By Chris Johansen

The previous federal Coalition Government introduced the Safeguard Mechanism, as part of their pretence that they were taking action on climate change. This set an upper limit of greenhouse gas (GHG) pollution for major greenhouse gas emitters, those entities emitting >100,000 t CO₂-e per year. If they exceeded that limit then they were required to purchase offsets. However, the Government set the upper limit, misleadingly called a baseline, so high that most entities remained under it. Unsurprisingly, Australia’s GHG emissions have increased since the scheme was introduced in 2016. So, from the Coalition’s point of view, this legislation has successfully served its underlying purpose – of “safeguarding” the profits of major GHG emitters.

Coming into office last year, the Labor Government decided to keep this mechanism in place, as it was already legislated, and modify it such that it might become effective in reducing emissions. Surprisingly, since a Labor government, supported by The Greens, had presided over a period instituting the most effective mechanism for reducing emissions – the carbon tax during 2012-13. However, this period proved to be the boiling point of Australia’s climate wars, which have been raging all this century. Labor thus didn’t want to touch with a bargepole anything like a carbon tax.

Labor have tried to modify the design of the legislated Safeguard Mechanism such that it will encourage, if not enforce, emissions reductions by the 215 or so biggest emitters, accounting for some 28% of Australia’s GHG emissions. After last year’s election the Government put out a consultation paper requesting input on the prospective changes and compiled that in a Safeguard Mechanism Reforms Position Paper of January 2023. This provided the basis for another short consultation, to 24^th February, before the reformed Safeguard Mechanism would be implemented from July, if passed by the Senate where The Greens and climate concerned independents hold the balance of power.

Calculation of the baseline, which is really a ceiling, for emissions reduction to 2030 is premised on Labor’s plan to reduce Australia’s domestic emissions to 43% of 2005 levels by 2030. The starting point for the big emitters, however, would be their emissions in 2022-23, projected to be 143 million tonnes overall. Emitters would have a say in determining what is their own starting point level. This ceiling would then need to decline by 4.9% per year to 2030, through actually reducing emissions or by buying offsets in the form of ACCUs (Australian Carbon Credit Units) or international offsets of adequate integrity. However, it is not the total emissions of an entity that will be considered but the emissions intensity (emissions per unit of production). This will permit future expansion of production.

Further to the use of ACCUs, the Clean Energy Regulator will automatically issue Safeguard Mechanism Credits (SMCs) to facilities with emissions below their Safeguard Mechanism ceiling. Those credits can be sold to other Safeguard Mechanism facilities, surrendered to meet compliance obligations or banked for future use.

While it is recognized that all participating entities would not be able to smoothly reduce their emission intensity by 4.9% each year, multi-year reporting periods would be permitted (e.g. maintain original emission intensity for 4 years and then installing emissions reduction technology in year 5 that would result in a 25% emissions reduction). Reviews and resets of ceiling levels, if necessary, are intended for 2026-27, and 2030 – if Labor is still in power.

As mentioned, the proposed changes to the Safeguard mechanism were widely consulted and supportive comments from several of the major emitters that would be affected are quoted in the Position Paper. For example, Woodside has opined: “A fair, robust and transparent Safeguard Mechanism can support a reduction in Australian emissions, as well as encourage businesses and industries to further innovate and adopt smarter practices and technologies in line with our collective emissions reduction targets.”

 I’m afraid this raises a red flag as to whether the revised Safeguard Mechanism provides any threat to the existing emissions regimes of the big emitters. Reading through the January 2023 Position Paper one can see holes big enough for the biggest of behemoths to dance through.

The Greens had been arguing that they would have supported the Safeguard Mechanism, flaws and all, if Labor would have banned the opening of any new coal and gas extraction projects. Labor, steadfastly refused this condition, despite it being a requirement of the Intergovernmental Panel on Climate Change (IPCC) to prevent climate catastrophe. Negotiations continued and on 27^th March compromise was reached with the following modifications to Labor’s initially proposed scheme:

• There will be a legislated hard cap on pollution with coal and gas corporations unable to use offsets if pollution exceeds this cap. This will make at least 116 planned new projects unviable.
• The government must assess the impact new coal and gas projects have on the climate, and can stop them for that reason.
• All new offshore gas fields feeding existing LNG plants will require their C0₂ emissions to be net zero.
• Low integrity offsets will be stopped until they go through an independent audit.
• Federal direct funding of coal and gas projects to be stopped.
• Toughening of methane monitoring of coal and gas projects (currently it relies on self-reporting).
• The Climate Change Authority will now advise on transition pathways and plans by sector.

Nevertheless, many shortcomings remain in the Safeguard Mechanism after this Labor-Greens compromise. The major flaws can be summarized as follows:

• Labor’s target of 43% emissions reduction by 2030 is insufficient if it is to be consistent with the global objective of reaching net zero by 2050 and keeping mean global temperature below 1.5°C.
• Defining a major emitter as an entity emitting >100,000 t CO₂-e per year. How are the remaining 72% of the nation’s emissions going to be addressed? What constraints are there on an entity emitting 95,000 t CO₂-e per year – none it seems? What is to prevent an entity over the 100,000 t CO2-e per year limit splitting into two smaller enterprises that would be under the limit. So far reports of emissions have been the responsibility of the emitters themselves – who will check the integrity of reported emissions?
• Many of the companies falling under the scheme have increased emissions from 2005 to 2022, so a 43% reduction from 2022-23, as prescribed in the plan, would result in a reduction of less than 43% if 2005 is the baseline.
• The scheme does nothing to address exported (Scope 3) emissions, to which Australia is a major global contributor through coal and LNG exports. Those organizations involved in this export, such as Woodside and BHP, are only required to address their in-country emissions, which they are well experienced at getting around. No wonder they make favourable comments about the revised Safeguard Mechanism.
• What is to stop an emitter claiming that they will install a system in 2029 that would reduce emissions by >43% from 2022-23 levels, and happily continue emitting until then? Such claims could be, and have been, made about carbon capture and storage (CCS), a methodology of storing carbon underground that has been claimed and tried on a small scale for decades but not found technically or economically viable.
• Despite an expressed aspiration to tighten up on the use of offsets, their ongoing use remains viable alternative to reducing emissions. There is a case for completely excluding the use of offsets in the Safeguard Mechanism scheme.
• Although there is now a requirement to toughen methane monitoring, this would require rigorous monitoring by an independent authority, and abolition of self-reporting. Also, the potency of methane is underestimated in that the Government uses the 100-year Global Warming Potential (GWP, in comparison with carbon dioxide) value of about 25. The more relevant time period is 20 years, for which the GWP is around 85.
• Safeguard Mechanism Mark III only requires gas fields to get their CO₂ emissions to net zero but says nothing about fugitive methane emissions, which are the major source of GHG pollution from gas extraction, transport, and processing.

Although implementation of this third iteration of the Safeguard Mechanism will be a step forward from the business-as-usual no action on climate change, it falls well short of what the science requires to make significant inroads into GHG pollution. This is because the Safeguard Mechanism was originally set up to protect fossil fuel corporations while pretending to do something about climate change.

Although The Greens and other climate-aware cross benchers can draw succour from these latest amendments to the Safeguard Mechanism they fully realize that there is much more work ahead if indeed any significant inroads into Australia’s GHG emissions, and those it exports to the world (Scope 3), are to be made. Many loopholes for fossil fuel corporations in the original Safeguard Mechanism remain and close scrutiny will be required to foil the imaginative arguments of their lawyers.

Each of the remaining proposed new fossil fuel projects, those that have not become financially unviable through this third iteration, will need to be individually contested, mainly on environmental grounds. The climate trigger will need to be extended into environmental law, to be legislated next year. Increased support needs to be given to individual communities fighting against fossil fuel projects for their own reasons. Although the third iteration prevents new direct funding to fossil fuel projects, the present regime of generous subsides given to them (e.g. diesel rebate) need to be stopped.

Another consideration is that this safeguard Mechanism only addresses about 30% of Australia’s Scope 1 emissions, those from the biggest polluters. There are, as of yet, no coherent plans to address the remaining 70%, such as those attributable to agriculture, transport and waste. This should be seen as a significant victory but the bigger battle is still a long way from being won.