The safeguard mechanism: Australia’s emissions trading scheme in all but name

From the time it was created, the mechanism has been subject to obfuscation. Labor is about to try and make it work, but it won’t be smooth sailing

Climate policy can sometimes seem like it is being spoken in a different language. Take the issue of the moment in Australia: the safeguard mechanism.

For people deeply embedded in the mechanics of how governments plan to cut greenhouse gas emissions, the safeguard mechanism has become a reasonably familiar subject since it was introduced by the Coalition six years ago – even though the Morrison government and its predecessors didn’t like to talk about it much.

Its relevance increased significantly in May, when the Albanese government was elected promising to make it a centrepiece of its pledge to ramp up climate action. But I suspect for most people, even those paying regular attention, the details are hazy.

From the time it was created under then prime minister Tony Abbott, the story of the safeguard has been one of obfuscation and marketing.

Its awkward name is a relic from the era when Abbott and his environment minister, Greg Hunt, were pledging “direct action” on climate change. Their promise was that farmers and businesses would be paid by the government to store carbon dioxide, mostly in vegetation and soil. The cash would be drawn from an emissions reduction fund, then worth $2.5bn.

The safeguard mechanism was meant to stop pollution at industrial sites from increasing and cancelling out any cuts paid for through the fund. It set a baseline – a limit – on the biggest 215 polluting facilities based on their historic emissions. The idea was the limits would safeguard the reductions bought by the government.

Polluters that emitted more than their baseline would have to pay, either by buying carbon offsets or facing a fine. Hunt’s plan was that this would eventually evolve into an emissions trading scheme. Polluters that emitted below their limits would earn carbon credits and could sell them to companies that pumped out more than their limit, creating an incentive to act.

In 2015, Hunt declared the safeguard would be used to cut emissions by 200m tonnes between 2020 and 2030. But his Coalition colleagues didn’t agree, and the evolution never happened. Instead, companies were often allowed to increase emissions without penalty. RepuTex, the firm that modelled Labor’s climate policies, found industrial emissions under the safeguard jumped 7% under the Coalition. Which, not unreasonably, led industry leaders and climate activists to wonder what the point was.

Labor decided there could be a point, and last year promised to transform the safeguard mechanism into something that actually cut pollution. The ALP didn’t necessarily believe the safeguard mechanism was the best possible policy. It made a political decision about how it could minimise the chance of a dishonest scare campaign over climate before the election, and give it something to work with if it won. So it adopted a suggestion by the Business Council of Australia that it should take the failing Coalition policy – an emissions trading scheme in all but name – and make it functional.

Achieving that will likely mean withstanding the sort of rent-seeking claims by industry that hindered Labor’s development of carbon pricing systems more than a decade ago.

The good news is the world has moved significantly since then. A majority of industrial polluters now have commitments to reach net zero emissions by 2050. Are they going to argue they need handouts or carve outs to protect them change they have already promised? Almost certainly, but it will be a harder case to make.

The climate change minister, Chris Bowen, has set a short deadline to revamp the scheme, promising a new model will be in place by July. Submissions to the government from experts and interest groups are rolling in, and setting out a long list of difficult issues to unpick. But a few stand out.

The government says it expects emissions covered by the safeguard mechanism to be reduced by between 3.5% and 6% a year by gradually reducing baselines. A major question will be who carries this load, and who doesn’t.

The Investor Group on Climate Change, which represents funds that manage more than $3tn, is one of several groups arguing that the cost will be higher on everyone else if unsustainable industries that will inevitably shrink in a net zero economy – coal and gas mining and production – are protected from short-term action on the grounds they compete in overseas markets.

They say assistance should be mostly limited to industries that have a future - renewable energy, critical minerals and green steel, hydrogen and aluminium – and designed to drive transformational change that starts now, rather than delays it.

The second issue sounds redundant but history has shown is worth asking. Will Labor’s changes guarantee that industrial emissions start to come down?

The government appears to favour a design that sets a limit for polluting facilities based not on their absolute emissions, but their emissions intensity – that is, how much they emit per unit of production. At first blush, this sounds a bizarre step, given it could lead to companies that expand operations increasing their emissions even if they become more efficient. But there are arguments for it.

Many companies have had baselines set well above what they actually emit. Resetting baselines based on emissions intensity could be a relatively simple way to remove this “headroom” and ensure limits are real before a path is set to reduce them to zero. An emissions intensity baselines also mean companies are not rewarded if pollution falls due to a slump in production. Instead, they would have to make genuine changes in how they operate to stay within their limits.

The downside is that it could still lead to emissions increases in the short-term. The Australian Conservation Foundation argues a way around this would be to set two baselines for each facility – one based on emissions intensity and the other absolute emissions – and require companies to meet whichever was lower or pay for their excess pollution.

A third substantial issue is what to do about new coal and gas developments. There are several fossil fuel proposals in the pipeline, and Labor has rejected calls for a moratorium. An alternative put forward by some groups would be to set sector-wide emissions limits that are reduced over time so that any new project would have to fit into a declining industry total, not add to it. Otherwise, hopes of meeting emissions targets could quickly evaporate.

Managing these and other thorny questions about the safeguard’s design – including the extent to which companies should be allowed to rely on carbon credits, rather than cut pollution onsite – will be politically challenging.

The ultimate test, though, will be whether the final model is robust enough to help Australia play its part in meeting the goal that Bowen stressed in a speech in the US on Friday - limiting the rise in global heating since pre-industrial times to as close to 1.5C as possible.

That will require it to be able to be ratcheted up to deliver faster cuts in emissions than currently proposed. We will get a sense pretty soon whether it is up to the task.


Adam Morton

The GuardianTramp

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