitious emission reduction target to 2030, falling year-on-year: In order to meet the Paris Agreement 1.5 degree target, the Safeguard Mechanism emission reduction target must be set to a baseline of 57Mt in 2029-2030.
- Zero emissions baseline for new entrants: To ensure an equitable and effective policy, the emissions baseline set for new facilities entering the scheme must be set to zero.
- No special treatment or complex arrangements: There should be no favourable treatment or complex special emissions calculations for specific companies like Woodside Energy, including multi-year monitoring. The coal and gas industry should not receive any “trade exposed” assistance.
- Disallow Australian carbon offsets (ACCUs) for coal, gas and oil companies: Fossil carbon kept underground is far more stable than carbon actively cycling between the land, ocean and atmosphere. The priority should therefore be to keep the fossil carbon in the ground and not equate this with land-based carbon offsets. For this reason coal, gas and oil companies – the primary global drivers of climate change – should not be permitted to use Australian Carbon Credit Units (ACCUs) as part of the scheme and should be forced to use Safeguard Mechanism Credits (SMCs) instead.
The consultation paper and draft legislative rules for the proposed Safeguard Mechanism design are available here and feedback is open until 24 February 2023.
The consultation paper on the PRF is available here and feedback is open until 3 February 2023.
