With the dust having now settled on last year’s historic COP21 negotiations in Paris, which resulted in a new global climate change agreement (Paris Agreement), the focus will be on domestic implementation of each Parties’ Nationally Determined Contributions (NDCs).
Pursuant to the Paris Agreement, countries have agreed to keep global temperature increases to “well below 2°C”. This overarching goal will guide countries’ mitigation and adaptation efforts for the period between 2020 – 2030.
Australia’s commitment to reduce its emissions by 26-28% by 2030, based on 2005 levels, will be implemented, in part, through the Government’s Direct Action Plan. This consists of the $2.55 billion Emissions Reduction Fund (ERF) for the competitive purchase of carbon abatement (with the third auction to be held on 27 and 28 April 2016) and the ERF Safeguard Mechanism (Safeguard Mechanism) to “ensure that emissions reductions purchased through the ERF are not displaced by a significant rise in emissions above business-as-usual levels elsewhere in the economy.”
On 1 July 2016, amendments to the National Greenhouse and Energy Reporting Act 2007 (NGER Act) will come into force, implementing the Safeguard Mechanism.
From that date, facilities that exceed the 100,000 t CO2-e threshold will be issued with a baseline for their covered emissions and these facilities must then take steps to keep their emissions below the baseline – or face penalties. The Safeguard Mechanism is set to cover half of Australia’s total emissions across various sectors including coal, aluminum, nickel, copper, electricity, oil and gas, transport and waste, with 80% of covered facilities expected to be located in Queensland, Western Australia and New South Wales.
RepuTex estimates that while 261 facilities will trigger the 100,000 t CO2-e threshold, only 85 facilities, run by 30 companies, will exceed their historical baselines. It is unlikely any of Australia’s current top 20 emitting facilities (which includes a number of electricity generators) will face penalties under the Safeguard Mechanism, even with forecasted increases to their CO2 emissions over the next decade.
The detailed rules for the Safeguard Mechanism are set out in the Safeguard Rule, which was made in October 2015 and provides guidance on how baselines will be set for covered facilities.
For further information, including the top 10 considerations for companies under the Safeguard Mechanism, please see our client alert here.