The Australian Parliament has passed two key pieces of climate-related legislation this week – the Safeguard Mechanism and the National Reconstruction Fund.

Passing such legislation is an important step. It is essential for nations to pass laws implementing action on climate change if the world is to achieve the Paris Agreement goals of limiting global warming to 1.5 degrees Celsius.  

However, Australia still needs to do more if it is to play its part in meeting these goals. 

And the Australian Government has the opportunity to build on the foundation it has created to help the nation prosper as the world decarbonises.

National Reconstruction Fund

Government financing that supports the rapid transition of Australian industry is strongly beneficial.

The National Reconstruction Fund has the potential to help Australians reap the benefits of the global net zero economy.

Importantly, the National Reconstruction Fund will back regional industry, helping to deliver the secure jobs of the future. 

Climateworks looks forward to engaging with the government on the design of the investment mandate and operation of the Fund, to ensure all priority areas support the over-achievement of Australia’s emissions reduction targets.

Safeguard Mechanism 

The Safeguard Mechanism legislation caps the emissions of emitters responsible for nearly a third of Australia’s greenhouse gas emissions, sets declining baselines for high-emitting facilities and introduces an emissions trading system which will incentivise change.

In a submission to the government, Climateworks outlined its support for introducing declining baselines in the Safeguard Mechanism as a key policy lever to accelerate emissions reductions in the highest emitting facilities in Australia.

Climateworks’ analysis suggests that the high-emitting industries covered by the Safeguard Mechanism have the opportunities and technologies to reduce emissions by more than the mandated rate of decline, to support Australia to implement least-cost pathways to net zero. 

Climateworks and CSIRO modelling identifies industry-wide opportunities for industrial emissions to decline by an average annual rate of around 8 per cent to 2030, in line with a 1.5C limit. The rate for individual facilities under the Safeguard Mechanism is set at 4.9 per cent. 

The economic benefits from such a transformation are enormous if Australia can meet the challenges for this change. 

The recent Pathways to industrial decarbonisation report, prepared by Climateworks and CSIRO, outlines a challenging-but-possible least-cost 1.5C-aligned net zero pathway that sees heavy industry sectors reduce their emissions by 92 per cent by 2050, with the remaining 8 per cent to come from high quality and verifiable offsets. 

The Safeguard Mechanism allows for flexibility in the way facilities manage their excess emissions, including the use of offsets. Reliance on reductions in other sectors through offsets can bring additional risks and complexity. It’s important that this flexibility in the Safeguard Mechanism does not delay the transition or slow the rate of emissions reduction. 

The importance of setting goals

Climateworks’ experience over the last decade shows the importance of a clear end goal for any policy or initiative – so decision-makers across government, industry, investors and consumers are pulling in the same direction, and there are clear signals for markets and investments. 

For the National Reconstruction Fund, this objective is to support Australia’s industry and to build prosperity across the country — prosperity dependent on Australia taking advantage of the global shift to a net zero economy. 

In the case of the Safeguard Mechanism, the goal is for high-emitting facilities to support Australia’s least-cost pathway to net zero emissions in line with the Paris Agreement.

Climateworks is working to support all Australia’s state and federal governments to ensure that policies and initiatives like these enable Australia to over-acheive on its climate commitments.