Australian parliament passes historic bill to reduce industrial emissions

Australian parliament passed a legislation on March 30 that will force the country's biggest emitters to significantly cut their emissions, following an agreement on the law's draft between the ruling Labor party and the Greens earlier in the week.

The law will strengthen Australia's emissions compliance scheme, called Safeguard Mechanism, which covers nearly 215 large industrial facilities accounting for 28% of the country's emissions.

The scheme participants will be issued emission limits, which will then fall 4.9% annually through 2030.

The lower emitters will be rewarded with a new type of credit, called Safeguard Mechanism Credits, or SMCs. However, those exceeding their limits will have to offset emissions by buying SMCs and Australian carbon credits units, or ACCUs.

The government, which lacks a majority in the Senate, needed the support of the Greens after the opposition coalition withheld its support for the bill.

After weeks of negotiations, the Greens signed off on the bill in exchange for certain additional measures, including a hard cap on total emissions from scheme participants, higher scrutiny for new fossil fuel projects, and greater explanation for the use of offsets.

The bill's final draft passed through both houses of parliament on March 30 and will now be sent for assent by the country's Governor General to become a law.

"Today is a historic day for the country to ensure our economy can take advantage of the opportunities of decarbonization and meet our ambitious climate targets," Australian Minister for Climate Change and Energy Chris Bowen said in a statement.

The government is expected to finalize detailed rules of the scheme in April and put them into operation from July 1.

History

Safeguard Mechanism was introduced in 2016 by the former coalition government -- comprised of the Liberal and the National parties -- after repealing the previous Labor government's carbon tax.

However, the scheme has been criticized for setting liberal emission limits for polluters, resulting in an increase in total emissions.

Total emissions from the facilities covered by the scheme have increased by 7% in the fiscal year 2020-21 (July-June) to 136.27 million mtCO2e from FY 2016-17, according to a report from the Australian Conservation Foundation.

"Today's passing of the strengthened Safeguard Mechanism Bill comes after 10 years of political division and delay, and marks a historic day for climate policy progress in this country," said John Connor, CEO of Carbon Market Institute, the country's national carbon market body.

Improvements

Under the new features, the government will place a hard cap on total emissions from scheme participants at 1.23 billion mt through 2030, or 100 million mt in 2030.

As a result of this, the new oil and gas project approvals will be subject to scrutiny on whether their future emissions could put the scheme's target at risk.

This rule was inserted to assuage concerns from the Greens, who had previously demanded that no new coal and gas projects should be approved by the government.

The bill also mandates new gas projects to achieve net-zero on-site emissions from day one, which will increase their costs related to technology investment and carbon offsets.

The bill will also increase the scrutiny on the use of ACCUs as the companies offsetting more than 30% of emissions will have to explain to the regulator their choice for doing so, in terms of cost, technology, and availability.

However, with no limit on the use of ACCUs, the law is expected to increase the demand for carbon credits from big emitters to offset emissions above their mandated limits.

Platts, part of S&P Global Commodity Insights, assessed the price of Generic ACCUs at A$38.65/mtCO2e ($24.94/mtCO2e) and HIR ACCUs at A$38.75/mtCO2e on March 29.