Methane emissions from the oil and gas industry are “incredibly cheap” to cut and companies could improve their financial position by embracing existing technology to stop carbon leaks, an inquiry into the Albanese government’s climate policy has heard.
A hearing into proposed changes to the safeguard mechanism – a Coalition policy applied to industrial emissions that Labor plans to revamp – was told the International Energy Agency (IEA) had estimated a 75% reduction in methane was possible using commercially competitive existing technology, such as capturing the methane and using it to generate electricity.
Matt Watson, from the US Environmental Defense Fund (EDF), said with gas prices inflated following Russia’s invasion of Ukraine, nearly all of these cuts would be cost-effective for the companies involved.
Both the EDF and Ember, a UK-based energy thinktank, said there was no justification for fossil fuel companies being allowed to use carbon offsets as an alternative to cut methane emissions directly. This was partly because it was affordable to act onsite and partly because methane could not be minimised using offset projects that were meant to reduce atmospheric carbon dioxide, a different gas.
“If you found yourself in a position where a company was wanting to use offsets rather than make those emissions reductions, that would be a good reason to be suspicious,” Watson said, adding that it didn’t make sense from an economic standpoint.
The treatment of methane emissions – and the extent to which companies make cuts onsite as opposed to buying carbon offsets – will be part of the focus of talks between the government, the Greens and the crossbench as they negotiate over the redesign of the safeguard mechanism. The government wants to start operation from 1 July.
Quick GuideWhat is the safeguard mechanism?
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The safeguard mechanism was introduced by the Coalition in 2016. It was promised to put a limit on greenhouse gas emissions from about 200 major industrial facilities.
It applies to facilities that emit more than 100,000 tonnes of carbon dioxide equivalent a year. Each facility is set an emissions limit, known as a baseline.
The Coalition said companies that emitted above their baseline would have to buy carbon offsets or pay a penalty. In practice, facilities were allowed to change their baselines, few were penalised and industrial emissions continued to increase.
Labor won government planning to revamp the scheme.
It has set new baselines based on emissions intensity – how much a facility releases per unit of production. Baselines will be reduced by up to 4.9% a year.
Companies can choose whether to make onsite emissions cuts or buy offsets, including Australian carbon credit units.
New polluting facilities, including gas and coalmines, are allowed to open and enter the scheme and would be set baselines at “international best practice”. For new gas fields, that means offsetting all CO2 pollution so they are net zero.
Companies that emit less pollution than their baseline allows will be awarded a new type of “safeguard credit”. These within-scheme credits can be sold to other polluting facilities that emit more than their baseline and need offsets.
A deal between Labor and the Greens introduced an absolute "cap" so that total emissions under the scheme can not increase and need to come down over time. The pace of reduction is not stipulated, and will be set by the climate change minister
The changes start on 1 July 2023.
Methane is a highly potent but short-lived greenhouse gas that scientists estimate has been responsible for about 30% of global heating since the Industrial Revolution. It has more than 80 times the warming power of carbon dioxide over a 20-year period. The IEA last week released data that found methane emissions from Australian coalmines and gas production could be 63% higher than federal government estimates suggest.
The evidence from international witnesses came on the first of a two-day inquiry hearing into Labor’s legislation to change the safeguard, a Coalition policy that was introduced in 2016 to limit pollution from 215 major industrial facilities. In practice, it has not achieved that.
Labor has pledged to use it to cut emissions intensity by 4.9% a year.
It has been criticised for proposing to allow new coal and gas developments – a step opposed by the Greens – and an unlimited use of carbon offsets despite criticisms of the integrity of some methods used to create them.
Q&AWhat are carbon credits?
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Carbon offsets are used by the government and polluting companies as an alternative to cutting carbon dioxide emissions.
Instead of reducing their own pollution, they can choose to buy offsets - known as Australian carbon credit units (ACCUs) - that are meant to represent a reduction in emissions elsewhere.
Each carbon credit represents one tonne of carbon dioxide that has either been stopped from going in the atmosphere, or sucked out of it.
Methods approved to generate carbon credits in Australia include regenerating native forest that has been cleared, protecting a forest that would otherwise have been cleared (known as “avoided deforestation”) and capturing and using emissions that leak from landfill sites to generate electricity.
Credits were bought by the government through the $4.5bn taxpayer-funded emissions reduction scheme or, increasingly, by polluters on the private market.
Several witnesses suggested placing quantitative or qualitative limits on the number of offsets that could be used, or taking further steps to ensure the integrity of approved projects. A team of academics from the Australian National University and the University of New South Wales estimated there could be at least 60m low-integrity carbon credits that did not represent new or genuine emissions cuts. They said those credits should not be used in the safeguard.
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The inquiry also heard that some industries covered by the scheme, notably cement production but also steelmaking and some other manufacturing, had limited capacity to cut emissions directly until technology developed and would not be able to make cuts without buying offsets.
Other witnesses raised concerns about new fossil fuel developments increasing pollution and placing greater pressure on existing facilities to make cuts to meet targets. A report by the global research firm Climate Analytics commissioned by climate groups found the government appeared to have substantially underestimated the likely future emissions from coal and liquefied natural gas (LNG) production.
Official government projections suggested emissions from the LNG industry would rise by 20% by 2030. Climate Analytics estimated the increase was likely to be 36%. For coalmines, the government projected a 10% fall in emissions. Climate Analytics projected at least a 23%, and possibly up to a 116%, increase.
The report did not look directly at the economic impact on proposed fossil fuel developments of companies being required to either cut emissions or to buy carbon offsets, but Climate Analytics’ chief executive, Bill Hare, said he believed the likely result would be a “free-for-all” of fossil fuel companies buying offsets.
The inquiry continues on Tuesday.