The Safeguard Mechanism’s Emissions Intensity Determination Explained
23rd October 2023
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he Australian Government’s Safeguard Mechanism (SGM) reforms are now in force. One of the immediate challenges now faced by most covered entities is attaining an Emissions Intensity Determination (EID). Companies without an EID risk significant financial penalties.
This article summarises what is an EID, who EID’s impact, what is required to secure an EID, and the steps you need to take now to be prepared for the deadline of 30 April 2024.
Also important is that the Clean Energy Regulator has just published its long-awaited EID guidelines.
What is an Emissions Intensity Determination?
EID’s establish the site-specific intensities of production variables at each facility. The emissions intensity specified in an EID will be used to calculate the Baseline Emissions Number (BEN) for the facility each year, in accordance with the equation in the SGM rule.
Without an EID, this calculation could instead be based on ‘best practice’ emissions intensities. Additional guidance around best practice emissions intensities has been published in the newest SGM exposure draft.
This uncertainty poses a significant risk to organisations without an Emissions Intensity Determination.
The site-specific emissions intensity specified in an EID is based on the historical emissions performance of the facility. Sometimes, it will be necessary to apply new calculation methods to older reports to ensure consistency; apportioning emissions between production variables also needs to be fair and reasonable.
New Facilities and new production at existing facilities, where there is no relevant historical data will not have an EID, and will instead will be held to best practice. It’s important to note that special rules apply for some gas, coal and landfill facilities.
Who will the Emission Intensity Determination impact?
EIDs are relevant for all pre-existing facilities that emit more than 100,000 tCO2e of covered emissions in a financial year (the SGM threshold). This includes all facilities that are expected to exceed this threshold, even if they haven’t in previous years. Covered emissions include all scope 1 emissions produced at the facility, including industrial process emissions, fuel emissions, and fugitive emissions amongst others.
This impacts an expected 215 facilities, accounting for around 28% of Australia’s emissions, from a range of industry sectors including coal mining, manufacturing, transport and oil and gas extraction.
When do you need to submit your Emission Intensity Determination by?
EIDs must be audited and submitted by 30 April 2024 to avoid being subject to a best practice intensity in FY2024. This is an untested and complex process, meaning early planning is key.
The already heavy workload on auditors during the NGER season (August – November) plus the Christmas break leaves little time to realistically prepare, audit and submit by the April 24 deadline.
The need for urgency is exacerbated by the time taken to brief senior executives on the material implications of the EID, and the function of the SGM more broadly.
Steps to get prepared to submit an Emission Intensity Determination
An EID needs to specify historical information on emissions and production, list all production variables, and the calculated site-specific emissions intensity for each production variable.
The application must be completed in a manner approved by the Clean Energy Regulator and accompanied by an audit opinion – that includes a reasonable assurance on all covered emissions from all historical financial years, as well as a limited assurance opinion on the apportioning of these emissions to a facility’s various production variables.
Steps to get prepared include:
- Line up your auditor early
- Ensure historic emissions estimates are updated for method changes and global warming potentials
- Ensure all production variables are correctly identified, and specified in the SGM rule
- Apportion emissions to production variables in accordance with the SGM rule
- Complete your emissions intensity determination application SGM form
- Prepare your audit pack
Why safeguard mechanism monthly monitoring is important
Under the reformed SGM, every tonne of greenhouse gas emissions over the baseline will incur a liability, and every tonne under could enable the generation of tradable Safeguard Mechanism Credits. Given this, it’s critical that large facilities have a thorough understanding of their emissions, and the intensity of their production throughout the year.
Monthly monitoring and forecasts of performance against baselines at SGM facilities is essential. Without routine reporting and planning, companies risk exposure to significant costs without time to plan and react. By tracking monthly emissions and production data, facilities can understand their expected liability, make efforts to implement decarbonisation opportunities and monitor the impact of abatement projects implemented.
Want to understand more about the Safeguard Mechanism reforms and Emissions Intensity Determination?
Our team has deep subject matter knowledge of, and experience with, environmental reporting under the Emissions Reduction Fund and Safeguard Mechanism legislation. We can help you:
- Review your historical NGER data for any method changes or updates required for any Emissions Intensity Determination calculations,
- Calculate your emissions intensity in line with the Safeguard Rule Amendments,
- Prepare your Emissions Intensity Determination application,
- Model of your anticipated Baseline Emissions Number out to 2030.
Explore the reforms in our article: Safeguard Mechanism 2.0 – Reform Changes and Safeguard Mechanism Credits.
Learn more about our wider Clean Energy Regulator compliance services for the Safeguard Mechanism and NGERs here.
Director Thomas Hodgson has worked since the inception of the Clean Energy Regulator to support Australian businesses measure their emissions under NGERs, meet their carbon pricing obligations under the original 2011 Carbon Price and subsequent Safeguard Mechanism, and realise opportunities under the ERF. Our experts are trusted partners and strategists to some of Australia’s largest emitters, providing tailored and quality advice to ensure compliance and foster sustainable and innovative practices.