Safeguard mechanism has multibillion-dollar price tag for industry

Reputex’s analysis found that with optimum policy settings in place, 75 per cent of the required cuts could be achieved with direct emissions reductions.

Loading

“Companies will always favour internal actions as a permanent hedge against ongoing offset costs, particularly where higher offset prices are forecast,” Reputex head of research Bret Harper said in February.

Reputex’s forecast indicates that, under best practice settings, companies would offset 25 per cent of their emissions, which is equal to 50 million tonnes of carbon credits. That would cost $1.75 billion at the current price of credits – about $35 a tonne.

However, Reputex, ANZ and other market analysts have forecast the price of carbon credits could rise to $90 by 2030. Under this price, the total cost of the 50 million carbon credits would be $4.5 billion.

But with many analysts warning current policy settings are far from optimal, and many companies could rely on more offsets for 50 per cent or more of their carbon cuts, the cumulative carbon credit bill could be up to $9 billion or more.

Loading

The cost of this higher-priced offset scenario equates, roughly, to only $6 million per polluter each year, on average.

The safeguard mechanism legislation includes a rule that forces companies that rely on offsets for more than 30 per cent of their carbon cuts to report to the minister annually with an explanation for why they aren’t cleaning up their operations.

The Australian Industry Group, representing more than 60,000 businesses employing more than 1 million staff, said the lower reduction target for manufacturing sectors in the safeguard mechanism’s design would offer “breathing space” to consider more effective and efficient long-term measures.

Manufacturing Australia – led by the CEOs of ASX-listed manufacturing giants such as Incitec Pivot, BlueScope Steel and Brickworks – said the federal government had recognised the need for “tailored treatment” for businesses whose important industrial processes still rely on fossil fuels but are unable to readily switch to electrification yet.

Talks between manufacturing leaders and the Albanese government have centred on how to encourage manufacturers to reduce their carbon footprints while also recognising that technological breakthroughs to drive down manufacturing emissions – such as carbon capture and storage, or using zero-emissions hydrogen for industrial heat or chemical reactions – are more likely to become viable in the 2030s or 2040s.

Cut through the noise of federal politics with news, views and expert analysis from Jacqueline Maley. Subscribers can sign up to our weekly Inside Politics newsletter here.