Legislation

LEGISLATION

The Australian government's Safeguard Mechanism requires more significant greenhouse gas emitters to reduce emissions by 4.9% each year from July 01, 2023, or face substantial penalties.

While this legislation currently applies to the top 215 emitters, it has implications for most businesses in Australia. All businesses in the supply chain may be required to demonstrate carbon reduction, and businesses seeking business from more significant emitters or government agencies may require 'green' credentials in the form of carbon emissions reductions.

GREENHOUSE EMISSIONS

The greenhouse gases reported under the NGER Scheme include carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), sulphur hexafluoride (SF6), and specified kinds of hydrofluorocarbons and perfluorocarbons. When reporting emissions, energy production, and energy consumption data, only those activities, fuels, and energy commodities for which there are applicable methods under the NGER Scheme are reported.

Greenhouse gas emissions are measured as kilo-tonnes of carbon dioxide equivalence (CO2-e). This means that the amount of greenhouse gas that a business emits is calculated as an equivalent amount of carbon dioxide, which has a global warming potential of one. For example, in 2015–16, one tonne of methane released into the atmosphere will cause the same amount of global warming as 25 tonnes of carbon dioxide. So, the one tonne of methane is expressed as 25 tonnes of carbon dioxide equivalence or 25 t CO2-e.

SCOPE 1, 2 AND 3 EMISSIONS

Businesses of all sizes and types are increasingly accountable for their:

Scope 1 - direct emissions from sources that the business owns or controls directly.
Scope 2 - indirect emissions the business causes from needs within the business.
Scope 3 - emissions that occur in the value chain or operation of the business.

All three are critical to businesses addressed in the Safeguard Mechanism and MCR reporting. They are also essential to businesses providing services to the top 215 emitters. Smaller businesses' Scope 1 emissions are the Scope 3 emissions of the businesses they service. Larger businesses will require suppliers and contractors to reduce their Scope 1 emissions.

BOARD LIABILITY

'Until recently, ESG issues have been viewed as non-financial risks that have been addressed by undertaking corporate social responsibility measures to mitigate any ethical, sustainability and environmental impacts of the organisation. A growing body of stakeholders, including investors and regulators, evaluate ESG issues as material financial, commercial, legal and reputational risks. This evolving understanding of ESG is driving responsibility for ESG into the boardroom and increasingly requires that directors build ESG considerations into their organisation's strategy and risk framework.

There is growing recognition among directors that making decisions about ESG issues makes good business sense and leads to long-term value creation. By thoughtfully considering their organisation's impact on the environment and the community and proactively ensuring they maintain trust, brand, and reputation through sound governance, directors protect their organisations' social licence and long-term commercial success.

PENALTIES
‘Under the Safeguard Mechanism, businesses that exceed their emissions baselines must purchase carbon offsets as ACCUs or reduce emissions elsewhere in their operations. Failure to comply with the Safeguard Mechanism can result in $250 per tonne of CO2-e financial penalties.’ PWC - Recent reports suggest fines may increase to $330 per tonne of CO2-e.

SAFEGUARD MECHANISM

The Safeguard Mechanism is an Australian climate policy that limits greenhouse gas (GHG) emissions from extensive industrial facilities. It operates under the National Greenhouse and Energy Reporting (NGER) Act 2007 and is part of Australia's broader Climate Change Act 2022 framework.

The mechanism is a key tool in Australia's decarbonisation strategy. It ensures major emitters contribute to the country's climate goals while providing flexibility through credits and offsets. An ACCU is an Australian Carbon Credit Unit representing one tonne of carbon dioxide equivalent (CO2-e) greenhouse gas that is not released into the atmosphere. The Australian Federal Government issues them for use in the compliance market (Safeguard Mechanism) and can also be used for voluntary offsets.

To be issued ACCUs, a business must run an eligible, registered project in accordance with the relevant rules as regulated by the Clean Energy Regulator (“CER”). Any individual or company can make an ACCU so long as it meets the methodology requirements. Once you sell an ACCU, you can’t claim the emissions reduction.

ICER

The Industrial and Commercial Emissions Reduction (ICER) method is an initiative under Australia's Australian Carbon Credit Unit (ACCU) Scheme, designed to incentivise emission reductions in industrial and commercial sectors.

This method covers all industrial operations, including mining and generating greenhouse gas emissions. Changing fuel sources or the mix of fuel sources used by existing emissions-producing equipment is eligible to be registered in this method, making ALL equipment at the site eligible to earn ACCUs from the switch to EPC+.

The ICER method credits ACCUs to projects that reduce emissions from equipment located at a facility. This can include:

Direct emissions from any on-site fuel combustion in equipment.
Direct emissions from on-site fuel combustion in mobile equipment that stays on-site.
Indirect emissions from electrically powered equipment.

MCR
Mandatory Climate Reporting has the following characteristics:

Companies liable under the Safeguard Mechanism and those in the ASX200 must undertake mandatory climate reporting from January 1st, 2025, with more companies becoming liable in future years.
Corporations are required to disclose their yearly greenhouse gas emissions across Scope 1, 2, and 3. This move aligns Australia with global practices in mandatory climate reporting. Directors are required to make a specific directors' declaration attesting to the sustainability report's compliance. Sustainability reports must be audited exactly like financial reports
Scopes 1-3 are covered, which means that even if you do not currently measure and reduce your carbon intensity, your customers will require that you do so.