The safeguard mechanism is part of a federal policy framework intended to manage and reduce carbon emissions from Australia’s biggest climate polluters. It sits alongside other schemes including the Emissions Reduction Fund that buys carbon credits and encourages projects to be developed that will remove or cut carbon. Australian carbon credits can also be purchased by the facilities captured under the safeguard mechanism to help meet their emissions reduction obligations.
The safeguard mechanism provides a framework for Australia’s largest emitters to reduce their carbon emissions. Unfortunately, our analysis shows the safeguard mechanism has not been effective and is facilitating an increase in climate-heating emissions from Australia’s biggest polluters.
The safeguard mechanism provides a baseline limit on how much carbon pollution can be emitted by a facility in a year.
Any facility that releases the equivalent of 100,000 tonnes of carbon dioxide (or the equivalent in other climate pollutants such as methane) into the atmosphere in a year is subject to the safeguard mechanism (with some exceptions including power stations).
But currently, baselines are not a pollution cap. A facility can, and often does, exceed the threshold.
So, the safeguard mechanism has not been reducing carbon emissions, and in fact, facilities covered by the mechanism have increased their pollution since the scheme commenced.
The Albanese Government is currently considering reforms to the safeguard mechanism to make it more effective in reducing emissions. It was one of the key policies the new government announced to help meet their 43% emissions reduction target for 2030.
Safeguard mechanism baselines are set by the Clean Energy Regulator, often in consultation with facility owners.
Once a facility’s carbon pollution exceeds the limit set by the safeguard baseline, its owners must get to work remedying the situation.
The emitter has several options to manage the excess emissions, including changing the baseline, aggregating the baseline over two or three years, and purchasing and surrendering carbon credits.
An excessive polluter is also able to ‘convert’ their gross emissions into net emissions if they support carbon-recovery projects by purchasing carbon credits. Each credit is intended to represent carbon pollution reduction equivalent to one tonne of carbon dioxide, or equivalent pollutants.
So, a polluter that exceeds its facility’s emissions baseline by the equivalent of 10,000 tonnes of carbon dioxide would need to purchase 10,000 carbon credits to offset their excess. If one carbon credit does not equal one tonne of carbon dioxide, the net result is higher emissions from companies exceeding their baselines.
The short answer is not much. Currently there are various penalties that the Clean Energy Regulator can impose upon companies that exceed their baseline. These include:
Because facilities can change their baselines after the fact and apply for aggregated baselines, companies never face real consequences for emitting more than they were supposed to. This needs to change.
The Safeguard Mechanism has provided a free pass to Australia’s largest polluters for many years. It has been labeled a ‘toothless tiger’ and a ‘do nothing policy’ yet it offers a policy architecture that can be turned into an effective policy tool.
Currently, approximately 215 facilities, which account for 28% of Australia’s annual emissions, have virtually no emissions reduction requirements guiding their transition to cleaner operations.
A predictable phase down of safeguard mechanism pollution baselines can turn it into a useful tool, helping to reduce industry emissions in a manageable way, spark investment in clean solutions and ultimately make Australian industry more competitive in a global market that puts a premium on products with a low carbon footprint.
We’re calling on companies to take responsibility for the inaccuracies of their baselines and to address the sometimes gross under-estimation of emissions within their environmental impact statements for projects. This will better inform the public about the true impact their business is having on our climate.
Big polluting corporations will then be able to make a real contribution to Australia meeting its national emission reduction targets.
Ultimately, the work, money and time required to remove carbon from the atmosphere can be avoided by reducing pollution at the source.