AGL Energy welcomes the opportunity to comment on the Safeguard Mechanism Reform 2022.

The role of the Safeguard Mechanism

AGL accepts the science on climate change and supports policy action to meet Australia’s commitments under the Paris Agreement, including the commitments by the Commonwealth and State Governments to reach net zero emissions by 2050. We strongly support the strengthening of the Safeguard Mechanism to meaningfully contribute to these climate targets and to meet Australia’s overall emissions reduction task.

Economy-wide policies to set guideposts for the transition to a net zero economy are an important component of realising this objective. In addition to a national emissions budget and a legislated long-term emissions reduction trajectory, policies that provide targets for Australia’s largest emitters provide more clarity on expectations of the future operating environment and allow businesses, governments, customers, and communities to plan for the future.

At the same time, substantial reductions in emissions and a shift away from current dependence on fossil fuels represents a major shift across the entire economy, with very large transitional costs required to replace existing products, services, technologies, and infrastructure with zero-emissions alternatives. The policy decisions taken in setting the parameters of the Safeguard will determine the future direction of some of the largest contributors to Australia’s economy, and therefore the operation of the mechanism must be considered closely to ensure the emissions task is achieved efficiently and in a way that minimises broader impacts.

The need to incentivise new renewable energy projects and a scheme to support decarbonisation of Scope 2 emissions remains an important consideration for governments alongside the operation of the Safeguard Mechanism, especially over the longer term. While the Safeguard Mechanism could incentivise investment in low-carbon technologies as businesses seek to lower process emissions, new, renewable energy generation must be incentivised in parallel.

With a number of policy options undergoing formal and informal consultation at the moment, it will be important to consider which policy mechanism is best suited to tackle which problem or market segment and how different proposed policies may intersect or support each other in order to achieve lowest cost abatement on an economy-wide scale.

A copy of AGL’s submission to the Safeguard Mechanism Reform is available here.