A vexed debate over the future of a major Australian climate policy that has been bubbling away for months is coming to a head.
The Albanese government has given itself a tight deadline to land what is possibly the most substantial step to cut greenhouse gas emissions in line with its climate targets that it promised before winning power last year.
The policy is called the safeguard mechanism. It was introduced (and named, badly) by the Coalition. It was meant to limit emissions from industry but hasn’t. The previous government chose not to properly enforce it.
Labor has promised to revamp it. Part of the revamp requires legislation, which the government wants to pass in the next three weeks of parliament. The other part will be made through changes to regulation before a 1 July start.
What are the political divisions?
With the federal Coalition opposed to climate action, the government needs the support of the Greens and at least two other crossbenchers to get the legislation through. That is not guaranteed to happen and we have seen some performative displays of hostility over the divisions between Labor and the minor party.
The two parties are engaged in a public staring contest. But the key players – the climate change minister, Chris Bowen, and the Greens leader, Adam Bandt – are talking.
The Greens’ starting position is that the government needs to block new coal and gas developments. Labor promised before the election not to do that. Something is going to have to give for a deal to be done.
The possibility that it won’t is giving some observers flashbacks to Kevin Rudd’s carbon pollution reduction scheme and the blame game that followed its premature death in 2009. Failure would have climate, economic and political ramifications. There is no backup proposal on offer. But the details of the scheme matter.
There remains widespread uncertainty about what the safeguard mechanism even is. The confusion is aggravated by a parallel debate over the role that carbon offsets should play.
What is the safeguard mechanism?
It was designed by the Coalition under Tony Abbott, ostensibly to put a limit on emissions from the country’s biggest industrial sites. It covers 215 sites that each emit more than 100,000 tonnes of carbon dioxide a year. Together they produce 28% of Australia’s emissions.
Roughly half the facilities are fossil fuel operations – gas extraction sites, liquified natural gas processing plants and coalmines. Unless carbon capture and storage miraculously becomes viable, these facilities will need to make reductions now and ultimately be phased out if Australia is to address the climate crisis.
The rest of the facilities should have a long future but need cleaner ways of operating. They include steelworks, aluminium smelters, cement producers, chemical manufacturers, major transport companies and airlines.
After coming to power in 2013 the Coalition abolished a functioning carbon pricing scheme that had required polluters to pay for their CO2. Its replacement was a “direct action” policy to buy some emissions cuts using taxpayers’ funds. The safeguard mechanism was introduced at the same time to stop industrial emissions increasing and wiping out the cuts paid for by taxpayers.
Each big polluting facility was given an emissions limit – known as a baseline – based mostly on historic output. But with few exceptions the baselines were not enforced. Polluters were allowed to increase their limits. A bunch of new polluters opened – including several big emitting LNG plants – adding to national pollution, and industrial emissions increased significantly.
What is Labor planning?
Labor, bruised and battered by more than a decade of climate wars, made a political call before last year’s election that its best chance of avoiding another misleading scare campaign about the cost of emissions reductions was to work with what was already in place.
Bowen has released a proposal under which polluters will be given new baselines at levels that better reflect emissions. In most cases companies will be required to cut emissions intensity – how much they release relative to production – by 4.9% a year. They can choose how much happens onsite and how much comes from buying offsets.
The idea behind offsets – known as Australian carbon credit units, or ACCUs – is that they allow companies to pay for cheaper emission reductions elsewhere. But the government’s proposal to allow fossil fuel developers to buy an unlimited number of offsets while continuing to emit is contentious. We’ll come back to that.
Bowen is taking submissions on the design. Business and industry groups have strongly supported the change at a global level but individual companies are arguing that they can’t cut emissions so rapidly or that they need financial help. The government will make decisions on a site-by-site basis.
The minister has said some companies may be allowed to make a smaller annual cut but they will need to have a strong case that a 4.9% annual cut will make them less internationally competitive. He has pointed out that many companies have made net zero commitments and their future competitiveness will turn on being able to show they are acting on that. The government has promised $600m to help some industries embrace cleaner practice, with more expected.
Labor has also promised to create a new “safeguard crediting” system that would basically turn the scheme into a form of emissions trading. Polluters that make extra cuts would earn a credit for every tonne of CO2 cut below their baseline. Safeguard credits could be sold to polluters who have not made enough cuts and need to account for their extra emissions.
The idea is this would give industry an extra incentive to cut emissions onsite and greater flexibility to meet their targets.
Safeguard crediting is not a Labor idea. It was proposed by the Coalition and legislation was drawn up under the Morrison government. On this point, the new government just adopted what was already there. For reasons not properly explained, the Coalition under Peter Dutton has now decided it is a bad idea.
What about new fossil fuel proposals?
This is one of the two big concerns held by people concerned it won’t do enough to cut emissions – and it is the major sticking point between Labor and the Greens.
Official emissions projections last year assumed several gas projects – including Scarborough in northern Western Australia, the Beetaloo Basin in the Northern Territory and Narrabri in New South Wales – will go ahead. New and expanded coalmines are also proposed. The government says it won’t stop new fossil fuel developments if investors believe there is demand for coal and gas and if the developments are approved under environmental laws (which mostly don’t consider the impact of a project’s emissions).
Bowen says initial emissions baselines for these developments would be set at “international best practice”, and that the design leaves room for new projects to go ahead and the country to still meet its 43% emissions reduction target for 2030.
From a scientific basis, the Greens are on solid ground. The International Energy Agency, the UN and the globe’s climate science bodies have warned that the world must stop opening new gas and oilfields and coal plants and make deeper emissions cuts this decade if it is to stay within safe limits of global heating and reach net zero emissions by 2050.
Labor’s position is based on electoral politics and the argument that fossil fuel exports can continue while there are buyers.
What happens now?
We will see if the two parties can find middle ground – and whether the government can win support from two of the independent senators from among David Pocock, ex-Green Lidia Thorpe and the Jacqui Lambie Network.
More heated rhetoric over the division appears inevitable but some of this is for show. The Greens know Labor won’t back their coal and gas demand. Sarah Hanson-Young summed things up when she said it was an “offer, not an ultimatum”.
But the minor party has signalled the territory on which it wants to negotiate – restrictions on new fossil fuel developments. Bowen has said Labor is open to talking about the detail but won’t do anything at odds with the policy it took to the election.
Will the safeguard mechanism actually cut emissions?
This is a more difficult question to answer than it should be. There has been some over-the-top criticism claiming there is no difference between Labor and the Coalition on climate. This clearly isn’t true. Labor’s plan can, and should, lead to genuine CO2 reductions.
But despite Labor suggesting otherwise, its success will clearly in part turn on the number and scale of new fossil fuel developments. It will also be shaped by the extent to which companies rely on carbon offsets rather than making cuts onsite, and the integrity of those offsets.
Offsets have become a divisive issue but there is a pretty basic principle that is sometimes lost – you can’t offset your way to dealing with the climate crisis. Emissions reductions will need to be deep and direct.
High-quality offsets can play a role when used by industries that genuinely don’t have options to make direct cuts, or that want to drive even deeper cuts than they can onsite. And projects that store CO2 in the landscape are clearly needed.
What’s the problem with offsets?
Offsets could be used to justify new fossil fuel developments that would add vast amounts of CO2 to the atmosphere for decades to come. The goal is to cut emissions, not facilitate new ones.
While a carbon credit is meant to represent one tonne of CO2, scientists say an offset created through forest regeneration is not equal to a tonne released from fossil fuels. The latter can persist in the atmosphere for thousands of years. The former is much less likely to survive as long. It is another argument that offsets should be used sparingly.
Bowen’s rationale for not imposing limits on offsets is that a cut of nearly 5% each year is substantial, that some firms do not yet have technology available to make substantial direct cuts and businesses need flexibility to achieve their goals while keeping costs down.
He says he is confident the policy will lead to significant onsite cuts and that companies say they want to make direct reductions. There is logic to this. If they don’t they will face a rising annual offsets bill.
But Labor has not released analysis to show how much of the cuts they expect to be direct, or explained why it it is against placing some sort of limit on how many offsets can be used to ensure cuts are made onsite.
How big a role will offsets play?
RepuTex, a consultancy that did some work for Labor before the election but also at times criticised its policy, has released modelling that offers some support for the government’s case. It estimates that in 2030 the bulk of cuts – 74% – will be onsite. It found about half the emissions covered by the safeguard mechanism would be hard to directly reduce, it said there would be ample low-cost opportunities to make direct cuts.
On the other hand, a report by Climate Analytics found that allowing unlimited offsets could effectively give fossil fuel companies the green light to go ahead with for new developments and increase the CO2 being released into the atmosphere.
Meanwhile, arguments about the integrity of carbon offset projects continue. there has been reasonably broad, but not universal, support for the recommendations made by a review of the carbon credit system led by Prof Ian Chubb, including by some sharp critics of the scheme. Bowen has said he will implement all recommendations.
What that means in practice will be important. A new analysis led by one of the most vocal critics – Prof Andrew Macintosh, a former chair of a government Emissions reduction assurance committee – says flawed existing carbon credit projects could create at least 60m low-integrityquality carbon credits that do not represent genuine emissions new reductions over the next eight years if Chubb’s overarching review is not followed by a detailed project-by-project evaluation.
If Macintosh even is partly correct, and if the government doesn’t intervene, it suggests the safeguard mechanism’s ability to cut emissions could be compromised.
As with everything on this difficult subject, this debate still has a long way to run.
