The Safeguard Mechanism, IPCC Report and our portfolios

What is the Safeguard Mechanism?

In 2016, the Coalition government introduced the Safeguard Mechanism, which was designed to limit greenhouse gas emissions from approximately 200 large industrial facilities. The policy targeted facilities that emit over 100,000 tonnes of carbon dioxide equivalent per year, and each facility was assigned an emissions limit or baseline.

The government claimed that companies that emitted more than their baseline would have to either buy carbon offsets or pay a penalty. However, in reality, facilities were allowed to adjust their baselines, few faced any penalties, and industrial emissions continued to rise.

As a result, the Labor party is proposing to overhaul the scheme. The new plan would set baselines based on a facility's emissions intensity, or the amount of pollution released per unit of production. The baselines would be reduced by 4.9% annually, and companies would have the option to make onsite emissions reductions or purchase Australian carbon credit units.

Under the revised scheme, new polluting facilities, including gas and coalmines, could open and would be assigned baselines at "international best practice" levels. Furthermore, companies that emit less than their baseline would be rewarded with a new type of "safeguard credit," which could be sold to other polluting facilities that emit more than their baseline and require offsets.

Overall, the Labor party's revamped Safeguard Mechanism aims to address the shortcomings of the original policy and help reduce Australia's greenhouse gas emissions.

Findings from IPCC AR6 SYR

On March 20th 2023, the Intergovernmental Panel on Climate Change (IPCC) released the Synthesis Report of the IPCC Sixth Assessment Report. It summarised 5 years of reports on rising temperatures, fossil fuel emissions and climate impacts. The report found that we need to act now on climate change.

In order to have a 50:50 chance of preventing global warming from exceeding 1.5°C above pre-industrial levels, carbon dioxide emissions need to be reduced to "net-zero" by the early 2050s. However, an updated estimate of the carbon budget for limiting warming to 1.5°C, taking into account data from 2020 to 2023, indicates that emissions must cease altogether by 2040 if this budget is not to be exceeded.

This means that the deadline for achieving net-zero emissions is closer than previously thought, with less than two decades left to drastically reduce carbon emissions before the world reaches a point of no return. This highlights the urgent need for more aggressive and effective action to tackle climate change, such as transitioning to renewable energy sources and implementing policies to encourage sustainable practices.

While the goal of achieving net-zero emissions by the early 2050s is a step in the right direction, it is clear that more must be done to avoid catastrophic climate change. It is essential that governments, businesses, and individuals work together to take bold and decisive action to address this pressing issue and ensure a sustainable future for generations to come.

Is the Safeguard Mechanism enough in the context of the IPCC Report?

The IPCC synthesis report highlights the urgent need for immediate and sustained action to limit global warming to 1.5°C and avoid irreversible damage to the planet. In contrast, the revised safeguard mechanism proposed by the Labor party in Australia appears to be less aggressive, setting a goal of reducing emissions intensity and allowing companies to choose between onsite emissions reductions or purchasing carbon credits. While the proposed policy is a step in the right direction, it remains to be seen if it will be enough to address the scale of the climate crisis we face. The stark juxtaposition between the urgency signalled by the IPCC report and the revised safeguard mechanism highlights the need for bolder and more comprehensive climate policies that prioritize reducing emissions and transitioning to renewable energy sources in order to ensure a sustainable future for all.

Our portfolios are invested in solutions

As we face the urgent and pressing challenge of climate change, investing in companies that are actively working towards a sustainable future has become more important than ever. In our portfolios, we are invested heavily in companies like Tesla, Infratil, Vestas, Orsted, Calix, and Nibe. These companies are leading the charge in reducing global emissions and paving the way towards a cleaner and more sustainable future.

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