From July this year, the Australian Government is poised to introduce reforms to its Safeguard Mechanism which will impose stricter carbon emissions limits on our biggest emitters in a bid to deliver some 205 million tonnes of carbon abatement by 2030.

The current mechanism, put into place by the previous Government, required facilities producing over 100,000t of greenhouse gases annually to keep net emissions below a baseline but was ineffective at driving emissions down.

This prompted the new work, which features reforms proposed by heavy industry and big business, as well as feedback compiled over six months of consultation. It seeks to enable a predictable emissions reduction pathway to net zero by 2050.

Notably proposals include retaining the intensity baseline framework, which helps decouple emissions growth from economic growth by allowing baselines to grow and fall with production, and a hybrid approach regarding setting baselines at facilities that strong favour site specific levels.

Emissions intensive, trade-exposed facilities will also enjoy tailored treatment based on comparative impact, competitiveness and that emissions do not “leak” overseas.

Additionally, the limits are based on emissions intensity rather than overall emissions, meaning that companies can’t meet requirements by reducing production.

This is aimed at reducing emissions from Safeguard-covered facilities by 4.9% each year to 2030. That’s equal to two-thirds of Australia’s car emissions.

 

Liquefied natural gas impact

So just how will this impact Australia’s gas majors whose liquefied natural gas plants rank amongst the biggest emitters?

Probably less than you would expect.

While Minister for Climate Change and Energy Chris Bowen noted that some 70% of the facilities — representing over 80% of scheme emissions — already have corporate commitments to net zero by 2050, the Safeguard Mechanism still allows big polluters to use carbon offsets.

This includes both Australian Carbon Credit Units from the existing system – despite controversy about their integrity – and new safeguard credits that will be issued to companies that emit below their individual limit and can be bought by polluters that are above their baseline to help meet targets.

What this means for our LNG plants is that the companies behind them can purchase carbon credits to offset their carbon emissions rather than actually taking steps to reduce emissions, a criticism levelled against ACCUs by the Climate Council in the first place.

That’s not to say that all gas companies will take this route.

One study by Charles Darwin University has found that LNG plants could reduce their direct carbon emissions by up to 21% by using renewable energy (ironically) for their electricity and stationary demand.

There is one other potential consequence from the upcoming changes to the Safeguard Mechanism — it makes it that much harder for the development of new, large-scale fossil fuel developments outside those which are already committed (and might even put some of them at risk).

This is a little closer – though not quite meshing – with the Australian Greens’ preference for an end to new coal and gas projects.

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