The safeguard mechanism is a better policy to deal with major industrial greenhouse gas emissions after a deal between the Albanese government and the Greens.
It is not perfect, it is needlessly complicated and there are still things to be ironed out about how some of the headline changes will work. But it is an improvement.
On the Greens’ central argument of stopping new coal and gas developments – which climate scientists and the heads of the UN and International Energy Agency have repeatedly stressed is necessary – the deal has come up short, as we have known that it would for weeks.
But there are elements in the deal that make it harder for some fossil fuel developments to go ahead and there will be steps to ensure that the onsite emissions are actually coming down. These are important changes.
The parties have agreed to legislate a five-year rolling limit – the Greens call it a “hard cap” – on onsite carbon dioxide pollution from the country’s 215 biggest polluting sites. If delivered as promised, it will mean that industrial pollution within Australia cannot increase and annual targets cannot be met by companies collectively increasing pollution and then relying on offsets.
The Greens leader, Adam Bandt, says it means that about half of the 116 possible fossil fuel developments listed as in the pipeline on a government department website won’t be able to go ahead. That’s a stretch. While the 116 figure has become a campaigning point for fossil fuel opponents, quite a lot of those projects were unlikely to go ahead anyway as they would not be economically viable.
But there are several, and possibly up to a few dozen, coal and gas projects on the list that could still go ahead, depending on private finance and approval under environment laws. Now they can only do that as long as the total major industrial emissions in the country do not go up.
The safeguard mechanism was introduced by the Coalition in 2016. It was promised to put a limit on greenhouse gas emissions from about 200 major industrial facilities.
It applies to facilities that emit more than 100,000 tonnes of carbon dioxide equivalent a year. Each facility is set an emissions limit, known as a baseline.
The Coalition said companies that emitted above their baseline would have to buy carbon offsets or pay a penalty. In practice, facilities were allowed to change their baselines, few were penalised and industrial emissions continued to increase.
Labor won government planning to revamp the scheme.
It has set new baselines based on emissions intensity – how much a facility releases per unit of production. Baselines will be reduced by up to 4.9% a year.
Companies can choose whether to make onsite emissions cuts or buy offsets, including Australian carbon credit units.
New polluting facilities, including gas and coalmines, are allowed to open and enter the scheme and would be set baselines at “international best practice”. For new gas fields, that means offsetting all CO2 pollution so they are net zero.
Companies that emit less pollution than their baseline allows will be awarded a new type of “safeguard credit”. These within-scheme credits can be sold to other polluting facilities that emit more than their baseline and need offsets.
A deal between Labor and the Greens introduced an absolute "cap" so that total emissions under the scheme can not increase and need to come down over time. The pace of reduction is not stipulated, and will be set by the climate change minister
The changes start on 1 July 2023.
Some projects will have more onerous requirements placed on them than before. New gas fields used for liquified natural gas (LNG) export developments will have to offset all carbon dioxide emissions, putting a bigger cost on fossil fuel companies considering these developments. The gas industry does not particularly like it.
This could hurt some particularly gassy reservoirs, such as Santos’ Barossa field off the Northern Territory. It is likely to have less impact on fields with lower CO2 levels, such as Woodside’s vast Scarborough field in Western Australia, where most of the emissions will be methane released during production and the vast pollution released when its gas is sold and burned in Asia.
Fossil fuel developers in the NT’s vast Beetaloo gas basin will also need to offset all their onsite emissions. This condition already has support from the NT government. Territory environment groups say this is a major win, and should kill off plans to develop the basin. If so, it is big news. Not all analysts agree and one gas company rejected the idea, though its share price fell by 7%.
There are several accountability changes that will require action from the climate change minister of the day to make sure emissions are coming down by promised amounts over time. The minister will be given the power to adjust the settings governing polluters to ensure four different legislated emissions goals are met – the rolling five-yearly target for absolute emissions, and net emissions targets for across this decade, 2030 and 2050.
For new fossil fuel developments, there is also a specific requirement that if a project that emits more than 100,000 tonnes a year is approved under environment laws, the climate minister will have to assess whether it is consistent with the goal of bringing down industrial emissions under the safeguard.
The Greens say this is a “pollution trigger”. The government doesn’t accept that language, but acknowledges the bill will require the minister to ensure new projects don’t blow out cuts elsewhere.
On offsets, there are still no limits on how companies meet their goals. The deal requires companies that use carbon credits equivalent to more than 30% of their emissions limit to give a statement on why they have not made more onsite cuts.
It also demands that forest regeneration projects not be allowed to generate more carbon credits until they have been checked and have complied with the methodology – a step already recommended by a government-commissioned review into the carbon credit system, but one that officials had been slow to confirm would happen.
Non-fossil fuel industries under the safeguard that everyone agrees need to clean up and survive – steel, aluminium, cement and lime – will get access to another $400m in public funding to help transition to cleaner practice, on top of $600m already announced. It’s still a small sum given the scale of the challenge, but now new and expanding fossil fuel facilities won’t have access to it.
Separate to the Greens deal, the government has announced that some under-pressure manufacturing facilities should be allowed to cut pollution intensity by as little as 1% a year, down from a 2% minimum previously. The overall promise is still 4.9% a year for most facilities, but we don’t know how that will play out on a case-by-case basis.
What does this all add up to? The safeguard is better equipped to deliver a promised 30% cut in industrial emissions by 2030 and there is likely to be a sharper focus on each fossil fuel proposal that comes before the government for approval.
The country will have a carbon price applied to big industry. But the big questions that have dominated this debate – not just new coal and gas, but the health of the carbon offsets system and the shortfall of the 43% national emissions reduction target for 2030 – are not going away.
There is a lot of work to do yet.
