Emissions Reduction Fund Safeguard Mechanism

by Energy Action | Apr 09, 2015
On 26 March 2015, the Department of the Environment released a consultation paper outlining design options for the Emissions Reduction Fund safeguard mechanism, the final element of the Emissions Reduction Fund.

On 26 March 2015, the Department of the Environment released a consultation paper outlining design options for the Emissions Reduction Fund safeguard mechanism, the final element of the Emissions Reduction Fund.

The Emissions Reduction Fund has three elements: crediting, purchasing and safeguarding emissions reductions. Implementation of the crediting and purchasing components is underway, with the first auction to open on 15 April 2015.

The Government is now finalising the design of the safeguard mechanism to ensure that emissions reductions purchased through the Emissions Reduction Fund are not displaced by a significant rise in emissions elsewhere in the economy.

No draft of the Safeguard Rules is yet available, but the NGER Act requires the Minister to take all reasonable steps to ensure that Safeguard Rules are in force by 1 July 2016.

The Safeguard Provisions, when they come into effect on 1 July 2016, will impose three significant new obligations:

  • an obligation to register certain types of facility under the NGER Act,
  • an obligation to report under the NGER Act on registered facilities,
  • and an obligation to avoid an ‘excess emissions situation’ at relevant facilities.

The proposed scheme budgets zero revenue but each of the above obligations is enforceable, the last of which is also enforceable by the Clean Energy Regulator by civil penalties.

Facilities emitting more than 100,000 tonnes of carbon a year will be covered. The electricity industry, which produces about one third of the nation’s emissions, will be treated differently under the proposed scheme. The industry will be given a sector-wide baseline pegged at the average industry-wide generator emissions over a yet to be named historical period.  If the whole sector exceeds the baseline, generators whose output is more emissions-intensive than the average of the sector, will be subjected to a baseline based on their historical emissions.

The 100,000 tonne threshold will cover around 140 large businesses—representing around half of Australia’s emissions. According to emissions data reported under the National Greenhouse and Energy Reporting Scheme by corporations and other legal entities in 2013-14, as well as forecasts for 2014-15, these emissions come from a range of sectors including power generation, mining (coal and metal ores), oil and gas extraction, gas supply, manufacturing (including metals, cement and lime), transport (air, sea, rail and road), heavy and civil engineering construction, and waste. Emissions from the electricity sector represent around 57 per cent of covered emissions.

The figure below also provides a breakdown of covered emissions from the remaining sectors. 

Source: Emissions Reduction Fund - Safeguard mechanism Consultation paper, March 2015

Source: Emissions Reduction Fund - Safeguard mechanism Consultation paper, March 2015

Leave a comment