Executive summary
- The
safeguard mechanism is a central component of Australia’s climate change
policy. It was reformed in 2023 to change several elements of the scheme. This
paper provides an overview of the safeguard mechanism as it currently
operates.
- The
legislative framework for the safeguard mechanism is set out in the National
Greenhouse and Energy Reporting Act 2007 (NGER Act). The objects of
the NGER Act now includes 6 ‘safeguard outcomes’ that contribute to achieving
Australia’s greenhouse gas emissions reduction targets.
- The
safeguard mechanism applies to large facilities that emit over 100,000 tonnes
of carbon dioxide equivalent each year, which are primarily facilities in the
mining, oil and gas extraction, manufacturing, and waste sectors.
- These
facilities must keep net emissions under a threshold, called a baseline. Put
simply, calculating a facility’s baseline involves multiplying the output of
the facility (its production) by an emissions intensity value
that represents the emissions per unit of production. These are called
‘production-adjusted’ baselines.
- With
some exceptions, the emissions intensities used to calculate baselines will
move over time from facility-specific values to industry-average values, to
encourage production to take place where it is least emissions-intensive. New
facilities and new products produced by existing facilities will have
baselines calculated using international best practice emissions intensities,
as these facilities are expected to have access to the latest technology and
practices.
- The
reforms include tailored treatment for emissions-intensive trade-exposed
industries to ensure they are not competitively disadvantaged by the scheme.
- A
key aspect of the reforms is the introduction of decline rates for baselines,
initially of 4.9% per year through to 2029–30, with future decline rates to
be set in accordance with Australia’s emissions reduction targets. The
reforms also introduce a 5-year rolling emissions budget, with total
emissions from safeguard facilities required to reduce over time, and a
requirement for net zero emissions from 2049–50.
- If
a facility emits less than their baseline, they can apply to receive
Safeguard Mechanism Credits (SMCs). These tradable credits are expected to
provide a financial incentive for facilities to reduce emissions below their
baseline.
- The
government has committed to review the safeguard mechanism policy settings in
2026–27 to assess the initial impacts of the reforms.
Introduction
Climate change is affecting weather and climate extremes
worldwide. Australia experienced
major floods and record dry periods during 2023 and average
temperatures have risen by 1.5 ± 0.23 °C since 1910. Global
average temperatures were the warmest
observed across a 174-year record. While global temperatures are expected
to continue increasing in the short term, ‘deep, rapid, and sustained’
reductions in greenhouse gas emissions can slow down further warming and limit
associated hazards.[1]
Australia is contributing to global efforts to reduce
greenhouse gas emissions and transition to net zero. As a party to the Paris
Agreement, Australia has committed to reducing emissions by 43% below 2005
levels by 2030 and reaching net zero emissions by 2050.[2] One of the
government’s policies to monitor and regulate emissions is the safeguard mechanism
which applies to Australia’s largest industrial facilities. Significant reforms
were enacted in 2023 that require safeguard facilities to reduce their net
emissions in line with Australia’s emissions reduction targets. This paper
updates the 2018
Parliamentary Library quick guide on the safeguard mechanism and provides
an overview of the scheme as it currently operates.
Additional information on these recent legislative reforms
is also available in the Parliamentary Library’s Bills
Digest on the Safeguard Mechanism (Crediting) Amendment Bill 2022. The Parliamentary
Library’s publication Australia's
climate change policy to 2021: a chronology also provides a
timeline of actions that Australia has taken to address climate change and support
emissions reduction, including the introduction of the safeguard mechanism.
What is the safeguard mechanism?
The safeguard mechanism is an emissions reduction policy,
first introduced as a component of the Emissions
Reduction Fund (ERF). The ERF was established
in 2014 and is now known (and is referred to in this paper) as the ACCU
Scheme. The scheme’s objective is to provide incentives for businesses to
reduce their emissions or sequester carbon dioxide and thus contribute to
achieving Australia’s greenhouse gas (GHG) emissions reduction targets.
The scheme has 3 key components:
- a voluntary
scheme to credit emissions reductions, whereby emissions reductions
delivered by registered emissions reduction projects using an approved
methodology can be issued with credits, known as Australian Carbon Credit Units
(ACCUs)
- a
process to purchase emissions reductions, via competitive reverse
auctions run by the Clean Energy Regulator, whereby the regulator enters into
contracts with successful bidders, and
- the safeguard mechanism, which requires Australia’s largest GHG emitting
facilities to reduce their emissions in line with legislated limits called
baselines.
This research paper focuses on the last component, the
safeguard mechanism, which was initially introduced to ensure that emissions
reductions purchased through the ACCU Scheme are not displaced by
significant increases in emissions elsewhere in the economy.
The legislative framework for the safeguard mechanism is set
out in Part 3H of the National
Greenhouse and Energy Reporting Act 2007 (NGER Act) and multiple
legislative instruments. Part 3H was inserted by the Carbon Farming
Initiative Amendment Act 2014, which also established the ERF following
the repeal of the carbon pricing mechanism. Notably, the safeguard mechanism was
the result of amendments put
forward by Senator Xenophon and agreed to by the Parliament. The safeguard
mechanism commenced on 1 July 2016, and major reforms were legislated
in 2023.
Much of the detail relating to the safeguard
mechanism is set out in legislative rules, including the National
Greenhouse and Energy Reporting Regulations 2008 and
the National Greenhouse and Energy Reporting (Safeguard Mechanism) Rule
2015 (Safeguard Rule).
Background to the
safeguard mechanism reforms
In December 2021, the Australian Labor Party, then in
Opposition, launched the climate
policy platform it would successfully take to the May 2022 federal
election. This included increasing the ambition of Australia’s GHG emissions
reduction targets and reforming the safeguard mechanism to ensure that it
functioned effectively to gradually
and predictably reduce emissions from covered industrial facilities. The
safeguard mechanism had previously faced criticism that it did
not require facilities to actually reduce onsite emissions and would allow
economy‑wide emissions to increase.
In June 2022, the Albanese Government updated Australia’s Nationally
Determined Contribution (NDC) under the Paris
Agreement to the United
Nations Framework Convention on Climate Change. This increased Australia’s
emissions reduction targets to 43% below 2005 levels by 2030 and to
net zero by 2050. These targets were legislated in September 2022
following the passage of the Climate Change
Act 2022.
In August 2022, the Minister for Climate Change and
Energy, Chris Bowen, announced
the release of a Safeguard mechanism
reforms: consultation paper. The consultation paper provided options
for setting and reducing the baselines of facilities covered by the safeguard
mechanism. The consultation paper proposed decline rates of between
3.5% and 6% per year through to 2030, with further decline rates
to be set in 5-year blocks aligned with updates to Australia’s NDC. The
consultation paper also raised a range of other reforms, including the creation
of Safeguard Mechanism Credit units (SMCs) to credit below-baseline emissions[3], the treatment of
emissions-intensive trade-exposed businesses, banking and borrowing of credits,
and changes to the availability of multi-year monitoring periods.
This was followed in October 2022 by exposure drafts of
the Safeguard
Mechanism (Crediting) Amendment Bill and an initial legislative rule,
as well as an explanatory
document.
On 30 November 2022, the minister introduced
the Safeguard
Mechanism (Crediting) Amendment Bill 2022 to the House of Representatives.
The Bill was referred to the Senate Environment and Communications Legislation
Committee for inquiry and report.
On 10 January 2023, the government released
the Safeguard
mechanism reforms: position paper and 4 draft
legislative instruments. The position paper set out the government’s
proposed approach, with the draft legislative instruments providing the
regulatory detail – as provided for by the amendments in the Bill. The position
paper stated that the government intended to finalise the legislative reforms
by April 2023, with the reforms and draft rules intended to commence on
1 July 2023 (p. 6).
The Bill passed
both houses of Parliament on 30 March 2023, with amendments
successfully put forward by the government itself and, after
lengthy negotiations, the Australian Greens. The legislative instruments
have also been enacted.
The government has published a fact sheet, Safeguard
mechanism: about the safeguard mechanism and the reforms,
that summarises the final design of the safeguard mechanism.
The safeguard mechanism
in operation
This section explains the key components of the safeguard
mechanism as it now operates.
Safeguard outcomes
The objects of the NGER Act now include 6 ‘safeguard
outcomes’. These embed reform principles into the objects and operation of the
Act, and are intended to contribute to the achievement of Australia’s GHG
emissions reduction targets (subsection 3(2)). The ‘safeguard outcomes’
(referred to by their paragraph number) are that:
- net covered
emissions of GHGs from the operation of a designated large facility do not
exceed the facility’s applicable baseline
- total net
safeguard emissions to not exceed a budget of 1,233 million tonnes
of CO2-e (Mt CO2-e) for the period 1 July 2020
to 30 June 2030
- net safeguard
emissions decline to no more than 100 Mt CO2-e for the
financial year beginning on 1 July 2029, and zero for any financial
year to begin after 30 June 2049
- the 5-year
rolling average safeguard emissions for each financial year that begins after
30 June 2024 are lower than the past 5-year rolling average safeguard
emissions for that financial year
- responsible
emitters have a material incentive to invest in at-source emissions reductions
- the
competitiveness of trade-exposed industries is supported as regions transition
to activities that drive a ‘global net zero economy’.
The ‘safeguard outcomes’ (other than outcome (a), which was
in the original Act) reflect key elements of the reforms. In particular,
outcomes (b) to (d) work together to establish a cap on emissions.
The ‘safeguard outcomes’ underpin the making of safeguard
rules and key review mechanisms (discussed below in ‘New
review mechanisms’). The minister must be satisfied, when making or amending
safeguard rules, that the rules are consistent with ‘safeguard outcomes’ (b) to
(d) and take ‘safeguard outcomes’ (e) and (f) into account
(subsection 22XS(1A)). The minister must also publish their reasons for
being so satisfied (subsection 22XS(1B)).
Funding to support clean energy industries and trade-exposed safeguard
facilities
The government has committed at
least $1 billion in funding via the Powering the Regions Fund to
assist safeguard facilities in the manufacturing sector and trade‑exposed
industries to reduce their onsite emissions, thereby supporting ‘safeguard
outcomes’ (e) and (f). This includes:
What does the safeguard
mechanism apply to?
The safeguard mechanism is intended to ensure ‘that net
covered emissions of greenhouse gases from the operation of a designated large
facility do not exceed the baseline applicable to the facility’
(paragraph 3(2)(a) and section 22XD, NGER Act).
Only large facilities are covered
The safeguard mechanism only applies to ‘designated large
facilities’. These are facilities where the total direct GHG emissions from the
operation of the facility during a financial year exceed a threshold of
100,000 t CO2-e (section 22XJ, NGER Act;
section 8, Safeguard Rule).
In practice, this threshold limits coverage of the safeguard
mechanism to large emitting industries such as electricity generation, mining,
oil and gas extraction, manufacturing, and waste. The cumulative impacts of
multiple small emitters (such as in the agriculture
and transport
sectors) are not covered by the mechanism.
As a result, the mechanism applies to facilities that collectively
account for over half of Australia’s GHG emissions. In 2022–23, the
219 industrial facilities covered by the safeguard mechanism contributed
approximately 30% of Australia’s national emissions, while facilities
covered by the electricity sectoral baseline contributed another 30% of
Australia’s national emissions.[5]
However, as discussed further below, the electricity sector is treated
differently and has a sectoral baseline.
The mechanism only covers direct emissions
The safeguard mechanism applies to facilities with direct
emissions of more than 100,000 t CO2-e a year. Only direct
or scope 1
emissions are included in this threshold: that is, GHG emissions released
into the atmosphere as a direct result of an activity undertaken at that
facility. This includes, for example, direct emissions from fugitive emissions (leaks
and other uncontrolled releases) and emissions from fuel combustion, waste
disposal and industrial processes such as cement and steel making.
Some scope 1 emissions are not covered. Under
section 7 of the Safeguard Rule, these include, for example, legacy
emissions from the operation of a landfill facility (that is, emissions from
waste deposited at the landfill before 1 July 2016) and emissions that
occur in the Greater Sunrise special regime area.[6]
Indirect emissions (known as scope 2
and 3 emissions) are not included in this threshold. Indirect
emissions include, for example, emissions associated with the consumption of
electricity produced at a separate facility (scope 2 emissions) and
emissions embedded in the supply chain of products or final consumption of
produced goods (scope 3 emissions).[7]
How are baselines set?
Further details and exceptions to this approach are
described in the following sections.
The Clean Energy Regulator (CER) publishes a safeguard
baselines table that sets out information relating to emissions baseline determinations,
including current and historic facility baselines.
Existing facilities
The requirements for existing facilities are set out in
Division 2 of Part 3 of the Safeguard Rule.
Under the reforms, most existing facilities (those operating
prior to or in the 2021–22 financial year: section 12, Safeguard Rule)
move to new production-adjusted baselines calculated using a hybrid approach,
in which there is a progressive transition from facility-specific emissions
intensity values to industry average emissions intensity values by 2029–30
(see Table 1). The transition to industry average values ‘provide[s] an
incentive for production to occur where it is least emissions-intensive, while facility-specific
baselines recognise individual facility circumstances and keeps initial costs
low’.[9]
Existing coal mines are subject to a different transition
schedule, with facility-specific intensities weighted more heavily, resulting
in an equal weighting of default and facility‑specific emission
intensities by 2029–30. As explained by the DCCEEW, ‘this approach
maintains a robust incentive to reduce the emissions intensity of coal mining
operations, while mitigating distributional impacts arising from the
differences in emissions intensity across coal mines’.[10]
The baseline emissions number will also be reduced (decline)
at a default rate of 4.9% per annum through to 2029–30 (see
Table 1). After 2030, decline rates will be set in five-year blocks to
align with updated emissions reduction commitments as set in Australia’s Nationally
Determined Contribution.[11]
Table 1 Transition proportion and decline factor, 2023–24
to 2029–2030
|
|
2023–24
|
2024–25
|
2025–26
|
2026–27
|
2027–28
|
2028–29
|
2029–30
|
|
Default: Facility-specific ratio
|
10:90
|
20:80
|
30:70
|
40:60
|
60:40
|
80:20
|
100:00
|
|
Default: Facility-specific ratio
(existing coal mines only)
|
5:95
|
10:90
|
15:85
|
20:80
|
30:70
|
40:60
|
50:50
|
|
Decline factor
|
0.951
|
0.902
|
0.853
|
0.804
|
0.755
|
0.706
|
0.657
|
Note: The decline factor is 0.049 per annum.
Source: sections 13 and 31, Safeguard Rule.
Existing facilities can apply for an emissions intensity
determination to set a facility-specific emissions intensity of an existing
production variable (subdivision C of Division 2, Safeguard Rule).
Best practice emissions intensity values (explained further below) will apply
to existing facilities’ production variables that are not covered by an emissions
intensity determination.
Landfills have different characteristics to other existing
covered facilities, and their baselines are calculated in a different way
(section 30, Safeguard Rule).[12]
However, the baselines of landfills will also decline by 4.9% per annum.
New facilities
The requirements for new facilities are set out in
Division 3 of Part 3 of the Safeguard Rule.
New facilities are facilities that are covered by the
safeguard mechanism for the first time after 1 July 2023. The formula
for calculating baselines for new facilities is set out in section 29 of
the Safeguard Rule.
Baselines for new facilities (other than landfills) and new
products from existing facilities will be set using international
best practice emissions intensities. Where determined to date, these are
specified in Schedules 1 and 2 of the Safeguard Rule. The DCCEEW
describes the rationale for requiring international best practice emissions
intensities for new facilities as follows:
New facilities have the opportunity to use the latest
technology and build world’s best practice emissions performance into their
design. As part of the reforms to the Safeguard Mechanism, the Government
decided new facility baselines (emissions limits) will be set at international
best practice, adapted for an Australian context. This sends a strong signal to
investors that Australia is serious about net zero, and new investments must
support this goal.[13]
New facility baselines will also be subject to a default
decline rate of 4.9% per annum through to 2029–30.
New gas fields
New gas fields supplying existing liquified natural gas
facilities will be considered new facilities (paragraph 20(5)(a),
Safeguard Rule). According to the minister, ‘For these fields’ reservoir CO2
emissions, best practice is zero given the existence of low-CO2
fields and opportunities for carbon capture and storage’.[14]
Shale gas extraction facilities
These definitions have the effect that shale gas production,
exploration and pilot testing activities are covered under the safeguard
mechanism and are required to have a zero baseline (for scope 1 emissions)
from commencement. According to a
summary provided by the minister, ‘in relation to the Beetaloo basin, all
new gas entrants in the basin will be required to have net zero scope 1
emissions from entry’.[15]
The amendments and updated Safeguard Rule are not limited to shale gas
facilities in the Beetaloo Sub-basin, but would apply to any shale gas
extraction facility.[16]
Based on the definition of shale gas extraction facility
and as noted in the
Explanatory Statement (p. 30), emissions from the extraction and use
of shale gas (whether or not the use is in Australia), including scope 3
emissions, are taken into account when determining whether a particular
facility is a shale gas extraction facility.
Trade-exposed baseline-adjusted facilities
Subdivisions C–E of Division 5 of the Safeguard
Rule set out tailored treatment for emissions‑intensive, trade-exposed
(EITE) facilities to ensure that businesses are not competitively disadvantaged
and to prevent the risk of carbon leakage.[17]
The DCCEEW defines 2 types of EITEs: trade‑exposed facilities
(includes facilities whose main production variable is trade exposed) and trade‑exposed
baseline-adjusted (TEBA) facilities (a subset of trade‑exposed facilities
that also face an elevated risk of carbon leakage).[18] Around
80% of safeguard facilities are classified as trade exposed.[19]
Facilities may apply
to the CER to become a TEBA facility and receive a discounted baseline
decline rate for up to 3 years (section 39, Safeguard Rule).
Discounted decline rates are set based on a ratio of cost impacts, which
considers a facility’s earnings or revenue and scheme costs. Scheme costs are
calculated by multiplying a facility’s exceedance in a particular year (the
amount by which they would emit over their existing baseline) by the default prescribed
unit price (an estimated cost of compliance based on the expected cost for a prescribed
carbon unit, which includes ACCUs and SMCs).
The safeguard
mechanism fact sheet explains how discounted decline rates are set for
manufacturing and non‑manufacturing facilities:
Manufacturing will use scheme cost as a percentage of
facility Earnings Before Interest and Taxes (EBIT), reflecting the value-added
nature of their margins:
- assistance will
commence at 3% and the minimum baseline decline rate will be available at 10%;
and
- the minimum
baseline decline rate will be 1% each year.
Non-manufacturing facilities will use scheme cost as a
percentage of facility revenue:
- assistance will
commence at 3% and the minimum baseline decline rate will be available at 8%;
and
- the minimum
baseline decline rate will be 2% each year. [20]
A consultation
process to seek feedback on draft EBIT guidelines and the approach for
calculating the default prescribed unit price took place between March and
April 2024. The final EBIT
guidelines were published in June 2024 and the default prescribed unit
price was set at $33.13 for 2023–24, following the method
outlined by the DCCEEW.
Electricity sector
A single
electricity sectoral baseline is applied to all electricity generators
connected to one of Australia's 5 main electricity grids (the National
Electricity Market, the South West interconnected system, the North West
interconnected system, the Darwin to Katherine network, and the Mount
Isa-Cloncurry supply network).[21]
The electricity sector baseline is set at 198 Mt CO2-e.
This baseline represents the high point in annual emissions from the electricity
sector between 2009–10 and 2013–14.
This baseline is considerably higher than the total reported
scope 1 emissions from grid‑connected generators in 2022–23
(137.2 Mt CO2-e).[22]
While the electricity sector has historically
been the highest emitting sector, emissions in the sector have reduced over
time as the proportion of electricity generated from renewable sources has
increased. Electricity sector emissions are projected to continue declining.[23] In the unlikely
event that the sectoral baseline was exceeded, individual facility baselines
would be applied to electricity generators.
What if a facility exceeds its baseline?
A responsible emitter has a duty to avoid an ‘excess
emissions situation’ (section 22XF, NGER Act). An ‘excess emissions
situation’ occurs if a facility’s baseline for a particular financial year is
exceeded and the responsible emitter fails to remedy that situation by 1 April
in the following financial year. Responsible emitters have the following
options to avoid excess emissions:
- surrender
ACCUs or SMCs to reduce net emissions
- apply
to the CER to become a TEBA facility and receive a discounted baseline decline
rate
- apply
to the CER to borrow baseline from the following compliance year; this would
reduce the future year baseline by the corresponding amount, plus interest
(2% for the 2024–25 and 2025–26 financial years and 10% for financial
years from 2026–27 onwards)
- apply
to the CER for a multi-year monitoring period to allow additional time to
reduce emissions; multi-year monitoring allows a facility to exceed its
baseline in one year, as long as average emissions over the period of up
to 5 years are below the baseline
- apply
to the CER for an exemption if excess emissions are due to exceptional
circumstances, such as a natural disaster or criminal activity.[24]
Safeguard Mechanism Credit units
Safeguard
Mechanism Credit units (SMCs) are tradable units that were introduced in
the reforms. Responsible emitters may apply to the CER to be issued SMCs if
their facility’s emissions are below its baseline in a reporting year, or below
its net baseline at the end of a multi-year monitoring period. Each SMC represents
one tonne of carbon dioxide equivalent emissions below a facility's baseline. SMCs
provide a financial incentive to safeguard facilities to reduce emissions below
their baselines and allow for flexibility in meeting compliance obligations.
While SMCs will only be issued to responsible emitters, they can be purchased
and sold by anyone with an Australian
National Registry of Emissions Unit account. It is expected that a market
for SMCs will emerge, with SMCs available to buy, sell and surrender from
early 2025.
Facilities that reduce their emissions below the coverage
threshold (100,000 t CO2-e) will be able to generate SMCs
for up to 10 years, ‘as long as they have been previously covered by the safeguard
mechanism in accordance with the conditions set out in section 58B of the
Safeguard Rules’.[25]
The baselines at these facilities will continue to decline.
Some facilities will not be eligible to generate SMCs,
including landfills, facilities accessing multi‑year monitoring periods
(except for at the conclusion of this period), and facilities with borrowing
arrangements in place (subsections 56(3) and 57(3), Safeguard Rule).
Long‑term arrangements for landfills will be considered prior
to the government’s 2026–27 review of the safeguard mechanism.[26]
SMCs can be surrendered by responsible emitters to meet
compliance obligations, sold (including to other safeguard facility operators)
or held on to (banked) until 2030.
Safeguard facilities can bank an unlimited amount of SMCs to 2030 and use these
to meet compliance requirements in any year, regardless of which year they were
issued.[27]
The government’s 2026–27 review
of the safeguard mechanism will consider SMC banking arrangements for post‑2030.[28]
Australian Carbon Credit Units
Safeguard facility operators can also purchase and surrender
Australian
Carbon Credit Units (ACCUs) to offset emissions above their baseline.
Facilities that surrender ACCUs equal to more than 30% of their baseline
must submit a statement to the CER explaining why onsite abatement has not been
undertaken (section 72C, Safeguard Rule).
In order to avoid double counting, Emissions Reduction Fund
(ERF) projects that solely reduce covered emissions at a safeguard facility can
no longer be registered, as these activities will generate SMCs. Existing
projects can continue to generate and sell ACCUs, but are not able to enter
into new contracts for government purchase of ACCUs.[29]
The government has introduced a cost
containment measure to prevent excessive prices of ACCUs and provide
certainty to facilities on the maximum compliance costs they could face.
Facilities that exceed their baseline are able to purchase ACCUs from the
government at a cost of $75 per unit in 2023–24, increasing with the
consumer price index plus 2% each year. The government expects there will
be sufficient ACCUs and SMCs available in the market below this price, and
states that any funds received via this measure will be allocated to the
Powering the Regions Fund.[30]
Currently, only domestic carbon credit units can be used to
meet compliance obligations. The government may consider whether high‑quality
international offsets can be used by safeguard facilities in future years.[31]
Compliance and enforcement
Under the previous safeguard mechanism design, facilities
faced penalties for the number of days that they were in an ‘excess emissions
situation’, without regard to the quantity of emissions they emitted in excess
of their baseline. Now, non-compliant facilities face:
- a
maximum civil penalty of one penalty unit per tonne of excess emissions in the
relevant year (section 22XF, NGER Act), or
- a
corresponding infringement
notice[32]
‘charged at one-third of the maximum civil penalty to a maximum of
150,000 penalty units’.[33]
The government ‘does not expect any facilities to pay civil
penalties or infringement notice charges, as these will be more expensive than
the cost of compliance’.[34]
Section 54B of the NGER Act sets out anti-avoidance
measures to prevent businesses from defining or re‑defining facilities to
avoid obligations, for example, by splitting a large facility into multiple
smaller facilities that do not meet the 100,000 t CO2-e
emissions threshold.
New review mechanisms
The Climate Change
Act 2022 (CC Act) requires the Minister for Climate Change and Energy
to deliver an annual climate change statement to Parliament (section 12, CC
Act). The statement is required to include, among other things, information on
progress made during the relevant year towards achieving Australia’s GHG
emissions reduction targets. The statement must also include information on the
effectiveness of the Commonwealth’s policies including ‘whether safeguard
emissions and net safeguard emissions are declining consistently with the
safeguard outcomes’ (paragraph 12(1)(d), CC Act).
The Climate
Change Authority (CCA) is required to provide advice to the minister
relating to the preparation of the annual climate change statement
(section 14, CC Act). The CCA’s advice must also address ‘whether
safeguard emissions and net safeguard emissions for the financial year ... are
declining consistently with each of the safeguard outcomes’, taking into
account:
- the
impact of expanded or new designated large facilities in that year, or expected
in future years, and
- emissions
estimates for expanded or new facilities as notified to the CCA by the
Environment Minister in regard to the approval of actions under the Environment
Protection and Biodiversity Conservation Act 1999
(paragraph 14(1A)(a), CC Act).
If safeguard emissions, or net safeguard emissions, for the
relevant financial year are not declining, the CCA must also provide advice as
to whether any amendments to the Safeguard Rules should be made to achieve
those ‘safeguard outcomes’ (paragraph 14(1A)(b), CC Act). The minister is
then required to undertake public consultation and, if satisfied that the
Safeguard Rules need to be amended to achieve the ‘safeguard outcomes’, must
amend the Safeguard Rules (paragraph 22XS(1C)(d), NGER Act). The NGER Act
imposes a similar obligation on the Secretary of the DCCEEW
(subsection 22XS(1D), NGER Act).
There is an existing requirement for the CCA to conduct
5-yearly reviews of the NGER Act and associated legislative instruments
(section 76A, NGER Act). The most recent review was published in
December 2023 and included the authority’s initial assessment of the
safeguard mechanism reforms. The CCA noted that many of its recent
recommendations regarding the safeguard mechanism were reflected in the
reforms, but that its recommendation for facilities to publish strategies
outlining how they will comply with declining baselines was not included. The
CCA noted that reporting requirements under the climate-related
financial disclosures rules may go some way to addressing this
recommendation. The CCA is required to publish its next review of NGER
legislation in 2028.
The government has committed to a
review of the safeguard mechanism in 2026–27 to assess the initial
impacts of the reforms and ensure policy settings are ‘appropriately
calibrated’.[35]
The scope of the review has been summarised as follows:
The review will consider, among other things, the initial
impacts of resetting and declining baselines, including the costs and
availability of domestic offsets; the appropriate treatment of international
units; the suitability of arrangements for emissions-intensive, trade-exposed
activities; whether the cost containment measure is sufficient; and treatment
of flexibility mechanisms beyond 2030, such as banking and borrowing and
multi-year monitoring periods. The review will also have regard to important issues
of sovereign capacity for the transition to net zero, the impacts on recent
investments, technology readiness, progress with carbon border adjustment
mechanisms and efficiency of Australian production against international
competitors.[36]
The CER is required to publish information on
its website about safeguard facilities by 15 April each year
(subsections 24(3A) and 24(3B), NGER Act). This includes details about facility
baselines and covered emissions, the number of SMCs issued to each facility (if
any), details on any ACCUs and SMCs surrendered (if any), as well as aggregate
data about total emissions under the safeguard mechanism. The first tranche of
information under the reformed scheme is due to be published by 15 April 2025
and will provide an early insight into the effects of the reforms and their
potential impact on Australia's greenhouse gas emissions.
Resources on the safeguard mechanism
Acknowledgements
The authors thank Dr Stephen McMaugh and Dr Edward Fellows
for their peer review of an earlier version of this research paper.