Submission on the Australian government's review of the Safeguard Mechanism
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In our submission to the Australian government's review of its key policy tool for cutting emissions from the industrial sector, we argue the central issue with the Safeguard Mechanism (SGM), and with Australia's national goal-setting more broadly, is its emphasis on net rather than gross, or direct, emissions reductions. This is both an architectural and a practical problem.
The Safeguard Mechanism is not designed to drive the scale and pace of direct industrial emissions reductions required for a 1.5°C aligned transition, because of the role ACCUs play within it. This review is the opportunity to correct that.
The Government should:
- Set binding baselines on direct emissions within a Paris-aligned envelope: facility baselines should be defined against actual on-site (gross) emissions, and their sum should sit within an aggregate emissions envelope for covered sectors that declines in line with the Fossil Fuel Phase-out pathway. I
- Cap offset use at 10% of the declining baseline: Australian carbon credit unit (ACCU) surrender should be limited to no more than 10% of aggregate baselines. Because the baseline declines, the absolute volume of ACCUs that can be used falls every year, delivering an effective phase-out of offsets by 2040. The limit must create no new headroom, follow a fixed, published trajectory and start as soon as possible, as most Safeguard facilities face only one or two major investment cycles before 2050.
- Transition to an emissions trading system: putting Safeguard Credits at the centre of the policy instead of ACCUs would reward overachievement and create an incentive for further investment in abatement across covered sectors. Over time, free baseline allocation should give way to auctioning, aligning the price signal with actual abatement costs and generating revenue for industrial decarbonisation and for conservation funded directly rather than through offset demand.
