The Albanese Labor government’s proposed changes to tighten the emission limits applying to large carbon emitters under the Safeguard Mechanism represents an incredibly important, if less than perfect, step forward for Australian climate change policy.
There are a number of people deeply concerned about climate change who disagree with me. For them I suspect they look at the firms covered by the Safeguard Mechanism and see a rogue’s gallery of fossil fuel producers who in their eyes are at their very core irredeemable. Even if these firms dramatically lower their emissions in producing their product, there’s a fundamental problem that the product itself (coal, gas and oil) is what’s to blame for climate change.
This is inescapably true. But voting to pass legislation to apply tighter limits on these companies’ production emissions (as well as emissions from non‐fossil fuel producers), doesn’t mean you’ve voted to absolve them of all their sins. This policy isn’t what is ultimately needed, but by voting for it, the Greens don’t have to give a promise to ask for nothing more in the future.
The Albanese Labor government has made it abundantly clear that they won’t be conceding to the Greens Party’s demand to place a ban on any new fossil fuel extraction projects in exchange for the Greens voting for the Safeguard Mechanism.
But if Labor fails to pass its Safeguard legislation it won’t be the Greens Party alone that will be marked down by voters for yet another climate policy failure. The government has its own reputation and legacy riding on passage of this bill and it also needs to be willing to make changes.
On this point the reality is that Labor have put forward a bill that doesn’t yet properly deliver on their climate policy commitments. The Greens, as well as Pocock, Lambie and Tyrrell have a right to refuse to pass the legislation until these shortcomings are rectified. This isn’t about a minor party grandstanding or trying to impose its will on the government, but rather a set of senators holding a government to its word.
Labor should be more than willing to make the following four changes which are consistent with its policy commitments, and the crossbench senators should feel well within their rights to demand these changes.
1. Put the safeguard emission goals into legislation
The whole point of the changes to the Safeguard Mechanism is to ensure that the country reaches the overall target to reduce Australia’s emissions 43% below 2005 levels by 2030. According to the government’s Safeguard Mechanism position paper, this will be achieved by ensuring the following:
“Safeguard facilities will deliver a proportional share of the national 2030 target. This will see net emissions covered by the Safeguard fall from a projected 143 million tonnes in 2022‐23 before the reforms start to no more than 100 million tonnes by 2030 and capped at 1,233 million tonnes between 2021 and 2030.”
Achieving these emission caps are the most fundamental aspect of the Safeguard Mechanism, yet these caps are nowhere to be found in the legislative bills put to the parliament. Instead the government is seeking to manage actual emission limits via a complicated regulatory regime where emissions are tied to companies’ production levels.
In addition, firms can seek special treatment by claiming they are at risk from foreign competition. This regime, that lacks reference to an explicit overall emissions cap, creates a very real risk of a blow‐out in emissions if production expands from companies covered by the Safeguard.
This risk has been highlighted in analysis prepared by Climate Analytics. This shows that proposed new resource extraction facilities, if they were to proceed, could substantially increase overall emissions well above what the government has promised.
This risk can be easily addressed by the government specifying in legislation that the Clean Energy Regulator must set emissions baselines in a manner that ensures overall emissions from Safeguard facilties in each year are no higher than the annual emission targets.
It should state that in the event that the cap is exceeded over the course of one year, this is made up for by tightening baselines further in the next subsequent year. This is similar to how the Renewable Energy Target operates, where absolute energy targets are converted each year into a percentage target for each liable entity detailing the proportion of energy they purchase which needs to be from renewables.
2. Close the electricity emissions loophole
An assumption underlying the government’s determination of the emission budget for Safeguard Facilities, is that the electricity sector will deliver huge emission reductions through a scale up of renewable energy’s share of national electricity generation to 82%. This is up from around one-third in 2022. The safeguard facilities are effectively being given a much easier emission reduction task, because the government is assuming electricity will do much of the heavy lifting.
However, this assumption that renewables will expand to 82% of electricity is based on energy market modelling by a firm called Reputex, rather than the law.
The Albanese federal government is providing some financing support to help build transmission lines, but it hasn’t yet enacted any policies that are directly driving the installation of renewables. Instead it is hoping that state governments and voluntary actions will lead to emission reductions that make the emission reduction task for Safeguard facilities far easier.
While it is almost certain that renewable energy will expand substantially out to 2030, it is far from certain it will reach 82%. For starters, state governments in power now could be out of power in a few years’ time. Coal prices could plunge and help bolster their viability. And there are a range of factors such as new grid charges being imposed on rooftop solar exports, rising interest rates and difficulties in grid connection which increase the cost of renewable energy installations.
If the government wanted to make sure the electricity sector delivered what’s in Reputex’s modelling, it would include electricity generators (who are the largest emitting facilities in the country) in the Safeguard Mechanism and have a more comprehensive emission cap in place. Alternatively it needs to outline a clear set of policies that will guarantee the country achieves 82% renewables by 2030. This needs to go beyond simply providing finance for new transmission that in some cases won’t be delivered until late this decade or even into the next decade.
3. Honour our international commitment to allow people and organisations to make emission reductions that go beyond the Federal Government’s 43% reduction target
One of the government’s very first initiatives soon after it was elected was to issue an updated emission reduction commitment under the Paris Climate Change Agreement. In its Nationally Determined Contribution it stated not only that the federal government would aim to reduce emissions 43% below 2005 levels by 2030, but also that,
“the commitments of our industry, states and territories and the Australian people will yield even greater emission reductions in the coming decade”.
This was a very important statement made partly in response to criticism by some in the community that the 43% reduction target fell short of the level of ambition required to contain warming below 1.5 degrees. The federal government claimed that 43% was the minimum level of emission reductions, and that reductions could go further.
The federal government has partially delivered on this commitment. In circumstances where someone voluntarily retires or extinguishes an Australian Carbon Credit Unit (ACCUs), the government will then reduce its allowable emissions budget by a corresponding tonne of CO2.
However, voluntary retirement of ACCUs is tiny, with most individuals and organisations preferring to take action to reduce emissions voluntarily by measures that avoid fossil fuel use rather than temporarily store carbon in the landscape.
This is understandable – containing global warming ultimately rests on developing alternative energy sources to fossil fuels, rather than offsetting the emissions from fossil fuel use.
One of the main ways that organisations in Australia act to voluntarily reduce emissions is through the purchase and retirement of renewable energy certificates known as LGCs.
Under the prior Gillard Labor government, when LGCs were voluntarily retired the government would reduce its emission budget based on the avoided emissions associated with the extra renewable energy. It should do the same now.
There is no reason why reducing emissions via renewable energy should be treated as less legitimate than doing it by flaring methane from a waste dump or reducing the amount of vegetation eaten by grazing animals.
If the government fails to address this shortcoming it runs the very real risk of generating disillusionment among the community in voluntary action.
Where we stand at present, those that procure renewable energy could be simply freeing up room for companies to emit more under the Safeguard Mechanism. That only serves to fuel distrust in tradeable emission reduction instruments, even though they can be a very useful tool for driving cost‐effective emission reductions.
4. Commission an independent audit of abatement projects criticised by the former head of the Emission Reduction Assurance Committee (ERAC)
Professor Andrew Macintosh, the former head of the body charged with ensuring our methods for awarding carbon credits delivered genuine emission reductions, has made some incredibly damning claims about integrity of Australian Carbon Credit Units issued to date. Macintosh and the collaborators on his research critiquing the legitimacy of ACCUs are very capable and credentialled people whose claims must be taken extremely seriously.
While the government’s Chubb Review has indicated that it believes the overall regime is sound, the reality is that this review did not specifically examine the accuracy of the abatement claimed by individual projects which Macintosh criticised.
The Australian Academy of Science, which was commissioned by the Chubb Review to review the ACCU methodologies criticised by Macintosh acknowledge that, “in conducting this review, we have sought to examine whether the methods meet the offsets integrity standards at a method level, rather than examine individual projects.”
This means a range of key stakeholders, particularly within the environmental movement, remain deeply suspicious and sceptical of the integrity of ACCUs. This then feeds through into a wider distrust of the Safeguard Mechanism.
To help restore trust, the government should work with the parliament, Professor Macintosh and the new ERAC members to commission a thorough independent audit of the abatement carbon credits claimed by projects which Macintosh and his co‐researchers criticised.
Tristan Edis is Director of Analysis and Advisory at Green Energy Markets. Green Energy Markets provides analysis and advice to assist clients make better informed investment, trading and policy decisions in energy and carbon abatement markets.
