Recently the Australian Government released findings of the King Review, accepting 21 of 26 recommendations to incentivise greenhouse gas (GHG) emissions abatement from industry.
The focus of the Expert Panel review was the development of rules to credit emissions reductions below Safeguard Mechanism baselines. Credits created under the proposed mechanism could be used to meet compliance obligations under the Safeguard Mechanism.
The panel recommended producing new credits generated under the scheme, known as Safeguard Mechanism Credits (SMCs). The SMCs would be different to the Australian Carbon Credit Unit (ACCU) offsets. SMCs would be for transformative abatement projects based on changes in emissions intensity rather than absolute emissions.
The proposed crediting mechanism would be similar to a baseline and credit framework scheme employed under current legislation however the baseline component of the framework does not account for absolute emission increases. The proposed mechanism will separate an emissions intensity crediting baseline that is focused on ‘transformative’ projects. The new credits will have lower environmental integrity due to the lower threshold for creation of credits for potential abatement projects. The creation of these credits will result in a two speed carbon price.
The Review observations that SMCs could be purchased at a price set by the market or at a fixed price. The price may also be linked to the existing ACCU price. As a result, lower quality SMCs would be expected to trade at a discount to ACCUs.
The Review saw the potential for LGCs to increasingly be considered for use in carbon markets due to their implicit carbon abatement value. It is not proposed to link LGCs in the new scheme.