The Chubb Review & Safeguard Mechanism Reform

Two major policy instruments affecting the carbon market have been the subject of reform proposals released in the early days of 2023. To understand how the Chubb Review and the proposed changes to the Safeguard Mechanism are predicted to have positive market impacts for carbon farmers, keep reading.

But first, what are the Chubb Review and the Safeguard Mechanism?

Chubb Review

In response to critiques of the credibility of the Emissions Reduction Fund’s (ERF) carbon crediting framework, the government made good on a pre-election promise, appointing an independent panel to review the integrity of Australian Carbon Credit Units (ACCUs), chaired by Professor Ian Chubb.  Six months on, the Independent Review of Australian Carbon Credits (i.e. the Chubb Review) has been released to the public.

The review concluded that ACCUs are, for the most part, working as intended and generating tangible outcomes for carbon abatement, project developers and purchasers of ACCUs in Australia. Alongside an overall thumbs up, the panel provided several recommendations to boost confidence in the scheme. The government immediately accepted these recommendations, in principle. 

(Note: The CFF facilitates projects under the Environmental Planting, Soil Carbon and Plantation Forestry methods – none of which were subject to any recommendations under the review.)

Safeguard Mechanism

Responding to a pre-election promise to reduce Australia’s greenhouse gas emissions (GHGs) by 43% on 2005 levels by 2030, Labor announced plans to reform Australia’s Safeguard Mechanism (SM). The SM is Australia’s primary policy to reduce emissions. The SM regulates the pollution of around 215 of Australia’s biggest polluting facilities. Yet, it has been largely ineffectual at reducing emissions since its inception in 2016 due to weak limits set under the previous government.

Hot on the heels of the Chubb Review, on January 10th, the government outlined its plans for stricter carbon emissions caps on the facilities, to be implemented from July 2023. Under their proposal, emissions baselines will initially be set at the individual level, followed by a requirement for all facilities to lower emissions by 4.9% annually until 2030. 

The Mechanism will function as an emissions trading scheme: facilities with emissions that fall below their baseline target will earn carbon credits that can be purchased by facilities that exceed their targets, keeping overall emissions in check (ABC). 

A period of consultation on Labor’s proposed SM reforms is now underway, following which it will need to pass both houses of parliament to come into law. The government will need either the Coalition or crossbench senators to approve part of the scheme, and negotiations are expected.

Read on for more information about the reforms proposed under both publications and potential impacts for carbon farmers.

The Chubb Review in a nutshell – what you need to know.

The Federal Government commissioned the Chubb Review to respond to critical reports submitted by the previous chair of the Emission Reduction Fund’s integrity committee, Professor Andrew Macintosh. Professor Macintosh questioned the integrity of how the ACCU scheme is regulated and presented findings that some ACCU-generating methodologies were not actually delivering the outcomes that were stated.

The Chubb Review addressed these criticisms immediately.

It has been argued that the level of abatement has been overstated, that ACCUs are therefore not what they are meant to be, so the policy is not effective. The Panel does not share this view.”

To ensure that “ACCUs and the carbon crediting framework maintain a strong and credible reputation,” the review panel provided sixteen key findings and recommendations for ACCU reform. Some of which include:

• More clearly separating the roles of ACCU scheme administration, regulation, and assurance of methodologies by properly resourcing a Carbon Abatement Integrity Committee.
• Moving responsibility for purchasing ACCUs away from the Clean Energy Regulator (CER) to reduce any perceived conflicts of interest as buyer and creditor of units.
• Affirming that ACCUs generated using the “human-induced regeneration method” (HIR) are sound, but introducing new requirements for land managers to demonstrate links between project activity and carbon abatement.
• No longer permitting new carbon project registrations under the “avoided deforestation method”.
• Exploring the potential for national shared data platforms to boost transparency of information relevant to communities and carbon market stakeholders.
• Introducing regulation and accreditation for carbon service providers and market advisors.

ACCU integrity is critical as it gives surety to buyers and sellers and ensures effective carbon sequestration activity. The CFF, therefore, welcomes the raft of proposed changes and their potential to bolster the integrity of ACCUs. However, we also recognise that this should not close out this review chapter – continued scrutiny and transparency are vital to a healthy, functioning carbon market. 

Further reading:

• Renew Economy article
• ABC News article
• Carbon Market Institute article

The SM proposed reform in a nutshell – what you need to know

As the SM relates to large polluting facilities, it has far less day-to-day relevance for carbon projects in the agricultural and land sector, which the CFF operates in. Ultimately, changes to the Mechanism won’t affect how you operate your project – but it will likely influence the market into which you sell your credits.

With the goal to cut 200 million tonnes of carbon dioxide emissions by 2030, under the government’s proposal, large polluters will be forced to reduce their emissions below a ceiling or face a penalty. Those that drop below their ceiling will obtain special carbon credits called Safeguard Mechanism Certificates (SMCs) that can be sold to those that don’t sufficiently reduce their emissions, in order to reach their targets.

Emitters chasing credits can purchase ACCUs from the government, creating demand for carbon credits generated from your carbon project. A price cap of $75 has been proposed to ensure the industry can remain competitive whilst incentivising reduction.

The government’s proposal is not without critique from various stakeholders. Much criticism  notes that in continuing to allow new coal and gas projects, which would also be covered by the SM,  the policy will either place a greater emissions reduction burden on the existing SM facilities, spill over and burden other sectors of the economy, or threaten achievement of Australia’s emissions reduction target (Climate Council).

To reiterate – these are draft proposals, and with a path through the senate required before they are approved, there is a likelihood of further revision. We’ll be sure to keep you across anything you need to know.

In the meantime, further reading:

• Carbon Market Institute article
• ABC News article
• Renew Economy article

The Chubb Review and an enhanced Safeguard Mechanism are major market signals for 2023

The recommendations from the Chubb Review, alongside the proposed changes to the Safeguard Mechanism, have already shown powerful signals for growth in 2023 (Reputex), boosting confidence in the national supply of high-integrity ACCUs.

According to Hugh Grossman at RepuTex, the Safeguard Mechanism in particular, will trigger a “structural change in Australia’s carbon market”. The setting of a transparent emissions trajectory for industry, in a manner that prioritises market integrity, will provide a critical signal for companies to invest in on-site emissions reductions or source domestic offsets. RepuTex predicts a robust emissions market, supporting higher ACCU prices over the long term as demand builds and the current supply glut diminishes. 

Following the Chubb Review, Reputex views ACCU offsets as being fit for purpose, further contributing to a robust and effective price signal. 

Ready to find out more?

Explore our range of educational resources in our Carbon Farming Education Hub where we frequently publish educational articles, webinars, and guidebooks. 

When you’re ready to explore the feasibility of undertaking a carbon project on your property, email us at [email protected] or give us a bell at (08) 6835 1140 to be connected with one of our project facilitators.