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Safeguard Mechanism Legislated, But Australia Still Addicted To Coal

Despite thermal coal being pushed out of electricity generation by a plethora of solar installations, and even though Australia has the highest penetration of domestic rooftop solar in the world, coal is still the mining industries’ highest export earner. Australia is still the third largest coal exporter in the world. Will the newly legislated safeguard mechanism help reduce our output? Lithium and copper exports are rising, so they should help fill government tax coffers and reduce protection for the coal industry.

Last year, the Australian federal government was ousted primarily by new “teal” independents (not quite green and not quite blue) who wanted action on climate change. This year, the new federal Labour government has taken action. But in such a way that leaves the door open (through a so-called safeguard mechanism) for new coal mines. The criteria for approval have been tightened, but nonetheless, some new coal mines are being considered. According to The Australia Institute’s coal mine tracker, there are 28 proposals for new or expanded coal mines currently waiting for federal government approval.

The one coal mine that did get cancelled early was Clive Palmer’s. Was this payback for his backing of the Liberal Party?

“Approving even one new coal mine goes against our climate goals. Approving 28 new coal mines, and the 17.9 billion tonnes of emissions they would cause, is incompatible with limiting dangerous climate change. In 2021-22, Australia produced 422 million tonnes of coal. That results in 1.1 billion tonnes of greenhouse gas emissions (carbon dioxide equivalent CO2-e) in just one year,” the coal mine tracker page writes.

To meet its goal of net zero emissions by 2050, Australia must reduce its emissions by 43% (from 2005 levels) by 2030.

Thankfully, the government needs the support of the Greens in the senate to pass its legislation, and this should result in more climate-friendly legislation. The leader of the Greens, Adam Bandt, has described negotiating with the Labour as being “like negotiating with the political wing of the coal and gas corporations. Labor seems more afraid of them than climate collapse, more afraid of Woodside than global warming.” Perhaps the safeguard mechanism is designed to protect the coal and gas industry?

In a strange irony, the new legislation has been welcomed by both sides of the debate. The Greens and the Climate Council see it as a way to bring the fossil fuel industries to heel, but the reforms are also supported by some of Australia’s biggest emitters, like Orica, BlueScope Steel, and Adbri. The developers of the Beetaloo Basin gas fracking reserve also welcomed the deal. Of course, the Murdoch press are screaming that it is the “end of days!”

The Australian stock exchange reacted as if it was business as usual. The shares of most major fossil fuel producers actually rose. Is the safeguard mechanism just smoke and mirrors?

The Greens are claiming victory because they negotiated a “hard cap” on absolute emissions. “The 5-year rolling average gross emissions from covered facilities will need to fall over time, and a limit on net emissions from 2021-22 to 2029-30 of 1,233 MtCO2-e.

“The net emissions limit of 1,233 MtCO2-e is consistent with the Government’s projected net emissions from covered facilities over this timeframe under the enhanced Safeguard Mechanism. The deal also includes net emission targets for 2030 (100 MtCO2-e) and 2050 (0 MtCO2-e) but the hard cap on absolute emissions and cumulative rolling cap on net emissions are the showpieces.”

The Greens believe they have stopped rapid expansion of Australia’s fossil fuel industry to meet increased global demand. But, only time will tell if it will actually work. Previously, the safeguard mechanism has not worked. Analysis by the Australian Conservation Foundation shows that the previous SGM was not effective and facilitated an increase in emissions.

“The safeguard mechanism is part of a federal policy framework intended to manage and reduce carbon emissions from Australia’s biggest climate polluters. It sits alongside other schemes including the Emissions Reduction Fund that buys carbon credits and encourages projects to be developed that will remove or cut carbon. Australian carbon credits can also be purchased by the facilities captured under the safeguard mechanism to help meet their emissions reduction obligations.”

On the international scene, a record year of coal demand is predicted by Wood Mackenzie. This record demand is likely to be fuelled by China’s economy reopening after the recent COVID lockdowns. The Chinese economy is expected to grow by 5.5% to 7% in 2023, leading to an increased appetite for Australian coal for industrial and energy-generation purposes. Australian copper should also benefit from increased demand.

“Our base case sees significant growth in China’s coal demand in 2023: 85Mt (4 per cent) in the power sector and 17Mt (1 per cent) in the non-power sector. However, with domestic supply expected to increase by 85Mt, we see only 17Mt of import increases this year.”

“In our high-growth scenario, China sets a record for global coal demand, exceeding 2019 demand of 8512Mt (8.5 billion tonnes),” WoodMac global head of thermal coal markets Natalie Biggs says. “China (would) still need an additional 49Mt of seaborne coal potentially putting pressure on a market that remains finely balanced and could potentially cause another spike in coal prices.” And greater profits for Australia’s mining sector, leading to greater pressure to open more mines. Hence the need for the beefing up of the SGM.

As this demand peaks, it will be interesting to see how Australia’s politicians respond to the pressure. Queensland has introduced higher taxes on coal so that the people share in the profits. The Queensland government as a result has faced a barrage of advertising from the mining industry in an effort to get the taxes lifted. It has not worked so far. Public mood has shifted towards taking action on climate change.

In a recent federal bye election, the safe Liberal (conservative) seat was taken by Labour, demonstrating that the Australian public is very much behind the current government’s efforts to mitigate climate change. It is the first time a government in Australia has won a seat from the opposition in a bye election for over 100 years.

The battle is not over yet, but it appears the good guys are winning. Hopefully it is not just smoke and mirrors. Those denying climate change and willing to sacrifice the planet and future generations are on the back foot.

Featured image from The Australia Institute.

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David Waterworth is a retired teacher who divides his time between looking after his grandchildren and trying to make sure they have a planet to live on. He is long on Tesla [NASDAQ:TSLA].


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