This briefing is for investors, climate-positive corporations, policymakers, the media, and other interested stakeholders. Leveraging the LobbyMap.org dynamic knowledge base, it is designed as a resource for interventions, engagement and reporting on the passage of Paris-aligned climate policy that is at risk of being weakened or undermined by oppositional corporate and industry influence.
This briefing focuses on the corporate engagement with the Australian Safeguard Mechanism Reforms, specifically on the consultation on the Safeguard Mechanism Reforms, which ran between 18th August and 20th September 2022 and the consultation on the draft Safeguard Mechanism (Crediting) Amendment Bill 2022 which ran between 10th-28th October 2022. InfluenceMap has tracked the corporate engagement on both consultations and has identified trends of engagement from entities from the resource sector that appear to be putting the stringency and effectiveness of Safeguard Mechanism reforms at risk. Considering that the Safeguard Mechanism is one of only a few key climate policies in the region, this may also put Australia’s long term climate targets at risk. InfluenceMap will continue to track engagement with the Safeguard Mechanism Reforms with the Policy Tracker on the Australia Platform.
The Safeguard Mechanism was introduced in July 2016 and is the flagship greenhouse gas emissions policy for the country’s largest industrial facilities. However, baselines under the policy have increased since its implementation, leading to an overall increase in emissions by Safeguard facilities. After the election of the Albanese government in May 2022, it announced that it would introduce reforms to the Safeguard Mechanism to raise the ambition of the policy and align it with the countries updated 2030 and 2050 GHG emissions targets. The introduction of declining baselines to the Safeguard Mechanism is a key policy reform in Australia’s 2030 Nationally Determined Contribution (NDC) which will aim to achieve the goals of the Paris Agreement.
The government released its consultation paper on the Safeguard Mechanism Reforms in August 2022, followed by a second consultation on the Safeguard Mechanism (Crediting) Amendment Bill in October 2022. Following both of these consultations, the government released its proposed Safeguard Mechanism Reforms in on the 10th January 2023, with consultation open until 24 February 2023. Changes are due to be legislated by 31 March 2023 and will take effect from 1 July 2023.
The consultation on the Safeguard Mechanism Reforms, which was released in August 2022, proposed a range of reforms to raise the ambition of the policy, including resetting baselines, introducing declining baselines and the formation of new ‘cap-and-trade’ credits, called Safeguard Mechanism Credits (SMC’s), which would be accredited to facilities that emit below their baseline and sold to facilities that have exceeded theirs. The consultation paper recognized the need to provide some form of tailored treatment to emissions intensive-trade exposed facilities (EITE’s), proposing three separate assistance measures, including the direct provision of SMC’s to EITE’s and more lenient baseline decline rates for EITE facilities. However, the department recognized that this may reduce the effectiveness of the scheme and reduce fairness, as it would increase the emission reductions required by non-EITE’s to achieve the scheme’s overall emissions goal. The consultation paper also proposed that EITE’s could receive assistance outside the Safeguard Mechanism through funding for low emissions technology to help them reduce their emissions. This support mechanism was favored by the Climate Change Authority in its consultation response, adding that assistance to EITE’s should be targeted to where there is a demonstrated risk of carbon leakage.
Details of the individual responses on the key positions of the reforms can be found in the appendix that accompanies this briefing.
Following the consultation on the Safeguard Mechanism Reforms, the government released its consultation on the draft Safeguard Mechanism (Crediting) Amendment Bill 2022, which took place in October 2022. In this consultation, the government asked for feedback on the creation of Safeguard Mechanism Credits (SMCs) and use of Australian Carbon Credit’s (ACCU’s) for reducing direct emissions.
Details of the individual responses on the key positions of the reforms can be found in the appendix that accompanies this briefing.
Following the sustained negative lobbying activities detailed above, InfluenceMap has noted changes to the policy. The proposed reform of the Safeguard Mechanism, released in January 2023, includes ‘cost containment measures’ in the form of a price cap of $75 per ton on Australian Carbon Credit Units (ACCU’s) which can be used to meet Safeguard obligations. The inclusion of a price cap on ACCU’s comes despite the original consultation paper stating that ‘there may not be a need at this stage for further price stability measures’ regarding ACCU’s. Various forms of price containment measures have been advocated for by industry across both consultations to date. While the preference from industry appeared to be a price cap on Safeguard Credits, a price cap on ACCU’s acts in a similar way by limiting the cost of compliance. A capped price of $75 on ACCUs may disincentivize facilities to decarbonize if it is more cost effective to buy offsets. For reference, while the $75 cap is around twice the current price of ACCU’s at the time of publication (Jan 2023). The price cap is also less than the current EU ETS price of around €90, or $140.
The proposed reforms also allow for the most impacted EITE’s to apply for differential baselines, where they can apply for a discount on the 4.9% decline rate, capped at a minimum of 2%. This is after strong support for differential baseline decline rates for EITE’s from oil and gas industry associations.
Continued oppositional lobbying, largely from the resource sector, risks further undermining the stringency and effectiveness of Safeguard Mechanism reforms. Considering that the Safeguard Mechanism is one of only a few key climate policies in the region, this may also put Australia’s long term climate targets at risk.