An important component of Australia’s central climate change policy – the Safeguard Mechanism was revamped on Tuesday, January 10th, by the government. The Energy and Climate minister Chris Bowen released the reforms of the Safeguard Mechanism that were proposed and consulted back in 2022.
The Safeguard Mechanism is a mandatory decarbonization framework that was first introduced in 2016. It sets limits on net direct (Scope 1) CO2-e emissions, called baselines that certain Australian industrial facilities must meet by reducing their operational emissions and offsetting any remaining emissions through the purchase of carbon credits.
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Its goal is to limit the emissions of the 215 biggest polluters in Australia – oil, gas, mining and manufacturing facilities. The Safeguard Mechanism only applies to industrial facilities in the country that release at least 100,000 metric tons of Scope 1 emissions per annum. They account for around 28% of Australia’s total greenhouse gas emissions between 2020 and 2021.
The ruling Labor government’s reform of the mechanism is now due to be finalized in April and take effect on July 1. It also aims to achieve the key target of cutting carbon emissions by 43% from 2005 levels by 2030 and achieve net zero emissions by 2050.
What Is Included In The Safeguard Mechanism Reforms?
Part of the package of reforms introduced by the Energy and Climate Minister this week is a cap on the carbon price at $75 a metric ton for big industrial emitters. The measure is set in an effort to shield businesses from the risk of future cost spikes and provide certainty under Labor’s decarbonization plan.
Under the package, the country’s biggest polluters will also have to slash emissions by 30% over the next seven years, with some leeway for trade-exposed industries, such as aluminium and liquefied natural gas (LNG).
On average, they are obligated to reduce around 4.9% each year to 2030, to help the government meet its 43% reduction target and aim to reach net-zero by 2050. The forecast is that they would emit 143 million metric tons of CO2-e in the year to June 2023, and the government limited that to no more than 100 million metric tons of CO2-e by 2030.
All calculations included, the “safeguard mechanism” reforms are expected to deliver 205 million metric tons of abatement between 2023 and 2030. The industries included are various like mining, manufacturing, transport, oil and gas, and waste.
Another measure is discussed for the first time – the Albanese government said it would consider replicating Europe’s planned carbon border adjustment tariff on imports from countries with no carbon price like China. The move aims to prevent any disadvantage on domestic trade-exposed firms and also re-directing pollution and jobs outside the country.
Mr Bowen also promised an initial $600 million from a $1.9 billion “powering the regions” fund to help trade-exposed polluting facilities to adopt cleaner technology.
Are They Effective In Cutting Emissions?
The Safeguard Mechanism in its current form has been criticized as ineffective. The reforms are expected to bring slightly deeper cuts, however, according to critics more work needs to be done before the changes are properly implemented.
Greens Leader Mehreen Faruqi said the rules “don’t go far enough and risk continuing to be captured by coal and gas interests”.
“Labor’s safeguard mechanism is giving coal and gas a green light to keep expanding as long as they buy enough offsets…. The Greens will use our balance of power position to push Labor to stop opening up new coal and gas projects and ensure real cuts to pollution, not just hot air,” added Mrs Faruqi.
Even though the policy calls for Australia’s biggest polluting sites to reduce greenhouse gas emissions by nearly 5% a year, they also face no limits on the use of carbon offsets under the plan which means they are free to use them entirely to compensate for their emissions instead of achieving actual emissions reductions.
Prof Andrew Macintosh, a former head of the emissions reduction assurance committee, has claimed that more than 70% of carbon credits might not represent legitimate cuts. However, he said the review panel had not addressed many of his criticisms. He formerly exposed major issues with the Australian carbon credits units, calling them “largely a sham”.
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The imposed cap on the carbon price at $75 is higher than the current price at around $34, still it is questionable whether it’s high enough to motivate emitters to slash their carbon footprint. It will increase with the consumer price index plus 2% each year, with any funds raised by the government used to support additional abatement and decarbonization. It is expected the price will rise to about $100 by 2030 which is in line with the “high-price” scenario.
The Safeguard Mechanism reforms are designed to tighten decarbonization efforts, however, they are not strict enough to put breaks on emissions and bring actual reductions. Offsets are still allowed to be used as a measure to compensate for emitting and the lack of a ceiling on their allowance sends a signal to the industry it could continue to increase its carbon footprint as long as it buys offsets for those emissions.