Safeguard Mechanism to commence in July

by Energy Action | May 20, 2016
The Energy Reduction Fund Safeguard Mechanism which comes into effect on 1 July 2016, requires responsible entities to keep emissions below set baselines. It is intended to accelerate Australia’s commitment to reduce CO2 emissions by 2030.

The Safeguard Mechanism aims to ensure that carbon abatement purchased through the Emissions Reduction Fund (ERF) is not offset by significant increases in emissions above business-as-usual levels elsewhere in the economy. It does this by requiring large emitters not to increase their emissions above a baseline set specifically for each facility.

Facilities that have ongoing emissions above 100,000 tonnes of carbon dioxide equivalent (CO2-e) covered emissions in a financial year will be covered by the safeguard mechanism in 2016-17 and beyond. Covered emissions are all direct (scope 1) emissions covered by the National Greenhouse and Energy Reporting Scheme (NGERs).

If a facility is covered under the Safeguard Mechanism, an emissions baseline (Baseline) will be established by the Clean Energy Regulator (CER), which cannot be surpassed. A Baseline is essentially a reference point against which future CO2 emissions will be measured.

The Baseline set for a facility will be dependent on the individual circumstances such as whether there is NGERs data for the facility, whether it is a new facility, or whether the facility will undergo expansion.

The categories of Baselines that will operate from 1 July 2016 are:

- Reported: NGERs facilities with five years of data, based on the historic high point.
Calculated: New facilities and facilities that have significantly expanded or have emissions variability can apply to the CER for a baseline to be calculated on an independent assessment approach. Calculated baselines expire after three years, or five years for larger projects, and on expiry, these baselines will be adjusted to reflect actual production.
Default: Designated large facilities that are not eligible to apply for a calculated baseline and do not have the required NGERs data to obtain a reported baseline will be assigned the default baseline of 100,000 t CO2-e.

Liability for compliance with the Safeguard Mechanism lies with the emitter responsible for running the covered facility. ‘Responsible emitter’ is a new phrase introduced under the NGERs Act which will be defined as the person having ‘operational control’ of the facility on or after 1 July 2016. It is likely that persons who already have obligations under the NGERs Act will be considered responsible emitters for the purposes of the Safeguard Mechanism.

The responsible emitter must ensure that the facility’s emissions remain at or below the Baseline during any financial year and may be an individual, company, trust, business entity or a governing body such as a local council. Note, the company liable under the Safeguard Mechanism will not necessarily be the same company that is currently reporting under NGERs. This is because the reporting company under NGERs is usually the “highest controlling corporation”, whereas the liable company under the Safeguard Mechanism will be the one actually operating the facility.

If an Emitter does not comply with its obligations under the Safeguard Mechanism, the CER may impose a range of discretionary penalties in order to warrant compliance. Enforcement options available include:

- Issuing of infringement notices;
Accepting enforceable undertakings; or
Seeking injunctions to halt the operation of facilities where emissions exceedance occurs.

In extreme cases, failure to meet Baselines may, amongst other measure, result in civil penalties, with maximum penalties of $1.8 million.

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