EXPLAINER: Last Thursday, the federal government started consultations on a potential change to laws that limit carbon emissions from Australia’s biggest polluters, including in the metals, mining and manufacturing sectors.
The safeguard mechanism, introduced by the Abbott government as it scrapped the Gillard government’s emissions reduction scheme, is supposed to limit carbon pollution from Australia’s biggest emitters.
Unfortunately, the laws have many big loopholes for big polluters – including for any coal or gas plants that are connected to the nation’s energy grids, and offshore gas producers.
In this explainer, The Fifth Estate looks at some of the big issues with the system as it stands, and whether the federal government’s proposed changes are likely to fix them.
1. First, what – exactly – is this safeguard rule the government’s looking at?
At its simplest, the Clean Energy Regulator sets a limit (called a “baseline”) on how much carbon pollution Australia’s largest greenhouse gas emitting facilities can produce each year.
In 2020-21, 212 facilities were covered – most of them in the metals, mining, oil and gas extraction, manufacturing, transport, and waste sectors.
These facilities are responsible for 27 per cent of national emissions in 2020-21, or 137 million tonnes (Mt) of carbon dioxide equivalent (CO2-e) gases each year.
2. I’m a property developer – how does this rule affect me?
Even though the built environment sector accounts for around 40 per cent of Australia’s emissions, and petrol for cars and trucks just under 20 per cent, you almost certainly won’t be directly affected. (Unless your company operates one of those 212 facilities.)
Indirectly, it’s likely to affect your supply chains, particularly for carbon-intensive building materials such as aluminium, steel, and concrete.
3. What counts as a “big emitter” under the safeguard rule? And what are some of the big exemptions?
The safeguard rule only applies once the direct (scope one) greenhouse gas emissions from a facility reach 100,000 tonnes of CO2-e each financial year.
Each year, those big emitters need to show the Clean Energy Regulator that their emissions are below their baseline.
Here’s the important part. Only scope one emissions, which are released into the atmosphere as a direct result of an activity undertaken at that facility, are counted in the threshold. And there are some big exemptions around which scope one emissions are counted.
Indirect (scope two and three) emissions are not included in this threshold rule. Those indirect emissions include things like electricity generated off-site.
There are some other big exemptions too. For example, any emissions from oil and gas drilling in the Greater Sunrise unit area or Joint Petroleum Development Area aren’t covered. Likewise, emissions from waste deposited at a landfill before 1 July 2016 also aren’t counted.
Also, emissions from coal power plants are calculated differently.
4. How did this safeguard rule come about?
Remember back in 2014, when Tony Abbott repealed the Gillard government’s fixed-price emissions trading scheme and replaced it with his “direct action” policy?
Senator Nick Xenaphon insisted that this safeguard mechanism had to be included in order to secure his vote. And it was – with a few big exemptions.
5. Wait – you said scope two emissions aren’t included in the safeguard. But what about data centres and other major electricity users?
Even where facilities use a lot of electricity, and those facilities are in states (such as Victoria) where a lot of that power is generated by burning brown coal, those facilities aren’t included in the baselines.
That’s because, if electricity is generated off-site, it falls under scope two emissions.
6. Nine out of Australia’s 10 biggest emitters are coal-fired power plants. Surely, they must be covered right? Right?
The Abbott government also carved out a big exemption to the coal and gas-fired plants that are connected to one of Australia’s main power grids.
Instead of each electricity power plant having its own separate baseline, the safeguard mechanism applies a single baseline across the entire sector.
Individual grid-connected power plants aren’t covered, as long as the total emissions from the entire sector don’t exceed the benchmark.
7. But petrol from cars makes up almost 20 per cent of Australia’s emissions. Are car-dependent buildings covered?
Think about a large car-dependent suburban shopping centre, business park or university campus. Thousands of petrol-powered cars parked in a large open-air bitumen car park.
Well, guess what? The carbon emissions from all those cars are treated as indirect scope three emissions. That means they’re not counted.
8. But surely there must be some big penalties to discourage big polluters from breaching their baselines?
If a facility exceeds its baseline, it can apply to the Clean Energy Regulator to recalculate the baseline.
The regulator can also ask for a multi-year monitoring period. This allows a facility to exceed its baseline in one year, as long as average emissions over a two- or three-year period are below the baseline.
The owners of facilities can also get an exemption because of “exceptional circumstances”, such as a natural disaster or criminal activity.
If that still isn’t enough to get them under the baseline, operators can buy and surrender Australian carbon credit units (ACCUs) to offset their excess emissions.
If facilities fail to pay back their excess emissions, the Clean Energy Regulator can slap infringement notices, legal action, forced action and fines up to $18,000 a day on them.
9. There’s so many exemptions! So did the previous government deliberately create a needlessly complicated policy to hide the fact it was delaying genuine action on climate change?
The Fifth Estate wouldn’t phrase it in quite those same terms.
But.
There are some good reasons why climate advocacy organisations, such as the Climate Council, are so critical of this policy.
10. So what are the main areas the Albanese government is looking to change?
One of the big questions the review will look at is how much of the work of reducing Australia’s emissions should be done by reforming the safeguard mechanism.
The government is looking at how it should align the program with its goal of reducing Australia’s emissions by 43 per cent below 2005 levels by 2030, and reaching net zero by 2050.
This means a big area of focus for the inquiry will be on the formulas the Clean Energy Regulator uses to set the benchmarks.
One option on the table is to gradually reduce the baselines, in line with the federal government’s net zero targets.
There is also often a gap between the amount of emissions allowed for a facility by its benchmark, and how much it typically emits each year (this gap is known as the “headroom”).
The inquiry is looking at how it could give facilities less headroom. Instead, facilities that meet their targets would gain a new type of carbon credit (called “Safeguard Mechanism Credits”) that can be traded with other facilities that go over their limit.
With growing concerns about the quality of some overseas carbon credits, their use in offsetting excess emissions is also being looked at
11. So what looks to be off the table?
Unfortunately, some of the bigger issues with the safeguard mechanism are unlikely to be addressed by this inquiry.
The government has already all but ruled out removing the exemptions for grid-connected power plants.
The coverage threshold of at least 100,000 tonnes CO2-e in a year also will not change.
Many of the other exemptions – including scope two and three emissions – are also likely to remain in force.
12. Where can I find out more or make a submission?
The full consultation papers are available on the Department of Climate Change, Energy, the Environment and Water website.
Submissions can be made through the department’s website until 20 September.