New expert analysis has uncovered a perverse outcome of the Albanese Government’s Safeguard Mechanism Reforms which will allow at least ten large coal mines to actually increase their emissions, and potentially be compensated safeguard credits worth up to $180 million to increase emissions. 

The ten large mines represent around 30 percent of Australia’s coal production and six of the ten set to benefit from the policy have proposals to expand the coal mines.

A new consultancy report by Energy Resource Insights, released on 4 October, and commissioned by Lock the Gate Alliance, finds that the anomaly arises from the Safeguard Mechanism’s application of industry averages to determine facility-level emissions baselines. 

How does the enormous loophole work? Lock the Gate explains:

“That means while underground mines which tend to produce more direct greenhouse emissions per tonne of coal produced will face appropriate limits under the mechanism, ten open cut coal mines will be able to increase their emissions, and could reap a financial benefit in the form of Safeguard Mechanism Credits at a potential value of $180 million dollars even if they take no action at all to reduce their emissions.” 

The Safeguard mechanism commenced operation from July 1st, 2023. Regulations are still being formulated. There is an obvious need for emissions reporting methodology be updated rather than rely on an industry baseline average which greatly under-estimates methane emissions from open cut coal mines. Regulations are need to cover the role and level of industry average emissions for coal mining, and more accurate direct measurement methodologies need to be used.

This also has relevance for the Australian Government international climate commitment to meet the Global Methane Pledge of cutting methane emissions by at least 30 percent by 2030, made during COP26 in 2022. 

Lock the Gate Alliance research coordinator Georgina Woods said, “It would be absolutely perverse if the design of the Safeguard Mechanism created an incentive to expand open cut coal mining and release more dangerous methane into the atmosphere just as humanity is on the cusp of catastrophic levels of warming. 

“There’s still time* for Climate Change Minister Chris Bowen to fix this problem. The credibility of the Safeguard reforms will be in doubt if huge open cut coal mines, most of which have plans to expand, are able to increase emissions and make money from the scheme.

“Crucially, the greenhouse gas these mines will emit, methane, is responsible for around a third of the warming the world has suffered so far, and urgently reducing these emissions will buy us extra time to prevent catastrophic warming beyond the Paris Agreement goals. 

“Devastating bushfires, droughts, and floods are wreaking havoc on communities, particularly in the regions. Now is not the time for governments to enable huge coal mines to make money from increasing emissions when the rest of the economy is working to reduce emissions.” 

In the Guardian report, Independent MP Sophie Scamps backed the call for the scheme to be changed to ensure coalmines did not receive “bogus” credits without reducing pollution.

“It really goes to the integrity of the whole system,” she said. “If there are safeguard mechanism credits granted then there has to be genuine abatement. It can’t be because a baseline was set much higher than the last financial year’s emissions.”

Key findings of the Briefing report:

• The impact of the safeguard mechanism reforms will be uneven across the Australian coal sector. A number of large Australian mines will be able to significantly increase their emissions this decade under the reformed scheme. Rather than reducing emissions, one-in-five mines will be permitted to increase emissions compared to the most recent financial year.
• For most of these mines, their emissions limit in 2029-30 will be more than 15% higher than it is in the first year of the safeguard mechanism reforms. For several, their emissions limit will more than double over this time.
• For those mines without a declining emissions limit the reforms will represent an overall financial benefit that will see them issued with 6 million tonnes worth of mitigation credits – at a potential commercial value of $180 million dollars – without taking any measures to reduce emissions.
• The mines that lack a declining emissions limit this decade are among Australia’s largest coal mines. Those mines that are likely to receive a large automatic emissions credit under the scheme without taking any abatement action were responsible for more than one-third of the run-of-mine coal production at covered facilities in 2021-22.
• Most of the mines with baselines that allow emissions to increase have significant expansion plans. Because the safeguard mechanism is an emissions intensity scheme, increasing coal production at these mines or maintaining it at current levels in accordance with these plans would likely be rewarded.
• The increasing financialisation of the market for emissions avoidance at Australia’s most heavily emitting coal mines highlights the need to move to direct measurement of emissions in Australia’s open cut coal mines.

It is well known that Australia’s fugitive emissions in official reports do not match satellite measurements of methane emissions from coal and gas basins. The IEA estimates methane emissions from coal mining in Australia are about 81% higher than the national inventory data. For the oil and gas sector, IEA’s estimates are 92% higher than the national inventory data.

The report notes on reporting of emissions:

In July 2023 the Institute for Energy Economics and Financial Analysis (IEEFA) reported on Australia’s under-reporting of fugitive emissions. They highlighted that:

“Our analysis indicates that fugitive methane emissions from coal mining and oil and gas supply have likely been grossly underestimated to date – by about 80% for coal and 90% for oil and gas. Correcting this under-reporting would have big implications for industrial facilities covered by the Safeguard Mechanism. In order to stay within the newly introduced emissions caps, facilities would have to double their rate of decarbonisation and halve their emissions between 2023 and 2030. This highlights the need for urgent action to improve methane emissions monitoring in Australia and to develop a plan to address domestic methane emissions.”

IEEFA report on under-reporting of fugitive emissions, July 2023

Three Key findings of this IEEFA report were:

• Fugitive methane emissions from coal mining and oil and gas supply have likely been grossly underestimated to date – by about 80% for coal and 90% for oil and gas
• Correcting this under-reporting means large industrial facilities would have to double their rate of decarbonisation and halve their emissions by 2030
• We need urgent action to improve methane emissions monitoring and reduction, to ensure Australia’s industry and households do not pay for the gross under-reporting of emissions by the coal, oil and gas industries.

Australian Climate Change Minister Chris Bowen needs to urgently address fugitive emissions measurement and reporting either through the regulations of the Safeguard mechanism or to amend the Safeguard mechanism legislation, to close this substantial loophole.

Table 1: 10 Coal mines with emissions baselines that will rise to 2030 under the Safeguard calculation

Facility	State	Mine type	Coal mined 2022 (ROM tonnes)	Reported emissions 2022 (tonnes CO2e)	Change in baseline (FY24-FY30)	Potential credits	Expanding
Moolarben Coal Mine	NSW	Mixed	19,523,032	181,893	1.313	1,327,695	Yes
Wilpinjong Coal Mine	NSW	Open Cut	13,517,830	154,554	1.194	894,449
Mangoola coal mine	NSW	Open Cut	7,656,694	100,044	1.106	494,949	Yes
Rolleston Coal Mine	Qld	Open Cut	13,016,972	160,537	0.685	710,157	Yes
Ravensworth Operations	NSW	Open Cut	12,756,449	268,698	0.322	492,986
Callide mine	Qld	Open Cut	6,904,985	188,124	0.29	252,998
Mt Owen Glendell Complex	NSW	Open Cut	11,497,827	264,736	0.276	410,759
Boggabri Coal mine	NSW	Open Cut	7,430,036	177,437	0.216	233,478	Yes
Mount Arthur coal mine	NSW	Open Cut	19,059,688	503,403	0.185	552,085	Yes
Peak Downs Mine	Qld	Open Cut	18,543,975	448,708	0.095	381,747	Yes

References:

Lock the Gate media Release, 4 October 2023, Ten big coal mines can increase emissions under Safeguard Mechanism: New analysis https://www.lockthegate.org.au/ten_big_coal_mines_can_increase_emissions_under_safeguard_mechanism_new_analysis

Adam Morton, The Guardian, 4 Oct 2023, ‘Absolutely perverse’: climate scheme could reward Australian coalmines whose emissions rise https://www.theguardian.com/environment/2023/oct/03/labor-coalmine-safeguard-mechanism-climate-scheme-emissions-benefits

IEEFA, 5 July 2023, Gross under-reporting of fugitive methane emissions has big implications for industry https://ieefa.org/resources/gross-under-reporting-fugitive-methane-emissions-has-big-implications-industry