The Federal Government is seeking consultation on the newly released proposed reforms to the Safeguard Mechanism, as well as proposed details of the $1.9 billion Powering the Regions Fund.

Together, these reforms intend to support Australia’s biggest emitters to remain competitive in a decarbonising global economy and reduce their emissions.

Reforms to the Safeguard Mechanism have been proposed by heavy industry and big business, like the Business Council of Australia and Australian Industry Group, to end policy uncertainty and enable a predictable emissions reduction pathway to net zero by 2050.

The proposed package is based on extensive feedback over nearly six months of consultation with safeguard businesses, industry associations, climate and community groups, academics and private individuals. 

It balances the need for emissions reduction in the industrial sector, while strengthening competitiveness and providing flexibility in managing new obligations. The package proposes:

  • Retention of the intensity baseline framework, which helps decouple emissions growth from economic growth by allowing baselines to grow and fall with production
  • A hybrid approach regarding the setting of baselines for existing facilities, heavily weighted towards site-specific levels at scheme commencement – giving facilities time to transition to industry average benchmarks by 2030. New facilities will be expected to meet a new ‘best practice’ benchmark
  • Tailored treatment for emissions-intensive, trade-exposed (EITE) facilities based on the principle of comparative impact, to ensure competitiveness and that emissions do not ‘leak’ overseas – noting that international competitiveness will increasingly depend on low emissions production

Overall, these changes decline emissions baselines of Safeguard-covered facilities by 4.9 per cent each year to 2030.

A reformed Safeguard Mechanism is expected to deliver 205 million tonnes of abatement to the end of the decade, equivalent to cutting emissions from Australia’s cars by two-thirds over the same period.

The Safeguard Mechanism was put in place by the previous Coalition Government. It requires facilities that produce over 100,000 tonnes of greenhouse gases annually (around 215 facilities) to keep their net emissions below a baseline.

To support businesses and regional communities with this transformation, the Government is announcing an initial $600 million in funding from the Powering the Regions Fund for trade-exposed Safeguard facilities.

Energy Efficiency Council CEO, Luke Menzel, welcomed this announcement.

“We have entered a new era with two key features: high energy prices around the globe, and an ever increasing focus on cutting the emissions intensity of the products we use every day.

“In this new landscape, working with our most emissions intensive industries to decarbonise as quickly as possible is the best way to secure their long-term competitiveness.”

Mr Menzel said improving energy efficiency and pairing energy use with renewables are crucial parts of the decarbonisation effort.

“Investing in improving the energy performance of our largest energy users is a no-brainer – it will reduce emissions, reduce exposure to volatile gas markets, and help transition Australian industry to a net zero future.”

Mr. Menzel said the Government’s proposed reforms to the Safeguard Mechanism are also broadly on the right path, although further refinements are needed to ensure the scheme maintains its integrity.

The Government also begins further consultation today on detailed design and implementation of the broader $1.9 billion Powering the Regions Fund. The Fund will ensure the regions seize the benefits of Australia’s net zero transformation by supporting decarbonisation, new clean energy industries, workforce development and credit purchase by the Commonwealth.

A fit for purpose Safeguard Mechanism is critical to competitiveness in a decarbonising global economy where consumers and investors are demanding lower emissions, and many of our trading partners are developing carbon tariff policies.

Building on the previous two rounds of extensive consultation, industry and other stakeholders now have an opportunity to provide further feedback on the design of the Safeguard Mechanism and on the Powering the Regions Fund.

Federal Minister for Climate Change and Energy, Chris Bowen, said this was an important next step in ensuring the Safeguard Mechanism delivered meaningful outcomes and was fit for purpose.

“We’ve been extremely encouraged by the level of engagement in the process to date, and look forward to continued constructive engagement as we finalise the design of these critical reforms for Australia’s net zero pathway.

“Reforms to the Safeguard will help create an effective, equitable and efficient trajectory to net zero. We know that 70 per cent of facilities, representing over 80 per cent of scheme emissions, already have corporate commitments to net zero by 2050 – this reform helps deliver the framework to get there,” Minister Bowen said.

The Federal Government will also conduct a review to consider how best to prevent international carbon leakage risks, while aiming to protect Australia’s reputation as a reliable and secure trading partner.

Some trading partners, including the European Union, have proposed introducing carbon border adjustment mechanisms (CBAMs) to help ensure trade competitiveness does not compete with decarbonisation objectives.

Feedback on the consultation paper and draft legislative rules for the proposed Safeguard Mechanism design is open until 24 February 2023.

Feedback on the Powering the Regions Fund is open until 3 February 2023.

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