From July 1 this year,large industrial facilities will have to cut their emissions by 4.9 per cent each year to stay under their caps. Businesses that do better than this will receive credits,which they can save for future years or sell to others who are in danger of breaching their caps. Any new industrial facilities will have to be built to international best practice,and there are allowances to maintain competitiveness for trade-exposed businesses.
Some businesses will have easy options to stay under their caps,like switching from gas to electricity in their factories;or improving the efficiency of their operations (saving money in the process). Others will find it harder:many are waiting for new technology to become commercial later this decade,so buying credits or offsets will be their only option in the short term.
If you think this sounds like a carbon price,you’re right. The objective is to force a choice on businesses:adjust operations to pollute less,or pay in order to do so. The key difference between the safeguard and a carbon tax is who gets paid. Under a carbon tax,it’s the government who collects the payments. Under the safeguard,businesses pay each other.
If it works as planned,industrial emissions will fall by 43 million tonnes in 2030. But there are a couple of potential risks.
Firstly,new industrial facilities may be built,and their emissions will add to the national total. The government is requiring new facilities to be built to international best practice,and to reduce their emissions by 4.9 per cent each year as well. Provided a rigorous definition of “best practice” can be agreed on (and this will be contested),this should keep additional emissions from new facilities to a minimum.
Some have suggested the solution to the above is to force new facilities to offset 100 per cent of their emissions. This won’t work. Why make it harder for newer,more efficient facilities to replace older ones,by forcing an extra cost on them? It would be more sensible to tighten up the definition of “best practice”,and increase the decline rate slightly for older facilities.