In Focus: Latest Safeguard Mechanism Updates for 2024
The Safeguard Mechanism, one of Australia’s key emissions reduction tools, covering over a quarter of the country’s emissions underwent a series of reforms last year.
The latest proposed Safeguard Mechanism update makes it more robust, but also will have significant implications on some emitters.
Emissions Intensity Determination – an important Safeguard Mechanism update
In the latest proposed Safeguard Mechanism update, a subtle clarification was made that has potentially material impacts to covered entities. This surrounds Emissions Intensity Determination or EID, which establishes the site-specific intensities of production variables at each facility.
Facilities without an EID must now either use a best practice baseline for a production variable (PV), or if no best practice value has been prescribed, default to a zero baseline for that PV.
Facilities without an EID will now be held to low best practice, or a zero intensity for their PVs. This poses a significant risk to responsible businesses and potentially material financial costs.
This change was needed to close a known loophole and simplify compliance. However, it comes late with many organisations already appointing advisers and auditors to complete their EID applications before April 2024.
Time is now of the essence for those without an EID.
Responsible emitters now have 3 ½ months left to collect historical years data, prepare the intensity calculations and EID application, and have it audited.
The audit timeframe is the most concerning – as all historical years’ data may need to be audited to a reasonable assurance standard by 30th April 2024, with time also needed for executive review and sign-off.
Safeguard Mechanism updates – Other proposed changes
Other changes to look out for include the addition of seven new production variables; including one for mine rehabilitation, hydrogen, lithium ore, and renewable fuels amongst others. The mine rehabilitation PV will mean that large mining facilities will effectively have a baseline emissions allocation for end of mine life and significant rehabilitation activities.
There have also been some significant modifications to existing PVs, and updates on several industry default intensities, slight clarifications for Trade Exposed Baseline Adjusted facilities, and publication of some best practice intensities in Schedule 1.
In general, several clarifications have been made that remove uncertainty and tighten definitions, for a more robust piece of legislation. This was informed by weeks of consultation with industry, to ensure the mechanism is fit for purpose.
A forward-looking instrument encouraging clean transformation of industry
One of the most exciting things we can see is how the Safeguard Mechanism is actively accommodating and encouraging clean transformation of industry without penalising facilities for doing the right thing. This includes addition of a mine rehabilitation production variable, a hydrogen production variable, clean fuels and accommodations for cleaner production in both steel and oil and gas.
Prior to the latest Safeguard Mechanism update, there was a chance facilities would try to access the industry average values if they didn’t submit an EID. This would mean that if a facility was less intense than the industry average, they would have extra headroom before they would have to make any real reductions.
This change ensures every existing facility is measured against its own starting point – and if they don’t apply for an EID they could face serious liability upfront.
For more information and the latest updates visit the Consultation Hub.
Want to understand more about the Safeguard Mechanism and Emissions Intensity Determination?
Our team has deep subject matter knowledge of, and experience with, environmental reporting under the Emissions Reduction Fund and Safeguard Mechanism updates and legislation. We can help you:
- Review your historical NGER data for any method changes or updates required for any Emissions Intensity Determination calculations,
- Calculate your emissions intensity in line with the Safeguard Rule Amendments,
- Prepare your Emissions Intensity Determination application,
- Model of your anticipated Baseline Emissions Number out to 2030.
Learn more about our compliance services and read about the reforms in our article: Safeguard Mechanism 2.0 – Reform Changes and Safeguard Mechanism Credits.