Hasmukh Chand posted: " The Safeguard Mechanism was introduced by the Abbott Government in 2016 as a means to reduce emissions from the largest polluters in Australia. It formed part of the former Coalition Government's direct action policy, the centrepiece of which relied " Conservation, Environment, Climate Change and Sustainable Development
The Safeguard Mechanism was introduced by the Abbott Government in 2016 as a means to reduce emissions from the largest polluters in Australia. It formed part of the former Coalition Government's direct action policy, the centrepiece of which relied on a baseline and credit system. Since it was introduced, the Safeguard Mechanism has flown under the radar due to its complexity and administrative loopholes. Despite this, many policy-makers believed that the policy had the architecture to deliver emissions reductions if it was overhauled.
The Albanese Government now seeks to reform the Safeguard Mechanism to ensure it is fit for purpose. The Government's aim is to have the new look Mechanism in place for the 1st of July 2023. It is important that the Albanese Government gets this right as half the abatement under the 43% emissions reduction target that has been enshrined in the Climate Bill (by 2030 compared to 2005 levels) comes from abatement under the Safeguard Mechanism. In the words of my colleague, it's the only 'stick' that Labor has to drive down industrial emissions.
Under the architecture of the Safeguard Mechanism, the largest emitting facilities in the country have been assigned annual emissions baselines of 100,000 tonnes of CO2. Facilities that exceed this need to decarbonise their operations either through electrification or the purchase of carbon offsets (or both). It is also important to note that the Mechanism only covers Scope 1 emissions and not Scope 2 or 3 emissions. According to RepuTex (which also did the modelling that Labor's Federal climate target of 43% is based on), emissions from the Safeguard facilities have grown by 7% since the policy was introduced. Between 2020 and 2021, these facilities accounted for 28% of Australia's emissions.
One of the reasons for increasing emissions has been that many facilities have too much 'headroom' when it comes to emissions. That is, they have been allowed to pick their own emissions baselines that best suit them rather than industry best practice (think setting your own car speed limit in a school zone that is significantly higher than what is considered safe). Despite facilities breaching the emissions baselines, the Regulator has done little to enforce any penalties on them thus far.
Based on the last emissions data reported under the Mechanism, the largest polluters are fossil fuel companies. According to the Climate Council, the largest polluters include (unsurprisingly); Chevron, Woodside, Anglo-American, Santos, BHP, Glencore, Inpex, Shell, Conoco-Phillips, South 32, Esso and Centennial. Collectively, these 12 companies are responsible for 10% of Australia's national emissions.
Despite the Albanese Government sending all the right signals to reform this policy, some of the methods being considered risks undermining a stronger Safeguard Mechanism. I will briefly cover two risks below.
The first risk comes from the Government's intention of providing unfettered access to carbon credits which have come under the spotlight for lacking integrity and failing to deliver genuine emissions reductions. To make matters worse, the Government is looking to establish a carbon trading platform to allow companies to buy and sell carbon credits with the view of linking this to an international trading system. With unlimited supply of credits in the system, there is concern that the true cost of emissions reduction will not be reflected nor adopted by the biggest facilities who can continue to pollute by purchasing cheap offsets.
The second risk comes from the issue of 'new entrants' under the Safeguard Mechanism which the Government has been tip-toeing around. The current assumption seems to be that space will be created for new facilities as others drop out of the system as they come to the end of their lifecycle. However, the latest modelling shows that existing and new coal and gas projects will exceed the entire emissions budget under the Safeguard Mechanism. Indeed, even the approval of a handful of projects such as Woodside's Scarborough Gas Project in Western Australia (which will emit an estimated 1.37 billion tonnes of CO2 over its lifetime) will severely undermine the Government's own ambition of achieving 43% emissions reductions by 2030.
The next few months will be crucial in ensuring that the reforms intended for the Safeguard Mechanism deliver the genuine emissions reductions that it was originally designed for. Any weaknesses in the policy will only act to undermine Australia's emissions reduction goals and allow for the largest fossil fuel companies to continue polluting.
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