Major polluters would be required to cut emissions about 5 per cent each year through to 2030 under an Albanese government plan to help reach its climate action targets.
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Climate Change and Energy Minister Chris Bowen has unveiled a proposed redesign of the so-called safeguard mechanism, the Tony Abbott-era scheme intended to put a ceiling on emissions at the nation's heaviest industrial polluters.
The government wants the new regime up and running on July 1, setting the stage for a political fight with the Coalition and the Greens.
Mr Bowen is confident the planned shakeup strikes the right balance between addressing climate change and supporting industries through the clean energy transition.
But green groups are warning the plan to keep allowing polluters to use unlimited offsets to meet their obligations puts Australia's net zero goal at risks.
Labor went to the election promising to redesign the Coalition's safeguard mechanism, which has failed to achieve its purpose of restricting pollution across the nation's heaviest emitting facilities.
It committed to gradually lowering the emissions baselines for the facilities to help meet its goal of cutting emissions 43 per cent by 2030 and reaching net zero by 2050.
Under a proposal published on Tuesday, emissions baselines for the sites would decline 4.9 per cent each year to 2030.
The initial baseline levels would be tailored to each of the 215 or so facilities, giving them time to transition to industry-wide benchmarks by 2030.
The baselines would be linked to levels of production, meaning the ceiling would rise if output increased.
Businesses in trade-exposed sectors would be allowed to reduce emissions at a slower rate, while the government has also committed $600 million to help them decarbonise their operations.
The money will come from a $1.9 billion fund the government will use to support regional Australia through the shift to a clean-energy economy.
Mr Bowen said the proposed changes would result in 205 million-tonnes of abatement between now and 2030, which was the equivalent of cutting emissions from cars by two-thirds over the same period.
"This is pro-climate, pro-industry, pro competitiveness," he said.
In a further step to protect local industry, Mr Bowen has revealed the government would consider the idea of imposing carbon border tariffs on imported goods.
The redesign of the scheme is politically contentious and Labor can expect to face pressure from the political left and right.
The Coalition has previously likened changes to the safeguard mechanism to a "sneaky" carbon tax, while the Greens want the scheme's redesign to effectively ban new coal and gas projects.
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The government's announcement follows the release of an independent review of Australia's carbon credits system, which is set to play a major role in helping heavy emitters meet their obligations.
The Ian Chubb-led review rejected claims from experts that the majority of credits were a sham, but recommended a major overhaul of the scheme's governance.
Companies would continue to be able to purchase and surrender carbon credits in order to meet their obligations under the proposed new system.
The Greens and leading environmental groups have warned the refusal to restrict access to carbon credits and offsets undermines the government's climate action agenda.
"Unlimited offsets allow big, publicly listed companies like Woodside, Glencore and Santos - which have done more than enough climate damage already - to pay to keep polluting," Australian Conservation Foundation climate change program director Gavan McFadzean said.
Greens acting leader Mehreen Faruqi said the party would use its numbers in the Senate to push Labor to block new coal and gas projects and ensure "real cuts to pollution, not just hot air".
"Coal and gas can't be allowed to just buy their way out of real pollution cuts with dodgy offsetting," Senator Faruqi said.
Peak business groups have broadly welcomed the government's approach, which is designed to provide policy certainty for companies on the path to net zero.
However, the Australian Chamber of Commerce and Industry has already signaled it will oppose carbon border tariffs.
"A carbon border adjustment mechanism is simply a punitive tax on imported goods that will do little to incentivise investment in low-emissions technology or increase the competitiveness of Australian industry," the group's policy and advocacy chief, David Alexander, said.
Dan Jervis-Bardy
Dan covers federal politics from Parliament House, with a special focus on climate policy and the NDIS. He has previously reported on ACT politics and urban affairs since joining the Canberra Times in 2018.
Dan covers federal politics from Parliament House, with a special focus on climate policy and the NDIS. He has previously reported on ACT politics and urban affairs since joining the Canberra Times in 2018.
