Summary
Coalition Senators do not support the Safeguard Mechanism (Crediting) Amendment Bill 2022 (the bill). The Coalition cannot support legislation when the Government has not properly assessed the impacts of reforms on the Australian economy.
The Coalition believes in a sensible transition to net zero emissions, which protects Australian jobs and the prosperity of our towns and regions. Coalition Senators do not believe the Government will achieve this balance with the proposed reforms to the safeguard mechanism. The Coalition is concerned with the disproportionate economic impacts the bill will have on regional Australia.
Coalition Senators believe the bill will result in further price increases for Australians as the additional costs of delivering the required emissions reduction will be passed on to households.
The Coalition is deeply concerned that Australian businesses will become less competitive compared to international rivals, and that potential facility closures could reduce the economy’s sovereign capabilities in key industrial sectors.
The Coalition believes the Government has failed to properly inform the Senate on the market outlook for Australian Carbon Credit Units and Safeguard Mechanism Credits.
Background
The previous Coalition Government introduced the safeguard mechanism to limit the growth of emissions in the industrial sector by applying an emissions baseline on 215 of Australia’s largest emitters. Emissions reductions instead were driven by the Emissions Reduction Fund (ERF), which supported voluntary action by landholders, businesses and communities. The ERF auction in April 2022, saw 7.6 million tonnes of carbon dioxide equivalent (CO₂-e) abatement contracted across the agriculture, vegetation, landfill and water, and industrial sectors.
This brought total contracted abatement to 217 million tonnes, at an average of $17.35 per tonne. Labor’s changes to safeguard mechanism will force facilities to reduce their emissions intensity by up to 4.9 percent each year, regardless of whether the technology exists for them to do so. Failure to meet the Government’s emissions targets or purchase the necessary amount of offsets will see a business fined $275 per tonne.
Labor’s claim that its safeguard mechanism policy mirrors the Coalition’s is a cheap political tactic designed to mislead. Economic impacts have not been assessed.
The Coalition believes in a sensible transition to net zero emissions, which protects Australian jobs and the prosperity of our towns and regions. It is the Coalition’s belief this is best achieved through investment in low-emissions technologies, not taxation, as the current Government is proposing.
The committee’s inquiry into the safeguard mechanism highlighted a multitude of concerns, from industry groups as well as environmental organisations, about the lack of clarity in the legislation, particularly around the provision of Australian Carbon Credit Units (ACCUs).
The Coalition believes the Government has not provided sufficient information to the inquiry on the economic impacts of the reforms to the safeguard mechanism.
When requested, both the Minister for Climate Change and Energy and the Department of Climate Change, Energy, the Environment and Water declined to provide the economic modelling that was undertaken.
At a Senate Economics Legislation Committee supplementary estimates hearing on 15 February 2023, the Treasury confirmed their modelling of the safeguard mechanism reforms had not considered broader macroeconomic impacts such as the impact on investment, jobs and prices.
No witnesses to the inquiry were able to provide analysis of the economic impacts of the reforms to the safeguard mechanism.
The Coalition is deeply concerned the Government has embarked on a major restructure of the Australian economy, without doing any of the work.
Additional cost of living pressures
The Coalition believes many of the facilities covered under the safeguard mechanism will be challenged with the delivery of the required 4.9 per cent annual reduction to their emissions intensity baseline. The Government has not provided the committee with an assessment of how key sectors will achieve the emissions reduction or what it will cost.
Several witnesses stated they believed many businesses would rely on purchasing carbon credits to meet their emissions reductions to 2030. The Coalition believes this will create an additional cost for Australian businesses—particularly if the price of carbon credits reaches the $75 price cap the Government is establishing. The cost of these carbon credits will be passed on to Australian households in the form of higher prices and increased bills.
Should businesses be unable to acquire sufficient carbon credits they will be made to pay a $275 penalty for every tonne of carbon dioxide they emit above their baseline. Far from lessening the impact of Australia’s current cost-of-living crisis, the Government’s policy will make it worse by increasing the price of everyday goods, from groceries to electricity and petrol.
During the inquiry the Australian Chamber of Commerce and Industry confirmed businesses would pass their higher operating costs under the safeguard mechanism on to consumers.
Australian businesses will become less competitive
Australia is an open economy and a trading nation. The Coalition believes there has been no meaningful assessment of the impacts of the safeguard mechanism reforms on the competitiveness of Australian businesses.
Several witnesses to the inquiry noted the introduction of a Carbon Border Adjustment Mechanism (CBAM), like the one proposed in Europe, could be a way to protect trade exposed businesses. Government witnesses provided no timeline for the CBAM to be developed and implemented in Australia.
The Coalition also notes that while a CBAM can protect a facility competing within Australia, it does not support Australia’s exporters who will be competing in international markets against rivals from nations with no carbon price. The Coalition considers these to be unacceptable risks.
The Coalition is concerned the proposed safeguard mechanism reforms will risk closing down Australia’s cement, steel, aluminium, oil refining and mining industries. The loss of these sectors represents an unacceptable hit to the nation’s economic security and sovereign manufacturing capabilities.
With no pathway to decarbonise, many Australian businesses will have no option but to reduce production, move offshore or shut down entirely, leaving workers, families and communities worse off.
The committee heard evidence from the Institute of Public Affairs that a large number of safeguard facilities are located in regional Australia. Facility closures arising from lost competitiveness would therefore have a disproportionate impact on regional economies and communities. The Coalition believes the Government has not adequately assessed these regional impacts or developed a sufficient support package.
The committee also heard from several witnesses that the Government’s proposed Powering Australia Plan, and $600 million funding package for trade exposed entities, was grossly inadequate.
Carbon Credits
Several stakeholders appearing at the inquiry told the committee that access to carbon credits would be an important part of businesses’ emissions reductions strategies. This included Woodside Energy who have already implemented their own emissions reduction pathway and are taking action to create a supply of carbon credits to offset their current and future emissions from new projects.
The Minerals Council of Australia also provided evidence that the mining industry would rely heavily on carbon credits to deliver its emissions reduction as technologies were not yet mature enough to deploy at Australian mine sites.
The Coalition notes several witnesses stated the use of carbon offsets should be limited as they do not represent real emissions reduction at the facility. The Coalition does not agree with this position and considers all forms of carbon credit to be legitimate.
The Coalition believes all facilities under the safeguard mechanism should have equal and unrestricted access to carbon credits. The Minerals Council of Australia noted without access to carbon credits, many mines across Australia were at risk of closure with significant losses in jobs, investment and government revenue as a result.
The Coalition is concerned at the lack of modelling undertaken on the carbon credit market. Neither the Government nor supporters of the safeguard mechanism reforms provided an assessment of the potential growth in demand, supply or price of ACCUs.
As previously noted, the Coalition is deeply concerned at the Government’s refusal to release the modelling underpinning this policy. The Coalition believes it is essential the Government provides all information available for Senators to make an informed vote on this bill.
The Coalition believes this bill should not be progressed until the Government releases the modelling required for Senators to make a well-informed decision on the impacts of the proposed reforms and bill.
The Coalition does not support the continued attacks on the credibility of ACCUs. The Coalition is deeply concerned at the limited planning that has supported the Government’s policy development in the area of carbon credits.
The Coalition notes the Department of Climate Change, Energy, the Environment and Water concerningly admitted, in response to questions from Senator David Pocock, that they had not considered what would occur if governments ran out of carbon credits to sell into the market to maintain the proposed price cap.
Conclusion
The Coalition does not support the Safeguard Mechanism (Crediting) Amendment Bill 2022.
The Coalition feels there has been insufficient assessment of the impacts of the Government’s proposed reforms and the system is not equitable for Australian industries as it stands.
The Government cannot answer what costs will be passed on to consumers. During a cost-of-living crisis already caused by its own reckless spending policies, the Government must carefully consider how reforms to the safeguard mechanism will further affect domestic prices.
Labor has not and will not consider technological investment as the primary driver of responsible emissions reduction that ensures the Australian economy remains productive and successful while also meeting climate obligations.
Recommendation
The Coalition recommends that the bill be opposed.
Senator Hollie Hughes
Member
Shadow Minister for Climate Change and Energy
Senator Ross Cadell
Member
Nationals Whip in the Senate
Senator Jonathon Duniam
Participating member
Shadow Minister for the Environment