"A revamped Safeguard Mechanism is an essential part of the toolbox to build a net zero emissions economy, and sustaining Australia's trade competitiveness needs to be at the heart of it," Innes Willox, Chief Executive of national employer association Ai Group, said today. 

Ai Group today released the organisation's submission to the Department of Energy, Environment, Climate Change and Water Securing Safeguard Mechanism Reforms Consultation Paper

"Australia needs the revamped Safeguard, and we need to ensure that it can resolve competitiveness risks as they arise. The Government’s current menu of trade exposure options within the Safeguard is adequate for the short term. More will be needed by the second half of this decade: a solution that is more complete, sustainable and fair.

"In the meantime, there is much to be done to bed down an enhanced Safeguard. Access to a wider range of abatement opportunities from across Australia and overseas, and especially from the automatic issuance of credits to Safeguard facilities that beat their baselines, is essential. The greater this flexibility, the less that emissions cuts are constrained by the practical limits on what any one facility can do within its fenceline at a given moment.

"Meeting Australia's emissions goals for 2030 and beyond is a big task. New clean technology and evolving markets are making some of the necessary emissions cuts cheap or free. Others are going to come at a cost.

"Every sign is that these costs will be manageable and well worthwhile for the nation as a whole, especially given the increasingly visible costs of climate change itself. But industry has long worried about the risk that individual facilities and businesses are caught in the pinch between the climate policy costs they may bear and the costs facing their international competitors. The fear has been that lost competitiveness from globally uneven climate policies sees activity shift out of Australia, losing us jobs without lowering world emissions.

"The context for those fears has changed in important ways.

"Internationally, global climate action has broadened and deepened. Major economies are clearly acting, and we are starting to see the competitive risks from moving too slowly.

"Domestically, the design of an upgraded Safeguard Mechanism inherently exposes covered facilities to lower burdens than past policies, at least in the early years.

"Competitiveness concerns have not gone away, however. Major economies are all acting in ways that preserve their industries. Safeguard baselines will collectively have to fall deeply to achieve a fair share of overall emissions goals, and the cost of that will eventually test competitiveness.

"An Australian Carbon Border Adjustment Mechanism could be a better solution to the competitiveness concern than the Government's current options. Leveling the carbon constraint playing field in this way would involve applying the domestic emissions baseline to relevant imports – for instance of steel, cement or ammonia – and reducing liabilities for exports of such products to reflect an efficient production benchmark. This would be a major reform. Europe's pioneering CBAM work can be learned from, but Australia would need a system adapted to our own circumstances.

"Any Australian CBAM would need to be fully compatible with our international trade commitments and minimise implementation costs with a practical design. Ai Group's research suggests this is quite possible. We have recommended that the Government start development and consultation work on CBAM options to enable a decision on possible implementation in the next three to five years.

"There is much work to be done if the reformed Safeguard is to be in place by July 2023. Even more will be needed to ensure the Safeguard is ready to underpin industry investment all the way to net zero emissions," Mr Willox said.

Download Ai Group's submission here

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