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Your guide to understanding the Safeguard Mechanism

March 28, 2023

The Albanese Government released its set of proposed reforms to the Safeguard Mechanism in January and legislation is set to be introduced to Parliament this week.

The reforms affect over 200 industrial facilities and mines that produce more than 100,000 tonnes of on-site emissions each year. About one-quarter of these sites are coal mines, where on-site emissions stem from diesel use and fugitive emissions from coal seams.

Here’s what it is and what it means for mining and energy workers.

What is the Safeguard Mechanism?

The Safeguard Mechanism is a policy that will require heavy industrial emitters to gradually reduce greenhouse-gas emissions in line with the Federal Government’s targets.

The Government’s current emissions reduction target is an overall 43 per cent greenhouse gas emissions reduction target below the 2005 level by 2030. The Safeguard Mechanism was originally established by the previous Coalition Government and Labor’s reforms are designed to ensure that it works effectively by requiring heavy industry to reduce its emissions proportionate to the 43 per cent target.

If Safeguard Mechanism sites can’t make the required cuts, they need to buy carbon credits. These credits can either be purchased from other facilities that have reduced their emissions below the required levels, or by buying Australian Carbon Credit Units.

How will it work?

The Safeguard Mechanism means that large industrial sites, including coal mines, need to keep their emissions below a certain level.

The baseline emissions levels will be reduced by around 4.9% per year to 2030. However, there are flexibilities in the scheme to support sites that are trade-exposed or where emissions-reduction technology is in development but not yet commercially available.

Sites who are doing well under the policy and who are emitting below the baseline can receive additional credits to sell to other sites.

For coal mine operators, there have been some significant advances like ventilation air methane abatement technologies. Their uptake can help to extend the life of coal mines and the jobs they sustain. If done well, the Safeguard Mechanism can incentivise emissions reduction in a way that doesn’t lead to early closures.

Coal-fired power stations are not covered by the Safeguard Mechanism individually.

Instead, there is an industry baseline set for grid-connected energy generators recognising that they operate through a National Energy Market. The sectoral baseline is set at 198 million tonnes CO 2 -equivalent – which is based on industry emissions 10 years ago – but current emissions from grid-connected generation are about 50 million tonnes below due to the closure of coal-fired power stations and increase in renewable energy entering the grid.

Does the Safeguard Mechanism mean no new coal and gas projects will be approved?

No. The Federal Government did not agree to Greens demands for a ban on new coal and gas projects. The scheme is designed so that new coal and gas projects can be approved and be covered by the scheme as long as overall emissions keep declining.

How does this affect coal mines?

Fifty nine of the 215 facilities covered by the Safeguard Mechanism are coal mines.

Resource exports are critical to Australia’s economic prosperity and that Australia’s heavy industries continue to provide secure jobs with good pay and conditions to thousands of people across the country. We have been participating in Government consultations to advocate for a Safeguard Mechanism where sites are supported to reduce their emissions intensity, rather than forced to reduce production or close.

We have consulted with mining industry employers on how they expect the policy will affect their sites. Even though some coal companies are publicly complaining about the scheme, it has been broadly accepted by industry groups including the Minerals Council of Australia. Several major mining companies already have their own emissions reduction and net zero targets in place and welcome the certainty that will be provided by the policy. While compliance with the policy will raise some challenges, there is a widespread recognition that emissions need to be curtailed and that coal companies have been provided flexibility through access to credits. The Government has promised further consultation to ensure that the scheme works appropriately in the coal mining sector, given the variability of emissions depending on the coal seam and depth of mining.

Where to from here?

The Safeguard Mechanism will be the most substantial climate policy faced by heavy industry, and the Government’s proposed reforms have achieved broad support among industry, relevant unions, and policy experts. And the Government now appears to have the numbers in Parliament for the reforms to pass.

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