Safeguard Mechanism one step closer to Parliamentary passage

Today, Australia is one step closer to achieving net zero by 2050, with confirmation the Albanese Government has secured additional Parliamentary support for the Safeguard Mechanism reforms.

These landmark reforms will reduce 205 million tonnes of greenhouse gas emissions to 2030 – equivalent to taking two-thirds of the nation’s cars off the road over the same period.

These are overdue, sensible reforms which ensure Australia’s largest emitters are competitive in a decarbonising global economy and make a fair contribution towards the nation’s emissions reductions task.

They complement the over $24 billion investment the Albanese Labor Government is already making in cleaner, cheaper energy, and emissions reduction.

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 (or ceiling). However, under the former Government’s settings, scheme emissions actually increased by four per cent.

Extensive industry and public consultation and constructive discussions with the Australian Greens and crossbench have delivered a strengthened design that bolsters the scheme for the economy and the climate.

The changes to the scheme are in keeping with the policy’s intent – ensuring that both flexibility and support are provided for industry to remain competitive, and that the scheme delivers accountability, transparency and integrity.

Minister for Climate Change and Energy, Chris Bowen, said the finalisation of the Safeguard Mechanism Bill was a key milestone in achieving Australia’s 43% emissions reduction target by 2030.

“Today, we are a step closer to achieving net zero by 2050,” Minister Bowen said.

“We thank those across the Parliament who continue to approach this legislation in a constructive way to ensure accountability, transparency and integrity for the scheme, and ensure flexibility and support for industry. We will continue to work with people of good faith across the Parliament to secure passage.

“These reforms are the culmination of months of extensive feedback from Safeguard businesses, industry associations, climate and community groups, academics and private individuals.

“Business and climate groups have been clear that the Parliament should pass the strengthened legislation in front of it and deliver overdue policy certainty – but Peter Dutton would prefer to drag Australia backwards and continue the climate wars.

“These reforms are crucial to our climate and our economy – supporting Australian industry and ensuring they will continue to be competitive in a decarbonising world.”

These changes build on previously confirmed design features of the Safeguard Mechanism – including the creation of Safeguard Mechanism Credits which will enable large industrial facilities to earn credits when they reduce their emissions below their baselines.

The Government will finalise detailed Safeguard Rules next month. The updated Safeguard Mechanism scheme will be in operation as of 1 July 2023.


Attachment 1 - Key improvements to the reforms
Providing flexibility and additional support for industry
Targeted funding: At least $1 billion in funding for the manufacturing sector and trade-exposed industries through the Powering the Regions Fund, including:
a.       A targeted $400m for industries providing critical inputs to clean energy industries (incl. steel, cement/lime, aluminium/alumina), in addition to both the $600m Safeguard Transformation Stream, and other funding pools (NRF, CEFC, ARENA)
b.      This funding will be focussed on decarbonisation, rather than expansion of fossil fuels

2.       Specific treatment for hard-to-abate, value-added manufacturing including:
a.       Inclusion of a different threshold for manufacturers to qualify for a discount on their decline rate, which reflects the particular characteristics of this sector as a value-adding industry.
b.      Reduce the minimum annual baseline decline rate for manufacturers that meet the new threshold to 1 per cent.

3.       Address risks of carbon leakage
a.       The Government will commission a review to examine the feasibility of an Australian carbon border adjustment mechanism (CBAM). The review will give particular consideration to a CBAM for the steel and cement sectors (including clinker and lime production).
Ensuring accountability, transparency, and integrity
Accountability – making sure that the policy intent – driving down emissions over time, is met through:
a.       Ensuring the scheme delivers a proportional share of the national 2030 target (205 million tonnes by 2030). Updates to the National Greenhouse and Energy Reporting Act 2007 (NGER Act) will clarify that:
i.      the policy intent is for aggregate emissions to go down over time –through measurement of a rolling average, and
ii.      to not exceed the conservatively estimated 1,233 million tonnes of CO2-e to 2030, or 100 million tonnes in 2030.

b.       New facilities will have their baseline set at international best practice, adapted for the Australian context
 As proposed in the original design, new entrants will need to meet international best practice to ensure emissions decline over time, and manufacturers in particular are not disadvantaged from additional carbon constraints caused by new entrants.

-          New gas fields supplying existing liquefied natural gas facilities will be treated as new facilities so that they are given international best practice baselines for the carbon dioxide in their new fields. For these fields’ reservoir CO2 emissions, best practice is zero given the existence of low-CO2 fields and opportunities for carbon capture and storage.

-          Beetaloo - In relation to the Beetaloo basin, all new gas entrants in the basin will be required to have net zero scope 1 emissions from entry, consistent with the then-Commonwealth Government’s April 2022 commitment to “work with the [Northern] Territory to support its implementation of recommendation 9.8 of the [Hydraulic Fracturing Inquiry] using available technology and policies”.

c.       The Government is already obligated to report on progress against climate reforms, however we will strengthen transparency and accountability by ensuring the following in full:
i.      As part of the Annual Climate Change Statement, the Climate Change Authority (CCA) must report on progress against emissions reduction goals, with specific reference to new entrants and expansions in the preceding and following year.
ii.      In response to the Samuel Review, the Government has committed to “require reporting of Scope 1 and 2 emissions and related management actions over the life of the project”. EPBC approvals of new projects that are expected to enter the Safeguard Mechanism will cause an assessment by the Government of that project’s reported emissions against the Objects above.
iii.      The Minister would need to act where the Secretary of the Department, based upon emissions information including from the Clean Energy Regulator and EPBC approvals, considers changes to the Rules may be needed to meet the Objects.

2. If any of these tests find that Safeguard emissions have or will breach the Objects, and that this is not due to temporary factors, the Bill will require the Minister to consult and amend the Rules, or take other policy actions to ensure the Objects are met.

3.       Transparency – ensuring information relevant to the scheme is made available to the Minister and the public
a.       While no limits will be placed on ACCU use to ensure flexibility for industry, where companies are using over 30% offsets to meet their requirements, they’ll explain to the regulator their choice for doing that (e.g., cost, technology availability etc.)
b.       Improve methane reporting
i.      Require methane and nitrous oxide emissions to be publicly reported
                                      ii.      Ask the CCA review to include a look at updating methane measurement, verification and reporting and implement any improvements by 1 July 2024 where practicable.

4.       Integrity – making sure emissions reduction under the scheme is real
a.       Chubb Review implementation - continue with implementation of the Chubb Review to ensure integrity in the carbon market. Consistent with recommendation 8, ensure that new HIR method projects can only be credited when they comply with the entirety of recommendation 8.