Australian Industry Group, Manufacturing News

Safeguard Mechanism a work in progress, says Ai Group

Safeguard Mechanism a work in progress, says Ai Group

The Australian Industry Group (Ai Group) said the climate reforms to the Safeguard Mechanism released by the Federal Government yesterday are pragmatic, but require a lot more work over the next few years both by government and industry. 

Minister for climate change and energy Chris Bowen has released reforms to the Safeguard Mechanism, which forces 215 of Australia’s biggest industrial pollutants in oil, gas, mining, and manufacturing industries to reduce the emissions by 30 per cent by 2030.

“A core part of Australia’s climate balancing act is to build our competitiveness for the net zero emissions world that is coming without undermining our competitiveness in the messily transitioning world we operate in today,” said Innes Willox, chief executive of national employer association Ai Group.

“The Government’s initial measures to help trade exposed facilities invest in their future and to moderate their potential costs will be helpful. In the short term these and the range of cost-reduction and flexibility features of the Government’s design should mean there is no risk that Australia loses industries that we will continue to need for a prosperous and resilient economy.”

“However, trade exposure will grow more challenging over time as emissions baselines come down, particularly where alternative clean production processes continue to display a cost premium. Tweaking funds or decline rates will not be enough to resolve that,” Willox explained.

Willox said industry welcomed the government’s measured decision to explore longer-term options for an Australian Carbon Border Adjustment Mechanism (CBAM).

“A carefully designed CBAM, implemented in full compliance with Australia’s international trade commitments, has the potential to be a more efficient and sustainable solution to trade competitiveness concerns.”

“But while Ai Group’s research has highlighted this potential, we do not underestimate the complexity and sensitivity of this reform. Reviewing the options in 2023 as proposed, with full stakeholder consultation and reassurances to Australia’s trade partners, will enable well-informed decisions,” he added.

“Other aspects of the proposed Safeguard reforms will require more urgent analysis given the 1 July 2023 commencement of the new system. The hybrid approach to baseline-setting reconciles different industry views at the cost of some additional complexity.

“The interaction of banking, borrowing, crediting, multi-year monitoring and other features is intricate and Ai Group will consult our members on how these may play out on the ground.”

“Australian carbon offsets will play an important role in the Safeguard, and the Safeguard looks to be a significant source of demand to support emissions reduction activities across the nation,” Willox noted.

“Industry is reassured by the findings of the Chubb Review of the integrity of Australian Carbon Credit Units and the Government’s acceptance in principle of the Review’s recommendations. Maintaining strong integrity is vital for confidence in public and private emissions reduction efforts.”

“The Safeguard is just one part of the policy suite needed for Australia meet our 2030 emissions target, and the still more challenging targets to be adopted for 2035 and beyond, at moderate overall cost,” Willox concluded.

“But it is an important one, and ultimately will amount to a form of national carbon pricing very different to the past, drawing on a policy legacy from across the political spectrum Building Australia’s future economy requires policies that can underpin transformative long-term investments by business. The evolutionary approach to strengthening the Safeguard is vastly preferable to further rounds of policy whiplash.”

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