The big aluminium companies have hit back at demands from other business groups and climate investors that smelters lose their beneficial status as a trade-exposed sector under Labor’s forthcoming changes to the safeguard mechanism on big emitters.
Critics say continuing to grant facilities that fall under the safeguard mechanism partial exemptions from the next seven years of falling emissions baselines because of offshore competition fears means others would have to do more of the heavy lifting.
The Australian Chamber of Commerce and Industry, and the Investor Group on Climate Change, whose members help oversee more than $30 trillion in assets globally, say emissions-intensive trade-exposed (EITE) industries should be given direct forms of assistance rather than special treatment under the safeguard mechanism.
Energy and Climate Change Minister Chris Bowen has told The Australian Financial Review he will be “very sensitive to the needs of emissions-intensive trade-exposed industry”, a sign of the political risks for Labor from the safeguard changes due to come into force in July next year.
Australian Aluminium Council chief executive Marghanita Johnson said her members wanted Mr Bowen to provide “site-specific differentiated baseline decline”. That would enable flexibility for the timing of new technologies and zero emissions energy, a crucial factor in decarbonising power-hungry metal production.
“This should be combined with access to funding recognising the substantial cost of transformative abatement,” Ms Johnson told the Financial Review.
“This will encourage decarbonisation projects investment but allow for the time lag needed for technology development and implementation.”
The Council says special treatment would also prevent so-called “leakage” of emissions, where manufacturing activity that would otherwise happen in Australia would occur overseas where there are no carbon constraints.
Back ‘winners, not losers’
The position puts aluminium producers on a collision course with other sectors and businesses that fall under the safeguard mechanism, which captures 215 of the nation’s biggest carbon emitters. After years of rising emissions under the safeguard, Mr Bowen has promised to make the scheme deliver real reductions as the government pushes to meet its newly legislated 43 per cent emissions reduction target by 2030.
In a submission to the government, the Investor Group on Climate Change said on Thursday that Mr Bowen should support only trade-exposed businesses that have a clear future, and avoid shielding oil and gas.
Erwin Jackson, director of policy at the IGCC, said any safeguard mechanism changes that placed additional unnecessary burdens on other parts of the economy were ultimately against the long-term interests of investors.
“Getting to net zero is challenging and needs a laser focus, and government resources are limited.
“They should be backing the winners in a net-zero world and not the losers.”
The investor group argues that any transitional competitive measures – including direct payments – under the safeguard mechanism changes should be directed at sectors that “have a clear future in an Australian net-zero emissions economy”.
These include renewable energy, critical minerals, and green steel, hydrogen and aluminium.
Support should “not be provided to industries that will decline in a net-zero economy, such as coal and LNG”.
“Support towards these sectors should be limited to the development of near-zero emissions technologies and collaboration to support a just transition for affected employees and communities.”
Australia has four aluminium smelters, as well as downstream processing, that make the metal the nation’s biggest manufacturing export, employing more than 17,000 workers and supporting 60,000 more, according to the Australian Aluminium Council.
‘Substantial’ investment needed
The council said the industry already had some of the lowest emissions in the world, and would need large sources of renewable energy or hydrogen to shift away from gas power and meet zero emissions goals.
“It is hoped that some technologies for refinery digestion may be able to be deployed prior to 2030, however, access to the required infrastructure outside the facility could be the rate-limiting step in the electrification process,” it said in its submission.
“The investment required to implement this transformational abatement will be substantial.
“The focus of policy design for safeguard mechanism should be on establishing a framework to maintain industry, jobs and competitiveness while also decarbonising, through the period to 2030 and beyond to achieve net zero by 2050.
“The success of this policy will not be measured in 2030 alone, but in the transformation of Australia’s industry in the biggest clean industrial and economic revolution this country has seen.”
No longer a need for carve-outs
Mr Jackson countered that the justification for special treatment for trade-exposed facilities had declined in recent years as more economies shifted to carbon pricing.
“We’ve seen an acceleration globally of national policies to drive decarbonisation,” he said. “It’s patchy but it’s accelerating. We’re also seeing the majority of the world’s largest emitting companies commit themselves to net zero by 2050, and also commit to lobby for action that is consistent with limiting warming to 1.5 degrees.”
Mr Jackson said many of the companies captured by the safeguard mechanism had for years been stress-testing their businesses to withstand carbon prices in the order of $100 per tonne.
“They’ve been telling the market and telling investors that it’s not a material concern.”
He said the direct cost of the safeguard mechanism changes would be far lower than a direct carbon price.
Emissions-intensive trade-exposed industries covered by the safeguard – a policy introduced by the former Coalition government in 2016 – account for 78 per cent of the total emissions covered by the scheme and 56 per cent of facilities.
According to Reputex, which modelled Labor’s pre-election climate change plan, the safeguard currently provides assistance to industries dominated by aluminium, iron and steel, petroleum refining, LNG production, and cement.
“Given their contribution to covered emissions, the loosening of constraints for these industries (such as slower baseline decline rates) could undermine Australia’s low-carbon transition, while placing a heavier burden on domestic, non-trade exposed industries, such as domestic airlines and domestic gas, which are themselves ‘hard to abate’,” Reputex said in its submission.
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