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The Emissions Reduction Fund: The Safeguard Mechanism

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ERF Publications and resources

The Emissions Reduction Fund: The Safeguard Mechanism

2015

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The Emissions Reduction Fund: The Safeguard Mechanism (PDF - 94.77 KB)

The Emissions Reduction Fund is central to the Governments Direct Action Plan to cut emissions
to five per cent below 2000 levels by 2020 and to 26 to 28 per cent below 2005 levels by 2030. It
comprises an element to credit emissions reductions, a fund to purchase emissions reductions,
and a safeguard mechanism.
The crediting and purchasing elements will lower national emissions, while funding
businesses to undertake projects that will improve their productivity, for example through more
efficient industrial processes, improved household and commercial energy efficiency and
improved soil productivity.
The safeguard mechanism will protect taxpayers funds by ensuring that emissions reductions
paid for through the crediting and purchasing elements of the Emissions Reduction Fund are not
displaced by significant increases in emissions above business-as-usual levels elsewhere in the
economy.

Background
The final design of the safeguard mechanism has been determined following extensive
consultation with businesses and the community. The Emissions Reduction Fund Green Paper was
released in December 2013 for public comment, followed by a White Paper in April 2014 outlining
key design features. A consultation paper canvassing options for the safeguard mechanism was
released in March 2015. The views expressed in over 85 submissions have informed the final
design.

The legislative framework for the safeguard mechanism is set out in the National Greenhouse
and Energy Reporting Act 2007 (the Act), through amendments included in the Carbon Farming
Initiative Amendment Act 2014.
The administrative detail of the safeguard mechanism is set out in the legislative rules. This
includes: which kind of facilities will be covered; how emissions baselines will be set; and
administrative processes for demonstrating compliance with safeguard obligations.
The safeguard mechanism is also supported by amendments to a number of related legislative
instruments to give effect to the safeguard mechanism, including the National Greenhouse and
Energy Reporting Regulations 2008 and the National Greenhouse and Energy Reporting (Audit)
Determination 2009.

How will the safeguard mechanism work?

The safeguard mechanism will start on 1 July 2016. It will require Australias largest emitters to
keep emissions within baseline levels.

Who will be covered by the safeguard mechanism?

The safeguard will apply to around 140 large businesses that have facilities with direct emissions
of more than 100,000 tonnes of carbon dioxide equivalence (t CO2-e) a year. This will cover
around half of Australia's emissions.
The entity with operational control of a facility will be responsible for meeting safeguard
requirements, including that the facility must keep net emissions at or below baseline emissions
levels.
The safeguard mechanism will apply broadly to a variety of business entities, including
corporations, partnerships, trusts, and local councils.

Which emissions will be covered by the safeguard mechanism?

The safeguard mechanism will apply to direct emissions (scope 1), including direct emissions
from energy production, where a facilitys emissions are above 100,000 t CO2-e. Electricity
generators will be responsible for the direct emissions from electricity production, not the
electricity users.

How will baselines be set for existing facilities?

Baselines for existing facilities will be set using data already reported under the National
Greenhouse and Energy Reporting Scheme (if data is available). Baselines will reflect the highest
level of reported emissions for a facility over the historical period 200910 to 201314, as shown
below.

There is a minimum baseline of 100,000 t CO2-e to ensure that baselines cannot be below the
coverage threshold.
Baselines can be adjusted to accommodate economic growth, natural resource variability and
other circumstances where historical baselines will not represent future business-as-usual
emissions.

How will baselines for new investments be set?

New investments can occur at existing facilities or through the creation of a new facility.
Baselines for new investments will encourage facilities to achieve and maintain best practice.
This best practice approach applies to new investments that are operational after 2020. This
approach is not applied to investments completed prior to 1 July 2020 because such investments
are likely to be already underway and therefore have little scope to change their design in
response to best practice baselines.
Up to 2020, baselines for new investments will be based on an audited emissions forecast
provided by the facility operator, with a reconciliation of the estimate against the actual
performance of the facility at the end of the forecast period.
Benchmarks will be used to determine baselines for new investments whose covered emissions
first exceed 100,000 t CO2-e after 1 July 2020. These benchmarks will be based upon emissions
intensity of production, and will use the best practice for that industry as the guide.

How will the Government ensure compliance?

Flexible compliance arrangements will give designated large entities access to a range of options
for meeting safeguard obligations.

A net emissions approach will allow businesses to use Australian Carbon Credit Units
(ACCUs) to offset emissions above the baseline.

Multi-year monitoring will allow a facility to exceed its baseline in one year, so long as
average emissions over two or three years are below the baseline.

An exemption will be available for facilities whose emissions are the direct result of
exceptional circumstances, such as a natural disaster or criminal activity.

There will be a range of discretionary, graduated enforcement options that the Clean
Energy Regulator will be able to apply to deter non-compliance.

How will the electricity sector be treated?

A baseline will apply across the electricity sector, with individual baselines to apply in the event
that the sectoral-baseline is exceeded. The sectoral baseline will be set at the high point of
sectoral emissions over the period 2009-10 to 2013-14.
Individual baselines will also be set at each facilitys highest annual emissions between 2009-10
and 2013-14. Generators will have access to the same emissions management options as
facilities in other sectors, as well as similar baseline adjustments to accommodate economic
growth.

Who will administer the safeguard mechanism?

The safeguard mechanism will be administered by the Clean Energy Regulator.
The operation of the Emissions Reduction Fundincluding the safeguard mechanismwill be
reviewed between 2017 and 2018 to ensure its ongoing effectiveness.

What is the consultation process?

Public consultation will be undertaken on drafts of the rules and regulations underpinning the
safeguard mechanism during September 2015.
The safeguard mechanism commences on 1 July 2016.

More information
Details about the Emissions Reduction Fund are available at www.environment.gov.au/emissionsreduction-fund.
Note: While the Commonwealth has made reasonable efforts to ensure the accuracy, correctness
or completeness of the material, the Commonwealth does not guarantee, and accepts no liability
whatsoever arising from or connected to, the accuracy, reliability, currency or completeness of
this material. Any references to the potential costs or benefits of undertaking an activity in
accordance with an emissions reduction method are estimates only. This material is not a
substitute for independent

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