Safeguard Mechanism far from perfect, but a good start after a decade of climate denial

The Clean Energy Regulator has published the 2023–24 Safeguard Mechanism report, including facility-level data for the first compliance period under the reformed Safeguard Mechanism.

Climate Energy Finance views the Safeguard Mechanism as a key tool to drive decarbonisation across Australian industry, providing an increasingly robust tool to compensate for the federal Liberal National Party (LNP) dismembering of the carbon price put in place a decade ago.

Along with electrification and decarbonisation of our energy sector, finance and industry can solve the decarbonisation challenge in alignment with the climate science, but only if a credible regulated and high carbon price is implemented.

2023–24 highlights include:

– 219 facilities are covered by the Safeguard Mechanism

– Emissions reduced from 138.7Mt CO2-e in 2022-23, to 136.0Mt CO2-e in FY2023–24.

– Emissions Intensity Determinations (EIDs) were made for 221 facilities.

– At a scheme level, the EIDs removed all headroom from aggregate facility baselines which had made the scheme 100% ineffective prior to Climate Minister Chris Bowen‘s reforms. Aggregate baselines for 2023–24 are 136.1Mt.

– 62 facilities received 8.3Mt SMC for coming in below their baselines, whilst 142 facilities incurred a 9.2Mt liability – mostly settled via 7.1M ACCUs.

While still far from perfect, we note the objectives set are real and credible, definitely a good start after a decade on inaction and climate science denialism.

Thanks to the enhancements from the Community Independents like Zali Steggall, Allegra Spender and Sophie Scamps and the Greens, the Safeguard Mechanism requires net emissions from all safeguard facilities to not exceed:

– 100 Mt CO2-e in 2029–30

– zero t CO2-e from 2049–50

–  1,233 Mt CO2-e in total over the decade from 1 July 2020 to 30 June 2030

– a decline rate of 4.9% pa is applied ( 1% pa for TEBA facilities).

In 2023-24 covered emissions from safeguard facilities made up 31% of Australia’s total emissions, so good progress is being made, with the federal Labor’s 82% renewables by 2030 target, the Safeguard Mechanism, the enhanced vehicle emissions standards and the electrification of everything leveraging our world leading least cost rooftop solar and BESS (supported by the new $2.3bn 30% battery subsidy policy if voters only vote for federal MPs who accept and act on the climate science in three weeks time).

A key needed reform is far tighter measurement, reporting and verification (MRV) of methane, and a move from global warming potentials (GWP) 100 to GWP20 to accelerate investment in solutions.

Matt Pollard has a major new CEF report pending next month looking at the need for Australia to collaborate with our key Asian trade partners to move towards an Asian carbon border adjustment mechanism (CBAM).

This would provide a price on carbon in international trade to drive the much needed pivot in Australia’s mining export sector, giving the price signal to encourage the export of embodied decarbonisation via green iron and green aluminium.

Tim Buckley is the founder and director of Climate Energy Finance