Safeguard Mechanism reforms – how big and how much will it cost?
John Gibb A * , Anne Forbes A and Luke Simpson AA
John Gibb is a research director in our upstream Australasia Oil & Gas team. He provides analysis of economics, strategies and industry trends across the region. John joined Wood Mackenzie in late 2022. He is a successful oil & gas professional with extensive business experience in Australia and internationally. John’s career includes 27 years working with Shell in various upstream and downstream roles. He started with Shell in the UK and then spent 21 years working in The Middle East, South America, Russia and Australia in various operating and project roles. John graduated from the University of Edinburgh with a BSc degree and is a member of Chartered Institute of Management Accountants (Associate Chartered Management Accountant). |
Anne Forbes is a senior research analyst in Wood Mackenzie’s Australasia upstream research team. Since joining in early 2022, she has worked on oil and gas assets and the domestic market balance across Australia. Prior to Wood Mackenzie, Anne spent 8 years at Chemostrat in a technical geological role in the upstream industry. She specialised in stratigraphic analysis and has worked across Australia’s principal producing basins. She has a Bachelors and Masters in Geology from the University of Cambridge, and a PhD in Volcanology from the Open University. |
Luke Simpson joined our Australian upstream research team as a research analyst in late 2022, bringing upstream experience across the petroleum and well engineering disciplines. His focus is on analysis of project economics and greenhouse gas emissions across Australasia. Before joining Wood Mackenzie, Luke worked in various technical roles for operating and service companies in Brisbane and Sydney. His most recent experience focussed on the production of coal seam gas (CSG) assets in Queensland, as a production technologist. Luke graduated from the University of New South Wales with a BE in petroleum engineering and a BESc in chemical engineering. |
Abstract
In an effort to reduce greenhouse gas emissions, the Australian government legislated the Safeguard Mechanism (SGM) in 2016. It is generally accepted that it had minimal impact, with no material reduction in greenhouse gas emissions resulting. In a move to address this, the legislation was amended, effective July 2023. These amendments rewrote the rules – baselines will reduce over time, the method of setting them will change, new concepts such as ‘international best practice’ will be introduced and new projects (including those already sanctioned, but not yet onstream) will be subject to tougher requirements. Our analysis will review the impact on the upstream projects currently covered by the SGM, and a select group of new projects. We will give our view on how the transition from the facility-specific to industry-average baselines impacts operators, and identify some of the potential winners and losers. Whilst first reporting is not due until the end of the 2024 financial year, there is still significant uncertainty on how the amended SGM will operate, specifically with regards to ‘industry best practice’. The paper will analyse what this could mean, and potential impacts. Is the SGM the roadmap to net zero that the industry is looking for? The work will leverage Wood Mackenzie’s asset by asset emissions data, and our unique insight into the economics of upstream developments. Ultimately, we will assess the trade-off that has been made by the Australian government – emissions for commerciality – and its long-term impact on the upstream sector.
Keywords: ACCU, Australia, baseline, CCUS, economics, emissions, facility-specific, industry-average, LNG, operator, Safeguard Mechanism, SGM, SMC, upstream.
John Gibb is a research director in our upstream Australasia Oil & Gas team. He provides analysis of economics, strategies and industry trends across the region. John joined Wood Mackenzie in late 2022. He is a successful oil & gas professional with extensive business experience in Australia and internationally. John’s career includes 27 years working with Shell in various upstream and downstream roles. He started with Shell in the UK and then spent 21 years working in The Middle East, South America, Russia and Australia in various operating and project roles. John graduated from the University of Edinburgh with a BSc degree and is a member of Chartered Institute of Management Accountants (Associate Chartered Management Accountant). |
Anne Forbes is a senior research analyst in Wood Mackenzie’s Australasia upstream research team. Since joining in early 2022, she has worked on oil and gas assets and the domestic market balance across Australia. Prior to Wood Mackenzie, Anne spent 8 years at Chemostrat in a technical geological role in the upstream industry. She specialised in stratigraphic analysis and has worked across Australia’s principal producing basins. She has a Bachelors and Masters in Geology from the University of Cambridge, and a PhD in Volcanology from the Open University. |
Luke Simpson joined our Australian upstream research team as a research analyst in late 2022, bringing upstream experience across the petroleum and well engineering disciplines. His focus is on analysis of project economics and greenhouse gas emissions across Australasia. Before joining Wood Mackenzie, Luke worked in various technical roles for operating and service companies in Brisbane and Sydney. His most recent experience focussed on the production of coal seam gas (CSG) assets in Queensland, as a production technologist. Luke graduated from the University of New South Wales with a BE in petroleum engineering and a BESc in chemical engineering. |
References
Clean Energy Regulator (2023a) The Safeguard Mechanism. (Clean Energy Regulator: Canberra, ACT, Australia) Available at https://www.cleanenergyregulator.gov.au/NGER/The-Safeguard-Mechanism [extracted 7 February 2023]
Clean Energy Regulator (2023b) Safeguard facility reported emissions. (Clean Energy Regulator: Canberra, ACT, Australia) Available at https://www.cleanenergyregulator.gov.au/NGER/The-Safeguard-Mechanism/safeguard-data/safeguard-facility-reported-emissions [extracted 7 February 2023]
Clean Energy Regulator (2023c) Baselines for financial years commencing on or after 1 July 2023. (Clean Energy Regulator: Canberra, ACT, Australia) Available at https://www.cleanenergyregulator.gov.au/NGER/The-Safeguard-Mechanism/The-Safeguard-Mechanism-for-financial-years-commencing-on-or-after-1-July-2023/Baselines-for-financial-years-commencing-on-or-after-1-July-2023#Standard-baseline [extracted 7 February 2023]
Department of Climate Change, Energy, the Environment and Water (2023) Net Zero. (Department of Climate Change, Energy, the Environmnt and Water: Canberra, ACT, Australia) Available at https://www.dcceew.gov.au/climate-change/emissions-reduction/net-zero#:~:text=In%202022%2C%20we%20legislated%20Australia’s,of%2043%25%20below%202005%20levels [extracted 7 February 2023]
