After weeks of negotiations and plenty of strong words, the federal government has secured the support it needs to pass its key climate policy into law.
Labor's changes to the "safeguard mechanism" are going to become a reality from July 1, with some key changes secured by the Greens.
It is a critical plank of the government's plan to reach its 2030 emissions target, and its passage will mark a fairly significant political victory too.
Climate policy has troubled successive federal governments, so getting a bill through the parliament and into law is no small feat.
While business groups are tentatively supportive, the Greens and many climate advocates argue that much more is needed to ensure Australia is helping avoid dangerous climate change.
But for now it has the support it needs to get through the Senate — from the Greens, from independent Senator David Pocock, and from senators Jacqui Lambie and Tammie Tyrrell, while the Coalition remains resolutely opposed.
So what is the safeguard mechanism? And what will these changes look like in practice?
A confusing name for a complex scheme
The safeguard mechanism is older than you would expect, and more complicated too.
It's a Coalition-designed scheme that first came into effect in mid-2016, when Malcolm Turnbull was prime minister.
But it did not do a whole lot. In fact, industrial emissions increased during the time it was in operation.
The current government wants to strengthen it, and use it to push down emissions in some of Australia's heaviest-polluting sectors.
Put simply, companies or projects that emit more than 100 thousand tonnes of carbon dioxide every year are covered by the safeguard mechanism.
At the moment, there are 215 "facilities", but that figure is revised each year.
Those facilities are given "baselines" — which are basically caps on how much they can emit every year.
Under the government's plan, those baselines will be lowered every year by an average 4.9 per cent through to 2030, to drive down their emissions.
That means as a whole, those emitters covered by the safeguard mechanism will have cut their emissions by roughly 30 per cent by 2030.
And it's a big group — those 215 facilities account for 30 per cent of Australia's emissions.
Controversial credits
Facilities covered by the scheme are given a few options to keep themselves under the emissions limits set for them.
The first and most preferable option is simply finding ways to cut their emissions.
That might mean investing in more efficient machinery, using more sustainable fuel, or electrifying equipment that has previously run on gas or diesel.
A second option — which is the primary purpose for the legislation the government is pushing through parliament — is buying "safeguard mechanism credits".
If one facility comes in under its cap, it can sell the remainder of its cap to other companies within the scheme need the extra wiggle-room.
Another option is buying carbon credits or ACCU's, which stands for Australian Carbon Credit Unit.
These credits are created through avoided emissions — like a farmer regenerating land, or a landfill site burning off methane.
It is by far the most controversial option, and was one of the key issues negotiated between the Greens, crossbenchers and the government.
What did the Greens want?
Very early in the negotiations, the Greens came out with an offer to pass the government's entire plan through the parliament with zero changes.
All the government had to do was ban all new coal and gas projects.
It was not an ultimatum, but an offer — and it was very swiftly rejected, as the government argued new gas projects in particular will be needed in the years ahead.
The Greens, along with independent Senator Pocock and many climate advocates, also sought limitations on the use of carbon credits.
Concerns have been repeatedly raised about the integrity of some carbon credits, and there was a desire to ensure that facilities were making genuine efforts to reduce their emissions — and not just buying carbon credits.
That too was rejected by Labor, arguing flexibility on credits is needed for businesses that will struggle to quickly adapt their practices and push down emissions.
What did the Greens get?
After lengthy negotiations, the Greens secured some significant additions to the bills now set to pass through parliament.
The first and most consequential is a hard cap on emissions produced under the safeguard mechanism.
The Greens were concerned that because of the flexibility around the use of carbon credits, emissions from facilities covered by the mechanism could actually climb over the next few years.
So while the mechanism will run as normal — with baselines and carbon credits as described above — there will be a separate rule added to the legislation.
Emissions produced under the mechanism, regardless of credits used, cannot exceed a cap set at the five-year rolling average of all the emissions produced under the scheme.
That average will trend down over time, so the cap will get lower and lower.
If it looks like the cap might be breached, the minister will have to intervene and find a way to push emissions down — perhaps by cutting baselines, or helping companies invest in cutting their own emissions.
Changes big or small, depending on who you ask
Greens leader Adam Bandt said it is no small concession from the government.
"We are now going to have for the first time ever in this country, a limit as to how much these corporations, including coal and gas corporations, can pollute," he said. "That is big."
There is some confidence in the government that it is fairly unlikely those hard caps will be threatened, but there are also hopes within the Greens that if they are, it might lead to a re-think on limiting the use of carbon credits.
And there is a suggestion from the Greens that the cap might make it difficult for dozens of proposed new and expanded coal and gas projects to be approved.
Tania Constable from the Minerals Council said they are broadly unconcerned with the changes.
"We expect that (the changes) will have minimal impact on the mining industry overall," she said.
The Greens also secured a new rule requiring the minister to consider the pollution impact of new coal and gas projects, once they have been approved.
It isn't the "climate trigger" the Greens have pushed for in the past, which would require the climate impacts of new coal and gas projects to be considered before they are approved.
But it will force the minister to plan ahead for how the emissions created in extracting new coal and gas will be managed.
Offset reviews
Carbon credits are not going to be limited, as the Greens and others had called for.
But if a facility is using more than 30 per cent offsets to get under their baselines, they will have to explain why they are doing so to the Clean Energy Regulator.
So there is no immediate penalty, but companies will have to explain why they are making that decision.
And Tennant Reed from the AI Group points out that the financial cost of buying that volume of offsets will mount over time.
"They won't be thrown out of the system, or faced with an additional penalty," he said.
"Their penalty is they have to pay for the offsets — and over time, that really mounts up."
A broader review will be undertaken of the "human induced regeneration" method of producing carbon credits, which is basically regenerating bushland on previously cleared land.
No new credits will be issued until a review is conducted of existing projects creating those credits, and they are found to meet certain standards.
Senator Pocock said it's not everything he wants to see done on offsets, but it is a start.
"These amendments really tighten up the safeguard mechanism reforms, and seek to ensure that it is actually going to drive down emissions," he said.
"I've still got reservations about the way offsets are used in the mechanism, and have been pushing the government for other commitments to address those concerns."
The government is hoping to pass the bill through the parliament as soon as this week.
