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Safeguard mechanism

​This year marked the first full year of operation for the safeguard mechanism, which came into effect on 1 July 2016.

The aim of the safeguard mechanism is to ensure purchased emissions reductions under the Emissions Reduction Fund are not offset by significant emissions increases above business as usual elsewhere in the economy.

The safeguard mechanism applies to facilities with scope 1 greenhouse gas emissions12 of more than 100 000 tonnes of carbon dioxide equivalent per year. This requires Australia’s largest emitters to keep their emissions below a set baseline. They can do this by reducing their emissions, for example through an Emissions Reduction Fund project, or they may purchase ACCUs and surrender them to offset their emissions.

Where emitters have, or expect to, exceed their baseline, they may apply for a calculated baseline or access other management options in certain circumstances (see Setting baselines below).

The safeguard mechanism covers a broad range of industry sectors including electricity generation, mining, oil and gas, manufacturing, transport, construction and waste. Collectively, the facilities covered account for about half of Australia’s emissions.

Setting baselines

During 2016–17 we set most baselines using data reported under the National Greenhouse and Energy Reporting scheme. For more details, see National Greenhouse and Energy Reporting scheme.

While most facilities are covered by an individual baseline, electricity generators connected to the grid are covered by a sector-based approach. This is because the electricity sector behaves more like a single entity, where the output produced is centrally coordinated to meet real time demand. If the sectoral baseline is exceeded, individual baselines will apply to each generator.

We have made two types of baseline determinations to date:

  • reported baseline determinations–issued to facilities with sufficient historical emissions data that we can use to set the baseline, and
  • calculated baseline determinations–issued to facilities without sufficient historical emissions data, or where historical data is a poor indicator of future emissions. Calculated baselines are made on application only.

During 2016–17 we made 338 baseline determinations, comprising 331 reported baseline determinations and seven calculated baseline determinations.

SNAPSHOT

338 baselines set for the safeguard mechanism

FEATURE ARTICLE

Safeguarding emissions reductions

During 2016–17 we continued the necessary groundwork to ensure the smooth introduction of the safeguard mechanism.

Our main focus has been on targeted client engagement to identify, explain and set emissions baselines for facilities that meet legislated thresholds. These baselines represent the level of emissions that will trigger corrective action if exceeded.

In this first year of the safeguard mechanism, facilities with sufficient data received a reported baseline and, in the case of grid-connected generators, were also covered by the sectoral baseline. Some facilities have also applied for a calculated baseline.

We establish reported baselines using historical emissions data. We determine calculated baselines on application, if historical data is insufficient or does not reflect future emissions. If a facility exceeds the safeguard threshold, but does not have any of these baselines, a default baseline of 100 000 tonnes of carbon dioxide equivalent applies.

Throughout the year, we proactively engaged with our clients to explain, and inform, the baseline setting process–either seeking comments on reported baselines or assessing calculated baseline applications. Client feedback has been positive and by the end of June 2017 we had set more than 99 per cent of reported baselines, and were finalising the remaining few.

Reports on 2016–17 emissions are due in October 2017 as part of the normal National Greenhouse and Energy Reporting cycle on facilities’ energy use and emissions. We will use these reports to determine which facilities were covered by the safeguard mechanism for 2016–17 and which of those covered facilities exceeded their baselines. Responsible emitters have until 1 March 2018 to address any excess emissions situations at their facilities.

We have also been working to set up the necessary technical infrastructure and systems we need to track each facility’s position against their baseline and to use various emissions management options.

The success of our schemes depends on strong client engagement, and the introduction of the safeguard mechanism is no exception.

We will continue to engage with clients directly and through workshops to explain the next part of the safeguard mechanism which will focus on emissions management and actions clients can take if their emissions exceed their baseline.

  1. See Glossary for definition of Scope 1 and Greenhouse gas emissions.

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