Safeguard Mechanism: International Best Practice Benchmarks

APA Group Limited ACN 091 344 704
Level 25, 580 George Street, Sydney NSW 2000
PO Box R41, Royal Exchange NSW 1225
P: +61 2 9693 0000 | F: +61 2 9693 0093
APA Group | apa.com.au

APA Submission:
Safeguard Mechanism
Setting International Best
Practice Benchmarks

17 August 2023

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APA Group Limited ACN 091 344 704
Level 25, 580 George Street, Sydney NSW 2000
PO Box R41, Royal Exchange NSW 1225
P: +61 2 9693 0000 | F: +61 2 9693 0093
APA Group | apa.com.au

Hon Chris Bowen MP

Minister for Climate Change and Energy

Lodged online

17 August 2023

RE: APA Submission to Safeguard Mechanism Setting International Best Practice
Benchmarks Consultation

Dear Minister Bowen,

Thank you for the opportunity to comment on the Australian Government’s Safeguard
Mechanism: International Best Practice Benchmarks.

APA is an Australian Securities Exchange (ASX) listed owner, operator, and developer of energy infrastructure assets across Australia. Through a diverse portfolio of assets, we provide energy to customers in every state and territory on mainland Australia. As well as an extensive network of natural gas pipelines, we own or have interests in gas storage and generation facilities, electricity transmission networks, and 681 MW of renewable generation infrastructure. APA currently has two gas pipeline facilities that are covered by the Safeguard
Mechanism (facility specific baseline).

We support the global transition to a lower carbon future and are actively supporting the energy transition taking place across Australia. In August 2022 we released our Climate
Transition Plan, outlining APA’s pathway to net zero operations emissions by 2050, including interim targets for different aspects of our portfolio.

Our submission below provides recommendations for setting robust and practical benchmarks for new facilities, which will support Australia’s decarbonisation while maintaining a competitive Australian industrial sector.

If you wish to discuss our submission, please contact our Head of Net Zero and Climate,
Andrew Dyer, on 0456 992 444 or andrew.dyer@apa.com.au.

Kind regards

Liz McNamara
Group Executive Sustainability and Corporate Affairs
APA Group

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1 Key Points
APA offer the following key points for consideration in developing the Safeguard Mechanism
international best practice benchmarks:

❖ International best practice benchmarks need to be designed in such a way so as to avoid
competitive distortions between new entrants and current facilities.

❖ The government should keep incentivising commercially viable low-carbon technology,
where implementation is reasonably practicable at current costs.

❖ Factors considered when adapting international benchmarks to the domestic context
should be broadened to include geographical considerations (including the remoteness of
many Australian industrial facilities and suitability of available technologies), the availability
of technology in the domestic market and the associated costs of technology transfer, and
differences in regulatory frameworks affecting low carbon technologies.

❖ A collaborative approach should be implemented to receive input from affected facilities,
from defining the requirement for a new production variable to being consulted in the
process of setting benchmarking values from international best practice.

❖ Further consultation is needed on the most appropriate ways to align with fossil fuel
standards. While we welcome the proposal to align with emerging international fossil fuel
standards, some elements of standards such as the Oil and Gas Methane Partnership
(OGMP 2.0) which is principally a measurement and not a performance standard, would
warrant further consideration before integrating in the benchmarking process.
APA Group Limited ACN 091 344 704
Level 25, 580 George Street, Sydney NSW 2000
PO Box R41, Royal Exchange NSW 1225
P: +61 2 9693 0000 | F: +61 2 9693 0093
APA Group | apa.com.au

2 About APA Group

2.1 Overview of APA Group

APA is a leading ASX listed energy infrastructure business. Consistent with our purpose to
strengthen communities through responsible energy, our diverse portfolio of energy
infrastructure delivers energy to customers in every state and territory on mainland Australia.
Our 15,000 kilometres of natural gas pipelines connect sources of supply and markets across
mainland Australia. We operate and maintain energy networks connecting 1.4 million
Australian homes and businesses to the benefits of natural gas. We also own or have interests
in gas storage facilities and gas-fired power stations.
We operate and have interests in 681 MW of renewable generation infrastructure. Our asset
portfolio also includes high voltage electricity transmission assets that connect Victoria with
South Australia and New South Wales with Queensland.

Figure 1

Most recently, we completed the acquisition of Basslink Pty Ltd, which owns and operates the
370km high voltage direct current electricity interconnector between Victoria and Tasmania.
The acquisition adds a third electricity interconnector to APA’s energy infrastructure portfolio
and is consistent with our strategy to play a leading role in the energy transition.
APA actively supports the transition to a lower carbon future. In August 2022, we published
our inaugural Climate Transition Plan (our Plan) which outlines our commitments to support
Australia’s energy transition and pathway to achieve net zero operations emissions by 2050.

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APA Group Limited ACN 091 344 704
Level 25, 580 George Street, Sydney NSW 2000
PO Box R41, Royal Exchange NSW 1225
P: +61 2 9693 0000 | F: +61 2 9693 0093
APA Group | apa.com.au

Our commitments include:
• a target to reduce gas infrastructure emissions by 30 per cent by 2030 with a goal for
net zero emissions by 2050
• a goal to reduce emissions intensity for power generation by 35 per cent by 2030
• a goal of net zero emissions by 2040 for power generation and electricity transmission
infrastructure. A target of 100 per cent renewable electricity procurement across the
business from FY23 and a goal to operate a 100 per cent zero direct emissions fleet
where appropriate by FY30.

We assess that the targets in our Plan are aligned to the goals of the Paris Agreement and
based on emissions reductions that can be achieved from proven technology.
The targets also provide flexibility to evaluate new opportunities to advance our ambition, as
technology develops.

In addition, through our Pathfinder Program, we are investigating how hydrogen and other
technologies, such as batteries and microgrids, can support a lower carbon future. Current
Pathfinder initiatives include the Parmelia Gas Pipeline hydrogen conversion project in
Western Australia, and the Mid-West Blue Hydrogen Project.

2.2 APA’s Best Practice Implementation Approach

APA supports the deployment of best practice emission reductions technology when designing
and implementing new facilities.

In FY23 we released our Climate Change Standard which establishes climate-related
performance requirements to eliminate or reduce emissions to as low as reasonably
practicable for new developments and / or expansions.

Our general definition of reasonably practicable considers the following elements:

• the technology exists and can be operated and maintained using reasonable
endeavours

• the marginal abatement cost to eliminate or reduce the emissions risk over the asset
life is lower than the average Internal Carbon Abatement Price

• whether our competitors are exposed to similar carbon prices.

Our internal carbon abatement price supports the prioritisation of structural abatement over
offsetting emissions and is set at a 100% premium to a combination of historical and forecast
of the ACCU price. Please refer to p27 of our Climate Transition Plan for further details.

The path APA takes will continue to evolve as we evaluate further reduction opportunities, the
cost of implementing decarbonisation initiatives reduces and new technologies emerge.

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APA Group Limited ACN 091 344 704
Level 25, 580 George Street, Sydney NSW 2000
PO Box R41, Royal Exchange NSW 1225
P: +61 2 9693 0000 | F: +61 2 9693 0093
APA Group | apa.com.au

3 Submission Response
3.1 Key principles to promote best practice investments

APA suggests that best practice benchmarks should be guided by the following key principles,
in alignment with our definition of reasonably practicable mentioned in our Climate Standard.
• Commercially viable technology: APA supports the proposal that benchmarking should
rely on commercially viable production and not be based on pilot projects and highly
subsidised production.
• Preventing competitive distortions: The manner in which benchmarks are set and
applied to existing and new industrial facilities should minimise the potential for
competitive distortions or unfair advantage. The impact of the reformed Safeguard
Mechanism should be managed so as not to disincentivise investments in new
facilities.
• The need for broader industry policies: The current eligibility criteria of the Safeguard
Transformation Stream (STS) include trade-exposed facilities only. More public and
private investment is needed in Australia to support the decarbonisation of all hard-to-
abate sectors, including from gas infrastructure. The Reform should therefore be
accompanied with broader industry policies granting new entrants and existing
facilities easier access to emission reduction technologies.

3.2 Recommendations on establishing best practice benchmarks

3.2.1 Collaborating from the early stages of the benchmark process

It is important that affected facilities have the opportunity to provide early input into the
benchmarking process, given they are best placed to provide the Government with technical
information on Australian conditions.

We suggest that the benchmarking process should include industry consultation as part of the
consultant’s scope of work, so that pertinent data can be inputted to the process in a timely
way. Currently the draft guidelines reserve public consultation to the final stage of the process
only.

3.2.2 Adjusting benchmarks to domestic best practice

We welcome the provision made to adjust the benchmarking values for the Australian context.

Geology and climate are important in our line of business, as the choice of pipelines varies
according to the terrain and climate.

APA additionally supports how the proposed guidelines recognise challenges of remoteness
and reliability of electricity supply and make provision for on-site electricity generation.

We recommend that the scope should be extended to include the following conditions:

- Availability and supply of technology: Unavailability and lack of supply of low emissions
technology and equipment remains a challenge as Australia is geographically isolated.
America and Europe are considered to be at the forefront of the technology
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APA Group Limited ACN 091 344 704
Level 25, 580 George Street, Sydney NSW 2000
PO Box R41, Royal Exchange NSW 1225
P: +61 2 9693 0000 | F: +61 2 9693 0093
APA Group | apa.com.au

advancements in APA’s sector, and some technologies cannot be sourced
domestically. This can lead to higher procurement costs, project delays and prevent
the new facility from implementing the best practice technology, without risking being
uncompetitive.

- Regulatory differences: The guidelines should account for the difference in regulatory
frameworks between countries which can prevent the successful implementation of
best practice technology. Addressing these variations is essential to ensure that the
recommended technologies can be effectively integrated in the domestic market while
navigating the legal and regulatory environments of different nations.

- Costs of technology transfer: The guidelines should consider the additional investment,
research and development required to transfer technologies from abroad and
customise technologies to suit the Australian context. Even in cases where the
identified international facilities face comparable operating conditions to Australia,
there are inherent costs and risks to technology transfer that should be taken into
account. This includes regulatory approvals (as above) but also the need to develop
related domestic supply chains and recruit and train specialised workers. Overlooking
this aspect could hinder the commercial feasibility of implementing best practice.

3.2.3 The case of gas infrastructure

Natural gas and natural gas infrastructure will play a critical role in Australia’s transition to net
zero by firming the electricity market as it transitions to renewables.

As new gas basins are developed, additional gas infrastructure is likely to be covered by the
Safeguard Mechanism scheme.

Gas infrastructure is considered a hard-to-abate sector and efforts to establish effective and
commercially viable emission reduction technologies are ongoing.

The main source of emissions of pipeline assets is the combustion of gas within pipeline
compressors. A key technology to deliver compressor emissions reductions is through
electrification. However, in Australia, this might not be commercially viable for all new gas
infrastructure due to:
• very long distances between the closest electricity grid and compressors in remote
locations, which may result in prohibitively high electricity transmission connection
costs
• land access for renewables can also be a constraint at some sites
• commercial and technical viability of a microgrid arrangements consisting of
renewables, dual fuel compression and potentially battery storage. Microgrid
arrangements may only be efficient for very highly utilised compressors, given the
variable nature of renewables generation, lack of options for grid dispatch in remote
locations, and challenges with commercially viable storage. Compressors are often
utilised on a fluctuating basis with only short cyclical periods of high gas throughput,
creating an energy demand profile that is challenging to meet with renewables-only
solutions.

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APA Group Limited ACN 091 344 704
Level 25, 580 George Street, Sydney NSW 2000
PO Box R41, Royal Exchange NSW 1225
P: +61 2 9693 0000 | F: +61 2 9693 0093
APA Group | apa.com.au

The above highlights the difficulty of implementing further decarbonisation technology to some
pipeline assets and the need to consult affected facilities in the Safeguard Mechanism
benchmarking process so that they are not further penalised when they are responding to
market demand.

3.2.4 Considering international fossil fuel standards

APA recommends that further consideration and consultation be undertaken prior to a specific
standard being mandated.

The Oil and Gas Methane Partnership (OGMP) 2.0 is primarily a measurement-based
reporting framework focused on improving the accuracy and transparency of methane
emissions reporting. It does not articulate methane performance standards at an equipment
level e.g. compressor station.

APA became a signatory to the Methane Guiding Principles (MGP) in 2022 and is actively
investigating opportunities to enhance methane emission abatement and measurement.
Under the MGP, signatories commit to enhancing their monitoring, continuously improving the
accuracy and transparency of methane emissions data. This includes investigating methods
aligned with the OGMP 2.0 framework.

However, achieving and maintaining an OGMP 2.0 gold standard is not straightforward even
for companies implementing best practice methane measurement approaches. It requires the
reconciliation of Level 4 source-level measurements with Level 5 site measurements, which
is yet to be successfully accomplished by gas infrastructure companies internationally. Level
5 site measurements and reconciliation approaches are still evolving – adding cost, complexity
and uncertainty.

In addition to international standards, it is also important that best practice benchmarks for
fossil fuels reflect other emerging developments in methane best practice. This includes
coordinated public-private efforts to access and make available satellite data for use in
methane site measurements. We also note that National Greenhouse and Energy Reporting
scheme (NGERS) methods for methane must make provision to capture emission reductions
from the application of best practice mitigation efforts.

We would value further clarification from the government as per which standard they are
looking to align with, to ensure that the approach is fair and feasible towards new entrants.

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APA Group Limited ACN 091 344 704
Level 25, 580 George Street, Sydney NSW 2000
PO Box R41, Royal Exchange NSW 1225
P: +61 2 9693 0000 | F: +61 2 9693 0093
APA Group | apa.com.au

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