Large emitters will have to make complex decisions over coming months if they want to optimise their Safeguard Mechanism emission limits.
Senior managers from the Clean Energy Regulator today briefed large emitters in Melbourne on Safeguard regime changes that are currently being phased in, following their gazettal in March (see background here).
The changes initially create a complicated new array of interim emission limits, but the Regulator officials said they would ultimately lead to a simpler, more consistent set of Safeguard limits.
However, the Regulator staff reiterated it was not the government's intent to use Safeguard limits (known as baselines) to reduce industrial emissions.
The latest Safeguard changes ditch the previous procedures for setting 'baseline' emission limits in favour of "production-adjusted baselines" that will ultimately all be calculated on production levels and emissions intensity.
But the calculations can be done in different ways, and there are different transitional pathways that lead to the new baseline regime.
Furthermore, choices companies make about transitional baseline limits will in turn constrain what type of permanent limits they can receive, the Regulator staff explained.
Double-default baseline the simplest optionThe simplest, lowest-cost option for companies is to apply straight away for a "double-default" new baseline, that is based on default, sector-specific values for both production and emissions intensity.
That option bypasses the need for a transitional baseline, but there's a catch.
The default values are still being prepared by the Department of Environment and Energy, with consultation set to start in the next few months.
So they won't be finalised in schedules to the Safeguard Rule for some time.
Alternatively, large emitters can make use of interim baseline-setting arrangements that are more tailored to their emissions profile and, once approved, can be applied in FY19 and FY20.
However, these various forms of "transitional calculated baselines" use five different combinations of production variables and emissions intensity values, making it challenging to decide the best fit.
Nor do businesses have the luxury of time to work out their strategy.
Depending on how a company wants to proceed, and relative production levels over the next few years, it will have to lodge its application for a transitional baseline as soon as July 30 this year and up to October 30 next year.
Business urged to closely monitor developmentsMatt Drum, managing director of environmental consultancy Ndevr, told Footprint the changes have resulted in "an added layer of complexity on an already complex policy".
"There are some real risks on liable entities if they get their timing wrong, or if they don't get their applications in when they are supposed to, or if they choose the wrong production variable or emissions intensity value," he said.
Businesses that make a mistake could find themselves with annual net emissions that are above their baseline levels, he cautioned.
Other than companies that breach their baseline through error or poor decision-making, Drum said most businesses are unlikely to find themselves with excess emissions.
The only other way a company could find its emissions above baseline levels would be if its emissions intensity increases, which is very rare, he said.
Consequently, he expects industrial emissions will continue to increase under the revamped Safeguard.
Terence Jeyaretnam, climate change and sustainability services partner with EY, said the briefing demonstrated that Safeguard businesses need to stay on top of application deadlines and new information, especially about production variables, as it emerges.
This would be essential to ensure their baselines are "optimised" under the Rule, he told Footprint.
Jeyaretnam said the Safeguard changes would generally result in baselines for businesses "aligning with current emission levels".
The introduction of sector-based default emissions intensity values would result in businesses that are less intensive than their industry average gaining more headroom between their actual emission levels and their baseline, he added.