Reducing the climate emissions of major industrial polluters
Briefing paper on the Climate Safeguard Mechanism
What is the Safeguard Mechanism?
The federal government’s Safeguard Mechanism is a way to make big polluters bring their emissions down in line with Australia’s 43% emissions reduction target. In simple terms, if functioning as it was designed, the Safeguard Mechanism would apply a cap on the emissions of polluting facilities that reduces over time.
While the Safeguard Mechanism didn’t make polluters cut emissions under the Coalition Government, Labor has committed to reform the Safeguard Mechanism.
The goal
The Safeguard Mechanism should require Australia’s big polluters to do their fair share of emissions reduction. If they don’t, other sectors like manufacturing, agriculture and households will have to do proportionally more to bring our net emissions down to 43% by 2030.
Who does the Safeguard Mechanism regulate?
The Safeguard Mechanism scheme covers large industrial facilities with direct emissions of more than 100,000 tonnes of CO2 equivalent per year. Around 215 facilities are covered by the scheme, across the mining, energy, manufacturing, and transport sectors. Together, these facilities are responsible for 28 per cent of Australia’s national greenhouse gas emissions. Most of the major polluters are large coal and gas companies.
Emissions (Mt Co2-e) from the top 12 fossil fuel emitters regulated by the Safeguard Mechanism since its inception in 2016.
Big polluters doing their fair share
The companies behind the most polluting facilities regulated by the Safeguard Mechanism are advocating to continue the accounting that made the mechanism ineffective under the Coalition Government. That includes being able to continue emitting pollution above the Safeguard Mechanism caps, but attempt to offset extra pollution using carbon credits.
A few different offset programs have been suggested, of varying degrees of questionability. They include:
• Australian Carbon Credit Units (currently being reviewed by the government following widespread evidence of a lack of integrity of many methods);
• Safeguard Mechanism Credits (legislation due to be introduced to parliament soon, these involve trading credits for actual reductions in fossil fuel pollution between Safeguard Mechanism polluting facilities);
• International offsets (with less potential for oversight, including by future governments, and therefore more likely to lack integrity).
Access to Australian Carbon Credit Units and Safeguard Mechanism Credits should be restricted to ensure polluters are incentivised to genuinely reduce their emissions. International credits should be completely off the table because of their lower integrity, as well as the lost opportunity of directing capital to Australian projects.
More complexity is introduced when special treatment is applied to some facilities - for example new facilities or facilities for so called ‘trade exposed emissions intensive’ industries. If they receive special treatment, other industries will need to steepen the decline of their emissions to ensure Australia reaches the Labor Government’s commitment to at least 43% emissions reduction by 2030.
Reform of the Safeguard Mechanism - what’s needed
The number one principle is that Australia’s major polluters finally do their share of emissions reduction. In real terms, this would require companies to cut emissions by at least 10 million tonnes of CO2-e a year (or 7% of the sector’s 2020–21 emissions).
New facilities or ‘emissions intensive trade exposed’ industries should not be given special treatment. A ceiling, or ‘cap’, should be set on the total cumulative emissions from all baselines under the Safeguard Mechanism of 89 million tonnes CO2-e per year by 2030 - that’s a reduction of 43% in line with the government’s commitment. There should be strong restrictions on the use of credits to ensure real emissions reductions. This includes a prioritisation of Safeguard Mechanism Credits and no use of international offsets.
In summary, the Safeguard Mechanism should:
1. Ensure major industrial polluters reduce their share of pollution;
2. Ensure polluters can’t dodge their obligations through buying offsets and other methods that avoid immediate reductions of pollution;
3. Not allow for special treatment of facilities like new coal and gas projects or for so called ‘emissions intensive trade exposed’ industries.
Australia’s total emissions: If the Safeguard Mechanism fails to bring emissions down in line with the 43% reduction commitment, other sectors will need to compensate.
Our policy recommendations are informed by and consistent with the joint position of Climate Council and Australian Conservation Foundation