The Energy is dedicated to covering the business of energy and in particular the people, capital, projects and emerging technology behind the energy transition.
Share
When will the decarbonisation training wheels come off?
Published 14 days ago • 4 min read
Hey Reader, welcome to The Energy's weekly data newsletter. This week we explore what the government's revised policy stick to reduce emissions is doing for the energy transition.
Nudging emissions
The first data release under the government’s reformed safeguard mechanism with an emissions cap has shown the adjusted policy is working to drive energy efficiency and bring down the emissions of big industry, albeit slowly.
Covered emissions reduced by 2.7 million tonnes year-on-year, or less than 2%, in what Carbon Market Institute CEO John Connor said was a “training wheels year” for the revised policy.
The big mining, manufacturing and gas facilities and projects covered by the mechanism make up about a third of Australia’s domestic emissions every year, and in the absence of actual emissions cuts many have been accused of greenwashing.
Expert view
“The key takeaway is that total emissions added up across all facilities are actually below the total emissions limit for the Scheme by approximately 500,000 tonnes. The carbon market was anticipating greater overall demand for credits in the first year of the reformed scheme, so this is a better result than many had anticipated.
"Around 8.2 million SMCs were issued, with coal mining (3.1 million) and oil and gas (3 million) sectors being the key winners. Overall, the coal mining sector also surrendered approximately three million ACCUs and around one million SMCs, making up for almost 50% of the total compliance related surrenders.”
Dr Taira Vora
Associate, Carbon Markets, Aurecon
What changed
Under the original policy design by the then Turnbull government, covered emissions actually increased in the first six years, thanks largely to loopholes meaning it was loosely enforced.
But Connor says the below chart shows it’s now acting as a real signal with a step up in surrendered Australian Carbon Credit Units (ACCUs). “That’s money that companies don’t like to spend, but it was important that there was a carbon price signal.”
The Clean Energy Regulator says the significant increase of surrendered ACCUs from 1.2 million in 2023-23 to 7.1 million in 2023–24 is a result of the reformed scheme. Source: CER
Fewer loopholes to avoid decarbonisation
Connor says most of the heavy lifting of decarbonisation is expected to come post 2030, as companies make investments in the big changes needed to their plant and operations.
And in the meantime, the current 4.9% baseline will be adjusted, year on year, to decline over time, meaning the total cost of credits will continue to grow if companies don’t step up their decarbonisation efforts.
Expert view
“We're probably seeing some energy efficiencies and fuel switching from gas to renewables coming through in this first year. It's critical that this is a framework which has accelerating requirements.
Companies will need to be making those bigger investment decisions, but in the real world they take time. And that's why it's important we have the crediting framework. It's generated over 8 million safeguard mechanism credits, which means that some companies are below the baselines, but in this first year of compliance they're only using a bit over 1.3 million of those. So clearly businesses are building up a portfolio as they look to those future responsibilities.”
John Connor
CEO, The Carbon Market Institute
Who didn't do enough?
There are currently no limits in the safeguard mechanism for carbon credits and offsets, which is why the scheme has critics who liken carbon offsetting to “claiming you’re a health food company even though you sell chicken nuggets, because everyone in your office eats salad for lunch”.
But the latest data release is the first where facilities that used ACCUs to meet more than 30% of their baseline were named, including their required explanation on why more onsite abatement had not been undertaken.
The CER report shows that 18 facilities were asked to please explain, and among them are:
Australian Gas Infrastructure Group's DBP (WA) Transmission
McArthur River Mine Operations
Batchfire’s Callide coal mine
Fortescue’s Christmas Creek Mine
Fortescue’s Eliwana iron ore mine
Coronado Australia’s Curragh coal mine
Grange Resources Savage River iron ore mine
Orica’s Yarwun Nitrates manufacturing facility
What role does energy play?
Energy intensive industrial sectors like those covered by the safeguard mechanism currently account for around half of Australia’s national energy consumption. And around half of Australia’s emissions intensive natural gas consumption is used directly in manufacturing.
Switching to electrification using renewable energy or fuel would bring down emissions, but many facilities traditionally reliant on gas or diesel are yet to make the switch.
AiGroup analysis of ABS data shows electrification by industry has largely flatlined over the past decade, but it has done better on energy efficiency, cutting its energy intensity by 17% in the same time.
Connor says the current policy is shifting decision making at higher management levels of the big emitters.
“We're seeing here what has been sitting in the top drawer of sustainability teams and others in the (covered) organisations. Now we've got a legal compliance investment signal it’s getting much higher up the chain in terms of finance officers and board-level discussions. It's at 4.9% on average this year, but it'll be 9.8% next year and that's the signal we need to have the continuity to drive the bigger industrial investment decisions.” — John Connor, CEO The Carbon Market Institute
What's next?
The government has delayed committing to a 2035 climate target which could ultimately see a broadening of the safeguard mechanism after the election.
The AFR recently reported the Coalition was planning to relax the mechanism if it wins government, in order to support its gas supply policy. Opposition leader Peter Dutton hasn’t said publicly what he might change, but a hint may lie in the Morrison government’s 2021 never-realised proposal for a new “Safeguard Crediting Mechanism” designed to encourage more carbon capture and storage.
Energy mix
Data news
BloombergNEF forecast US data-centre power demand would more than double by 2035, accounting for 8.6% of all US electricity demand. Today, most data centres remain concentrated in suburban locations within 30 miles of major cities.
The Energy is dedicated to covering the business of energy and in particular the people, capital, projects and emerging technology behind the energy transition.
Hey Reader, welcome to The Energy. In today's edition: Closing the energy gender gap Training tomorrow's tradies 'Clean steam' realised Anna Collyer on solving energy's workforce problem As a young lawyer with precious billable time between projects, Anna Collyer was asked to turn her mind to energy in the wake of Jeff Kennett’s privatisation of Victoria’s electricity assets. It was one of many "serendipitous accidents”, Collyer says, that set her on the path to becoming an energy expert. Now...
Hey Reader, in case you missed it last week our website went live and with it we have a back catalogue of insightful news, context and analysis. In today's edition: Australia's Trumpian arc of climate and energy policy All aboard for energy security Preparing for COP30 without the US Australia's great big energy own goal Today in the first of a three-part series, Dan Cass explores the 'Trumpian arc' of Australian climate and energy policy. Expert view “As Australia basked in praise of the...
Hey Reader, Welcome to The Energy. We're excited to say our website is now live! In today's edition: A complex election pitch Chris Bowen's Term 1 report card Market updates from Woodside, GE Vernova and Tesla Teal, maroon or orange: indies are here for the future Pundits were shocked when Australian voters backed intelligent, independent women who wanted integrity in politics and a more ambitious approach to climate and energy policy. Polling suggests the new normal is a federal parliament...
