Australia's industrial makeover ramps up

As the Climate Council says, the so-called Safeguard Mechanism is the most important climate policy no one's ever heard of.

The mechanism sets limits for greenhouse gas emissions for Australia's top 215 industrial sites to force refineries, smelters, gas plants and other big emitters to clean up their processes or offset pollution with environmental projects.

Experts have questioned the integrity and regulation of the $4.5 billion federal fund that issues carbon credits for land and sea-based projects to offset emissions.

Critics claimed dodgy credits used as offsets were effectively a licence to pollute, fuelling climate change, not decarbonisation.

But an independent review led by former chief scientist Ian Chubb has found the Australian Carbon Credit Unit scheme is not a sham.

However, the Albanese government has conceded it does need improvements, including more public scrutiny, and axed one of the most contentious methods of abatement.

New operators and investors have a clearer set of goalposts but it's harder for heavy industry, which uses industrial processes that will never be carbon free.

An initial $600 million will support industrial changes - such as new energy sources for high-heat processes that are years away from being commercially viable - as well as emerging clean energy industries and worker training.

The federal handouts will go to trade-exposed sectors covering virtually every commodity, as rival economies begin to take a closer look at the emissions that Australia exports.

There will also be new bonus credits for firms that outperform on the compulsory emissions cuts, which the Carbon Market Institute says are more likely to be "banked" by companies to comply with requirements rather than be traded.

Some 205 million tonnes of emissions reductions are required between now and 2030 under the tweaked scheme, equivalent to eliminating two-thirds of Australia's car emissions this decade.

Safeguard-covered facilities, each producing more than 100,000 tonnes of greenhouse gas emissions a year, will be required, on average, to cut emissions by five per cent each year to 2030.

"That's not cheap and easy," institute CEO John Connor told AAP.

"I don't think we should underestimate the importance of this as a compliance measure."

He says Australia must do its fair share, and decarbonise the economy and industry to meet national and international targets.

"Carbon markets and policy needs to be a means to an end - they need to be linked to the outcome we're ultimately trying to achieve, which is to limit global warming to 1.5 degrees," he says.

"But people won't be able to offset their way out of all these obligations."

Climate Change Minister Chris Bowen and Prof Chubb say high-integrity offsets are 'climate action' in their own right, leading to important environmental outcomes in land and coastal areas.

But it's essential existing industries aren't overly penalised and new entrants understand their obligations, Minerals Council of Australia CEO Tania Constable warns.

Smelters, refineries, manufacturers, glass and brickworks, recycling and waste disposal, transport and agriculture, coal, oil and gas projects must cut emissions under the regime.

And if they don't, a penalty of $75 per tonne of emissions over the limit will be imposed.

It's not a cap or a carbon price, it's a market guide, the Carbon Market Institute's Mr Connor says.

Ms Constable says the cost-containment measure is important because these are ambitious changes.

"It is going to take a lot, the costs are going to be high, the technological changes are significant if Australia is going to reduce emissions by 43 per cent by 2030," she told AAP.

"As baselines decline and it gets a bit tough for some parts of our sector, they need the assurance that they're going to remain competitive at an international level - that is the major issue for us."

The federal opposition says the extra costs will damage businesses and be passed on to consumers in the form of higher prices.

The Australian Greens say the package allows for more expansion of coal and gas, which is completely at odds with tackling the climate crisis.

The oil and gas industry says it will work with the federal government to ensure the final policy, set to take effect on July 1, is consistent with the shared goal of net-zero emissions across the economy by 2050.

Australian Petroleum Production and Exploration Association CEO Samantha McCulloch said the industry was investing in technologies and projects that can deliver substantial emissions cuts, but there must be the flexibility to drive long-term technology investment.

"Step-change technologies" such as carbon capture and storage and low-carbon hydrogen, that can provide the largest emissions reductions contributions, also have the longest lead-time and require the most investment certainty, she tells AAP.

Australia must also maintain competitiveness and prevent international emissions "leakage" that pushes industry to other less stringent countries, which the Albanese government has pledged to work to prevent.

"Policy that disadvantages Australian exports - that in many instances have a significantly lower emission footprint than international equivalents - risks impacting the Australian economy and jobs without any reduction in net emissions," Ms McCulloch said.

While the mechanism may be the primary tool for curbing big industrial emitters, the electricity grid remains the nation's biggest emitter.

Burning fossil fuels to produce electricity is the largest contributor to Australia's carbon emissions, followed by transport, agriculture, and industrial processes, according to the CSIRO.

Most of Australia's 10 highest-emitting corporations, which together account for almost half of direct emissions, are electricity generators.

The mining industry says while Australia may have an abundance of critical minerals and rare earths that the world needs, the commodities are not located next to clean and cheap power sources.

"Importantly, we also need the equipment, the machinery to electrify and that's not coming on very quickly," Ms Constable says.

The technology probably won't happen until 2028 through to 2032, and the world's mines will be competing as equipment becomes available, she warns.

The tyranny of distance also means Australia could face higher costs to ship new minerals and traditional fossil fuel exports.

The Chubb review shows there's integrity in the carbon credit system designed to support decarbonisation, but Ms Constable is concerned about the proposed rapid changes for the regulator.

"It takes time to build expertise and get things running smoothly, so we'll be watching to make sure implementation matches the ambition."

Australian Associated Press