The leniency of the newly released ERF Safeguard Mechanism draft rules has increased the prospect of a disallowance motion being brought forward in the Senate to quash, or strengthen, the government’s new compliance scheme. To succeed, such a motion would require the support of the ALP, the Greens, and four of eight crossbench senators – a slightly lower threshold than required for the government to pass legislation in the upper house (six of eight).
In the event of a successful disallowance motion – or the threat of one – the government will be required to make amendments to satisfy the crossbench, notably independent Senator Nick Xenophon, with any negotiation to be buttressed by the government’s reliance on the crossbench to pass its future legislative agenda.
Subsequently, while last week’s draft rules would impose a more lenient baseline scheme on high emitting companies, the ineffectiveness of the policy to adequately “safeguard” ERF investment, or work towards Australia’s new 2030 emissions reduction target, may lead to the rules being strengthened following consultation with Senate crossbench stakeholders.
A number of amendments are currently being scrutinised by the crossbench in order to tighten the operation of the new Safeguard Mechanism. In this Policy Update, we examine these proposals and detail our expectations.
Notably, an opportunity is expected to present for the crossbench to broaden the government’s 2017-18 policy review in order to consider descending baselines from 2020, in line with Australia’s new 2030 emissions reduction target.
Coupled with a “default baseline” – which would come into operation should the baselines review not be resolved in 2017/18 – the prospect of such a review could trigger immediate ‘voluntary’ abatement activity by high emitting companies as firms seek to avoid a future liability, even should there be no ‘stick’ to penalise inaction before the review takes place.