Safeguard mechanism explainer – Labor and the Greens strike a deal to cut emissions

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The Australian Parliament has passed the Labor Government’s plan to slash carbon emissions in the heavy industrial and resources sectors after months of wrangling in Canberra culminated in a deal with the Greens.

Passage of the so-called safeguard mechanism reforms in the upper house on Thursday means the bill will return to the House for a final rubber stamp.

The legislation targets the nation’s top-215 polluters and is the centrepiece of Labor’s emissions reduction target of 43 per cent below 2005 levels by 2030.

While neither side got exactly what they wanted, Labor has promoted the compromise as a further step on the path to carbon neutrality by 2050, removing an aggregate 205m tonnes of greenhouse gas emissions by the end of this decade.

It’s the equivalent of taking two-thirds of the nation’s cars off the roads and will deliver about one-third of the required cut in emissions by 2030.

The Greens fell short of their ambition for a complete ban on new gas and coal projects.

However, they secured a hard cap on emissions from the targeted 215 facilities, in contrast to the previous scheme which only prescribed a fall in net emissions.

This meant they could actually lift their emissions but purchase carbon offsets to remain compliant.

As a result of the compromise, the Greens said “many” of the 116 new coal and gas projects in the pipeline would not proceed, and pollution would actually go down.

Others, like Grattan Institute energy analyst Tony Wood, said the changes would not deter new or planned investment.

While lower carbon projects would be favoured, Mr Wood said it wouldn’t necessarily be fatal to those with higher emissions if they had to purchase offsets.

The contrasting interpretations were highlighted when Greens Leader Adam Bandt said the reforms had “derailed” the Beetaloo Basin gas project in the Northern Territory.

Beetaloo developer Tamboran Resources said this was wrong, as the project’s low-carbon gas meant it would be net zero in Scope 1 and 2 emissions “from first commercial production”.

Chief executive Joel Riddle said Tamboran “was and is doing everything already called for in these amendments”.

The safeguard mechanism law requires big emitters, such as BHP, Rio Tinto, Santos and Woodside, to reduce their carbon footprints by 4.9 per cent a year until the end of the decade.

They currently emit more than 100,000 tonnes of greenhouse gases a year, but they’ve had few incentives to decarbonise because baselines (also known as ceilings) were set according to business-as-usual scenarios.

The reforms do not mandate an emissions outcome for each of the 215 facilities, but they allow businesses to earn tradeable credits when their emissions fall below their baselines.

This will encourage facilities with low-cost abatement to do more, and at the same time help businesses facing more expensive abatement by allowing them to purchase credits if they’re cheaper than on-site measures.

The cost to the economy of achieving Australia’s climate goals is therefore lowered for the same volume of abatement, pending the development of new technologies.

Access to domestic credits through Australian Carbon Credit Units (ACCUs) through agriculture and land management will continue.

The hard cap has been designed to keep safeguard emissions below 1233m tonnes of carbon to 2030, or 28 per cent of the national emissions “budget” of 4381m tonnes over the same period.

Safeguard emissions in 2030 are expected to fall to 100m compared to about 140m tonnes in the 2022 financial year.

Apart from the hard cap, the legislated changes include more restrictive conditions for new gas fields with high reservoir emissions, and measures to discourage heavy reliance on offsets.

If reliance on offsets to meet targets exceeds 30 per cent – due to cost or the availability of technology, among other factors – companies will have to issue an explanation to the Clean Energy Regulator.

Transparency will also be improved by the Climate Change Authority reporting in the annual climate change statement on progress against emissions-reduction goals, with specific reference to new safeguard entrants.

The Minister will take action if emissions data makes it clear that the rules need to be changed.

An extra $400m has also been allocated to support decarbonisation of trade-exposed industries like steel, cement and aluminium, and carve-outs promised to “hard-to-abate value-added manufacturing companies”.

Some sectors, in particular gas, have expressed reservations about the changes.

The National Farmers Federation also warned that the safeguard mechanism would “turbocharge” demand for offsets.

“This will potentially escalate land-use conflict, with pressure to turn food and fibre producing land into carbon sinks to counter the emissions from other industries,” NFF chief executive Tony Mahar said.

“Farmers are serious about responding to climate change, but we have to ensure progress on climate doesn’t come at the cost of food security.”

The Business Council of Australia on behalf of the nation’s biggest companies welcomed the new mechanism, saying it delivered certainty and a pathway to cut emissions.

“Additional support for trade-exposed businesses and workers as well as critical sovereign capabilities is a crucial step that will help jobs and ensure Australian businesses are competing on the global stage,” BCA chief executive Jennifer Westacott said.

“Businesses agree that we can’t make the same mistakes as the past by letting ambiguity and uncertainty undermine progress.

“We must avoid unintended consequences that hold up transition-driving projects, investments in new and existing industries, or make it more difficult to secure the capital needed to keep our economy growing.”

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