The Climate Trigger Bill and the Safeguard Mechanism Bill

We would like to acknowledge the contribution of Benjamin Hicks.

Introduction

On 13 September 2022, the Federal Labor Government’s Climate Change Act 2022 (Cth) was given royal assent, ratifying the Paris Agreement with Australia committing to a net zero target carbon emissions target by 2050 and an interim target of 43% reduction in emissions from 2005 levels by 2030. The interim target of 43% reduction in emissions from 2005 levels by 2030 has also been updated in the registry of the United Nations Framework Convention on Climate Change (UNFCCC) as Australia’s Nationally Determined Contribution (NDC) in accordance with Art. 4 of the Paris Agreement.

Powering Australia is the Federal Labor Government’s plan to create jobs, cut power bills and reduce emissions by boosting renewable energy. It sets out the Federal Labor Government’s plan to achieve these targets and to support industries and communities through the energy transition – including to reduce industrial sector emissions and funding to new transmission lines in the $20 billion Rewiring the Nation and developing the National Electric Vehicle Strategy. Along with these developments, there are two legislative processes being undertaken concurrently in parliament that further advance this strategic plan to reduce industrial sector emissions.

The first, is a parliamentary debate led by the Australian Greens and its introduction of proposed legislation in the form of an Environmental Protection and Biodiversity Conservation Amendment (Climate Trigger Bill) 2022 (Climate Trigger Bill).

The Climate Trigger Bill is currently in first reading in the House of Representatives and, if passed, will introduce a national carbon budget, and provide express Ministerial powers for consideration of projects with “significant impact on emissions” and rejection for projects with a ”prohibited impact on emissions”.

The second is a six-month consultation process with all energy industry stakeholders on delivery for emissions reductions consistent with Australia’s NDC through a proposal of how to vary the safeguard mechanisms by introducing the Safeguard Mechanism (Crediting) Amendment Bill 2023 (Cth) (Safeguard Mechanism Bill) in the National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER Act).

The Safeguard Mechanism Bill passed both houses on 30 March 2023 and will come into force on 1 July 2023, altering the scheme for offsetting of carbon credits for the safeguard threshold and introducing further monitoring and reporting obligations.

This update provides a background to both the Climate Trigger Bill and the Safeguard Mechanism Bill. In the case of the Climate Trigger Bill this is an interim analysis noting further amendments may occur as the Bill is considered in further lower house readings and the Senate. For the Safeguard Mechanism Bill, while passed, the safeguard rules and sub-ordinate legislation are yet to be developed and are intended for release in April 2023.

The Safeguard Mechanism Bill

Parliament has been conferring with industry stakeholders to seek feedback on a proposed design to deliver emissions reductions consistent with Australia’s NDC under the Paris Agreement and strengthen Australia’s competitiveness in a decarbonising global economy.

Following parliamentary debate led by the Australian Greens and submissions from industry stakeholders, the Safeguard Mechanism Bill to amend the current NGER Act passed both houses on 30 March 2023 and will take effect commencing 1 July 2023. This is to be supplemented by changes to safeguard rules and sub-ordinated legislation, which is intended to be released by parliament in April 2023.

The following is a brief background to the safeguard mechanism in the NGER Act as it currently stands and the proposed changes to be introduced with the Safeguard Mechanism Bill.

The Current “Safeguard Mechanism”, Safeguard Threshold and “Australian Carbon Credit Units” (ACCUs) under the NGER Act

The NGER Act was introduced in 2016 and already provides a framework for Australia’s largest carbon emitters to measure, report and manage carbon emissions with a safeguard mechanism. It requires facilities whose “net” emissions exceed the safeguard thresholds to keep their emissions at or below emissions baselines as set by the Clean Energy Regulator (CER).

The safeguard threshold is currently set at 100,000 tonnes or more of carbon dioxide equivalent (CO2-e) covered emissions in a financial year and applies to ‘covered emissions’ that subject to limited exceptions, is defined as scope 1 emissions, comprising predominantly direct emissions from fugitive emissions and emissions from fuel combustion, waste disposal and industrial process such as cement and steel making.

There are currently 215 facilities to which the safeguard mechanism applies spanning several industry sectors in electricity generation, mining, oil and gas extraction, manufacturing, transport and waste that together are responsible for 28% of Australia’s total greenhouse gas emissions.

It is the responsibility of the ‘responsible emitter’, being the person in operational control of the facility, to keep the facility’s net emissions at or below the safeguard threshold.

Currently responsible emitters can use Australian Carbon Credit Units (ACCUs) to offset the facilities’ net emissions. An ACCU is where one unit (equivalent to one tonne of carbon dioxide net abatement through either emissions reductions or carbon sequestration achieved by activities) is issued (purchased) by the responsible emitter from the CER off the Australian National Registry of Emissions Units (Registry) then uses in circumstances where either:

• the responsible emitter surrenders ACCUs and states that the surrender is to reduce those facilities’ net emissions for a specified monitoring period, or
• where an Emissions reduction fund project is conducted at the facility and:
  • ACCUs attributable to abatement at the facility are issued, and
  • The ACCUs are delivered to the Commonwealth under an Emissions Reduction Fund contract.

The CER reports on 15 April each year for all facilities including the baseline emissions number in force for that year, total reported emissions, the responsible emitters for each facility and any ACCUs surrendered.

Greenhouse gas emissions objectives (safeguard outcomes)

The Safeguard Mechanism Bill updates the NGER Act objective for Australian greenhouse gas emissions reduction targets by introducing ‘safeguard outcomes’, that are:

• responsible emitters for each designated large facility have a material incentive to invest in reducing covered emissions from the operation of the facility
• the competitiveness of trade-exposed industries is appropriately supported as Australia and its regions seize the opportunities of the move to a global net zero economy
• total net safeguard emissions for all of the financial years between 1 July 2020 and 30 June 2030 do not exceed a total of 1,233 million tonnes of carbon dioxide equivalence
• net safeguard emissions decline to no more than 100 million tonnes of carbon dioxide equivalence for the financial year beginning 1 July 2029 and zero for any financial year to begin after 30 June 2049, and
• a rolling five-year average for each financial year that begins after 30 June 2024 that must be lower than the past five year rolling average safeguard emissions for that financial year.

Introduction of issuance and registry for Safeguard Mechanism Credit Units (SMCUs) and relinquishment

The CER may, on behalf of the Government, issue a new offset carbon unit called Safeguard Mechanism Credit Units (SMCUs) to one or more persons in relation to a facility, which must also be entered into a registry by the CER.

The SMCUs will be set up to be transferable between persons which may include by assignment and operation of law. Each SMCU, subject to limited exceptions, is to be considered personal property transferable by assignment, will and operation of law and gives the registered holder legal ownership of the unit, which may be subject to equitable interests.

SMCUs may be relinquished by decision of the CER where found to have been issued on false or misleading information or the court for fraudulent conduct. If required to be relinquished then this permits the CER to publish certain information and the decision about the person on the CER’s website. The person is also to comply with relinquishment requirements and failure to do so has a monetary penalty. A late payment of the relinquishment requirement also carries an additional late payment penalty.

Further details on the registry, issuance, and market value of an SMCU will be outlined in amendments to the safeguard rules.     

Publication in relation to Safeguard Mechanism Bill

The CER, when issuing its annual report on its website on the 15 April, is to now include:

• In relation to designated large facilities reported under the Safeguard Mechanism Bill:
  • Total amount of covered emissions of greenhouse gases from operation
  • Amount of those covered emissions that were carbon dioxide, methane, and nitrous oxide
  • Baseline emissions number for the facility for the financial year and
  • Number of SMCUs (if any) issued.
• If the facility closed during or at the end of the financial year:
  • Net emissions number for the facility for that period
  • Number and type prescribed carbon units surrendered for the purpose of reducing the new emissions number for the facility for that period. and
  • If any of those units were ACCUs issued in respect of an eligible offsets project for a reporting period for the project – the methodology determination that applied to the project for that period (within the meaning of Carbon Credits (Carbon Farming Initiative) Act 2011).
• For each financial year between 1 July 2023 and 30 June 2030 publication of the:
  • safeguard emissions
  • net safeguard emissions
  • five year rolling average safeguard emissions, and
  • total safeguard emissions for the financial year.

Amendment to change in penalty for duty to ensure that excess emissions situation does not exist

A person who is a responsible emitter for a facility with a monitoring facility must ensure that the safeguard threshold is not exceeded in relation to the facility for monitoring period at any time after the monitoring period ends.

The monitoring period has now changed to 1 April instead of 1 March of the next following financial year.

The penalty for a person who does not ensure that the safeguard threshold is not exceeded for the monitoring period has been amended to equal the difference between the net emissions number for the facility for the monitoring period and the baseline emissions number for the facility for the monitoring period.

Net safeguard emissions introduces hard cap or ceiling on actual or absolute (gross) emissions

The insertion of the net safeguard emissions outlined in the safeguard outcomes means there is now a hard cap of an actual or absolute value on emissions and that value must be decreasing over time in line with the legislated goals in the Climate Change Act 2022 (Cth).

Reporting of net safeguard emissions

Provisions have been inserted into the NGER Act that if the Minister for the Department of Climate Change, Energy, the Environment and Water (Minister), receives advice from the Secretary for the Department of Climate Change, Energy, the Environment and Water (Secretary),  (having regard to an estimate or certain information) or CCA (in preparation of the annual climate change statement) that the safeguard emissions or net safeguard emissions are not declining in a financial year consistent with the safety outcome, then the Secretary or CCA is to advise the Minister and the Minister must undertake a public consultation in relation to whether the safeguard rules need to be amended to achieve the safeguard outcomes and, if satisfied that the safeguard rules need to be amended in order to achieve the safeguard outcomes – amend the safeguard rules.

Audit of facilities

Provisions have been inserted to require that where:

• a person who is required to provide a report under the Environment Protection and Biodiversity Act 1999 (Cth) (EPBC Act)
• a facility, or at least one of the facilities was a designated large facility or a facility of a kind specified in safeguard rules, or
• conditions specified in the safeguard rules are satisfied,  

there is a requirement to appoint an audit team leader, who is to be a registered greenhouse and energy auditor of the person’s choice, who is to carry out an audit of the regulatory report, compliance with the relevant section under the EPBC Act and any other matters in the safeguard rules. The auditor is to then prepare a written report setting out the results and give a copy of that report to the CER.

In this auditing process the person must give the auditor reasonable access to the facilities and provide reasonable assistance necessary to effect the exercise of the audit team leader’s duties under the EBPC Act.

Failure to comply with the above both carry monetary penalties for the failure to comply, which are set for an individual and higher amount for otherwise.

The safeguard rules will provide further details on the form the written audit report is to take, how it is to be provided to the CER by the auditor and may be amended to specify additional persons who the audit applies to.

Climate Trigger Bill

Background

On 5 September 2022 the Environmental Protection and Biodiversity Conservation Amendment (Climate Trigger Bill) 2022 (Climate Trigger Bill) was introduced to parliament by Senator Hanson-Young of the Australian Greens.  The Bill proposes to introduce a net carbon budget and an express power for the Minister to consider projects having a significant environmental impact (being projects with an projected 25,000 – 100,000 tonnes carbon emissions in any twelve month period) and determining whether the project is consistent with the national carbon budget (scope 1) when approving a project and where a proposed project is expected to produce higher than 100,000 tonnes of carbon emissions (scope 1) in any twelve month period to reject the project.

First reading

The Climate Trigger Bill introduces a new national carbon budget and express powers for the Minister’s decision-making in relation to carbon emissions, both of which are also required to be considered by the Minister in strategic assessment.

Minister’s express powers to consider and reject approval of projects

The Climate Trigger Bill, if passed, will introduce express powers into the EPBC Act for a Minister to consider greenhouse gas emissions when making decisions about projects.

The Minister’s decision-making is split into two different thresholds:

• Significant impact on emissions: For actions that would emit between 25,000 to 100,000 tonnes of carbon dioxide equivalent scope 1 emissions in any one year, including in pre-construction stage, the Minister must consider the project through Part 9 of the [EPBC] Act, as the Minister currently does with matters of national environmental significance. In deciding whether to approve a proposal in relation to a ‘Significant Impact on Emissions’, the Minister must consider whether the project will be consistent with the national carbon budget… and achievement of emissions reduction targets.
• Prohibited impact on emissions: For projects that would emit above 100 kilo tonnes of carbon dioxide equivalent scope 1 emissions, these projects would be treated similarly to nuclear projects under the [EPBC] Act, where the Minister is forced to reject the project’s approval.

The Climate Change Bill also proposes to ban a person from taking action that will have or is likely to have a significant impact on emissions. This is subject to exceptions where it does not apply such if taking the action is in operation under Part 9 or if Part 9 let the person take the action without an approval under the EPBC Act.[1] This legislative change would give the Minister control, within conferred legislative powers under Part 9, over decision-making for all projects with a significant impact on greenhouse gas emissions.

Minister prohibited to use alternative processes of approval for significant impact on emissions

The Climate Trigger Bill would expressly prohibit the Minister from using bilateral agreements, bioregional plans, and conservation agreements for actions involving significant impact on emissions. Subject to limited exceptions, all actions that have or will likely have a significant impact on emissions will be assessed under part 9 of the EPBC Act or in accordance with an endorsed policy, plan, or program under Part 10 of the EPBC Act.

Introduction of national carbon budget

The Climate Trigger Bill will introduce a requirement for the Climate Change Authority (CCA) to develop a national carbon budget from 1 January 2023 through to 31 December 2049 expressed as a gross amount of carbon dioxide equivalence and to assess the remaining budget annually and the Minister to assess projects against the national carbon budget taking these assessments of the remaining budget into account.

The CCA is required to consider Australia’s obligations under the Climate Change Conventions and global goals of holding the increase in the global average temperature to well below 2C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5C above pre-industrial levels.

The national carbon budget is a report prepared by the CCA and reviewed by the Minister, which has the intent of giving stakeholders to Australia updates of the Federal Government’s performance against the Climate Change Conventions, which is defined to include the Paris Agreement, Kyoto Protocol and United Nations Framework Convention on Climate Change.

The introduction of the national carbon budget will see the Federal Government taking a new role overlooking the states and territories in monitoring and reporting for climate change. The report will be published on an annual basis and viewable on the Climate Change Authority’s website.

Key Takeaways

The Safeguard Emissions Bill introduces:

• A hard cap on actual or absolute (gross) emissions through net safeguard emissions
• The ability for the Minister, upon receiving feedback from the Secretary or CCA, following public consultation, amend safeguard rules to meet Safeguard Outcomes
• A new offset carbon credit scheme called the SMCU
• New reporting from the CER in relation to the safeguard mechanisms, and
• A new auditing process for facilities of certain defined persons.

This legislation has been linked to the Climate Change Act 2022 (Cth) and the intention is clear to shift Australia from dependency on coal and gas projects to renewable energy projects, and to meet the target of 43% reduction of carbon emissions from 2005 levels by 2030, through increased monitoring of information and reporting of the 215 largest emitting facilities, and an ability to amend safeguard rules to meet these goals.

Clients who are (or think they maybe) affected by the new reporting, monitoring, auditing or approval processes in relation to climate change under the Safeguard Mechanism Bill or Climate Trigger Bill (if enacted) should reach out to our experts for advice on the incoming changes.

[1] Climate Trigger Bill s 24G.