Recent modelling from Wood Mackenzie shows underground mines will bear the highest cost in reducing its emissions under the revised safeguard mechanism scheme.
The Safeguard Mechanism is the federal government’s policy for reducing emissions at Australia’s biggest industrial facilities, which came into effect on July 1.
The legislation includes industry average baselines on greenhouse gas emissions at the facilities to achieve the country’s emission reduction target of net zero by 2050.
Research and consultancy business Wood Mackenzie conducted a modelling exercise based on the second quarter of 2023 production cycle.
According to WoodMac, the scheme's intention was for high emissions mines having to purchase Safeguard Mechanism Credits (SMCs) that are generated by other big industrial facilities.
Wood Mackenzie principal analyst Rory Simington said a significant portion of Australia’s open cut mines would be receiving credits from the scheme every year from 2023 to 2030.
“Meanwhile, underground mines will be subject to significant costs and need to purchase SMCs,” he said.
“Early closure of these emission-intensive facilities could significantly impact the demand and therefore prices of SMCs, which adds another layer of uncertainty to the economic assessment of abatement solutions."
WoodMac said the definition of “industry average” had been contentious.
“Wood Mackenzie modelling shows that adopting a single ‘industry average’ will have an unequal impact on some facilities receiving benefit without any mitigation, while others will face significant financial implications,"
Through its analysis, WoodMac said production-adjusted baselines played a crucial role in the Safeguard Mechanism but reducing production did not reduce compliance costs and would limit options for producers.
