Policy and legislation

Safeguard Mechanism: open for consultation

Following the Labor party’s victory in the 2022 Federal election, the Department of Climate Change, Energy, the Environment and Water stated, “The Government has increased the ambition of Australia’s climate goals, committing to reduce national emissions to 43 percent below 2005 levels by 2030, and reaffirming Australia’s commitment to achieve net zero emissions by 2050”. This will require a meaningful economy-wide emissions abatement effort and the Government is tasked with ensuring this is achieved in an effective, equitable way at both a facility and sector level.

On Thursday, 18 August, the Federal Government released its eagerly anticipated Consultation Paper for Safeguard Mechanism Reforms[1]. This is a good opportunity for large emitters and stakeholders to provide input and in this article, we provide a summary of the key features. 

Feedback sought from large emitters and stakeholders

Facilities covered by the Safeguard Mechanism have an important part to play in achieving the national target, as they were responsible for 28% of Australia’s emissions in FY21. However, Safeguard legislation as it stands has given covered facilities a high degree of flexibility and excessive optionality in how baselines can be set, resulting in a scheme which has done little to reduce national emissions. Regardless, Safeguard facilities and responsible emitters have now had 6 years of familiarity with this legislation and are well-placed to manage increasing emissions reduction obligations within established baseline limits. The Consultation Paper seeks to determine how this can best be achieved “in a way that maximises benefits, minimises costs and shares the effort among participants.”

The Government is seeking feedback via the Consultation Paper from Safeguard Mechanism participants and other stakeholders on a range of issues relating to scheme reforms. Potential amendments to the Safeguard Rule[2] resulting from this process are likely to commence on 1 July 2023 (FY24) and will continue to apply to facilities that emit greater than 100,000tCO₂e annually. Proposed features of the reforms include:

• A two-phased approach to the implementation of baseline reductions and other associated Rule amendments to minimise shocks to facilities, enable gradual stabilising of supporting mechanisms such as offsetting, and to provide time for the adoption of low emissions technologies
• Annual baseline decline rates in the range of 3.5-6%p.a., subject to factors including the treatment of production variables, emissions intensities and emissions-intensive trade exposed activities, and the potential for a ‘soft start’
• Introduction of Safeguard Mechanism Credits (SMCs) to be provided to facilities that reduce emissions below their baselines and eligible for sale/trade to facilities with abatement obligations
• Effectively committing all facilities to a 2050 net zero target, with an interim decadal target for FY21-30.

Specific items for commentary are broadly grouped into the following key policy areas:

• The Safeguard Mechanism’s share of the national abatement task
• Setting baselines to achieve an equitable distribution of costs and benefits
• Lowering costs with crediting and trading, offsets and international units
• Tailored treatment for emissions-intensive, trade-exposed businesses
• Taking account of available and emerging technologies
• Indicative baseline decline rates
• Other design issues, including the suitability of existing prescribed production variables for a declining baseline environment.

Energetics can help

Energetics has broad experience helping our clients negotiate the complexities of the existing Safeguard Mechanism legislation to establish appropriate baselines for their facilities and to communicate with governing bodies including the Clean Energy Regulator and relevant Federal Government Departments. We are experienced in all facets of the baseline-setting process from the interpretation of legislation to application and audit support and are ideally placed to provide guidance around the coming reforms and to translate these into an understanding of the impacts to your facilities and operations.

Through Energetics’ economy wide emissions model, we can also provide you with an understanding of how your sector is likely to decarbonise over this decade and beyond.

The Safeguard Mechanism reform consultation is open until 20 September. Submissions can be made via the Department’s Consultation Hub[3].

If you would like support in understanding the implications of these reforms to your operations or assistance in preparing your submission addressing the issues that are most relevant to your business, please contact the author or any of our team of experts.