Australia reboots climate scheme, targets big polluters

CANBERRA - More than 200 of Australia’s top greenhouse gas polluters will soon be required to make deep emissions cuts as part of the nation’s most important climate legislation in nearly a decade.

They will be required to cut their emissions by nearly 5 per cent a year to 2030 against a baseline or limit set by the government.

Starting on July 1, 2023, the emissions reduction scheme, called the Safeguard Mechanism, will help the country meet its climate targets. It is expected to drive down industrial emissions and comes as pressure grows on major polluting nations to rein in greenhouse gas pollution that is heating up the planet.

The Safeguard Mechanism represents a major turnaround

in the nation’s climate policies after years of deep divisions among the main political parties stalled efforts to cut emissions.

The scheme is a political compromise. “But it’s a really important one,” said Dr Jennifer Rayner, head of advocacy for the Climate Council, a non-profit climate change communications group in Sydney. “It is a strong signal to business and to the community that the climate of policy in this country has changed.”

But it is far from perfect. It is a reboot of an existing weak programme created by the previous conservative government. The ruling Labor government strengthened the scheme after months of negotiations with the Greens and independents, who control the balance of power in the Senate.

“The most important benefit of the Safeguard Mechanism is the signal that it sends to Australia’s biggest polluters that they have to be pulling their weight on our shared national task to reduce emissions,” Dr Rayner added.

Australia remains heavily reliant on fossil fuels, though renewable energy is growing quickly. It is also one of the world’s top coal and gas exporters, and Labor has pledged to cut national emissions by 43 per cent by 2030 based on 2005 levels. But to do that, it has to drive down emissions across the country.

The scheme will also make it harder for new fossil fuel projects to get off the ground and will likely lead to a boost in green energy investment as big industrial firms look for ways to cut emissions. That could be good for foreign investors looking for new opportunities.

“It will establish a price on greenhouse gas emissions for Australia’s heavy industry sector. That’s the key,” said Professor Frank Jotzo, head of energy at the Institute for Climate, Energy and Disaster Solutions at the Australian National University in Canberra.

The scheme covers about 30 per cent of the nation’s emissions and applies to operations that produce more than 100,000 tonnes of greenhouse gases a year. The focus is on 215 polluting entities, such as coal mines, gas fields and gas processors, aluminium smelters and steel mills. It requires them to keep their net emissions below a set limit, known as a baseline, said Prof Jotzo.

Entities that exceed their baseline can buy carbon credits from the government or from entities that have succeeded in cutting emissions by more than the required annual amount – meaning, companies can trade credits with one another. 

This sets a market-based price that is capped by the government at A$75 (S$66) per credit, which will rise over time. Each credit represents a tonne of emissions.

The mechanism also sets a total emissions cap for existing facilities and new entrants. The annual cap starts at 140 million tonnes and declines to 100 million tonnes by 2030. The scheme also has an overall emissions budget of 1.23 billion tonnes of greenhouse gas emissions between 2020 and 2030.

This will help ensure new and expanded fossil fuel projects cannot exceed the carbon budget and drive up national emissions. It means it will be harder for any new coal and gas projects to get off the ground.

There are more than 100 fossil fuel projects at various stages of development awaiting government approval.

Dr Rayner said: “We’re optimistic the introduction of the hard cap means the vast majority of those proposed projects can’t proceed now, or if they were going to proceed, we’d have to have very strict requirements.”

But experts highlighted two major problems with the scheme. The first is that it does not cover the emissions generated by burning all the coal and gas that Australia exports – which, in total, far exceed Australia’s annual domestic emissions.

The second is that the scheme allows unlimited use of carbon offsets by polluters to meet their reduction obligations. The offsets come from the land sector, such as projects that increase the carbon content of soils or reduce livestock emissions, tree plantations that soak up carbon emissions, and reforestation.

“Which means that in the extreme case, theoretically we could see no emissions reductions in industry,” said Prof Jotzo.

While this is unlikely, Dr Rayner said it had to be addressed in future iterations of the scheme. “Because if businesses are able to just offset 100 per cent of their liabilities, they will not be incentivised to make genuine emissions reduction on site, which is the only real way to tackle harmful climate change.”

Overall, though, Prof Jotzo and Dr Rayner said the scheme was a necessary and timely compromise.

The government also did not have the time to try to design and introduce an emissions trading scheme that covers more of the economy – especially since efforts to price carbon in Australia have historically been “political poison”, said Prof Jotzo.

An emissions trading scheme created and implemented by Labor ran from 2012 to 2014. It was scrapped in July 2014 by a Liberal/National conservative government.

“It (the Safeguard Mechanism) is a clever piece of climate policy under the circumstances, given the very difficult political history of carbon pricing in Australia,” said Prof Jotzo.

More, though, needs to be done on climate policy in Australia. Transport is not included in the Safeguard Mechanism. It comprises about 20 per cent of national emissions – and rising. On April 19, the government said it will introduce new standards targeting vehicle emissions to boost the uptake of electric cars.

Also not included are emissions from the energy sector, including power generation, which comprises about 50 per cent of Australia’s greenhouse gas pollution. Dr Rayner said these emissions have been falling with the rapid growth of renewables, which now generate about 30 per cent of the nation’s electricity.

But that is still far from the government’s goal of 82 per cent of the electricity from renewable sources by 2030.

The good news, said Dr Rayner, is that “there are lots of levers in the mechanism that can be ratcheted up over time”, to drive deeper emissions reductions and to cover more polluters.