Woodside’s North West Shelf gas project in Western Australia is among the largest LNG operations in the world. In May this year, federal environment minister Murray Watt granted conditional approval for Woodside to extend the project’s operations beyond 2030, for 40 more years.
Roundly criticised and facing legal challenges, the final decision has been delayed.
The project is regulated under the Safeguard Mechanism, Australia’s framework for reducing emissions from industrial facilities exceeding a threshold value of direct (Scope 1) emissions.
While the mechanism does not address the far larger downstream (Scope 3) emissions expected to be generated over four decades, this remains consistent with international greenhouse gas accounting frameworks.
With the project’s original gas fields in decline, Woodside’s rationale for the extension is to process sources of third-party gas at the project’s Karratha gas plant. As such, the extended North West Shelf project could not on its own generate new emissions and would instead be an enabler of expanded gas extraction.
Enter Woodside’s separate but complementary joint venture for the Browse-to-North West Shelf project, a major offshore gas development positioned as Karratha’s “anchor tenant”. The Browse proposal is currently progressing through state and federal approval processes.
Fulfilment of Woodside’s plans will impose costs on other Safeguard companies
If the Australian government aims to set ambitious net-zero aligned interim targets, while simultaneously approving fossil fuel mega-projects that lock in emissions for decades, the burden of additional emissions cuts would fall on other companies covered by the Safeguard Mechanism. In this way, when the government allows one of them to produce more, the others will get less.
We calculate that in the 20-year period leading up to 2050, the combined Scope 1 emissions from an extended North West Shelf project and an approved Browse development could generate 186 million tonnes of carbon dioxide equivalent (figure 1). This accounts for around one-eighth of total projected emissions from all Safeguard-covered facilities over that same period.
As detailed in a preprint published this week, we estimate this added emissions burden could increase mitigation costs for Safeguard-covered companies by $A60.9 billion in this period.
These costs include investments in on-site emissions reductions, and the purchase of carbon credits – currently Australian Carbon Credit Units and Safeguard Mechanism Credits, and possibly expanded to international credits by 2031 – as required for facilities to meet their annually declining emissions limits, or baselines.
Figure 1: Annual projected Safeguard Mechanism emissions with North West Shelf & Browse project’s share: 2031 – 2050. Adapted from Australian Government emissions projections data for 2024; original values reported in five-year increments; annual values estimated through interpolation and linear regression. Grey area (including red-and-grey hatch) shows total projected gross emissions across all Safeguard-covered facilities from 2031 to 2050, with red-and-grey hatch area showing the combined share from the two projects. Yellow dots with dashed trend line show projected net emissions; green area shows net demand for carbon credits.
Our emissions estimates and total cost figures are likely conservative. They don’t account for further rises in mitigation costs beyond 2040 (due to increasing uncertainty), nor for upstream emissions from as-yet-unannounced gas developments required for Karratha to operate at full capacity.
Such developments may stem from a prospective fracking industry in the Kimberley region, and from offshore fields in the Greater Gorgon Basin.
Australia’s next emissions reduction target will be set for 2035: relative to 2034, all Safeguard-covered facilities are projected to reduce on-site emissions by 3.8 million tonnes (carbon dioxide equivalent) – yet Woodside’s plans would add nearly three times that amount. This is akin to all facilities having to scoop more water out of the emissions bath, while Woodside opens the taps further.
How the opaque nature of baseline setting disadvantages Safeguard-participating companies
As we explore in the preprint, a key issue lies in how annual baselines are calculated under the Safeguard Mechanism. Central to this production-adjusted calculation is the ‘decline rate’, which serves to lower the aggregate baseline each year, even as individual facility baselines fluctuate.
Currently set at 4.9% (for all but a handful of exempted facilities) and set to be reviewed every five years, the decline rate impacts how rapidly facilities are required to decarbonise. More ambitious climate targets, or the inclusion of new emissions sources within the Safeguard, would entail a steeper decline rate.
But this rate is formulated by the Department of Climate Change, Energy, the Environment and Water under an opaque shroud of modelling and assumptions, that can include unannounced and unapproved new, extended and expanded projects.
While such inclusions are pragmatically understandable, this also creates a self-reinforcing policy feedback loop: future emissions projections influence the decline rate, meaning space is created in the scheme for new emissions sources to come online, with all companies working harder to get to a lower level of ambition than might otherwise have been achieved.
This modelling-accounting artefact leaves companies with no clear signal on how they are competing for shrinking emissions space. It underscores the importance of open governance reforms to empower Safeguard-participating companies as sources of lobbying pressure.
To illustrate, let’s consider a Woodside competitor, Chevron.
With a seven-year run of being the highest emitting company in the Safeguard, Chevron had two facilities covered by 2024.
The decline rate for 2031 to 2035 will be set in 2026–27, in line with the 2035 emissions reduction target. If both Woodside projects are approved by then, Safeguard emissions projection models would certainly account for them. This would result in a higher decline rate and a steeper and more costly emissions reduction challenge for companies overall.
If Chevron consistently emits more than its baseline, Woodside’s project approvals would mean they need to reduce or offset an extra 17.5 million tonnes of carbon dioxide equivalent from 2031 to 2050. We estimate this could increase Chevron’s mitigation costs by $A5.73 billion over the 20-year period.
The scale of liability raises strategic questions for Chevron and other major Safeguard players like INPEX, BlueScope Steel, Qantas, Santos and Alcoa. It would be in their interests to expedite the lobbying of policymakers in Canberra against a final North West Shelf approval.
Minister Watt should renege on conditional approval, citing legal or other legitimate concerns
At best, a go-ahead of the North West Shelf project extension and a ramming through of the Browse project could significantly raise mitigation costs imposed on other Safeguard players.
Companies may be compelled to meet these additional obligations through the purchase of carbon credits rather than further investing in low-emissions technologies. This could increase imminent demand for carbon credits, driving their price upwards. In these ways, companies are competing over a finite and declining emissions space.
At worst, and absent full transparency, granting final approval may influence the ambition inherent in the 2035 target currently in development. This could undermine mitigation efforts through to 2050 and beyond, and impede an opportunity to set Australia on an ambitious and achievable decarbonisation path.
In addition, should Australia be successful in its bid to host next year’s climate COP, federal climate and energy minister Chris Bowen’s role as COP president would be seriously undermined by a final approval.
The Safeguard Mechanism should be a vehicle to accelerate progress from an already credible decarbonisation trajectory – not a corrective mechanism for flawed approval decisions.
Minister Watt, it’s your call.
Steven Myburgh, Ben Neville, Kelvin Say and Stephanie Campbell are from Melbourne Climate Futures at the University of Melbourne
