Following on from the March Consultation Paper, the Federal Government on 2 September 2015 released the Exposure Draft of the proposed rules to support the Energy Reduction Fund Safeguard Mechanism.
The Safeguard Mechanism is intended to ensure that emissions reductions purchased through the Emissions Reduction Fund (ERF) are not displaced by increased emissions elsewhere in the economy.
The Government’s intention is to have the Safeguard Mechanism rules in place by the beginning of October, and the Safeguard Mechanism itself commencing on 1 July 2016.
The key requirement under the Safeguard Mechanism is that large emitting facilities must keep their net emissions below a specified baseline.
The proposed draft rules apply to facilities that emit more than 100,000 tonnes of greenhouse gas annually. Emissions which are counted towards this threshold (‘covered emissions’) include:
- - scope 1 (direct) emissions which have a measurement method under the National Greenhouse Energy Reporting Scheme (NGERS); and
- - non-legacy emissions from a landfill (namely emissions from waste deposited after 1 July 2016).
However the applicable baselines will vary, depending upon the sector.
For emitters other than grid connected electricity generators, the baseline will be set at each site's highest emissions level from 2009-10 to 2013-14, but may be increased if the facility can show special circumstances.
Grid connected electricity generators will have a sectoral baseline rather than individual facility baselines, and will be set by reference to total scope 1 emissions in 2009-10. A sectoral baseline of 198 million tonnes of CO2-e has been applied to all grid-connected electricity generators. If this sectoral baseline is exceeded, each generator will have to comply with its individual baseline which will be set at each facility’s highest annual emissions between 2009/10 to 2013/14. It is intended to review the approach to this sector in 2017/18.
Special provisions will apply to the waste sector to cover emissions from waste deposited after 1 July 2016. Interstate transport operators will have the option of defining their facilities on a national or state basis. Depending on the circumstances, this may enable transport businesses to effectively adjust their emissions baseline for the purposes of the safeguard mechanism.
The baselines proposed by the rules will be set at least initially by reference to a facility's (or in the case of electricity, the sector's) highest historical emissions, and not averaged over any period, nor with any capacity to be adjusted. Consequently, as drafted, the rules are unlikely to contribute to achieving Australia's emission abatement target.
The civil penalty where the direct (scope 1) emissions from a covered facility exceed its baseline level of emissions is $18,000 for each day the excess occurs, with an aggregate penalty of up to $1.8 million. However the penalty can be avoided if the responsible emitter nets off the excess emissions by surrendering Australian carbon credit units or other carbon units specified in the Rules. Whilst the draft Rules do not prescribe any international carbon credit units that can be used to offset above-baseline emissions, the Explanatory Statement to the Rules does state that the role of high quality international units in the safeguard mechanism will be reviewed between 2017 and 2018.
It is expected that around 140 businesses will be covered by the Safeguard Mechanism and the business with operational control of the large emitting facility will be the entity with responsibility for compliance.