Australia’s reformed safeguard mechanism (SGM) is a plan to help wean the nation’s 215 biggest emitters off carbon with staged annual reductions until 2030, but new analysis claims the government has drastically underestimated current and planned coal and gas projects.
The mechanism relies on an adjustable baseline for emissions and the option of carbon credits should companies overindulge on their outputs. It also welcomes new fossil fuel players (formally called “facilities”) to join in the fun.
New modelling from Climate Analytics suggests that the government has drastically underestimated the emissions intensity of existing, committed and new coal and liquid natural gas (LNG) mines. For coal, the government projects emissions will dip by 10% by the end of the decade, and the report calculates a 23% to 116% increase. For LNG, the report says the government’s 20% rise by 2030 is closer to 36%.
In carbon figures, that’s 83-112 million tonnes equivalent (MtCO2e) a year in 2030. Coal and LNG account for approximately half of current SGM facilities. Based on estimates, these emissions will either exhaust or exceed the government’s 2030 baseline target of 100 MtCO2e.
Climate Analytics CEO Bill Hare said non-fossil fuel facilities would have to pick up the slack and increase their share of emissions cuts, while demand for offsets would skyrocket. He called the miscalculation a potential mechanism breaker.
“These two sectors are probably going to want to rely on offsets rather than reduce emissions from facilities. Potential demand for offsets are double what the government is planning for,” Hare told Crikey.
“The net result of all that is that the mechanism will essentially enable an expansion of emissions from coal and gas.”
Hare said the analysis didn’t spell the end of the SGM but highlighted some serious shortcomings with the legislation. Namely: offset limits that are “unfit for purpose”.
He said a quick fix would be to limit offset availability, causing the carbon price to spike and increasing the likelihood firms invest in decarbonisation: “If the offset hole is fixed then it should begin to work reasonably well.”
University of Queensland environmental economist Associate Professor Ian Mackenzie said that from an economics perspective the findings were not so bad. He pointed to carbon markets overseas that can handle emissions intensive industries that inevitably demand a lot of carbon credits. The issue, he said, was Australia’s safeguard mechanism was ill-equipped to deal with big emitters’ needs.
“If the baseline was fixed, if the cap was fixed, I wouldn’t care, I’d say this is a non-issue,” he said, adding the government needed to also limit cost and availability of offsets to push up prices and encourage change.
“It’s very simple. Create the credits. Set the cost. Then allocate credits to firms from the outset. It works everywhere else in the world.”
Mackenzie said the big problem for Australia was that it was stuck in a “hybrid intensity market” where the government didn’t want the SGM to qualify as a fully fledged carbon trading market. And yet it had built the bones of a carbon trading market “that doesn’t go to the full extent”.
“They’re taking something that’s inadequate and unsuitable for a pollution market and trying to make it suitable for a pollution market,” he said. “There’s going to be a big head-scratch in 10 years.”
The government said it wouldn’t roll over on the Greens’ demands to block new coal and gas mines, but in the interests of “progress” over “protest” would like Greens to support its reformed safeguard mechanism.
“The Greens need to decide, are they a party of protest or a party of progress? This is big progress. If they want to protest, they can do that. But this is about progress,” Climate Change and Energy Minister Chris Bowen told ABC’s Insiders on Sunday.
