Summary of recommendations:

In this submission, Climate Council has discussed essential improvements to the Australian Government’s proposed policy settings for the Safeguard Mechanism as outlined in the Department of Climate Change, Energy, the Environment and Water Position Paper of 10 January 2023. 

We have also outlined specific opportunities to strengthen the Safeguard Mechanism (Crediting) Amendment Bill 2022 to give effect to these improvements. Further context and discussion of these recommendations is provided throughout this submission.   

Policy recommendations

Climate Council recommends the draft Safeguard Mechanism settings released by the Australian Government be updated to clarify that:

• Safeguard Mechanism-regulated facilities must demonstrate practical steps and/or investments in train to genuinely reduce emissions before being able to purchase SMCs or ACCUs to meet their determined baselines;
• Facilities must use some SMCs to account for any remaining emissions before purchasing ACCUs, given their more direct equivalence to the type of emissions produced within the scheme;
• Unlimited use of ACCUs will not be a permanent feature of the scheme. Climate Council recommends that over time, use of ACCUs be progressively phased down to a set percentage of a facility’s total baseline. Differential percentages would be expected to apply based on the sector a facility operates within and therefore the available technology options for achieving genuine emissions reduction;
• Any new coal, oil and gas facilities entering the Safeguard Mechanism after 1 July 2023 will be required to meet their baselines without the use of ACCUs – i.e. using only a combination of best-practice technologies and SMCs.

Bill recommendations 

Climate Council recommends the Safeguard Mechanism (Crediting) Amendment Bill 2022 be amended to make further updates to several sections of the National Greenhouse and Energy Reporting Act 2007 – and any necessary consequential sections – to achieve the following objectives: 

1. Section 21 – require covered facilities to make reports to the Regulator about their emissions reduced and removed through onsite projects and/or active investment in research and development and pilots of technology changes to achieve this in future. 

2. Sections 22XK and Section 22XM –

• require covered facilities to surrender SMCs alongside ACCUs when doing so for the purpose of reducing net emissions;
• expressly state that the total share of prescribed carbon units able to be surrendered against a facility’s obligations can be determined by the Minister via regulation;
• clarify that any coal, oil or gas facilities entering the mechanism after 1 July 2023 may only surrender SMCs for the purpose of reducing their net emissions.