Carbon Market Institute calls for clarity in safeguard mechanism, Emissions Reduction

The Carbon Market Institute (CMI) is calling for the government to provide clarity on the Direct Action Plan and specifically the safeguard mechanism and Emissions Reduction Fund (ERF) and outline how the policies will “evolve” to meet targets under the Paris Agreement.

There has been debate about the introduction of a Clean Energy Target (CET) as outlined in the Frankel Report, but the CMI points out that there is an operating policy under the Safeguard Mechanism that can be adjusted to increase emissions reduction across the economy. Under the Safeguard Mechanism, the baseline for emissions has been set at “historically high emissions levels,” but the baselines can be tightened over time, said Peter Castellas, CMI CEO.

Energy and Greenhouse data will be reported at the end of October and at that time, it will become apparent if any facilities have exceeded their baselines and are required to purchase Australian Carbon Credit Units, Castellas said.

CMI is also calling on the government to increase funding to the ERF to ensure the continuity of the domestic carbon offset industry.

There is Senate oversight over the way in which the Clean Energy Regulator (CER) could adjust the rules governing baselines, and Parliament would have to pass legislation to extend ERF funding, but neither change would require a new mechanism, but rather an evolution of existing policy.

“The regulator can adjust the baselines and it’s a policy decision to commit more funding to the ERF,” Castellas said. “The CER administers the safeguard mechanism, but certain changes to the rules of how the safeguard mechanism operates could be disallowed by the Senate. For the ERF, that’s a budget allocation that again may or may not trigger some kind of senate objection, but it’s not a new funding mechanism and doesn’t need to be legislated.”

Institutional investors have been “clear and consistent” in advocating for long-term certainty in the policy framework, Castellas said.

“They are also engaging in the climate risk in their own portfolios,” he said. “To do that, you need to understand or know what the underlying companies and assets are invested in, how they’re managing their climate exposure and climate risks. You need a policy framework that’s clear and long term to understand how they’re managing those risks. At the moment, the challenge is to get clear information from investee companies.”

Earlier in the week at the Investor Group on Climate Change (IGCC) annual conference, Castellas highlighted the contrast between Australian policy around a carbon price and trading scheme and the imminently expected announcement from China that they will have a national emissions reduction scheme.

“We’re waiting for the official launch, the design features and the staged approach at which they do this, but I don’t think there’s any doubt that we are moving to a future where over five billion tonnes of carbon emissions will be covered under the ETS,” Castellas said. “The design of the scheme and how it is implemented will determine how Australia is impacted form an economic point of view, but there is little doubt that it will directly affect any companies that sit in the supply chain of Chinese companies. The main thing is that emissions intensive exporters will be selling their products to companies with an explicit carbon price.”