Next steps to safeguard Australian industry and regions in net zero global economy

The Albanese 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.

Together, these reforms are the next step in supporting Australia’s biggest emitters to remain competitive in a decarbonising global economy and reduce their emissions.

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 is announcing an initial $600 million in funding from the Powering the Regions Fund for trade-exposed Safeguard facilities.

The Government also begins further consultation today 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.

A fit for purpose Safeguard Mechanism is critical to competitiveness in a decarbonising global economy where consumers and investors are demanding lower emissions, and many of our trading partners are developing carbon tariff policies.

Building on the previous two rounds of extensive consultation, industry and other stakeholders now have an opportunity to provide further feedback on the design of the Safeguard Mechanism and on the Powering the Regions Fund.

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 consultation paper and draft legislative rules for the proposed Safeguard Mechanism design are available at https://consult.dcceew.gov.au/safeguard-mechanism-reform-consult-on-design and feedback is open until 24 February 2023.

The consultation paper on the PRF is available at https://consult.dcceew.gov.au/powering-the-regions-fund and feedback is open until 3 February 2023.