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business reporters Kate Ainsworth and Rhiana Whitson

Safeguard mechanism agreement unlikely to increase energy prices and stop future coal and gas projects, experts say

The safeguard mechanism will reduce carbon emissions by an average of 4.9 per cent each year until 2030. (Reuters: Tim Winborne )

Concerns that the landmark climate policy to reduce emissions will deter energy investment, increase power prices and put a stop to future coal and gas projects are highly unlikely, industry experts say.

On Monday, the federal government announced it had negotiated a deal with the Greens on its safeguard mechanism, a key scheme to reduce Australia's carbon emissions by a legislated target of 43 per cent by 2030.

The agreement places a hard cap on Australia's total carbon dioxide emissions, meaning major emitters of CO2 will have a set limit on how much CO2 they are able to emit.

The cap will see emissions reduced by an average of 4.9 per cent each year until 2030 — a decision which will impact 215 companies that make up 30 per cent of Australia's overall emissions.

The Australian Petroleum Production and Exploration Association (APPEA) said it was concerned that the mechanism would deter future investment in the energy industry.

The gas lobby's chief executive, Samantha McCulloch, said although the industry is committed to net zero, the mechanism would scare off investment and drive up prices.

"We need to be bringing on new supply to put downward pressure on gas prices and to avoid projected shortfalls," she said.

"It's important that we're not putting more obstacles in the path to that new investment.

"The industry are willing to invest, they want to invest, but we need the policy certainty to facilitate that investment and new supply."

But energy analyst with the Grattan Institute, Tony Wood, said the change to the mechanism does not deter planned — or future — investment. 

"Projects that actually have lower CO2 will be favoured over projects that have higher CO2, projects with high CO2 will have to offset their emissions," he said.

"That's a good thing, but it's not going to suddenly destroy a whole lot of gas projects."

Tony Wood says the safeguard mechanism is not the end for future coal and gas projects. (ABC News: Steve Keen)

Mr Wood said there is also no direct connection which suggested the mechanism would result in higher energy prices.

"The government already has things in place that have had an impact on electricity prices, although we have seen across the country, electricity price increases being announced as of the first of July and they're not small," he said.

"[The mechanism] is mostly going to be large industrial projects, many of which are export-oriented.

"I don't think we're going to see … any impact on prices of significance."

The chief executive of Australian Industry Group, the peak body for some of Australia's biggest emitters, said he was not concerned that the deal would negatively impact power prices.

"The safeguard mechanism is important to keep the lights on and to keep the industry going, but it is not the panacea to high energy prices," Innes Willox said.

"This is about emission reduction. This isn't about price reduction.

"This is about the future."

The safeguard mechanism is not likely to increase already high power prices. (ABC News: Loretta Lohberger)

Projects not necessarily at risk

Despite the agreement, the Greens and Labor were at odds over what the safety mechanism meant for future energy projects.

Greens leader Adam Bandt told a press conference on Monday that the new agreement would also spell the end of dozens of new coal and gas projects — an assertion that was rejected by Prime Minister Anthony Albanese, who said that was not what had been negotiated between the two political parties.

But Mr Wood said it was unlikely future energy projects would be at risk because of the mechanism, because they would not be covered by the safeguard mechanism, which only applies to companies that emit 100,000 tonnes of carbon dioxide or more each year.

"There's over 100 projects that have been listed by the government across an entire range of sectors, from hydrogen to oil and gas, to chemicals, to gas pipelines that have been listed as possible projects," he said.

"Most of those projects are never going to go ahead anyway, and therefore are not at risk.

"In addition to that, a lot of the gas projects have already taken into account some of the things that were agreed to [on Monday].

"So while I do think what the Greens have agreed with the government is very important … I don't think there's many real projects that are really at risk of the magnitude that's being talked about by the Greens."

Greens leader Adam Bandt said the newly negotiated safeguard mechanism would put a stop to new coal and gas projects. (ABC News: Ian Cutmore)

Mr Wood said projects already in the pipeline — including Beetaloo in the Northern Territory and Queensland's various coal seam gas projects — "would not be affected much" as they have smaller amounts of embedded and reservoir CO2 to manage.

But bigger projects, including Santos's Barossa project, Woodside's Scarborough and Browse are more likely to be affected, as they have considerably larger amounts of embedded and reservoir carbon dioxide which factor into their total emissions.

"So the impact [of the mechanism] on some of those projects is significant," Mr Wood said.

"But [the companies] already understand that, and some of the other projects will have a very small effect."

Tony Wood said the Beetaloo Basin project would not be majorly affected by the safeguard mechanism. (Supplied: Empire Energy)

Gas companies welcome the certainty

Two of the companies involved in the Beetaloo venture, and Woodside, which is running gas projects in Western Australia,  have welcomed the certainty created by finally having an agreement on the safeguard mechanism.

The Australian Industry Group's Innes Willox agrees, and says the mechanism is a workable and plausible transition that allows companies to plan for the future.

"Without it, we'd never reach those targets that we'd set ourselves, and we have to be real and pragmatic here," Mr Willox said.

Innes Willox said the safeguard mechanism struck the right balance. (ABC: Jeremy Story Carter)

"This is a way that we can continue to keep both the lights on and industry working, and it's essential that we do that.

"[The mechanism has] got enough flexibility within it to allow core parts of our economy — steel, cement, aluminium — to keep operating and to have some certainty going forward."

Mr Willox said he was confident the negotiated safeguard mechanism struck the right balance between reducing emissions while Australia transitions to renewable energy.

"The important thing here is that there was a blanket ban on future coal and gas projects being sought, and that got rejected," he said.

"That's important because we're going to need gas for the transition through to renewables, and particularly over the next five to 10 years, gas is going to be increasingly crucial to our economic wellbeing."

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