Carbon Markets

REPORT: Modelling Potential Futures for Australia’s Safeguard Mechanism (Carbon Market Institute)

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RepuTex has been engaged by the Carbon Market Institute (CMI) to analyse the current operation of the Commonwealth Safeguard Mechanism, and model scenarios to align industrial greenhouse gas (GHG) emissions with net-zero emissions by 2050.

The objective of the project is to provide stakeholders with an understanding of current market trends, helping to provide a more informed basis for the design of policy settings under the Australian Labor Party’s (ALP) Safeguard Mechanism framework. In particular, the report examines different approaches to declining facility baselines, the use of external abatement, and industry assistance measures under an evolved Safeguard Mechanism.

The paper highlights key findings including:

  • Under business as usual, emissions covered by the Safeguard Mechanism are projected to reach 140 million tonnes by 2030 (18% above 2005 levels), creating an estimated abatement task for covered facilities of 170 MT.
  • Analysis considers three scenarios for the design of emissions baselines that decline to net-zero by 2050: an industry emissions intensity (EI) scheme; a facility-level EI scheme; and a facility-level (absolute emissions) scheme.
  • All options for declining baselines can send effective long term decarbonisation investment signals, with the signal delivered differently in each scenario.
  • An ‘industry intensity scheme’ would create a carrot for decarbonisation, but rules would be required to ensure crediting of genuine emissions reductions.
  • Under a facility-level system (in intensity or absolute) the ability to generate credits from emissions reductions relative to each facility’s baseline, combined with the pressure to avoid having to buy credits for emissions in excess of the baseline, would provide dual incentives for all participants to reduce emissions.
  • Proposed below-baseline Safeguard Mechanism Credits will therefore provide critical incentives for industrial decarbonisation, but market rules will be required prevent credit oversupply and minimise impact on the existing ACCU market.
  • Unlike a decade ago at the start of the Carbon Pricing Mechanism (CPM), Australia now has a deep, liquid, cost-effective pool of offsets to support the scale up of ambition for the industrial sector.
  • Through to 2030, 126 million new ACCUs may become available if project owners exit their contracts under the ERF – equivalent to 74% of the abatement task to 2030 – supporting the initial transition by the industrial sector.
  • Importantly, two-layers of industry assistance may be embedded into the scheme, minimising costs while protecting against carbon leakage and competitive risks.

Please click below to download the full report (PDF).

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