Zali Steggall speaks on the Safeguard Mechanism (Crediting) Amendment Bill 2022

20-21 March 2023

Part 1 and Part 2 of speech are below:

Last year Australia signed the Global Methane Pledge: to cut 30 per cent of methane emissions by 2030. The International Energy Agency found fossil fuel companies in Australia are emitting about twice the methane that the government reports to the UNFCCC. We know from the report that was just released by the UN IPCC that the window of time to reduce emissions is closing and we must act with urgency. Not only are we losing our resources through these methane emissions but we're risking energy supply and cooking the planet, as methane is over 80 times more potent than carbon dioxide over the first 20-year period. If we were in a drought and had a leaking tap we would fix it, not open a new well. So it's time the government put in some gas leakage restrictions.

The safeguard mechanism reforms are an important opportunity for the government to bring in sensible measures for capturing and using that gas. The effectiveness of the safeguard mechanism will depend on the accuracy of the data it is based on, but the current reporting framework is too lax to ensure accuracy. Most oil and gas activities report based on national averages rather than actuals, and this needs to change. I've proposed amendments to ensure that Australian facilities adopt international best practice to ensure that we address this problem. I'm also proposing an amendment to cap fugitive emissions from coal and gas facilities within the safeguard mechanism.

This is an opportune moment to address energy sector methane emissions. If we don't get this right, we will lose the economic opportunities, with capital, workers and investment flowing to other jurisdictions such as the US, since their passing of the Inflation Reduction Act, and the EU, who are passing commensurate legislation as well. Australia will be penalised when trying to export goods. The European Union's Carbon Border Adjustment Mechanism will come into force in October this year, penalising carbon-intensive Australian exports. Australia's largest gas importer, Japan, has indicated it will preference low-emission gas.

In the context of this debate in relation to the safeguard mechanism, there are important amendments before the government, and I urge the government to come to the table and pass those sensible amendments. It is incredibly important at this time, with such a dire warning from the IPCC, that we establish a cap on gross emissions, that the government accept amendments and recognises the principle that gross emissions need to come down from this point, and that we set up a hierarchy of emissions reduction to ensure that the market and facilities prioritise on-site abatement, offset projects and then purchase offsets. We absolutely can do better.



I rise to speak on the Safeguard Mechanism (Crediting) Amendment Bill 2022. I'd like to start by noting that it is disappointing how many in this place, on both sides, have talked politics rather than specifics about the legislation and how it could be improved—for example, members of the government, like the member for Bennelong, could have actually engaged with the amendments that have been presented and tabled and said whether or not they intend to support them or argue for them in the caucus room. That's what the public ultimately wants to know.

Since 2019 it has absolutely been my focus to champion stronger action on climate change and put forward sensible solutions that should be able to be bipartisan. I put forward a climate change bill, which in fact would have made this mechanism unnecessary because it would have ensured that we had clear guidance on pathways to decarbonisation from an independent climate change commission. That is a proven method in other countries, like the UK. Unfortunately, that wasn't progressed by the government, so here we are tinkering around the edges of a policy that my predecessor in Warringah implemented when he dismantled the Carbon Pollution Reduction Scheme, and we know it is a far-from-perfect method. In fact, it has failed to deliver any significant emissions reduction in the heavy-industry sector. But, that said, if done right, the safeguard mechanism has the potential to significantly contribute to the achievement of emissions reduction targets. It does cover, in Australia, facilities that emit over 100,000 tonnes of carbon dioxide equivalents. These are the biggest emitters in the country, excluding the power companies. There is some argument that, in fact, this should be extended to more facilities that are high emitters and that they should be captured. We know there are about 215 facilities included at present and they represent about 20 per cent of our national emissions.

It's difficult to comment with finality on the bill because we don't know ultimately where we it will end up, and there are still conversations I'm having with the minister and other members of the crossbench and the Greens in this House and the other place. But it is important to point out that the safeguard mechanism bill is an important pillar of the government's climate policy. We know we had to push the government to acknowledge that the 43 per cent emissions reduction by 2030 is really a floor not a ceiling and that we have to be more ambitious than that, which means the levers we put in place in this bill, the very pillar to deliver the government policy, has to be capable of greater ambition. That's why so many of the amendments are important.

What this bill does, to cut through all the explanations, is it sets up safeguard mechanism credits as a new form of incentives to help large emitters accelerate decarbonisation. If they overachieve their emissions reduction beyond the 4.9 per cent per annum baseline set by the government then they are given a credit that can be traded to other safeguard facilities at market price. This is a good initiative and one that rewards actual abatement. From there, things get a little bit more complicated. The regulations, the rules around this, are still being developed, and, while there has been good progress in discussions with government, it is still not sufficient. I welcome the consultation process that has occurred so far, but we need to point out that there is room for more ambitious targets if we are genuine in committing to the Paris Agreement and the target temperature of close to 1.5 degrees. In all this discussion, apart from the political grandstanding that goes on in this place, we have to remember what the ultimate goal is, which is keeping warming to a livable status to make sure that we have stable environments in our communities so that our way of life can continue. That has to ultimately be the goal.

The 30 per cent reduction in emissions from safeguard facilities by 2030 is good, but it really should have been 30 per cent from 2005 levels, like all other emissions, not from today's level. The devil's always in the detail of just what you're requiring the industry players to do. Adjustments to baselines for emissions for safeguard facilities and that new facilities will have baselines set in accordance with global best practice are good things. The initiative to set five-year budgets for safeguard facilities post-2030, in fact, is in line with the carbon budgeting approach proposed in my own climate change bill. However, the mechanism does have some gaps. It must address gross emissions. We must prioritise real abatement over purchase of offsets, especially for coal and gas facilities. The mechanism should set a higher decline rate for coal and gas facilities. I totally accept that for about 50 per cent of facilities—heavy industries, steel, ammonia, cement, concrete—it will be incredibly difficult. But for coal and gas it is not difficult, and they should be able to have higher decline rates, which should be in this bill. We should not be allowing unfettered use of carbon offsets to achieve reductions—again, in particular for coal and gas facilities. A new fossil fuel entrant should enter the scheme net neutral. They should be displacing high-emitting alternatives.

Finally, we must improve methane measurement reporting and validation, and set these facilities on a path to minimising emissions and capturing methane. Methane is 26 to 28 times more potent than carbon dioxide in capturing heat and creating global heating. It is up to 80 times more potent over the first 20 years of emission. This must be a priority for all these facilities. I'm pleased to hear the government contemplate that there will be a cap on net total emissions for safeguard facilities. That can have a meaningful impact in terms of controlling total emissions from our largest polluters and restricting new entrants. But let's get real: that number in the discussion paper does nothing. It has to make its way into the legislation or even the regulations to have some accountability and to ensure some transparency of achievement.

The number of 1,233 million tonnes of net emissions is far too great. It has allowed room for growth in emissions and new entrants. The minister himself has said there is a buffer zone built into this to allow for new projects. It allows for at least three large new gas projects to come online—Pluto, Browse and Barossa, Western Australian projects—despite the fact the International Energy Agency tells us 'no new coal and gas' to have a chance of staying close to 1.5 degrees. Modelling from RepuTex shows that the potential for new entrants, especially fossil fuel producers, risks blowing out that budget and, with it, our 2030 target. The modelling shows that financially committed new projects will be substantial, totalling some 56.6 million tonnes of CO2 equivalent, leading to the budget being exceeded by 30 million to 35 million tonnes. The minister and the government dispute that, but we should be requiring new fossil fuel entrants to come online net neutral. We need to ensure that they are not adding to emissions and that they don't force other facilities covered by the mechanism to work harder to keep within the overall budget. It pits new entrants against potential growth industries in critical minerals and manufacturing. We've got cement and steel smelters and fertilisers. These are industries that will remain in the future. We need to invest in new energy sources to support their transition, not make their life harder by continuing to approve fossil fuel projects that will increase our emissions but have limited life span.

The new mechanism allows for unfettered use of offsets to achieve reductions. This is concerning and creates a disincentive to invest in onsite abatement and real decarbonisation. It might, in fact, encourage some facilities to wait when we know there is urgency. In other countries such as the US, they are moving on and investing in important new industries such as green hydrogen. The unlimited use of offsets in Australia provides companies the opportunities to wait on decarbonisation and invest in offsets rather than in the inevitable technology and actually abate emissions. We should be working with industry to bring down the cost of green hydrogen as an input and creating incentives for business to decarbonise now, accelerating the transition, and not have any incentive for facilities to wait.

Capping the offsets at $75 per tonne allows industry to pay their way out of cutting emissions more cheaply than the market may otherwise determine. That's concerning. There could be a shortage of credible offsets in the market. Just a few days ago, in fact, the New South Wales Treasury recommended including carbon emission pricing in line with the EU emissions trading scheme that is currently at $123 per tonne and rising in real terms. The escalating cost of offsets is more reflective of current market demand for offsets, and I think it will incentivise the creation of offsets as well as industry to actually invest. We must implement the recommendations of the Chubb review, as a matter of urgency, to boost the integrity of the scheme to ensure that facilities are investing in quality offsets. If not, all this is an accounting trick. It won't add up to anything, and we will have an escalating disaster when it comes to our emissions.

The bill itself establishes a new form of offset, the safeguard mechanism credit, which is a good thing. This is granted when a facility achieves reductions in emissions greater than the 4.9 per cent decline rate. It is a good thing. We want to incentivise accelerated emissions reduction. The legislation needs to establish a hierarchy of emissions reduction for: firstly, onsite real abatement; secondly, offset projects; and, lastly, as a last resort, purchase of offsets. SMCs—safeguard mechanism credits—represent real growth reductions in emissions. That is what we should be aiming for and prioritising.

Lastly, it's very important that we address methane. The key gap in this proposed legislation so far is greater transparency and accountability for methane emissions by the designated facilities. Last year, Australia signed up to the Global Methane Pledge: to cut 30 per cent of methane emissions by 2030. Most people think methane just comes from agriculture, and we have this ridiculous discussion about barbecues and farting cows. What we really need to talk about is the fact that fossil fuel mining creates 40 per cent of our methane emissions, and we absolutely can do something about this. This legislation is the mechanism by which we can absolutely do that.

Debate interrupted.