IPCC releases climate change report amid Australia’s Safeguard Mechanism debate

Image: The University of Queensland's St Lucia campus during flooding in 2022.

The Intergovernmental Panel on Climate Change released its AR6 Synthesis Report this week, warning “there is a rapidly narrowing window of opportunity to enable climate resilient development”.

The last Synthesis Report, AR5, was released in 2014. While the scientific evidence back then was convincing, a quick glance over the ‘confidence levels’ in the new report implies an even deeper understanding of the ongoing and potential impacts of climate change on individuals, communities, and ecosystems.

Among various findings, the IPCC observes, with high confidence, that warming between 1970 and 2020 has occurred at a faster rate than any other 50-year period over the past two millennia. The report also found climate change is negatively impacting human health, prosperity, and vital infrastructure in urban areas, especially in “economically and socially marginalised” communities.

The IPCC is very confident that each increment of global warming will escalate the significance of climate-related risks, illustrating the fundamental importance of keeping a limit of 1.5°C alive. Perhaps optimistically, the IPCC possesses equal confidence that significant mitigation and adaptation activities in this decade will reduce future losses and damages.

The IPCC report has been released at just the right time. Reform of Australia’s flagship climate policy, the Safeguard Mechanism, is currently being debated in Parliament, as part of a three-week crunch to pass legislation before May’s Federal Budget.
The Safeguard Mechanism aims to reduce the emissions of Australia’s largest emitters. The 215 entities captured by the mechanism emit over 100,000 tonnes of CO2 each year, and account for 28% of Australia’s emissions (2021). A legacy of the Abbott government, the Safeguard Mechanism has been criticised for its ineffectiveness to bring down emissions.

As part of the proposed reform, which was open for stakeholder feedback in 2022, the removal of ‘headroom’ (i.e., tightening emissions baselines over time) will accelerate the benefits of Safeguard Mechanism Credits (SMCs). If passed, SMCs will be distributed to entities with emissions below the baseline. These credits can then be traded to other entities under the mechanism that have exceeded their emissions budget. SMCs are based on principles of environmental economics: If Participant A can reduce emissions at a lower marginal cost than Participant B, it is more efficient for Participant A to do the heavy lifting – and SMCs will provide the necessary signals and incentives for them to do this.

The Carbon Market Institute notes the SMCs are based on an entity’s Scope 1 emissions, as opposed to its net emissions. Thus, if an entity beats its baseline only because of Australian Carbon Credit Units (ACCUs), it will not be rewarded SMCs. As Coors Chambers Westgarth explains, this is because SMCs aim “to incentivise facilities to cut back their operational emissions as much as possible”.

ACCUs arise through the Carbon Credits (Carbon Farming Initiative) Act 2011 (CFI Act). The CFI Act contains the Emissions Reduction Fund (ERF), a reverse-auction system that sees the government purchase abatement at the least cost. The ERF has been widely scrutinised, as an overwhelming majority of the abatement projects are in the space of agriculture and land use. While the 2022 Chubb review of ACCUs found the system “essentially sound”, there are various recommendations that aim to address concerns around the integrity of the scheme. One being the re-establishment of the Emissions Reduction Assurance Committee as the Carbon Abatement Integrity Committee as soon as practicable.

On the same day as the release of the AR6 Synthesis Report, Dr. Kerry Schott, Chair of the Carbon Market Institute, addressed the National Press Club. In her address, Schott urged the government to get the Safeguard Mechanism reform legislated, cautioning that “if the date drags past 1 July [the 43% target] is pretty well out of reach”. Furthermore, according to Schott, the inability to meet the interim target of 43% on 2005 levels by 2030 would also severely threaten the feasibility of net zero by 2050, calling it “virtually impossible” if we miss this crucial step.

Schott also called for greater ambition, suggesting that an interim target of 75% by 2035 is possible and should be considered, citing New South Wales and Victoria as two states on track to achieve this. However, contrary to recommendations from the IPCC and the policy of the Greens, Schott believes that a sweeping ban on new coal and gas projects “simply cannot be done” at this point, and considers gas our best transition fuel.

The stage is set for Australia to either emerge as a genuine player in the decarbonised economy or continue as a laggard. Mix in Australia’s well-publicised hopes of co-hosting a climate conference with our Pacific neighbours, and you just know the whole world will be watching.

Matthew Cavicchia is Sustainability & Policy Adviser at IPA.