September 26, 2023

Decarbonisation Drive: Australia Establishes Tough New Emissions Cap on Heavy Industries

Australia’s government has taken significant steps towards decarbonisation by passing legal reforms that place strict limitations on industrial emissions. The updated ‘safeguard mechanism’ now demands the country’s major emitters, around 215 facilities producing over 100,000 t/y of greenhouse gases, to stay within a prescribed emissions baseline. The reforms aim to slash emissions by 205 million tons by 2030 and impose a rigid cap, ensuring emissions do not exceed 1.2 billion tons between 2020 and 2030. The efforts support Australia’s target to reduce carbon emissions by 43% by 2030 and achieve net zero by 2050.

In light of these changes, new gas fields supplying existing LNG facilities will have to operate at net zero. This rule also applies to new entrants wishing to produce gas from the onshore Beetaloo basin in the Northern Territory. The Greens, who were instrumental in pushing for the amendments, predict these reforms will deter many new coal and gas projects.

The regulations will have a significant impact on ongoing projects, such as the Barossa natural gas project. Though the full details of the reforms are yet to be finalised, businesses are seeking further information to understand the complete effect on their operations.

While the reforms have been criticised by the Australian Petroleum Production & Exploration Association (APPEA), which claims they could hinder gas projects necessary for a cleaner future, others see it as a necessary push towards a more sustainable industry. Manufacturing Australia, for instance, views the changes as an opportunity to create high-quality jobs and grow its manufacturing sector through a managed transition to low emissions manufacturing.

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The Business Council of Australia, although calling the new rules ‘tough but achievable’, expressed concerns about potential consequences that might lock out critical transition fuels, including gas.

On the other hand, the Australian Conservation Foundation welcomed the cap on emissions and the ministerial controls, but it urged lawmakers to go even further in addressing emissions from exported fossil fuels, which are currently not covered by the safeguard mechanism.

The new legislation, while challenging, has been greeted with optimism by certain sectors. It provides the certainty necessary for long-term investments in low emissions technology, as evidenced by explosives producer Orica, who will continue with its plans for projects that will significantly reduce emissions.

The government has also committed an additional A$400m (US$266m) to support decarbonisation efforts within key industries, including steel, cement, and aluminium. To further protect domestic industries, a review is being carried out to assess the possibility of a carbon border adjustment mechanism, which would prevent goods imported from countries without emissions limits from undermining Australia’s decarbonisation efforts.