The Albanese government has passed revisions to the Safeguard Mechanism legislation with the help of the Greens in the Senate. This is a vital part of ensuring that Australia meets its commitment to reduce net greenhouse gas emissions by 43% relative to 2005 levels by 2030 and 100% by 2050. By ‘net emissions’ it is meant actual emissions less offsets.
Two of the main mechanisms for reducing greenhouse gas emissions have been the facilitation of adoption of renewable energy through the renewable energy target schemes and reducing demand through use of more efficient products such as LED lights and home insulation. Many industries have initiated emission reductions by using more efficient production methods.
The legislated government policy tools applied to industry have been the so-called Safeguard Mechanism and Emissions Reduction Fund. We have written before about the questioning of the effectiveness and integrity of the Emissions Reduction Fund in reducing carbon emissions through the creation of carbon offsets.
The Safeguard Mechanism was introduced by the Abbott government in 2016. It applied to larger companies that emitted more than 100,000 tonnes CO2 equivalent per annum; 215 companies came under the scheme that were producing 28% of Australia’s greenhouse gas emissions. The most significant are the big miners, cement and steel manufacturers.
The principle behind this mechanism was that limits would be applied to emissions. If they were exceeded, penalties could be imposed that were meant to be disincentives for exceeding the limits. However, under the Coalition Government, the Safeguard Mechanism has been a farce. National pollution ‘limits’, or company baselines, were set at levels that were way higher than the amount that companies were polluting. If these companies did happen to exceed the very high ‘limits’ that were set, the government of the day would often just let them set new ones anyway, without any penalty.
As a result the total emissions by the affected companies actually increased by 7% from June 2016 to June 2021. In 2020–21, aggregate baselines were set at 180 Mt CO2-e, compared with actual covered emissions of 137 Mt CO2-e.
Under the amended legislation the baseline for each company for 2023–24 year will be set at a level using a production based intensity standard. Beyond 1 July 2023, baselines for new facilities will generally be set in line with ‘international best practice, adapted for an Australian context’. This will also apply to existing facilities if they begin producing new products.
The baseline will be reduced by 5% each year in order to achieve the overall target of a 43% reduction on 2005 emission by 2030. Actually it is not that simple as there is some flexibility by using rolling averages. The total baseline is set in terms of the total emissions over the 10 years to 2030
Companies that reduce emissions below their baseline will receive credits, which they can sell to higher emitting companies. This will provide an incentive to adopt new technologies if they cost less than the price they will receive for the credits. If it is too costly to reduce emissions companies can buy credits within the scheme or offsets from an external source.
Companies cannot simply buy their way out using offsets. Where they rely on offsets to meet more than 30% of their emissions reductions requirements, they will be required to justify their reason for doing so to the Clean Energy Regulator.
Provision for new industries and mines
There is a defined hard cap on the total carbon pollution produced within the scheme, so that new or expanded projects cannot blow out plans to cut national emissions – particularly new coal and gas. If a new facility starts operating the overall baselines of the existing facilities may have to be reduced accordingly in order to maintain the total cap.
New coal and gas developments will have to be net zero for their direct scope one emissions, which means they will have to offset all pollution released in the production process, a step that makes it more expensive to get a project up. All new gas fields for liquefied natural gas export projects will also need to be net zero for CO2 emissions.
The requirement for net zero carbon, combined with the benchmark expectation that no more than 30% of emissions reductions be achieved through offsetting, suggests that carbon capture and storage is likely to be a significant element of the abatement solution for those oil and gas projects that do proceed. But this technology is still unproven.
Are offsets genuine reductions in emissions?
After much publicity questioning the integrity of the offsets scheme known as the Emissions Reduction Fund, the government commissioned an independent review by Ian Chubb, former Chief Scientist. The report released in January concluded the scheme is essentially sound. But key questions raised by a research team at ANU remain unaddressed.
While a carbon credit is meant to represent a reduction of one tonne of CO2, scientists say an offset created through forest regeneration is not equal to a tonne released from fossil fuels. The latter can persist in the atmosphere for hundreds of years. The former is much less likely to survive as long.
