Labor could agree to treat existing non-fossil fuel industries – such as cement, aluminium and steel – differently to new coal and gas developments in a bid to reach agreement with the Greens on a signature climate policy.
But it is unclear whether the possible compromise on the design of the safeguard mechanism would be enough to win support for the Albanese government’s plan, which requires major industrial polluting sites to reduce emissions intensity onsite cuts or buy carbon offsets.
The Greens remain in internal negotiations over the potential changes, with differing views within the party over what is a reasonable compromise on its starting position of calling for a ban on new fossil fuel developments.
Negotiations between Labor and the crossbench are also yet to resolve concerns about the government’s plan to allow companies to use an unlimited number of carbon offsets to meet their goals.
The climate change and energy minister, Chris Bowen, has repeatedly ruled out accepting the Greens’ demand to ban new coal and gas, as well as fallback options such as a pause pending a debate over whether to introduce a “climate trigger” that would require the government to consider climate impacts when major development proposals were assessed.
The safeguard mechanism was introduced by the Coalition in 2016. It was promised to put a limit on greenhouse gas emissions from about 200 major industrial facilities.
It applies to facilities that emit more than 100,000 tonnes of carbon dioxide equivalent a year. Each facility is set an emissions limit, known as a baseline.
The Coalition said companies that emitted above their baseline would have to buy carbon offsets or pay a penalty. In practice, facilities were allowed to change their baselines, few were penalised and industrial emissions continued to increase.
Labor plans to revamp the scheme.
It would set new baselines based on emissions intensity – how much a facility releases per unit of production. Baselines will be reduced by 4.9% a year.
Companies could choose whether to make onsite emissions cuts or buy Australian carbon credit units.
New polluting facilities, including gas and coalmines, could open and would be set baselines at “international best practice”.
Companies that emit less pollution than their baseline allows would be awarded a new type of “safeguard credit”. These within-scheme credits could be sold to other polluting facilities that emit more than their baseline and need offsets.
Labor wants the changes to start on 1 July 2023.
The Greens leader, Adam Bandt, has signalled his party would examine any solution that would stop pollution from coal and gas going up in good faith.
“We are prepared to work with the government, but to develop a scheme that actually sees pollution go down and that tackles the question of coal and gas,” Bandt told the lower house on Wednesday evening.
“Labor wants to keep opening coal and gas mines. We will continue to have good faith discussions with the government to see if we can arrive at a position where we can pass laws where pollution actually starts to come down, not just through offsets for tree-planting permits.”
The bill requires big industrial emitters to reduce emissions intensity by 4.9% a year, or buy credits from other firms who have cut further, or buy controversial carbon offsets created through forest regeneration and other projects.
Bowen has said the plan would achieve 205m tonnes of abatement and includes a buffer that means that number would be met if some new coal and gas projects go ahead. He has warned that without the safeguard mechanism, Australia will only be able to achieve a 35% reduction by 2030, not the target of 43%.
Among the Greens’ criticisms are that the scheme does not take into account the vast emissions released after coal and gas from new fossil fuel export developments is burned overseas.
Guardian Australia understands that some of the options explored earlier in negotiations include indirectly offering existing industries such as aluminium, steel and manufacturing an easier pathway.
One way to achieve this could be to ease the definition of what qualifies as a trade-exposed industry for non-fossil fuel facilities that the country needs to survive with lower emissions.
Easing the definition of trade-exposed while also placing some more onerous requirements on new developments could allow Labor to maintain that the bill is delivering what it has promised without directly singling out particular industries for easier or tougher treatment. Most new developments are expected to be coal or gas projects.
Earlier in March, Bowen said that if the bill passed, “new facilities will be obliged to comply with the world’s best practice on emissions”.
The crossbench and stakeholders have interpreted this as opening the way to tougher rules to reduce pollution from new coal and gas, including cracking down on potent fugitive methane emissions.
The independent MP for Warringah, Zali Steggall, has a set of amendments that aim to improve measurement of methane emissions, and mandate limits on fugitive methane for new coal and gas projects.
The independent MP for Mackellar, Sophie Scamps, has proposed an amendment requiring all new, expanded or extended fossil fuel facilities to have net zero carbon emissions at commencement, and for the life of the facility.
The crossbench senator David Pocock and independent MPs Allegra Spender and Steggall have also pushed for an overall cap or an explicit objective in legislation that emissions must come down.
Spender told Guardian Australia that discussions with Bowen had been “productive” and she is “hopeful” that an overall cap will be included in the legislation.
