The Emissions Reduction Fund Safeguard Mechanism covers about 140 businesses including the mining, oil and gas, manufacturing and transport sectors which together account for about half of Australia's emissions.

 

The mechanism, legislated in November 2014 before coming into effect on July 1, 2016, allows emissions limits, or baselines, to be increased under "certain circumstances", like if a facility expands production capacity by more than 20% or there is "natural variability" in resource grades at mining, oil and gas facilities.

 

The government will consult business and work with the Clean Energy Regulator on ways to bring baselines up to date after the Australian Industry Group said this year that historical baselines would "eventually see more and more growing businesses face a penalty, somewhat randomly and arbitrarily".

 

The report flagged one option of broadening access to baseline increases, so all facilities have an up-to-date baseline that reflects their individual circumstances.

 

Baselines could also be regularly updated to reflect actual production, which would see baselines increase with production, thereby supporting business growth. 

 

Conversely, if production falls, the baseline would automatically drop in proportion, thus stopping baselines becoming out of date in the future. 

 

"Together with broadening access to baseline increases, historical baselines could be progressively phased out and replaced by calculated baselines which use more up-to-date data (as by then many will be more than a decade out of date)," the government's report said.

 

The Australian Petroleum Production and Exploration Association welcomed the government's commitment to maintain some flexibility in the mechanism in the case of resource projects where emissions will fluctuate naturally.

 

The report also flagged the possible introduction of an option for businesses to use default values reflecting median or average emissions outcomes to reduce the administrative and auditing costs of applying for a baseline increase.

 

This is similar to the availability of lower order methods under the National Greenhouse and Energy Reporting Act 2007. 

 

For example, the government could calculate and publish default values based on independent advice, avoiding audited, site-specific emissions and production forecasts which would then simplify applications for baseline increases and lower administrative costs for facilities that elect to use them. 

 

The government believes that together, these changes would simplify the operation and administration of the scheme. Businesses would need to report production each year - about 60% already do this under existing legislative obligations - but the overall framework would be simpler.

 

The review said other mechanisms for increasing baselines—such as the emissions-intensity test—may become redundant as baselines would automatically accommodate business growth. 

 

Current flexibility provisions set out in the rules to address the inherent variability of emissions from natural resources would remain unchanged, the report confirmed.