The Safeguard’s role in making Australia a renewable superpower - Grattan Institute

The federal Labor Government legislated reforms to the Coalition’s Safeguard Mechanism in May 2023, to ensure the country’s biggest emitters contribute their share to meeting Australia’s emissions-reduction commitments.

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This is a big step forward. The Government has embraced a sector-based approach, and all sectors must contribute. Carbon emissions from heavy industry will soon be the biggest source of Australia’s emissions. Using the Safeguard to implement a limited form of carbon trading should reduce heavy industry’s emissions effectively, efficiently, fairly, and simply.

But there is more to Australia’s economic future than reducing emissions for existing facilities. To be a true ‘renewable superpower’, Australia must encourage new, clean, industrial development that builds on our natural endowments of minerals and renewable energy.

The Safeguard Best Practice Benchmarks should be a key signal to investors that Australia wants to move away from its polluting industrial past. The Benchmarks are also a necessary risk management tool for government. They restrain pressure on the Safeguard Mechanism emissions budget. And to the extent that they encourage new facilities to be low emissions or zero emissions, they reduce the need for subsidies to achieve the same goal. Finally, the Benchmarks can make it easier or harder to meet emissions targets beyond 2030, depending on the extent to which they encourage or prevent lock-in of emissions.

Some of the proposed benchmarks are too high to be considered
‘best practice’. In particular, the iron benchmark is well above what other countries can achieve for steel. This does not sit well with the Government’s rhetoric about wanting to build Australia into a renewable superpower off the back of green steel manufacturing.

Other benchmarks are more ambitious. The bulk freight benchmark represents a 50 per cent improvement on current practice. But it is unlikely to make a dent in emissions from this sector any time soon, because most road freight emissions are not covered by the Safeguard Mechanism.

Ultimately though, the benchmarks are only as effective as the cost of offsetting allows them to be. A benchmark of zero requires new facilities to offset all emissions – they will do so if offsets are cheap. This will reduce emissions if offsets have integrity. But it will not drive industrial transformation and deliver the green superpower vision.

If the Government wants Australia to be a renewable superpower,
it needs to give more thought to making carbon pricing policy and industry policy work together. If Safeguard settings continue to make it cheaper to offset than to transform, then achieving the vision will require greater government spending via industry policy. This could be a very expensive option.

Tony Wood

Energy and Climate Change Program Director
Tony has been Director of the Energy Program since 2011 after 14 years working at Origin Energy in senior executive roles. From 2009 to 2014 he was also Program Director of Clean Energy Projects at the Clinton Foundation, advising governments in the Asia-Pacific region on effective deployment of large-scale, low-emission energy technologies.

Alison Reeve

Energy and Climate Deputy Program Director
Alison Reeve is the Climate Change and Energy Deputy Program Director at Grattan Institute. She has two decades of experience in climate change, clean energy policy, and technology, in the private, public, academic, and not-for-profit sectors.