Safeguard is transitioning! Don’t keep your head in the sand…
Safeguard. What is it and why is it important?
The Safeguard Mechanism was introduced under section 22XS of the National Greenhouse and Energy Reporting (NGER) Act and aims to provide a framework for Australia’s largest emitters to measure, report and manage their Greenhouse Gas (GHG) emissions. Administered by the Clean Energy Regulator (CER), facilities that emit 100,000 t CO2-e or more Scope 1 emissions annually are required to meet Safeguard requirements. The aim of the Safeguard Mechanism is to provide an incentive for facilities to reduce emissions and make meaningful steps to achieve climate targets. If a facility exceeds this default baseline, they can apply for a new baseline and keep their emissions below this new baseline. The following baselines are currently available:
- Reported baselines – Applied to existing facilities that emitted more than 100,000 t CO2-e from FY2010. These baselines were allocated by the CER and were based on the historic high point of emissions. Reported baselines expire on 30 June 2021. Facilities currently on this baseline will need to apply for a different type of baseline to cover FY2022 onwards.
- Calculated baselines – Facilities can apply to the CER for an individually assessed baseline based on forecasted production and either forecasted emissions intensities or default emissions intensities. This allows facilities to establish production variables and emissions intensity values that can then be used in any future production-adjusted baselines.
- Benchmark baselines – Based on ‘benchmark’ emission intensities (the best, least emissions intensive standard for production) and an independently audited forecast of production. This will apply to new or substantially expanded facilities from FY2022 onwards.
- Production-adjusted baselines – Determined based on actual production levels and emissions intensities or prescribed defaults. A production-adjusted baseline can either be a fixed baseline or an annually adjusted baseline if certain prescribed production variables are used. This method typically follows on from a reported, calculated or benchmark baseline.
If a facility exceeds its baseline, the facility is required to manage its excess emissions by:
- Applying for a new baseline, or
- Applying for multi-year monitoring of emissions. In this option, a facility can exceed its baseline in one year provided the average emissions over the multi-year monitoring period remains below their baseline, or
- Surrendering eligible Australian Carbon Credit Units (ACCUs) to mitigate against excess emissions such that net emissions remain below the facility’s baseline, or
- Seeking an exceptional circumstances exemption, if applicable.
What are the Safeguard amendments?
Amendments have been made to the Safeguard Rule over the last two years, which will come into effect 1 July 2021. Amendments aim to bring all baselines up to date to reflect the contemporary operating landscape. The primary target outlined by the CER is to transition existing facilities to a production-adjusted baseline. Applicable from 1 July 2021, some of the amendments include:
- Reported baselines will discontinue.
- Benchmark baselines will be introduced.
- Facilities will not be able to use site-specific emission intensities for calculated baselines.
The Australian Government has also introduced prescribed production variables in Schedule 2 and 3 of the Safeguard Rule, where default emissions intensities for some of the production variables have been developed and published. The remaining emissions intensities are currently being developed and it is unknown at this stage when they will be published.
Why take action?
As at 17 December 2020, 67% of facilities with a baseline were established on a reported baseline assessment. As a result, the majority of facilities that are considered responsible emitters under the Safeguard Mechanism will need to apply for a new baseline commencing no later than 1 July 2021. Facilities will need to review and understand their production forecasts and emission intensities moving forward to ensure they use the right data to apply for an appropriate Safeguard baseline that will be sufficient to secure operational capacity. The risk of exceeding set baselines, especially if by a significant amount, could have both financial and ESG-related impacts.
Facilities that need to apply for a new baseline will need to consider whether the industry prescribed production variables and the associated default emission intensities from Schedule 2 and 3 of the Safeguard Rule are applicable and representative to their facilities’ operations. If the prescribed production variables are not relevant or the default emission intensities either don’t exist or significantly vary to site-specific emission intensities, it may be beneficial to apply for a calculated baseline commencing from 1 July 2020 using site specific data. This will allow a facility to transition to a production-adjusted baseline from a calculated baseline, whereby they can choose to use their site-specific emissions intensity or default emission intensities (if available), helping increase the accuracy of their baseline estimates.
For facilities wishing to apply for a calculated baseline using site specific data, they will need to do so by 30 July 2021 or 31 October 2021 (depending on the highest production year). Facilities wishing to apply for a production-adjusted baseline will need to apply between 1 July in the financial year the production-adjusted baseline is to start and 31 October after the end of the first financial year to be covered by this baseline (meaning there is a 16-month window).
If facilities do not submit an application and get a new alternative baseline approved, their baseline will revert to the default 100,000 t CO2-e.
How Greenbase can help?
Greenbase are leaders in environmental accounting and can assist corporations to navigate the complexities of the Safeguard Rules and the NGER legislation in preparation for complying with the amendments. In relation to this, Greenbase offer strategic advice and consultation on determining which baseline will suit your facility, assistance with the process of preparing a baseline application and provide full support with any audits.
If your facility has a baseline that is about to expire, are at risk of exceeding the current baseline or the 100,000 t CO2-e threshold or would like to secure yourself against the amendments to the Safeguard Mechanism it may be worth exploring your options and the benefits of transitioning to a calculated baseline prior to 1 July 2021. For more information on how Greenbase can assist with your safeguard application and ease your reporting headaches, contact us on (08) 9322 9966 or email us at [email protected].