The nation’s highest emitting companies are subject to rules under the ‘safeguard mechanism’ that require them to cut emissions each year. (ABC News: Justin Hewitson)

Australia’s key climate policy faces an uncertain future

(ABC) -- Some business and climate groups have voiced their support for keeping one of the federal government’s key climate policies in place, with the Coalition yet to commit to its future.
The safeguard mechanism was introduced under the Turnbull government nearly a decade ago, but was significantly strengthened under the Albanese government.
It caps the emissions of the country’s heaviest-emitting companies and projects, and successively lowers that limit by roughly 5 percent each year.
To stick to their caps, companies have to either lower their emissions or buy ‘carbon credits’.
It’s a key plank of the government’s efforts to reach a 43 percent reduction in emissions by 2030, and net zero by 2050.
The Coalition opposed the changes at the time and has kept up its criticism, but is yet to spell out whether it plans any changes to the scheme should it win government.
In a speech earlier this year, Peter Dutton compared it to the unpopular ‘carbon pollution reduction scheme’ introduced under the Gillard government — better known as the carbon tax.
“We’ve seen the safeguard mechanism turned into a new carbon tax — one [that is] three times higher than that implemented by Julia Gillard,” he said.
At the time the safeguard mechanism changes were made, they were largely backed by business and industry groups who sought certainty for climate policies affecting their sectors.
Many of those groups argue that while there is room to adjust the scheme, it needs to stay.
Industry groups rarely clamour for more government regulation, but climate policy was at one point something of an exception.
Groups like the Business Council of Australia complained of “a decade of ad hoc and unstable energy and climate policy” that had left the country on the “back foot” in achieving climate targets.
Others that did push back did so reasonably gently — the Minerals Council of Australia warned the country needed to ‘thread the needle’ and push down emissions, without pushing projects out of business.
Now that the policy is in place, some are arguing it is worth keeping.
Andrew McKellar from the Australian Chamber of Commerce and Industry says policy stability is critical for business.
He argues it should stay, but also warns against any plans to strengthen it further.
“From a business point of view, we have been supportive of the safeguard mechanism. It provides a level of structure and certainty,” he said.
“We would caution against any move to lower thresholds or expand its perimeter.
“Having the safeguard mechanism in place is an important support to provide certainty for business, and moving the economy in the right direction towards the longer term goal of net zero by 2050.”
Energy Producers Australia represents much of Australia’s gas industry, including major companies covered by the safeguard mechanism like Woodside, Origin and Shell.
Chief executive Samantha McCulloch isn’t calling for the policy to be dumped, but does want to see flexibility — like avoiding overly onerous emissions caps, and the purchase of overseas-based carbon credits.
“The safeguard mechanism must be fit-for-purpose and balance emissions reductions with the need for energy affordability and reliability across the economy,” she said.
“The safeguard mechanism needs to ensure that new and existing gas projects are not subject to excessive, unrealistic reduction targets, well beyond what has been achieved elsewhere, and that Australian LNG remains competitive in international markets.
“The safeguard mechanism should also allow access to robust and verified emissions offsets from around the world to support least cost emissions reductions across the economy.”
The Coalition hasn’t laid out a firm plan on what it would do with the climate policy should it win the next election.
But it has been making a case for some time that change is needed.
Shadow Energy Minister Ted O’Brien addressed the Carbon Market Institute last year, and was asked about the future of the safeguard mechanism.
“My views, and the views of the Coalition were very clear at the time Labor introduced the safeguard mechanism — they hadn’t done the work on how it’s going to impact companies in that cohort,” he said.
“We have seen a lot of that pain come through. A lot of them are very reliant on offsets, on [carbon credits], and we’re not seeing a sufficiently active carbon credit market.
“We are seeing assets of those companies being written down. I do not believe it is working as the government intended.”
Peter Dutton was asked about climate policy and the safeguard mechanism at a press conference last month, but didn’t directly address his plans for the emissions-capping tool.
“Our policy is that we want renewables in the system and we support renewables, as you saw when we were in government, we put a lot of money into projects and created an environment where significant projects are now a reality,” he said.
“But we can’t pretend for any longer that the batteries are going to see us through the hours of darkness, or over a week of rain.”
Energy Minister Chris Bowen argues the safeguard mechanism is working well, and there is little case for change.
“It’s working as intended,” he said.
“It’s safeguarding the future of Australian industry to ensure that Australian industry can compete in a decarbonising world.”
Advocates for work on climate change argue that if there is a case for change to the safeguard mechanism, it should be strengthening rather than weakening the tool.
John Connor from the Carbon Markets Institute says given the Coalition is committed to cutting emissions, he can’t say why they would want to radically change it.
“It is important to understand that the safeguard mechanism was developed by the Coalition,” he said.
“It [now] aligns with what are bipartisan targets of net zero emissions by 2050, and so it’s linked to promises and positions that we are pleased to see Peter Dutton and others still continue to support, like net zero.”
He argues the reason business groups support certainty when it comes to policies like the safeguard mechanism is they are trying to make long-term investment decisions.

(Latest Update March 4, 2025)