Law and regulationEvent
Australia: Safeguard Mechanism reform passed by parliament – baselines fall by 4.9% a year
On 30 March 2023 the Australian parliament passed the Safeguard Mechanism reform: emissions limits for the largest facilities are to fall by default by 4.9% a year to 2029–30, and the new system is to operate from 1 July 2023.
Other language versions: polski.
The Australian parliament adopted on 30 March 2023 (the Senate, after an earlier vote in the House of Representatives on 27 March) the reform of the Safeguard Mechanism – the national system that limits emissions from the largest industrial facilities. The change introduces a default decline in baseline emissions limits of 4.9% a year to 2029–30 and is to apply from 1 July 2023, which makes Safeguard one of the main tools for achieving Australia's climate target.
How the mechanism works
Safeguard covers facilities emitting more than 100,000 tonnes of CO₂e a year – in practice mines, refineries, gas processing plants, and the metals and chemical industries. Each facility has an assigned limit (baseline). After the reform the limits are gradually lowered. A facility that exceeds its limit must cover the excess with ACCUs (Australian Carbon Credit Units) or SMC units. A facility that emits less than its limit can generate SMCs and sell them.
Why 4.9%
The default pathway is part of national policy for reducing industrial emissions on the way to the 2030 target. For trade-exposed facilities (TEBA), the possibility of applying for a lower rate of decline is provided. According to the Clean Energy Regulator, the minimum rate of decline for such facilities is 1% a year in manufacturing and 2% in other sectors. The government expects that the total emissions of facilities covered by the mechanism will not exceed 100 million t CO₂e in 2029–30.
What about gas and methane
The reform is of particular importance for the natural gas and mining sectors, in which fugitive emissions (methane leaks) and flaring make up a significant part of the carbon footprint. Facilities may cover excesses with ACCUs (including from methane abatement projects), and according to MinterEllison the facilities covered by the mechanism will themselves no longer be able to generate ACCUs – subject to transitional provisions. Facilities can also bank SMCs or borrow up to 10% of their baseline a year.
What this means for Poland and Europe
Safeguard resembles some of the mechanisms of the EU ETS, but without a single, fixed allowance ceiling for the whole economy: it has “tightening” limits for each facility separately and sales of surpluses. For the Polish biogas sector it is an example of a system in which carbon credits can have real value, because regulated facilities can use them to settle excesses above their limit.
