Safeguard Mechanism

LEAN National Executive's view on the Safeguard Mechanism and debate, February 2023

The Labor Government is in the midst of a major piece of climate change policy reform - the improved Safeguard Mechanism. The reformed Safeguard Mechanism will cover the 215 largest industrial emitters and require them to reduce emissions between now and 2030. The reformed Safeguard Mechanism is one element of Labor’s Powering Australia plan that was put before the Australian people at the last federal election. It has a clear mandate. 

You will have heard some debate about it. The following is the LEAN National Executive’s view. Buckle up, it’s kind of long! Apologies, but this is important. 

The Government’s proposed reforms to the Safeguard Mechanism represent a transformational change to carbon-intensive industries in Australia. It will enable government and industry to work together to reduce emissions by 200 million tonnes between now and 2030, in a section of the economy where emissions consistently continue to grow. If we get the policies right, it will enable Australian industry to be globally competitive in a decarbonising world.

The scale and importance of this reform should not be lost in the debate. It is a chance to make real, quantifiable change. It is something Labor people can be genuinely proud of.

Good legislation that delivers real change should be applauded and supported. With a growing national consensus on the need for climate action, once again the Coalition has decided to play politics with our future. 

And on the other side we risk allowing the perfect to defeat the good - there has been sustained attack by some commentators and sections of the climate movement. Some argue that the policy should be scrapped or disabled through complex amendments. Some environmental advocates talk enviously of the US Government’s Inflation Reduction Act and its significant subsidies to new low emission industries. But in truth, a simple, mandated system to reduce emissions in an orderly way is a far more wide-ranging and important intervention for the climate.

It’s important to note that the proposed Safeguard Mechanism puts a hard emissions cap on large emitters to 2030. The top 215 emitters - and any new entrants to the scheme - can only emit a total of 1,233 million tonnes of CO2 equivalent between them until 2030. It’s a clear carbon budget that the sector must deliver, that will not grow with new entrants - new projects will just drive each participant’s reductions faster. 

What about off-sets? Governments need to decarbonise without crashing the economy as a matter of political reality and social justice. Many major industrial emitters, aluminum smelters, concrete producers, and mines - including for critical minerals required for the clean energy transition - will deliver most of their emission reductions by choosing low emissions options when they make their next big investment decisions. That could be investing in heat pumps rather than boilers or electric arc furnaces rather than blast furnaces.  

A reformed Safeguard Mechanism’s real power is how it will influence that next set of investment decisions by tipping the economic balance towards low emissions technologies. 

In the meantime, emitters will fix the easy things - perhaps change the lights or start to phase in electric vehicles. But for many they will need to offset their emissions until major pieces of kit can be switched out to low emission alternatives. This is where carbon offsets come in. 

LEAN believes carbon offsets, both in stopping the release of, and in storing carbon in the forests and the land, are an essential tool in the path to decarbonising. They can be a win-win - as big emitters pay a price to protect carbon in the landscape, we can also help address the 20% of Australia's carbon emissions that are produced by Australia’s land sector. Land sector emissions are primarily land clearing, native forest logging and agricultural practices. The window won’t be long, as emitters will shift to reducing emissions at source, but if we do it right, carbon offsets can be an essential runway to net zero. And a big win for our environment and regional communities. With the right settings, offsets provide a “last drinks please” chance to make fossil fuel industries fund environmental protection and restoration.

And yes, carbon in landscapes is more volatile than industrial carbon. It can burn down or suffer from drought. But that can all be (and is) accounted for and discounts applied.

But it all relies on the integrity of the offsets system. Australia has an established system for measuring 1 tonne of carbon, an Australian Carbon Credit Unit (ACCU). Last year the government commissioned Professor Ian Chubb to lead a review into the ACCU system. LEAN campaigned hard for this review way back in 2021. Having won this commitment, whistle-blower Professor Andrew Macintosh then revealed major problems with the integrity of the ACCUs. This is hardly a surprise when they were designed by the Abbot-Turnbull-Morrison Governments! 

The good news is that the Albanese Government has adopted Chubb’s reform proposals. But there is still work to be done to ensure we have a world’s best carbon offsets system. We need to be ruthless about offsets that are not defensible and strip them from the system and we need to expedite the creation of offsets in landscapes where the carbon and biodiversity outcomes would be significant - like land clearing hotspots, prime agricultural land and native forests. 

ACCUs should protect our threatened forests and woodlands, and deliver restoration in the highest carbon and biodiverse areas on the continent. Done right they can help drive a reversal in environmental decline and genuinely reduce emissions. This will require government leadership and a plan to direct investment for the biggest bang for each abatement buck. 

There are those who dislike all carbon offsets. Then there are those who dislike bad carbon offsets. The two are being conflated in the current debate. LEAN backs the need for systems thinking that ensures ACCUs deliver genuine land repair and bankable carbon tonnes. Any doubts over their integrity will be fatal for the Safeguard Mechanism. 

LEAN does not support international offsets. They should not be considered for the scheme at least until the review in 2026. The Safeguard Mechanism and the demand it creates for carbon offsets is an opportunity to build a world leading Australian industry and invest in jobs and opportunity here. Furthermore, there is little current evidence that international offsets can be trusted to deliver high integrity, including indigenous landholders’ rights.

The 2026 review of the scheme will be an opportunity to look at all the settings, including the price cap of $75 (price is a way to tip the balance toward both high integrity offsets and reducing emissions at source) and the balance of offsets and direct emission reductions being used by the participants. Perfecting the scheme will be an iterative process. It will create the framework for higher ambition over time. And this is all in the context of the Climate Change Act 2022, which set a floor target and a commitment to ratchet up ambition over time.

What about new fossil fuel projects? Many advocates want the Safeguard Mechanism to put a stop to new fossil fuel projects. While we all know this must be the long-term aim, the Safeguard Mechanism is not the tool for delivering this. That is a discrete and different policy debate, that will rightly continue to be a major dynamic of climate change politics in this country. 

The Safeguard Mechanism is a market-driven baseline and credit scheme aimed at substantially reducing emissions from Australia’s biggest emitters. It is not a policy to end coal and gas projects. There is no mandate for this. An attempt by some to achieve this will simply end progress on addressing climate change in this country.

LEAN operates in many communities across Australia, not just the urban seats represented by Teals or Greens. A Labor Government cannot and will not implement policies that lead to unfair economic distress. Or break the consensus on the need for action. This reform will ensure that industry pays its share of the decarbonisation cost. If it fails, that cost will fall on households, workers and communities in the form of disorderly project closures and increasing climate impacts. 

LEAN welcomes the fact that Labor and the Greens are in genuine dialogue. The elegance and effectiveness of the scheme relies on the integrity of offsets. The current weaknesses must be dealt with expeditiously, reducing investment risks for buyers and assuring the community that they represent genuine abatement. Furthermore the offsets system should favour ending loss and driving restoration in the most important places for carbon and biodiversity. Consideration of the emission profile of new projects is something that should be included in environmental law reforms, it sits outside the scope of the Safeguard Mechanism. It is in the interests of both parties, the climate and the Australian community that agreement is reached on these concerns.  

The Australian parliament has failed miserably over the past decade to enact effective climate policy, despite good will and support by Labor in opposition. It would be a tragedy if well intentioned advocates helped the Liberals and Nationals once again kill effective climate policy. 

The LEAN National Executive
John Della Bosca, Felicity Wade, Louise Crawford, Sean Kellett and Frances Perkins

PS. Here's some more reading:

LEAN's submission on the Safeguard Mechanism, February 2023

The Government’s proposals on the Safeguard Mechanism are here. The Government’s response to the Chubb Review is available here.

And you can read LEAN’s explainer on the Safeguard Mechanism and why it is a good thing, plus Q&As on the details of the scheme. 

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