The government has decided that the Emissions Reduction Fund (ERF) safeguard mechanism will only apply to facilities with direct emissions of more than 100,000 tonnes of CO2 a year.

The 100,000 tonne threshold will cover around 140 large businesses—representing around half of Australia’s emissions—from a range of sectors including power generation, mining (coal and metal ores), oil and gas extraction, gas supply, manufacturing (including metals, cement and lime), transport (air, sea, rail and road), heavy and civil engineering construction, and waste.

Emissions from the electricity sector represent around 57 per cent of covered emissions.

The latest public consultation paper for the safeguards mechanism for the government's $2.55 billion ERF will pay major carbon emitters to reduce their greenhouse emissions.

A key aspect of the paper is that baselines for carbon emissions will be set at the highest point over the previous five years, covering the period between 2009-2010 and 2013-14.

During consultations on the design of the ERF businesses emphasised that safeguard arrangements should accommodate natural variation in emissions from year to year.

This has led the government to allow for what it calls 'natural variability of emissions'. In this regards the government is considering multi-year averaging—whereby a facility could exceed its baseline in one year, so long as average emissions over multiple years remain below the baseline—as it gives businesses time to implement emissions reduction projects and is simple to administer.

The concept of multi year averaging was supported by many businesses during ERF consultations.

"This support extends to implementing a multi-year compliance period, where a facility could exceed a safeguard mechanism in one year so long as its average emissions over the full compliance period remain below the safeguard mechanism," according to Alinta Energy.

The government has also stated that the safeguard mechanism is not intended to raise revenue. "Unlike the carbon tax, no revenue is anticipated and none has been budgeted," the paper notes.

Greens Leader Christine Milne said the policy would not raise revenue because the baselines were being set so high that no company would breach them.

"It's just a joke of a policy which will do nothing to reduce emissions and nothing to drive energy efficiency or more innovative practices," she said.

"It's just a business as usual document."

ERF safeguard mechanism unlikely to curb emissions growth

Australian carbon and energy analytics firm, RepuTex was quick to point out that the leniency from the government for major emitters under the safeguard mechanism will fall short on the 5% emissions reductions target by 2020.

"We project that "on its own", the ERF will fall short of Australia's commitment to reduce emissions to minus 5 per cent on 2000 levels by 2020. We forecast that the ERF will purchase between 60 and 120 million tonnes of emissions abatement, equivalent to around half of Australia's new 2020 abatement task," says RepuTex executive director of energy and carbon markets, Hugh Grossman.

Grossman notes that the government proposal to set emissions baselines for companies at the "high point" of their emissions over the past five years will undermine investment, while see emissions actually increase in the future.

"Given that emissions today are significantly lower than historical high levels, this will allow companies to increase their emissions from today's levels, leading to considerable emissions growth through to 2020," Grossman said.

ERF to take into account 'new' waste

According to the paper: "Consistent with the approach for other sectors, baselines for landfill facilities would be calculated using the highest level of reported total direct emissions over the historical period 2009-10 to 2013-14."

"However, given the particular circumstances that apply at landfill facilities, it may not be appropriate to include emissions from waste deposited over previous decades when considering whether a landfill should be covered by the safeguard mechanism or whether it has exceeded its baseline," it adds.

One option the paper outlines is to limit covered emissions in the waste sector to emissions from ‘new’ waste.

Under this approach, a landfill would be covered by the safeguard mechanism if emissions from new waste exceed 100 000 tonnes of CO2-e a year. Covered emissions could then be used to assess a facility’s emissions performance and determine whether it has exceeded its baseline emissions.

New waste could be defined as waste deposited at a landfill after July 1, 2012. Landfill operators were required to take responsibility for emissions from waste deposited after July 1 2012 under the carbon tax, so could reasonably be expected to manage these emissions for the purposes of the safeguard mechanism.

To view the consultation paper please click here.