2.1
This chapter outlines key issues raised by inquiry participants about the proposed package of broader reforms to the Safeguard Mechanism. The next chapter considers submissions relating directly to the Safeguard Mechanism (Crediting) Amendment Bill 2022 (the bill).
2.2
First, this chapter summarises the general support expressed in evidence for the proposed reforms to the Safeguard Mechanism. It then highlights matters raised by stakeholders on the proposed reforms, including:
opposition to the reforms;
concerns about the broader Safeguard Mechanism reforms; and
the role of subordinate legislation and discretionary powers in the scheme.
2.3
It should be noted that a significant proportion of the evidence received by the committee pertains to the broader Safeguard Mechanism reforms, rather than the specific provisions of the bill relating to crediting arrangements.
2.4
The committee considered it important to address the general comments made by stakeholders on the broader reforms in this chapter, before considering comments made on the specific provisions of the bill in the next.
General support for the Safeguard Mechanism reforms
2.5
The committee received submissions from industry and business organisations, environmental advocacy groups, policy think tanks, academics and the relevant policy agency and regulators.
2.6
Stakeholders noted that the bill is part of a suite of measures designed to reform the operation of the Safeguard Mechanism.
2.7
Many stakeholders were broadly supportive of the reforms’ aim of contributing to Australia’s efforts to reduce emissions, while providing certainty to business and industry.
2.8
The Department of Climate Change, Energy, the Environment and Water (the Department) acknowledged that subordinate legislation will determine key features of the operation of the Safeguard Mechanism, such as the baseline decline rate and treatment of new entrants, and outlined that consultation has been ongoing through position papers and draft regulations.
2.9
Stakeholders from business, industry and the resources sectors were generally positive about the proposed reforms to the Safeguard Mechanism. The Business Council of Australia (BCA) argued that more effective coordination of Australia’s existing climate framework is ‘the best way to move forward and make progress towards decarbonisation’. The BCA stated that reforming the Safeguard Mechanism would help businesses reduce emissions and ‘maintain competitiveness as the global economy decarbonises’. The BCA explained the Safeguard Mechanism provides ‘a much needed plan’ for reducing industrial emissions to 2030 and a ‘policy foundation’ for reductions through to 2050.
2.10
The Minerals Council of Australia (MCA) submitted the mining industry ‘recognises the need to reduce emissions globally, nationally and at the sites and facilities driving Australia’s resources industry’. It noted its continued constructive engagement in consultation around the proposed changes to the Safeguard Mechanism, as well as its support for the bill:
…the MCA supports crediting and trading from the commencement of the scheme. Crediting and trading is a vital component of the proposed changes and ultimate scheme design.
2.11
The Australian Industry Greenhouse Network (AIGN)—a network of industry associations and individual businesses, including some heavy emitters—stated that it ‘supports the amendment bill in principle’. AIGN saw the bill as taking ‘an important step’ in Australia’s transition to a net zero economy by ‘enabling the strict use of credible carbon offsets’ and helping facilities transition.
2.12
Orica, a company that owns Safeguard Mechanism-liable facilities, also supported the general intent of the reforms, and the bill specifically. Similarly, bp Australia (bp) commented that a ‘market-based policy’ is the ‘most effective and efficient way to reduce greenhouse gas emissions’. According to bp, the reforms would ‘provide incentives for large emitters to reduce their emissions in support of Australia’s emission reduction targets and the goals of the Paris Agreement’.
2.13
Independent member-based organisation, the Carbon Market Institute (CMI) supported the bill as part of a ‘broader ecosystem of public policy and private sector drivers to invest in at-point decarbonisation’. It saw an enhanced Safeguard Mechanism as a key opportunity for driving industrial decarbonisation in an efficient and orderly manner:
Properly calibrated, a market-based design will allow the enhanced Safeguard Mechanism to balance the compliance driver of declining baselines with incentives to invest in at-point decarbonisation, as well as sufficient flexibility so that liable entities can manage compliance obligations over time. For example, investments in decarbonising production processes often have significant lead times. While waiting for upgrades to come online, a market-based design allows facilities to meet declining baselines and support the national abatement task by purchasing carbon credits. This market flexibility is particularly important for hard-to-abate sectors who have little alternative in the short to medium term, while technology and financial hurdles present barriers to reducing emissions at source.
2.14
Several environmental organisations and others noted that there is a pressing need for governments to reduce emissions to address global climate change, and supported the reforms in this regard. The Australian Conservation Foundation (ACF) for instance ‘welcomed the current Commonwealth government’s commitment to make the Safeguard Mechanism an effective policy to reduce emissions from Australia’s biggest polluters in the industrial sector’. The ACF maintained that the Safeguard Mechanism ‘has the potential to drive real, lasting emissions reduction, stimulate investment in new technological solutions and make Australian industry more competitive in a low carbon global economy’.
2.15
The National Environmental Law Association (NELA) commented that an enhanced Safeguard Mechanism is a ‘pragmatic and durable way of reducing emissions across a range of industrial, manufacturing and resource sectors’. NELA concluded that Safeguard Mechanism Credit Units (SMCs) are ‘a useful market-based incentive for emissions reduction’. However, NELA’s support for the bill was ‘subject to revision upon the commencement of the Safeguard Rules consultation’.
2.16
Climate Action Network Australia (CANA) saw strengthening the Safeguard Mechanism as ‘essential in achieving the emissions reductions needed’ to reach Australia’s Paris Agreement targets. It submitted that the bill provides ‘an important opportunity’ to ‘prioritise genuine emissions reduction’.
2.17
The Australian Workers’ Union and Mining and Energy Union (AWU and MEU) expressed support for the ‘policy priority of addressing climate change, and support the Government’s proposed reforms of the Safeguard Mechanism (including the Bill)’. Praising the ‘broad consultation’ processes undertaken, the unions said the revamped Safeguard Mechanism will be ‘the most substantial energy policy faced by heavy industry since the now-repealed Carbon Pollution Reduction Scheme’.
2.18
Concerns raised by industrial, environmental and other organisations, including proposals for strengthening the broader reforms and the bill, are discussed later in this chapter, as well as in chapter 3.
Opposition to the broader Safeguard Mechanism reforms
2.19
Although most stakeholders were supportive of the reforms, some stakeholders opposed both the bill and the broader reforms to the Safeguard Mechanism. Critics on one side of this opposition suggested the revised framework would damage Australia’s economic interests by placing too great a burden on the industry and energy sectors. On the other side, it was suggested that the reformed Safeguard Mechanism would not be sufficiently robust to ensure participants actually reduce carbon emissions. Both these perspectives are detailed below.
2.20
The Institute of Public Affairs (IPA) opposed the bill, and advocated for the wholesale repeal of the Safeguard Mechanism. Additionally, it argued for the repeal of the Climate Change Act 2022 in its entirety—’which would have the effect of repealing Australia’s commitment to net zero emissions by 2050’.
2.21
The IPA argued that the Safeguard Mechanism disproportionately affects regionally-based companies, risking job losses in regional areas, and that emissions reduction regulation increases the ‘regulatory burden’ on industries critical to ‘Australia’s self-reliance in a time of regional instability and geographical uncertainty’.
2.22
Conversely, the Australia Institute submitted that the revised Safeguard Mechanism would protect the interests of large emitters and would not reduce emissions effectively. In relation to the bill, it argued that:
…focusing on technocratic details of the Safeguard Mechanism distracts from the fundamental issue that the Government has failed to provide evidence of how the Safeguard Mechanism will reduce emissions meaningfully and manage the overwhelming emissions from new entrants to the scheme. SMCs also risk providing a perverse incentive for existing high-polluting facilities to stay operating for longer than they may otherwise.
2.23
Doctors for the Environment Australia (DEA) and the Lock the Gate Alliance (LGA) considered that the current reforms may not go far enough. While both organisations supported reform to the Safeguard Mechanism, they expressed concern that the current reforms will not go far enough to drive down Australia’s emissions effectively.
Specific concerns about the Safeguard Mechanism reforms
2.24
Despite broad support for strengthening the Safeguard Mechanism and introducing tradeable SMCs, a number of concerns were raised about the package of reforms.
2.25
Various submitters noted issues with the detail and/or operation of the proposed reforms, while also seeing them as ‘a step in the right direction’. Concerns in evidence related to:
the ‘strength’ or ‘ambition’ of the reforms;
the effectiveness and integrity of offsets;
new entrants to the scheme, including coal and gas projects, and potential coverage issues;
Matters raised by industry and affected businesses.
Strength of the Safeguard Mechanism
2.26
A number of submitters were concerned that the proposed reforms to the Safeguard Mechanism do not go far enough. For instance, the Australasian Centre for Corporate Responsibility (ACCR) argued that fixing the Safeguard Mechanism is ‘critical but insufficient’. To play a role in ‘meaningfully’ reducing emissions from Australia’s top emitters, the ‘ambition’ of the Safeguard Mechanism must be increased ‘to align with the efforts of the rest of Australia’s economy’.
2.27
The ACCR noted that, since 2005, Scope 1 industrial emissions (direct emissions) have increased while other parts of the economy have progressively ‘decarbonised’. The ACCR argued that the Safeguard Mechanism should ‘be calibrated’ to ensure high emitting industrial facilities ‘catch up’:
To be consistent with Australia’s legislated, economy-wide target, the industrial sector’s fair share of emissions reduction should be a 43% reduction between 2005 and 2030. Based on FY21 emission levels of 137 MtCO₂e, this would require annual reductions of 10 MtCO₂e, or 7.3% of FY21 emission levels.
2.28
The Climate Council of Australia (Climate Council) was concerned that the proposed regulations governing the Safeguard Mechanism would allow relevant regulated facilities to use SMCs and Australian Carbon Credit Units (ACCUs) ‘to offset their full baseline liabilities’. Under the proposed settings, the Climate Council argued that there would be ‘no requirement’ for facilities to demonstrate that they have tried to reduce emissions to meet their baselines, ‘before being able to access carbon credits and offsets for the full liability’. This would ‘incentivise’ the biggest emitters to ‘engage in carbon accounting to cover up pollution-as-usual activity as cheaply as possible’, rather than investing in decarbonisation.
2.29
The Environmental Defenders Office (EDO) was concerned that the bill as drafted would allow for the establishment of Rules that would ‘hinder the achievement’ of the bill’s objectives by disincentivising genuine emissions reduction.
2.30
Conversely, the Department maintained that the introduction of SMCs for facilities that are ‘over-performing on their individual emissions limit’ will encourage facilities to maximise ‘low-cost abatement opportunities’, where they are available:
Many businesses that operate facilities covered by the Safeguard Mechanism have made long-term climate commitments that match or surpass Australia’s climate targets. The Safeguard reforms will provide a supportive policy framework for industry to meet these commitments, with the right signals to drive investments in emissions reductions, and flexibility so that businesses find the lowest cost abatement, wherever it occurs.
2.31
The Department maintained that SMCs will not function as ‘carbon offsets’, as they exist within ‘a regulated emissions limit, which constrains the overall emissions of Safeguard participants’. Within that limit, baselines ‘can be calibrated to meet the desired contribution to the 2030 target’:
If one facility emits less than their baseline, they can sell a credit to another facility that emits more than its baseline. It is not necessary to know how or why a facility has reduced their emissions, or what its hypothetical business-as-usual emissions would have been.
This is a key benefit of the Safeguard Mechanism compared with an offsets scheme. It has lower administrative costs and risks—because there is no need to assess the ‘additionality’ of abatement at the project level.
2.32
The Department also highlighted provisions in the bill designed to strengthen the National Greenhouse and Energy Reporting Act 2007 (NGER Act) by including in the objects of the Act that aggregate emissions of Safeguard Mechanism facilities must ‘decline’ over time. This new, additional statutory objective would set boundaries for the making and operation of subordinate legislation, including the various methodologies, by which facilities’ baselines ‘decline predictably and gradually over time’, encouraging businesses to find ‘the lowest cost abatement’.
Effectiveness and integrity of offsets
2.33
A number of submitters argued that the reformed Safeguard Mechanism would be overly reliant on offsets, resulting in big emitters trading SMCs and purchasing ACCUs with no actual, lasting emissions reduction. Their concerns were two-fold:
that the Safeguard Mechanism framework would allow ‘unlimited’ use of offsets, reducing the effectiveness of the Safeguard Mechanism to cut overall emissions; and
that questions remain around the integrity of some carbon offset projects, which must be properly addressed.
Unlimited use of offsets
2.34
A key feature of the bill is the establishment of SMCs, which would allow Safeguard facilities, to earn, ‘bank’ or trade SMCs. Under the proposed reforms, Safeguard facilities would be able to use the newly created SMCs—and would continue to have unlimited access to ACCUs—to offset above-baseline emissions.
2.35
Several submitters argued that unlimited access to offsets removes or weakens the incentive for Safeguard facilities to reduce their onsite emissions and risks broader decarbonisation objectives. For instance, the Australia Institute submitted:
Currently facilities have unconstrained access to offset their excess (above baseline) emissions with ACCUs. Such an approach does nothing to drive decarbonisation and risks undermining the emissions reduction goal as there is strong evidence that most ACCUs do not represent real or additional abatement.
2.36
The ACF argued that ACCUs were ‘intended as a last resort for hard-to-abate industries’, and suggested that the proposed Safeguard Reforms should limit the use of ACCUs to meet facilities’ baseline requirements.
2.37
CANA argued that, rather than being a ‘last resort’ for unavoidable emissions, ACCUs are currently ‘the first and only thing’ many big emitters are doing. It suggested the reforms should establish a ‘hierarchy’ of offsets, requiring facilities to use SMCs first—’given their higher integrity and more direct equivalence in emissions reduction’—before being allowed to access ACCUs. This suggestion was echoed by other organisations, including the ACF, which said:
…to be successful the Safeguard Mechanism must result in real, lasting, on-site emissions reduction, not rely heavily upon [ACCUs…which may be] used to enable new coal and gas developments that will release enormous amounts of greenhouse pollution for years to come.
2.38
The ACCR noted that, under the now repealed Clean Energy Act 2011, offsets were limited to five per cent ‘of a liable entities’ obligation’, and ‘there does not appear to have been any considered rationale for changing this limit’. The ACCR proposed this limit be reinstated as part of the reform process, noting that unlimited access to offsets over the long term ‘allows facilities to invest in high‑emissions, long-life equipment that cannot be readily decarbonised later’.
2.39
The Climate Council was concerned that the low price of ACCUs will provide an incentive for the largest emitters to keep buying ACCUs to comply with the new requirements:
With the spot price for ACCUs sitting at approximately $37 a unit in January 2023, fully offsetting Safeguard Mechanism liabilities with ACCUs would likely be considerably cheaper for facilities than undertaking genuine business transformation, particularly in the short term.
2.40
Ms Polly Hemming, Director of the Climate and Energy Program at the Australia Institute, spoke of the need to place a limit on a crediting system:
I think a quantitative limit or even a qualitative limit would actually drive more decarbonisation, because it just makes offsets less available. That's going to lead to probably the price increasing and scarcity, if we improve the integrity, then that would leave the people that really wanted to buy offsets as where the majority of demand was coming from. I don't understand the mentality behind unfettered offsets, because ultimately the government is not going to be able to meet its 43 per cent reduction target if it just continues to allow that supply to infinitely increase.
2.41
Chapter 3 discusses the importance of offsets for business and industry, particularly how the crediting arrangements will assist in the decarbonisation transition, while emissions reduction technology becomes more widely available, affordable and effective.
The integrity of offsets
2.42
Some submitters were concerned that the proposed reforms to the Safeguard Mechanism do not address perceived failings with existing ACCU arrangements, including areas identified for improvement by the Independent Review of Australian Carbon Credits led by Professor Ian Chubb (Chubb Review).
2.43
Mr Tim Reed, President of the BCA, noted the importance of integrity to the success of the Safeguard Mechanism:
We think that integrity and transparency are fundamental to markets operating effectively and efficiently and serving the community in the way in which they're designed. So, for us, in any new market that forms, there are always periods through which integrity gets lifted and transparency gets lifted, and we are strong supporters of high levels of integrity and transparency.
2.44
However, a number of stakeholders felt that the current approach was in need of reform, to ensure both integrity of offset system, and to restore the trust of participants in it.
2.45
For example, the Australian National University and the University of New South Wales, Canberra Emissions Reduction Fund (ERF) research team (ANU‑UNSW ERF research team) expressed concern that, even after any initial reforms currently being considered, the Safeguard Mechanism would allow ‘unfettered access’ to ACCUs, despite ‘significant unresolved integrity issues with existing offset projects’. Specifically, the team suggested existing offset projects that lacked integrity would continue to be allowed, ‘significantly and adversely’ affecting the ability of the Safeguard Mechanism to reduce Australia’s emissions.
2.46
Members of the ANU-UNSW ERF research team highlighted more specific concerns, particularly on the Human Induced Regeneration (HIR) method, which they explained accounts for approximately 30 per cent of credits used to date, and is forecast to increase to approximately 50 per cent in the next few years. Professor Andrew Macintosh of the Australian National University noted that the ‘vast majority’ of these units do not actually correspond to genuine abatement. It was argued that more transparency around the HIR method, including the release of the carbon estimation areas data that underpin them—as recommended by the Chubb Review—would be an important step in assuring integrity of these credits.
2.47
Similarly, the Australia Institute was sceptical about the value and integrity of certain forms of offsets, arguing that international credits should be excluded, alongside land-based credits, which ‘are often very low-integrity’. On the difference between SMC and ACCU integrity, Dr Richard Denniss noted:
…The idea, for example, that two ACCUs might be required to do the work of one safeguard mechanism credit—or some form of exchange rate—would make a lot of sense. To treat them on parity would be to assume their integrity is similar, and there is no evidence to support that.
2.48
LGA noted that, while the Chubb Review found that the governance of the ACCU framework was ‘essentially sound’, this does not mean that ACCUs are effective, as ‘the science and on-the-ground use of ACCU methods’ was outside the scope of the review. DEA expressed similar concerns:
Many of the activities awarded ACCU certificates have been found to be invalid on the grounds that they did not actually occur, would have occurred anyway, or are not permanent. The recent Chubb review has not fully addressed these concerns. If we cannot be certain of offsets created in Australia, there are even less grounds for confidence in offsets from overseas. Once the validity of Australian ACCU is re-established, they should be allowed to be used only in a limited capacity—for instance, to offset an aggregate maximum of 1 year’s change.
2.49
A submission from Climate Friendly, a company that provides extension services to support land-based carbon farming and nature repair projects, provided evidence on the ‘critical importance of land sector carbon draw down’. Climate Friendly endorsed the Chubb Review’s main finding that the ACCU arrangements were essentially sound, as well as its recommendations. Climate Friendly also suggested some of the evidence received by the committee on carbon estimation areas did not account for the potential complexity of data and for the ACCU methods, including that:
carbon estimation areas ‘are not simply lines or boundaries’, but sophisticated data sets that must be used by specialists in spatial data processing; and
valid assessments of project impact must use consistent datasets, including by source (ie there are differences between CER and publicly available data sets), quality of data and imagery of project areas, consistency across time (not based on a single year), and used in association with other datasets showing human suppression of regeneration and changes in management after the start of a project.
2.50
Carbon Friendly concluded that:
Misinformation around the integrity of human-induced regeneration projects, Australian carbon farming projects generally, and Australian Carbon Credit Units (ACCUs), risks derailing crucial efforts to decarbonise the land sector at a time when urgent action is needed to limit climate change and halt catastrophic biodiversity loss.
2.51
Professor Chubb made a submission to the inquiry, which responded to some of the evidence about the Review received at the hearing:
It is important to note that the Panel was not asked to review individual projects. That we did not, I infer, has been represented as either dereliction of our responsibility, or something more base. It was neither. It was out of scope.
Review and administration of individual projects is the role of the Clean Energy Regulator (CER) and its independent auditors. Our Review was not an audit of the CER.
Nevertheless, the Panel had access to confidential data about projects that demonstrate they are administered in a way that should deliver genuine and additional abatement.
We also invited the CER to spell out its compliance tools, powers and processes, including the extensive up-front checks for ACCU scheme participants and projects prior to registration.
We noted that the CER can withhold or require relinquishment of credits, require remedial action or revoke projects on a case-by-case basis. ACCU issuance can be adjusted through the life of the project to address any concerns about over-crediting.
2.52
Ms Edwina Johnson, the Branch Head of the Safeguard Taskforce for the Department, assured the committee that, even though the work on Chubb Review recommendations was ongoing, the Department considered that the system had integrity:
…we do think the use of ACCUs is an important element of the safeguard mechanism, in terms of providing those options for facilities for which onsite technology may not be available at a particular time. And…the government has accepted the recommendations of the Chubb review in principle and is working to implement those. So, in that light, we're comfortable that a tonne of emission sequestered or avoided in the form of ACCUs is the same as a tonne of onsite abatement in a safeguard facility. So, in that sense, we're comfortable that the entire system has integrity.
2.53
Ms Shayleen Thompson, Executive General Manager of the Clean Energy Regulator (CER), outlined more specific actions that had been taken to progress the Chubb Review recommendations:
…the Chubb review did find that the [Human Induced Regeneration] method is sound and meets the offsets integrity standards and, importantly, is administered by a robust regulatory framework. It did recommend some improvements, and I think it's fair to say they are mainly focused on looking at the evidence for implementing the method to make sure that the abatement is robust. So [as other Departmental evidence has stated] we have started the administrative work to implement that Chubb recommendation, and we're developing an approach that will build on our very careful assessment of project registration and the issuance of ACCUs under the method.
2.54
The committee notes that a key recommendation of the Chubb Review was aimed at addressing an identified lack of transparency in offsets, particularly the inability to access carbon estimation areas of projects, which are used to calculate the carbon abatement of projects and to issue ACCUs to determine if carbon is actually being stored. Recommendation 4 stated:
Provisions in the governing legislation should be amended to maximise transparency, data access and data sharing, while enabling protection of privacy and commercial-in-confidence information, to support greater public trust and confidence in scheme arrangements.
The default should be that data be made public, including carbon estimation areas.
2.55
A key finding of the Chubb review was that the existing disclosure constraints do not promote transparency:
Current restrictions on data sharing and disclosure in the scheme’s governing legislation go further than required to protect privacy and commercial-in-confidence information, and the blanket nature of these restrictions is undermining transparency, trust and confidence in the scheme.
More transparent data and information sharing arrangements would enable communities and carbon market stakeholders to assess, understand and manage potential project impacts and opportunities more effectively.
2.56
Mr David Parker, Chief Executive Officer of the CER, told the committee that he was strongly in favour of releasing data relating to carbon estimation areas, but was limited by legislative constraints:
There is a broad prohibition in the legislation which prevents us disclosing so-called protected information, and that is effectively information provided by project proponents and other participants in the schemes… I have said publicly previously that I think it would be desirable to change that law to allow that information to be put into the public domain [as recommended in the Chubb Review]. The reason for that is that that law is a significant constraint on transparency.
2.57
Mr Parker took on notice whether he could provide the carbon estimation areas to the committee.
2.58
Following the hearing, Mr Parker confirmed that he had ‘sought external legal advice on this matter and can confirm that a request by the committee under Parliamentary privilege does provide a lawful reason for the CER to release information to the Committee.’
2.59
Mr Parker noted that CER staff have already commenced compiling the data for the committee. He qualified that, as the task involved a large amount of fine‑grained data, it was not possible to complete the compilation and checking task by the due date for answers to question on notice of 2 March 2023.
2.60
The committee secretariat will liaise with the CER to determine the most effective and timely way to publish the carbon estimation area data. The data will be published on the committee’s website.
Cost containment measure
2.61
The committee received evidence on the proposed cost containment measure outlined in the Government’s January 2023 Safeguards Mechanism Position Paper. The measure was described as follows:
The Government will introduce a cost containment measure by selling Government-held ACCUs to give businesses certainty about maximum compliance costs. Any funds received from the sale of ACCUs would be used to support additional decarbonisation. An effective price ceiling would be created by making ACCUs available for purchase by facilities that need them for compliance at $75 per tonne of CO₂-e in 2023-24, increasing with the CPI plus 2 per cent each year. The cost containment measure will be reviewed in 2026-27.
Flexible compliance arrangements allow facilities to meet their baselines through a combination of on-site and external emission reductions. We expect that between 2024 and 2030, there could be significant opportunities for on-site emission reductions through incremental efficiency improvements and new large-scale technologies. While there is some uncertainty around technological developments and their associated costs, the pace of technological innovation and adoption is expected to gain momentum to 2030, driven by strong incentives provided by the Safeguard reforms as well as external global drivers.
For the remaining abatement task, a sufficient supply of SMCs and ACCUs is expected to be available to meet Safeguard demand, with Safeguard crediting, existing ACCU projects and new ACCU projects all expected to contribute to a growing, liquid market, supporting price stability.
2.62
Professor Macintosh, a member of the ANU-UNSW ERF research team, argued that this system of a capped price could be replaced by a penalty mechanism, which would remove the complexity of the current proposal, as well as financial risk to the Commonwealth should the market drive prices upwards:
Every other scheme that I know of has a simple penalty price, and we've always had it under all the schemes that we've run in Australia. Once you hit that price, you can either surrender ACCUs if you want to, or you can simply pay the penalty price.
The beauty of that is that, administratively, it's so simple. But, most importantly, it doesn't expose the Commonwealth to a liability. My big concern about that, from an economic perspective, is that if prices get to $75 then everybody who's currently under contract to the Commonwealth would have broken.
2.63
Others noted that the $75 plus CPI plus 2 per cent price was higher than they had forecast. Dr Denniss of the Australia Institute commented that the price seemed ‘quite high’.
2.64
Ms Tania Constable of the Minerals Council of Australia (MCA), was positive about the price containment mechanism, which the MCA had advocated for, to give industry certainty and to manage risk effectively. On the price level, she commented that the sector had been working on the assumption for a $24 figure, and so:
The $75 is much higher than we thought it was going to be. We were relieved to see a cost containment measure in there. We were very relieved about that. But it is a high price, and we wouldn't like anyone to think that the $75, plus an escalation that goes out to 2030…is not going to be a big task for the whole minerals industry.
2.65
Some witnesses commented that the proposed approach means the Commonwealth is adopting risks from price volatility, rather than participants.
2.66
Some investor groups expressed unease about the proposed arrangements, as a Commonwealth cost containment measure could distort the market. For instance, Mr John Connor, Chief Executive Officer of the Carbon Market Institute, commented that it’s not currently clear what the taxpayer liability may be from this measure, and called for further clarification on the operation of the scheme, including the level of ACCUs held by the Government, and how the Government would purchase credit units.
2.67
Ms Johnson of the Department emphasised that the proposed measure for cost containment was developed ‘in response to feedback from businesses seeking more certainty about the potential costs’. She continued:
So what is proposed is to give business that certainty that ACCUs will be available at that cost [of $75 plus CPI and 2 per cent per annum to 2030]. Then the funding received from any sale—which, as I said, is only if needed, and our analysis suggests that there will likely be other ACCUs available at lower costs than that $75—will be directed to source additional abatement, to ensure that Australia's targets are met.
New entrants and coverage of the mechanism
2.68
The Government’s Position Paper notes that without reform, new entrants to the scheme are projected to increase the 2030 abatement task significantly:
In the absence of the reforms, based on Australia’s Emissions Projections 2022, emissions from existing Safeguard facilities are projected to decline to 136 Mt in 2029-30. With new facilities included, Safeguard emissions are projected to grow to 146 Mt in 2029-30.
2.69
The Position Paper also sets out the proposed treatment of new industrial facilities with emissions above 100 000 tonne of carbon dioxide equivalent (tCO₂-e) per annum, including noting that:
New facilities have the opportunity to use the latest technology and build world’s best practice emissions performance into their design. Their baselines would be set at international best practice, adapted for an Australian context.
2.70
Some stakeholders were concerned that the proposed Safeguard Mechanism reforms do not include sufficiently high standards for high-polluting new entrants, as discussed below. For many this included the sentiment that new coal and gas projects should be prohibited. Others disagreed with this perspective.
2.71
It was also argued that new entrants should be held to much higher standards than businesses currently in transition to decarbonise, given improvements in technology and the ability for them to build sustainable models into their planning and development.
Conditions for new entrants, including coal and gas projects
2.72
The EDO argued that the bill ‘misses the opportunity to regulate new entrants’, and recommended that facilities joining the Safeguard Mechanism framework after 1 July 2023 ‘may only surrender SMCs for the purpose of reducing their net emissions, with provision for the Minister to make exceptions for hard-to-abate industries such as steel and cement’.
2.73
Some submitters argued that the Safeguard Mechanism should exclude or make abatement costs prohibitive for new fossil fuel projects, particularly coal and gas. For example, the Climate Council focussed on more stringent conditions for new fossil fuel enterprises that may enter the scheme, by requiring that:
Any new coal, oil and gas facilities entering the Safeguard Mechanism after 1 July 2023 will be required to meet their baselines without the use of ACCUs—i.e. using only a combination of best-practice technologies and SMCs.
2.74
It was noted by some submitters that the International Energy Agency (IEA) has made clear that allowing any new coal and gas projects globally is inconsistent with achieving net-zero by 2050.
2.75
In a Safeguard Mechanism context, the Australia Institute noted that allowing new coal and gas projects to participate would potentially increase the burden on other parts of the economy that were already reducing emissions, creating a situation where:
…the carbon budget [under the mechanism] must either be shared amongst a larger number of facilities (forcing steeper and more expensive emissions reduction requirements on existing facilities) or greater emissions reduction efforts will be needed from other sectors of the economy.
2.76
The ACCR noted that the proposed Safeguard Mechanism reform would not sufficiently deter new fossil fuel projects, unless more substantial changes were considered:
Australia needs to consciously manage emissions from fossil fuel projects. A logical first step is to focus on the approval of projects to develop new fossil fuels, which would be ‘new entrants’ in Safeguard Mechanism parlance. While acknowledging that the Safeguard Mechanism has a role influencing the business case of a new entrant, it only deals with scope 1 emissions, which are typically a small portion of the lifecycle emissions of a fossil fuel development. As such the Safeguard Mechanism is unlikely to place a significant constraint on fossil fuel new entrants without much more substantial changes than are currently being considered.
2.77
Others disagreed with this perspective. For example, the AWU and MEU noted Australia’s high quality natural resources could reduce emissions per unit of electricity generated, when compared to the use of products produced by our export competitors. The joint AWU-MEU submission recommended that ACCUs and SMCs ‘should be available for use by all safeguard facilities, including fossil fuel facilities’ entering the scheme.
Scope of the mechanism
2.78
On coverage, the DEA considered the scheme should be a ‘one-way street’, in which ‘facilities do not leave the scheme when emissions drop below the threshold’ of 100 000 tCO₂-e per annum. Instead, it suggested:
The threshold for new entrants should be lower to avoid gaming. Under current proposals, two adjoining projects each of 90,000 tonnes annual emissions would not be covered by the scheme, so the new entrant threshold should be 25,000 tonnes, and the scheme threshold should decrease each five years to increase coverage across the economy’.
2.79
The EDO noted most new entrants would have the advantage of the latest technology and clear legislative guidance as their enterprise is planned, so:
It is therefore reasonable, and equitable, that expectations of emissions reductions by new entrants are higher than of facilities who must restructure existing operations.
2.80
The CMI suggested that enterprises that were under the threshold could be allowed to voluntarily opt-in to the scheme, and generate SMCs. It was argued that this could increase SMC supply for hard-to-abate industries, and could ‘test the potential for dropping the 100 000 tCO₂-e threshold for mandatory inclusion in future phases of the enhanced Safeguard Mechanism’.
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Dr Denniss of the Australia Institute suggested that the Safeguard Mechanism places no obligations on some easy-to-abate sectors, while applying to more difficult-to-abate sectors:
…the safeguard mechanism really places no obligation on anyone in the transport sector to reduce emissions. There are no obligations to reduce emissions in the electricity sector. There are no obligations in the household sector. These are the easy-to-abate parts of the economy.
The reserve capacity
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The Government has proposed that a ‘reserve’ capacity be built into the Safeguard Mechanism, which will apply to all Safeguard Mechanism facilities. The Position Paper outlines the purpose of this proposal as follows:
The reserve will have the effect of ‘holding back’ some of the emissions budget to take account of uncertainty about:
the volume of baselines for new facilities that come on-line before 2030;
the possibility that production growth is higher than expected at existing facilities; and
the level of differential decline rates for emissions-intensive, trade exposed facilities…
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Some evidence suggested that this will allow new entrants to come into the scheme and force tighter baselines on existing facilities. For example, LGA’s submission argued the reserve capacity meant that:
…existing facilities are required to cut emissions more intensely than they would otherwise because the Government is willing to allow more coal and gas projects to come online.
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It was argued that this could jeopardise the Government’s 2030 targets, should a significant number of new entrants emerge. Risk could particularly come from the entry of fossil fuel proponents allowed to enter the scheme, which would increase Australia’s net greenhouse gas emissions.
2.85
As a consequence, the task for other sectors already working to reduce emissions could be made more difficult. For example LGA submitted:
Other sectors (like manufacturing, agriculture, healthcare) will be required to shoulder the burden of these increased emissions, despite having a far more important and irreplaceable role in a clean economy than fossil fuels, and far more viable decarbonisation options (fossil fuels being uniquely, unavoidably polluting).
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Ms Alison Reeve, the Deputy Program Director, Energy and Climate Change at the Grattan Institute, highlighted the difficulties of defining a reserve capacity in law. She saw potential benefits to requiring the CER to publish certain data for tracking remaining capacity in the system, to ensure transparency in the level of the Safeguard Mechanism reserve:
Given that the reserve is playing several roles—it's covering new projects and it's also providing the concessional baseline to the trade-exposed industries—you might lose some of the flexibility to do arbitrage between those two things if you start defining exactly what the reserve is in law. But you could put down that the regulator has to publish, every year, how much of the safeguard budget has been consumed and how much remains, alongside the information of how much everyone's exactly measured, and then people can take one number off the other and see what the reserve is.
Methane emissions
2.87
Some stakeholders were concerned about Australian levels of methane emission, suggesting it is not sufficiently addressed in proposed Safeguard Mechanism reform.
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Methane is one of the greenhouse gases included within the scope of the NGER Act and in the Paris Agreement. At the hearing, Dr Sabina Assan, a Coal Mine Methane Analyst for energy think tank Ember, outlined why reducing methane emissions is so significant in addressing climate change:
Methane, if we look at it over a 20-year timescale, has around 82 times more global warming impact than CO₂. It's really one of the gases for which, if we can start targeting it now, we're going to see reductions in global warming or climate change straight away, much faster than CO₂, which has a lifetime of hundreds of years to decades. We also need to tackle CO₂, but methane will give us a much faster response.
2.89
According to IEA figures, Australia emitted 5 544 kilotons of methane in 2022. While agriculture was the largest source of methane emissions, the energy sector contributed around 40 per cent of that total. Methane makes up 26 per cent of Australia’s national emissions inventory.
2.90
According to a recent IEA report, sustained reduction of methane emissions is ‘key to limiting near-term global warming and improving air quality’. Additionally, the IEA has found that ‘almost all’ countries are under-reporting methane emissions by up to 70 per cent. This includes Australia, which IEA data suggests produced 2.23 million tonnes of methane from energy production in 2022, 63 per cent more than estimated by the Department.
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As noted earlier in this report, the Australian Government recently committed to the Global Methane Pledge, so to work collectively with 122 countries to reduce global methane emissions across all sectors by at least 30 per cent below 2020 levels by 2030.
2.92
Nevertheless, a number of stakeholders raised concerns with the current level of Australia’s industrial methane emissions, and argued this could be reduced through readily available onsite abatement, without the use of offsets.
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Significant levels of Australia’s methane emissions are produced by the coal, gas and oil sector as fugitive emissions. However, it was noted that this sector has generally not implemented methane abatement opportunities. For example, LGA submitted:
Technologies to reduce scope 1 emissions from coal, oil and gas production have been available for years, including capturing ventilation air methane, draining coal seams of methane pre-mining, and rigorous leak detection and repair regimes for oil and gas sites. The fossil fuel industry has mostly failed to implement these technologies in any meaningful way.
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It was noted that these technologies are relatively simple to implement, very accessible and low-cost for industry, and potentially profitable. Consequentially, it was argued that there should be no provisions made for companies to offset methane emissions, in preference to onsite abatement. For example, Mx Reynolds, Ember’s Climate Policy Advisor, told the committee:
In terms of policy levers, it's much more feasible to be directly mitigating and reducing methane in coalmines. As has been stated by both the Environmental Defense Fund and Ember in our reports, it is cost effective to mitigate at the source. Offsetting, from a policy perspective, should be the last resort in those very, very difficult to abate sectors. Coalmine methane does not fall into that category in our analysis.
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Moreover, it was suggested that offsets were not an effective mechanism to abate methane emissions. Mr Anatoli Launay-Smirnov, Coal Mine Methane Analyst for Ember, stated that:
CO₂ and methane are very different gases. Most offsets are carbon offsets, carbon dioxide offsets, and methane is a completely different gas that behaves differently. It has a much shorter lifetime. Cross-offsetting is meaningless, and you need to physically get rid of methane going into the atmosphere, rather than trying to find a CO₂ project. That [CO₂ abatement] has an impact over hundreds of years, whereas methane has an impact of almost immediately, so we would really advise against offsetting methane.
2.96
Given this, some stakeholders recommended that methane-emitting industries could have a separate intensity target embedded in the reformed Safeguard Mechanism.
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Mr Daniel Zavattiero, General Manager–Climate and Energy for the MCA commented that their members report on methane, and that Australia was one of the few countries that reported on both open cut and underground coal mine emissions. He commented that Australia’s emissions per tonne of coal was relatively low compared to eight key coalmining regions. However, the MCA also conceded that the IEA report had shown discrepancies, and that the industry was attempting to understand the rates and impacts of emissions–as well as working towards development of mitigation technologies.
2.98
The Department told the committee that the collection of methane emissions data is through the National Greenhouse and Energy Reporting scheme, which ‘requires very robust and detailed facility-level emissions estimates to be undertaken by those reporters that meet the threshold’. However, Ms Wardlaw of the CER, which holds this data, informed the committee that the legislation stipulating reporting of data also prohibits its disclosure:
There are secrecy provisions that we're covered by, for the data that's collected, which then allow, in specific circumstances, for us to disclose information, which is what we publish annually. Beyond that, we're not able to, without breaching our own data secrecy provisions.
Concerns raised by business, industry and resources sectors
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As discussed earlier in this report, there was broad support for general reform of the Safeguard Mechanism and the bill’s provisions across business, industry, and resources sectors. However, there were also a range of concerns raised about the potential effects of the Safeguard Mechanism reforms.
2.100
Some stakeholders highlighted potential difficulties for some businesses to comply with lowered emissions baselines, and advocated for flexibility in compliance arrangements. For example, the BCA noted that some of its constituents would find it challenging to achieve a ‘proportional share of Australia’s 2030 [Nationally Determined Contribution (NDC) of a 43 per cent reduction on 2005 levels]’ and that the:
…inclusion of flexible compliance arrangements—such as the use of Safeguard Mechanism Credits, Australia Carbon Credit Units, Multi Year Monitoring Periods and Banking and Borrowing—is absolutely crucial to providing flexibility and driving least cost abatement across businesses covered by the Safeguard Mechanism (as a group).
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The Australian Aluminium Council noted that some of the sector it represents did not yet have access to developing technologies for emissions reduction, which meant that SMCs would be important for emissions reduction and compliance when the mechanism ‘transitions to a declining baseline scheme’.
2.102
It was noted that there was still some uncertainty on the effects of the proposed Safeguard Mechanism reforms from some sectors and companies. For example, the MCA noted there was still some uncertainty for the resources sector without a confirmed crediting and trading system as proposed in the bill, as this was an important component of wider reforms, and much of the relevant detail would be introduced by subordinate regulation.
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Other sectors also suggested there was some uncertainty around the implementation of the proposed reforms. For example, the Australian Forest Products Association, the peak national industry body representing the Australian forest, wood and paper products industry, submitted that its affected members were still unclear what would happen when facilities fell below the 100 000 tCO₂-e per annum emission threshold. Similarly, it expressed concern over the way in which ACCUs and SMCs would interact, and how increased demand for offsets would affect its members.
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On the potential interaction of the proposed Safeguard Mechanism reforms with business and industry, the Department noted in Senate Estimates that:
Safeguard reforms back in business’s existing commitments. Most are already planning for or pricing in the transition to net zero. A broad coalition of business leaders and groups support the reforms, including [the Business Council of Australia (BCA)] and [the Australian Industry Group (Ai Group)]. Around 170 facilities covering over 80 per cent of safeguard facilities are already covered by corporate net zero commitments, and a third of publicly listed companies that own safeguard facilities use an internal carbon price for investment decisions, with over half of these using prices more than $100 a tonne.
The proposed reforms have been carefully designed to moderate and mitigate cost impacts. The proposed hybrid approach to setting baselines moderates initial scheme impacts while encouraging production to occur where it’s least emissions intensive, lowering overall economy-wide costs. There are also compliance options, including borrowing from a future year’s baseline, multiyear monitoring periods, and the use of domestic offsets to help safeguard facilities meet their obligations at a lowest cost, and the government’s also providing assistance, for example, through the $600 million [available under the Safeguard Transformation Stream of] the $1.9 billion Powering the Regions Fund to support decarbonisation activities at those particular facilities for emissions intensive trade exposed facilities.
Carbon border adjustments to ‘level the playing field’
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The committee also received evidence on the role of carbon border adjustment mechanisms (CBAM), as used in some jurisdictions such as the EU. It was suggested that the local adoption of a CBAM could potentially ‘level the playing field’ for Australian business and industry, when competing with overseas entities with less rigorous climate requirements.
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For example, Mr Daniel Walton, the National Secretary of the Australian Workers Union, spoke about ‘a carbon border adjustment mechanism being extremely important’, in order to make ‘sure that there is a level playing field for Australian businesses if and when this legislation goes through’.
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Mr Tennant Reed, the Director, Climate Change and Energy for the AiGroup, supported a CBAM, and endorsed Government consideration:
…while the proposed measures in the safeguard mechanism are quite effective in the near term in addressing risks of carbon leakage—we will need a more sustainable long-term approach to carbon leakage before too many years have elapsed. In our view, that approach could be an Australian carbon border adjustment mechanism. We welcome the fact that the government has committed to taking a look at long-term options, including a CBAM, though they have not committed to do a CBAM at this point.
Deemed surrender
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The committee also heard some concerns from certain business and industry groups about the potential retrospectivity of deemed surrender arrangements contained in existing contracts for Government purchase of ACCUs.
2.109
Orica explained that time-limited deemed surrender settings would enable entities with an approved ERF project and a Carbon Abatement Contract ‘to sell ACCUs to the Commonwealth and retain the ability to count the associated emissions reductions towards the achievement of meeting the Safeguard Mechanism baseline’. Arguing that ‘it does not constitute double-counting’ of emissions reductions, Orica outlined its concerns as follows:
The government in its latest consultation on Safeguard Mechanism reform (released 10 January 2023) has stated an intention to retrospectively grandfather deemed surrender for two years, and then remove it altogether. Orica’s contracts for the sale of ACCUs, entered in good faith, are for seven years. It is likely there are only a handful of entities with direct experience with this particular feature of the Scheme and who now find themselves facing retrospective changes.
2.110
Chemistry Australia submitted that all registered ERF projects should be grandfathered ‘for the entire duration of those contracts’ in order to ensure the delivery of emissions reduction at Safeguard facilities.
2.111
Recent departmental evidence at Senate Estimates suggests that deemed surrender was ‘the double use of a single ACCU’. It was noted that the proposal canvassed in the January 2023 Position Paper currently being consulted on was to ‘allow two years of deemed surrender to allow facilities to readjust their circumstances but to cease the capacity to effectively use those ACCUs twice after two years’. The Department continued:
…we wouldn’t accept that that is a retrospective change. It’s a prospect in the terms of the proposed arrangements for deemed surrender. The contractual arrangements surrounding Orica’s obligations under the carbon abatement contracts are optional contracts, not fixed contracts. We’re comfortable that there’s nothing in the regulations that is problematic from that perspective. We propose that the two-year grandfathering provides that certainty, in a prospective way, to allow Orica to restructure its arrangements if it wishes to do so.
2.112
The committee also notes that deemed surrender was identified as a problem by the Climate Change Authority in its 2018 Review of the NGER Act, which concluded that the Government should remove it so ‘safeguard facilities only benefit once from the [ACCUs] they generate’.
2.113
The phasing out of deemed surrender is subject to legislative rules, and is being considered in the current phase of Safeguard Mechanism reform consultation.
Over-reliance on land-based offsets
2.114
A number of stakeholders brought the committee’s attention to concerns about the level of land-based offsets from the agricultural and forestry sectors.
2.115
The National Farmers’ Federation noted that the bill would not raise direct concerns for the agricultural businesses or the sector, which do not fall within the current scope of the Safeguard Mechanism. However, it remained concerned about potential competing land uses—that the ‘ratcheting’ of the Safeguard Mechanism could lead to ‘an intensified reliance and demand on [agricultural] offsets’. This could ‘impact the ability for food and fibre production’ and reduce incentives for large emitters to ‘mitigate their emission as a principal response’:
A market signal that requires multiples of ACCUs to be established or acquired for each tonne or surplus emission would refocus the need to innovate and mitigate rather than choose the low-cost option, such as vegetative offsets, that may create turbocharged competition for agricultural land.
2.116
Farmers for Climate Action submitted that the proposed reforms do not go far enough to protect farmland from potentially being bought by large emitters to generate carbon offsets, posing a ‘significant risk’ to agricultural production:
Already we are seeing fossil fuel companies buying farmland to plant carbon crops. If this trend continues, it may have a devastating impact on land prices, rural communities and food security.
2.117
Other submitters also noted similar concerns over what could happen if land currently being used for agriculture or landcare, became more sought-after following a potential increased demand for land-based offsets. For example, Mr Alex Hillman, Lead Analyst of the ACCR, told the committee:
What the safeguard mechanism does—as currently proposed, and as has been operating since 2017—is to couple the land sector and the industrial emissions sector and guarantee that reductions happen in one sector or the other. So, when a facility is above its baseline, it can make a choice about whether or not to invest to reduce its own emissions, or it can make a decision to invest in the land sector. We need to repair our land sector. We need to make sure that the carbon that was in that land sector is replaced. We also need to reduce emissions in the industrial sector. So, when the design of the safeguard mechanism allows a company to choose where that is allocated, it guarantees we only deliver one of those benefits, when we actually need both.
2.118
The EDO noted that the proposed reforms would allow facilities to ‘rely completely on the purchase of [ACCUs] to meet greenhouse emissions reductions targets’:
There is a high risk that 70% of ACCUs derived from human-induced regeneration, landfill gas and avoided deforestation (which make up 75% of ACCUs in existence) do not represent real and additional emissions abatement… In any event, carbon offsetting in general is very rarely equivalent to real emissions reduction, for reasons including inherent uncertainties in the quantification of carbon offsets and the problem of permanence (e.g. forest fires can destroy allocated carbon sinks).
2.119
The ACCR proposed that land sector abatement ‘should be reserved to sequester emissions from previous land sector degradation’.
Consultation on reforms
2.120
Some stakeholders noted the ongoing consultation processes around the proposed Safeguard Mechanism reforms.
2.121
It was recognised by some stakeholders that consultation should be ongoing, given that much of the detail of reform would be in regulations and policy, rather than in legislation. Some submitters felt that they already had been given good opportunity to inform the Government’s reform agenda.
2.122
Some suggested that consultation on Safeguard Mechanism reform could have been more comprehensive. For example, the Australia Institute was critical that the exposure draft for reforms to the Safeguard Mechanism was published before the Chubb review was completed, and before consultation with affected sectors had been finalised.
2.123
However, other stakeholders actively welcomed the consultation processes undertaken by the Minister and the Department. The AWU-MEU joint submission suggested that consultation on the development of the bill and broader Safeguard Mechanism reforms was very important, considering their scope:
Each facility and each industry will be affected differently, and our unions are encouraged by the broad consultation that has been undertaken by the Government so far in the development of the bill and associated rules.
Committee view
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This chapter has outlined the evidence received by the committee on the broad Safeguard Mechanism reforms that are currently being developed and consulted on by the Government.
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Considering evidence relating to these broad reforms, the committee sees it as appropriate to make some initial recommendations, before considering specific provisions of the bill in greater detail in the following chapter.
Integrity of the ACCU system and Chubb Review recommendations
2.126
The committee understands that many stakeholders are concerned about the integrity of certain offset methodologies, and the need to progress the Chubb Review recommendations for the reform of the ACCU system. This review was handed to Government in December 2022, and made public soon after, on 9 January 2023.
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The Government has accepted in principle all 16 recommendations. Information provided by the Department outlined the work being undertaken to progress the reforms recommended by the review.
2.128
This includes work to improve the integrity of ACCU methods being undertaken by the Department and the CER through the implementation of the Chubb Review recommendation on:
administering the HIR method with a greater emphasis on transparency, including the CER potentially publishing outcomes of project assessments with relevant privacy and confidentiality provisions;
the revocation avoided deforestation method, ensuring that no new projects can register under that method; and
landfill gas method baselines being adjusted ‘during the lifetime of the project’ with arrangements for early review and voluntary adjustment of baseline of existing projects.
2.129
To ensure these and other reforms to the ACCU framework are embedded prior to the commencement of the Safeguard Mechanism reforms, the committee is of the view the implementation of the Chubb recommendations should be expedited.
2.130
The committee recommends that the Government and Clean Energy Regulator prioritise the implementation of the Chubb Review, including in relation to landfill gas, human induced regeneration methods and avoided deforestation.
2.131
Recommendation 4 of the Chubb Review found that provisions in governing legislation should be amended to ‘maximise transparency, data access and data sharing’ (with appropriate protections) to ‘support greater public trust and confidence in scheme arrangements.’ This included that underlying data for carbon estimation areas should be made public.
2.132
The committee received evidence from academics, market participants and the regulator on the transparency constraints relating to carbon estimation areas for land-based ACCU projects.
2.133
The committee notes that the Government has accepted this Chubb Review recommendation in principle and the Chair of the CER told the committee directly that he strongly supports the release of this carbon estimation data, to provide increased transparency to the system.
2.134
The committee considers that the bill could be amended to expedite reform in this area.
2.135
The committee recommends that the bill be amended to require the publication of carbon estimation areas of eligible offsets projects as recommended by the Chubb Review.
New entrants
2.136
The committee received evidence on new entrants to the system, in particular on potential requirements for new entrants, the potential adjustments of baselines, and the reserve capacity.
2.137
Noting that the consultation on the Government’s Position Paper has not yet concluded, the committee considers that the Government should seek to further understand the impact of new entrants into the Safeguard Mechanism, and how this affects Australia’s potential emissions rates and the achievement of our domestic and international commitments.
2.138
The committee sets out further views and a recommendation on new entrants in chapter 3.
Australia’s methane emissions
2.139
The committee notes the International Energy Agency’s statement that the sustained reduction of methane emissions is ‘key to limiting near-term global warming and improving air quality’.
2.140
Moreover, as a participant in the Global Methane Pledge from October 2022, Australia has committed to working collaboratively internationally to reduce methane emissions by at least 30 per cent below 2020 levels by 2030.
2.141
Questions were raised about the accuracy of Australia’s current reported methane emissions, citing the findings of the recent IEA’s Global Methane tracker.
2.142
Given the importance of the task and the challenge of our national commitment, the committee considers that the Government should undertake work to better understand the scale of Australia’s methane emissions.
Carbon border adjustment mechanism
2.143
Evidence presented to the committee suggested the Government should consider implementing a CBAM to ‘level the playing field’ for Australian businesses, when competing against overseas companies who do not have as stringent climate requirements to meet.
2.144
The committee understands that the Government is currently looking into how to best prevent international carbon leakage risks, while maintaining Australia’s reputation as a reliable and secure trading partner.
2.145
The committee considers it appropriate that the Government’s review explicitly examine the potential benefits and risks of a CBAM, which could potentially complement the proposed reform of the Safeguard Mechanism.
2.146
The committee recommends that the review into carbon leakage incorporates consideration of how a carbon border adjustment mechanism could complement reform of the Safeguard Mechanism.