Announcement date
5 May 2023
Link to announcement
National Greenhouse and Energy Reporting (Safeguard Mechanism) Amendment (Reforms) Rules 2023 (legislation.gov.au)
Problem being addressed
Safeguard covered facilities account for around 28 per cent of Australia’s emissions (136.9 Mt CO2-e in 2020-21) and are projected to grow at an annual average growth rate of 0.7 per cent between 2020-21 and 2029-30 in the absence of reforms. Current policy settings are not designed to reduce emissions from Safeguard covered facilities. Without a contribution from Safeguard covered facilities, other sectors of the economy would face a disproportionately high burden for Australia to meet its legislated 2030 emissions reduction target.
Proposal
The Government is reforming the Safeguard Mechanism to support Australia’s largest industrial greenhouse gas emitters to gradually and predictably reduce their emissions, delivering on an election commitment within the Powering Australia plan. The reformed Mechanism will help Australia achieve a 43 per cent reduction of emissions on 2005 levels by 2030 and net zero emissions by 2050. Under the three proposed options, Safeguard covered emissions take on a proportional share of the national emissions target to 2030 and reach net zero by 2050.
The Government initially consulted on a fixed (absolute) or production-adjusted (intensity) baseline setting framework:
- Fixed (absolute) baselines place an absolute limit on covered emissions. They can be met by reducing output and/or improving emissions-intensity.
- Production-adjusted (intensity) baselines rise and fall annually with production. They can only be met by improving the emissions-intensity of production.
Following this consultation, a third option (the preferred option) was developed. Option 3 presents a hybrid model – weighted towards site-specific baselines (Option 2) in the short term, and transitioning to industry‑average benchmarks (Option 1) by the end of the decade.
In response to stakeholder feedback in 2022, Option 3 also contains several further differences from initial consultation, including:
- unlimited banking of Safeguard Mechanism Credits (SMCs) until 2030,
- setting a maximum price of $75 per tonne of CO2‑e in 2023-24 as a cost containment measure, increasing with the consumer price index (CPI) plus 2% each year.
- multi-year monitoring periods extended to five years with SMCs permitted to be earned at the end of the extended period.
Using the design parameters of Option 3, a uniform, annual decline rate of 4.9 per cent each year is expected to meet the Safeguard’s share of the national emissions budget and the 2030 point target.
The Government consulted on the policy elements within Option 3 in early 2023.
Assessed Impact Analysis outcome
Adequate
Assessment comments
The analysis of the proposal was heavily focussed on qualitative assessment against a range of criteria and a full cost-benefit analysis was not completed. It is expected that the data collection proposed in the IA will contribute towards a higher quality of quantitative analysis in future climate policy.
A post-implementation review is required within 5 years of implementation.
Regulatory burden
Average annual regulatory costs are estimated to be $4.5 million for the preferred option. Note that this only includes administrative costs, as substantive costs have been qualitatively estimated due to a high degree of uncertainty in the in the range of possible outcomes in terms of facility decision making, the evolution and costs of decarbonisation technologies, and the cost of domestic offsets.
Addendum
The Department has advised of the following revision to the estimated abatement required from the reforms subsequent to OIA’s 2nd pass assessment. This change arises due to incorporation of 2021-22 Safeguard facility data which was published on 31 March 23. The estimated abatement task from 205 million tonnes carbon dioxide equivalence over 2023-24 to 2029-30 has reduced to 201 million tonnes carbon dioxide equivalence since net safeguard emissions in 2021-22 were 3 million tonnes carbon dioxide equivalence lower than projected, providing more emissions budget over 2023-24 to 2029-30 relative to earlier analysis. The change does not impact the overall net benefit assessment.