Introduction
The Federal Government proposes to require that all Safeguard Mechanism facilities must update their emissions baselines using current production data to better represent current circumstances. This proposed approach follows industry feedback received during the recent Climate Change Policy Review that current baseline options do not adequately support business growth.
The Government recently released a consultation paper outlining the proposed changes. Submissions are due Friday 30 March 2018 by 5pm AEST. The Government noted that submissions made in response to the Climate Change Policy Review discussion paper will continue to be considered.
Baselines are currently designed to stop emissions increasing above business as usual, rather than to decrease emissions. The Government says it will not consider updates to rules and regulations in the context of meeting Australia's 2030 emissions reduction targets until a review scheduled for 2020. The 2020 review will include consideration of how and when international units can be used.
Current approach to setting baselines
The current default approach is that all facilities covered by the Safeguard Mechanism receive a reported (historic) baseline. This is based on the highest annual reported direct (scope 1) emissions in the 5 year period between 2009/10 to 2013/2014.
A facility reported baseline can be increased using a calculated baseline if certain criteria are met. (For background information on the Safeguard Mechanism including baselines see our previous article: Safeguard Mechanism: Your guide to compliance for 2016/17.)
The consultation paper notes that more than one third of non-electricity sector Safeguard Mechanism facilities have applied for a baseline increase. However, some businesses have observed they are not eligible under current criteria, and have suggested that the approach to calculating baselines should be updated to facilitate business growth and represent current circumstances. In line with this feedback, the Government is proposing to broaden access to calculated baselines.
What are the proposed changes?
The Government proposes to update baselines to better align with current circumstances. There are three elements to the proposed approach:
- Transitioning all reported baselines to calculated baselines
- Simplifying calculated baselines
- Annually updating baselines for actual production
Shift to calculated baselines
It is proposed that all facilities using a reported baseline must apply for a calculated baseline in 2018-19 or 2019-20. Facilities that already have a calculated baseline cannot reapply.
Existing rules accommodating natural resource variability in mining, oil and gas will remain.
For landfill facilities, which do not have a discernible output, it is suggested an approach may be to use gas capture rates similar to the current baseline setting approach for new landfills.
Simplified calculated baselines
Calculated baseline applications involve an administrative cost, particularly around audit requirements. The Government proposes to introduce an option to use default production variables and emissions intensity values to reduce application costs.
This approach is somewhat similar to the availability of lower order methods for emissions reporting under the National Greenhouse and Energy Reporting Scheme (NGERS), which allows businesses to choose between different methods to report their emissions.
It is intended that offering default values (similar to NGERS method 1) will reduce administrative costs associated with calculated baselines. This includes audit costs by avoiding the need to audit site specific emissions-intensity forecasts. Businesses can continue to use site specific values if they consider it to be beneficial. However, once a facility uses a default emissions-intensity value it could not move back to a site specific value.
Annual updates in line with actual production
Under the proposed approach, baselines could be updated in line with production levels. Baselines will increase with production, and also decrease when production falls.
Adjustments for production would start at the end of a facility's calculated baseline period, in line with the existing approach for calculated baselines. However, it is proposed to allow businesses to apply this approach earlier.
Annually updated production baselines could either apply only to emissions-intensive trade-exposed facilities, or more broadly to all facilities.
The automatic annual baseline adjustments would require businesses to report production every year. This is not expected to be problematic given many businesses already report production under existing obligations, or otherwise have production data on hand.
The Government is considering two potential options for updating baselines - either on actual production or on forecast production. Using actual production means baselines would be set after each compliance year. Whereas using forecast production would allow baselines to be set in advance. A true-up would occur after final emissions and production data are reported.
In relation to new facilities post-2020, the Government will consider how the existing policy for new facilities sits with changes for existing facilities once they are finalized.
Next steps
The consultation will inform draft amendments to the National Greenhouse and Energy Reporting (Safeguard Mechanism) Rule 2015 and the National Greenhouse and Energy Reporting Regulations 2008, which will then be released for comment.
The Government aims to have any changes take effect for the 2018-19 compliance year.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
