Safeguard Mechanism Reform

In a media release last week by Chris Bowen, the minister for Energy and Climate, a third round of consultation was announced for the Safeguard Mechanism Reform. This round of consultation addresses several reform measures proposed by the Albanese Government following the first two rounds of consultation.

Merely a day after the Chubb independent review of ACCU method was released, the releases are both highly impactful and positive for the market.

Based on the Position Paper released, and all supporting documentation, the key relevant elements of the proposed reforms are outlined below.

1. International offsets will not be accepted in the 2023 reforms, though their treatment will be reviewed in 2026-2027. In the interim, consultation on amending existing legislation will be conducted to be implemented after the review if warranted. 
2. Facilities will have their baselines set based on a proportionate share of the 2030 national target. 
3. Safeguard crediting and trading will be introduced. Safeguard Mechanism Credits (SMCs), will be awarded for all below-baseline facilities and can be purchased by above-baseline facilities to cost-effectively offset their emissions. 
4. ACCU availability and treatment will remain stable. 
5. Safeguard facilities will no longer be able to register an ERF project to create ACCUs. 
6. Existing ACCU generating projects may continue to operate per normal, though crediting periods may not be extended. 
7. A ‘banking and borrowing’ arrangement will be introduced, allowing facilities full banking until 2030, and the ability to borrow up to 10% of their baseline per year. A 10% interest rate will be applied. 
8. On individual request, facilities may gain access to a multi-year monitoring period as opposed to annual monitoring. 
9. A cost-containment measure will be introduced through the Government selling contracted ACCUs to facilities directly, to provide surety around ceiling costs. The proposed ceiling is $75/unit for the 23-24 compliance year, with CPI plus 2% increases each year until 2030. 
10.  The baseline decline rate is proposed to be 4.9% per year to 2030. 

The Package

Six months into the process, implementations continue to be evaluated based on their effectiveness in reducing emissions in the industrial sector, while strengthening Australia’s competitiveness and flexibility in the market. In the bid to achieve this, a package has been proposed, encompassing: 

• The continued focus on ensuring emissions growth and economic growth are decoupled through maintaining the intensity baseline framework currently in play. This allows each organisation’s baseline to fluctuate with production, therefore allowing for expected annual changes. 
• The separation of new and existing facilities when determining new baselines. For existing organisations, this will look like a site-specific evaluation that allows adequate time to achieve industry benchmarks by 2030. However, new facilities will be expected to meet industry benchmarks from Day One. 
• An individualised treatment for Emissions-intensive, Trade-Exposed (EITE) businesses. This treatment may be based on the principle of comparative impact, which will ensure competitiveness is maintained. The purpose here is to ensure that emissions ‘do not “leak” overseas’. 
• The European Union has presented a case for carbon border adjustment mechanisms (CBAM) to ensure that trade competitiveness is separated from each origin country’s decarbonisation pathway.