Climate Change and Energy Minister Chris Bowen with Senator Murray Watt (left) and Senator Anthony Chisholm (right) at Rio Tinto’s Yarwun Alumina Refinery in Gladstone.

Climate Change and Energy Minister Chris Bowen with Senator Murray Watt (left) and Senator Anthony Chisholm (right) at Rio Tinto’s Yarwun Alumina Refinery in Gladstone.

Major business groups have welcomed the changes but warn the scheme must be carefully calibrated over time to ensure local companies remain competitive with international rivals,many of whom operate in jurisdictions without mandatory emissions targets.

“I think it’s pretty reasonable to say that 215 facilities are responsible for 28 per cent of our emissions,therefore,they’ll be responsible for 28 per cent of our emissions reduction,” Climate Change and Energy Minister Chris Bowen said on Tuesday as he released a policy paper detailing proposed rules to enforce the new pollution caps.

When the safeguard mechanism was created in 2016 by the former Coalition government,pollution caps were not strict enough to enforce industrial emissions reductions. Former prime minister Scott Morrison argued that “technology,not taxes” would allow Australia to exceed its target to cut at least 26 per cent of emissions by 2030,based on 2005 levels,without compelling industry to act.

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But Labor pledged during the 2022 election campaign to set a more ambitious,legally binding target to cut Australia’s emissions by 43 per cent by 2030 and the safeguard mechanism will be beefed up to meet that goal.

The new pollution caps aim to cut greenhouse output by a cumulative 205 million tonnes by the end of the decade – equivalent to about 40 per cent of Australia’s annual carbon footprint.

The safeguard mechanism applies only to industrial emitters that generate more than 100,000 tonnes of greenhouse gas a year,including coal mines,gas plants,smelters and manufacturers such as BlueScope steelworks and Qenos plastics in Melbourne.

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“These proposed reforms have been carefully calibrated to deliver the policy certainty and support Australian industry needs through decarbonisation,” Bowen said. “Reforms to the safeguard will help create an effective,equitable and efficient trajectory to net zero.”

About 70 per cent of facilities captured by the safeguard mechanism,which together generate about 80 per cent of the emissions,have already committed to shareholders to reach net zero by 2050 and Bowen said on Tuesday the tightened pollution caps would help them reach these goals.

What is the safeguard mechanism?

The mechanism is one of Labor’s key policies to help achieve its emissions reduction targets,with the aim of lowering industrial emissions.

It will impose pollution limits on Australia’s 215 biggest carbon emitters,and those limits will be lowered through the years to achieve greater reductions.

The companies captured by the mechanism would have to cut their pollution by investing in clean technology – such as replacing gas inputs with renewable energy – or capturing their emissions.

If they don’t,or if their emissions still exceed their limit,they will be forced to buy carbon offset credits equivalent to the volume of carbon emissions that exceeded their cap.

The credits could be generated by other companies that overachieve on their targets or by carbon projects like tree planting.

Bowen will consult industry until February,but the rules kick in on July 1,leaving little scope for changes.

If companies do not meet their emission reduction target and fail to buy offsets,they face fines of $275 a tonne – which the government argues is priced above the maximum cost of carbon credits to ensure it is cheaper for businesses to comply.

The Minerals Council of Australia chief executive Tania Constable praised the government for including a cost-containment measure,capping the price of Australian carbon credits at $75 a tonne initially,but said industry needed to work through crucial detail for exporters.

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“We need to keep our trade-exposed export industries strong and competitive – that’s going to be a very important part of the consultation.”

Export businesses and the regional communities where they are located can apply for grants totalling $600 million to help cover decarbonising costs.

Australian Industry Group chief executive Innes Willox welcomed the government’s reform,which he said provided valuable policy certainty for industry.

“The evolutionary approach to strengthening the safeguard is vastly preferable to further rounds of policy whiplash,” Willox said.

On top of the existing carbon trading scheme in which polluters pay for credits generated by projects such as tree planting,the government will allow companies to sell credits if their emissions fall below their safeguard caps.

This move requires new legislation that would likely need support in the Senate from the Greens and David Pocock.

However,the Greens said on Tuesday the safeguard reforms are too soft on fossil fuel companies.

“Labor’s safeguard mechanism is giving coal and gas a green light to keep expanding as long as they buy enough offsets,” said Greens acting leader Mehreen Faruqi.

“Buying offsets is just coins down the back of the couch for them,” she said. “Coal and gas can’t be allowed to just buy their way out of real pollution cuts with dodgy offsetting.”

Qenos’ manufacturing plant in Altona,Melbourne,is one of the 215 industrial polluters that must reduce its emissions under the beefed-up regulations.

Qenos’ manufacturing plant in Altona,Melbourne,is one of the 215 industrial polluters that must reduce its emissions under the beefed-up regulations.Credit:Scott McNaughton

The Australian Conservation Foundation said the government should have imposed limits on the volume of carbon credits a company can use to offset their emissions,arguing that the global economy needs to decarbonise as quickly as possible.

Any new coal mines and gas processing facilities that are approved would be subject to the new regulations and would be required to meet “best practice” emissions targets. But the safeguard mechanism does not make it impossible for new gas or coal projects to proceed.

Cut through the noise of federal politics with news,views and expert analysis from Jacqueline Maley.Subscribers can sign up to our weekly Inside Politics newsletter here.

correction

An early version of this story said the mechanism would require 34 per cent cuts by 2030. It is 30 per cent.

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