Safeguard Mechanism: International Best Practice Benchmarks

11 August
Department of Climate Change, Energy and Water
By email: safeguard.mechanism@dcceew.gov.au

Submission: Production variables and international best practice benchmarks

Please accept this submission from Lock the Gate Alliance to the National Greenhouse and Energy
Reporting (Safeguard Mechanism) Amendment (Production Variables Update) Rules 2023.

Thank you for the opportunity to make a submission to the Department’s consultation papers on the updated production variables for the Safeguard Mechanism, and the framework for establishing international best practice benchmarks. Our focus in this submission is predominantly on production variables, due to the perverse outcomes that look likely to apply to open cut coal mines.

Summary

Emissions reporting and regulation of fugitive methane from coal mining in Australia does not represent “what the atmosphere sees.” While there is clearly a preference from a regulatory standpoint of consistent rates and reporting methods across an industry, this will lead to a perverse environmental outcome in disincentivising crucial near-term abatement of methane from this sector.

Setting the industry benchmark above the current emissions intensity of more than half of the operating coal mines in Qld and NSW will enable some of those facilities to create significant quantities of SMCs without undertaking any abatement activity. It may also trigger investment decisions that lock in increased methane emissions and foreclose opportunities to reduce near-term warming and keep the Paris climate agreement goals in reach.

For ten open cut coal mines with reported emissions intensities less than half the industry average, the result is rising emissions baselines out to the end of the decade, undermining the integrity, fairness and effectiveness of the Safeguard Mechanism is meeting its objectives.

Lock the Gate commissioned Energy Resources Insights to analyse the effect of the industry average on coal facilities and the results are summarised in this submission and appended in full. Given the urgency of methane abatement even in the absence of Safeguard facility baseline determinations and data reports for the current and coming year, we believe there is sufficient evidence to introduce a “safeguard safeguard” to ensure that these ten coal mines do not undermine the effectiveness of the scheme and the public’s confidence in it.

Additional regulatory action is required to ensure that SMCs are only generated by facilities that are taking abatement actions, and to prevent the release of large volumes of methane from expanding open cut coal mining operations, enabled by the Safeguard Mechanism.
As part of this update, we also ask the Department to review the effect of subclause 35A (4) dealing with gasfields captured by the zero baseline for reservoir CO2. At present, this clause excludes from the definition of “new” facilities gasfields where “part of the field” was “included in an area” that was commercially producing gas “in accordance with a licence (however described) granted under a law of the Commonwealth, a State or a Territory” prior to 1 July 2023. It seems possible to us that this clause enables new production gasfields to claim to be “existing facilities” for the purposes of reservoir CO2 if there was beneficial commercial re-use of gas extracted during exploration and appraisal activities, as is permitted by some states and territories. There is no other apparent policy justification for this clause and as part of this production variables update, we recommend the
Department remove it.

Introduction: coal mining’s unique problems require unique solutions

There are material features of the coal mining sector that pose problems for the Safeguard
Mechanism, undermining its integrity and its emission-reduction objectives. Firstly, it is widely acknowledged that there is under-reporting of fugitive emissions from fossil fuel production globally.
The IEA estimates that methane emissions from coal mining in Australia are 66% higher than the volume reported by Australia to the UNFCCC. If methane measurement and reporting is amended in
Australia, as it should be, to address these concerns, the result will be an increase in fugitive emissions under the Safeguard Mechanism.

Secondly, the Safeguard Mechanism is structured around “production variables.” All emissions from a facility have to be allocated to a production variable for a baseline emissions-intensity number to be established. In the case of coal mining, the basic variable is run-of-mine (ROM) coal. This is appropriate for the emissions related to onsite earth moving equipment and trucks, but the degree of fugitive emissions from coal mining operations is not directly correlated with the volume of ROM coal being produced. A report released by Ember last year found that of Queensland’s 54 coal mines, just two account for 29% of reported emissions. Of 39 coal mines in NSW, two are responsible for
24% of reported emissions.1 Mines producing roughly equivalent tonnage of ROM coal can report vastly different volumes of emissions, not because of any onsite emissions abatement, but as a function of mine depth and the volume of gas present in the strata being targeted.

Different methods of calculating fugitive emissions can result in wide variation in emissions reported. This is illustrated by the case of Maules Creek coal mine, the reported emissions from which dropped from 840,834 tonnes CO2e in 2019/20 to 304,625 tonnes in 2020/21. The company explained in its Annual Review to the NSW Department of Planning that this dramatic change was a result of switching from NGERS Method 1 (a flat rate per tonne of ROM for either gassy or non-gassy mines) to NGERS Method 2 (estimate of in situ gas based on estimated volume of gas-bearing strata below the mine and options using flat emissions escape rates.)

Further, abatement options for fugitive emissions from open cut coal mines are severely limited. The
IEA says that “One of the most effective ways to cut down on coal mine methane is likely to be to cut

1Ember 2022 “Tackling Australia’s Coal Mine Methane Problem” https://ember-climate.org/insights/research/tackling- australias-coal-mine-methane-problem/#supporting-material
coal consumption itself.”2 This is because once a mine is operating, particularly an open cut mine, there are limited options to prevent methane escaping. Emissions continue even after mining ceases. The Australian Institute for Mining and Metallurgy reports that, “The absence of technologies to capture fugitive methane once open cut mining has commenced is because almost all methane is released instantly during blasting.”3 The decision to open new strata for mining, more than any action taken by the operator of the mine afterwards is pivotal for whether or not emissions are released. If Australia’s greenhouse policy settings continue to enable new coal mines or mine expansion projects to proceed, we will be locking in fugitive methane emissions that play a significant short-term role in driving global warming and are difficult to control and remove.

For the above reasons, setting an international best practice benchmark for thermal coal mining in particular requires a different set of factors to be considered, or requires the Department’s factors to be applied in a different way. The International Energy Agency net zero road map says no further coal mines can be built after 2021 if global temperatures are to be stabilised below 1.5 degrees above the pre-industrial average. Such analysis, as well as qualitative information about abatement technology and methane mitigation pathways consistent with the Paris goals needs to be included in the Department’s framework for considering “international best practice” for both the coal and gas sectors. “International best practice” for new thermal coal mining entrants would require a zero baseline, as has been introduced for shale gas.

Production variables for coal mining

Under the proposed change to the production variables for coal mining, a single industry average emissions intensity for coal extraction replaces the two part calculation whereby fugitive emissions were separately estimated using the relevant methods from the National Greenhouse and Energy
Reporting (Measurement) Determination 2008 (NGER Measurement Determination). We accept the
Department wishes to make baseline-setting for coal mining consistent across different mining methods with widely variable emissions profile and the importance of the industry average for incentivising emissions reduction in the highest emitting mines, but strongly believe that additional regulation is needed to counteract the perverse effect the industry average approach will have for the ten large open cut coal mining operations - represent a third of total coal production volumes - for which this approach results in increasing emissions baselines out to the end of the decade.

Unlike all other industries in the Safeguard Mechanism, coal mining will not move to the industry average by the end of this decade, but to a 50:50 split between the industry average and a facility’s site-specific emissions intensity “in recognition that the variability in emissions intensity is widest in the coal sector compared to all other sectors.” This proposal counters the Department’s intention to incentivise the lowest emissions intensity production. It is also an acknowledgment that the sector requires tailored regulatory approaches additional to the broader operation of the Safeguard
Mechanism.

2IEA 2023. “Strategies to Reduce Emissions from Coal Supply” https://www.iea.org/reports/global-methane-tracker-
2023/strategies-to-reduce-emissions-from-coal-supply#abstract
3AusIMM. February 2022. “Australian Fugitive Methane Reduction: a case study for coal mining” https://www.ausimm.com/bulletin/bulletin-articles/australian-fugitive-methane-reduction-a-case-study-for- coal-mining/
The Department argues that this arrangement doesn’t reduce the obligation of the coal sector as a whole under the reforms. That may be the case, but it introduces grave opportunity costs for
Australia in the area of methane mitigation in particular. Several emerging factors make this plain:

1. It is anticipated that Australia will need to increase the ambition of its emissions reduction
efforts in order to be consistent with a trajectory towards the Paris Climate Agreement
goals.
2. Near-term, immediate, methane reduction is crucial to achieving those goals because of its
intense but brief contribution to global warming– if available means are used to cut
methane emissions by half by the end of this decade, the rate of warming we’re
experiencing now could be slowed by 30%4, keeping the window open for a few more years
to prevent temperatures rise above 1.5 or 2 degrees. The 2021 Global Methane Assessment
found that least-cost scenarios for limiting warming to 1.5 degrees require methane
emissions reductions of 60% from fossil fuels by 2030.5
3. Australia has signed the Global Methane Pledge, the signatories of which aim to reduce
methane emissions by 30% by 2030. Coal mining is the second largest source of methane
emissions in Australia after livestock.
4. The Climate Change Authority is reviewing the NGERS Act with a particular focus on
methane monitoring and reporting. If the methods for estimating and reporting methane
are amended to reflect its uncertainty and severity, and it becomes clear that Australia is not
on track to achieve the target of the Safeguard Mechanism, a rule review may be triggered.

Without additional policy response, the effect of the industry average will be to delay urgent methane abatement and generate large volumes of credits in the open cut sector of the mining industry without any abatement occurring. This is particularly significant given the nature of coal mining operations as relatively short-term “facilities” that must expand their footprint in order to maintain operations and that in any case, must eventually decline over time. Decisions about major expansion projects for open cut and lower-emitting underground coal mines will be informed this year and next by the Department’s approach of granting open cut coal mining, in general, generous leeway via the industry average calculation. The industry average approach can be retained, but additional policy action introduced to correct this perverse outcome.

Lock the Gate commissioned Energy Resources Insights to calculate the baselines of coal mining facilities under the Safeguard Mechanism using the industry average production variable and altered transition arrangements for the industry.

The results indicate that for 10 large open cut coal mining operations with reported emissions- intensities less than half the industry average, the baseline formula provides them with increasing emissions credits to the end of the decade - applying their historic emissions intensity and assuming no change in production. Most of these mining operations have proposals to expand this decade and the effect of the baseline calculation formula will incentivise these expansions: if production levels

4 Ilissa B Ocko et al 2021. Environmental Research Letters. 16 054042: https://iopscience.iop.org/article/10.1088/1748-
9326/abf9c8
5 UNEP 2022. Global Methane Assessment: 2030 Baseline Report
are maintained, their baselines will increase and they will generate significant volumes of SMCs while increasing their actual emissions.

It is crucial that the Government take additional regulatory action to correct this anomaly. The industry average approach is appropriate for the sector as a whole, but facilities must not be able to generate credits without undertaking any abatement activity, and provision must be made to ensure that all coal mines are undertaking pre-mine drainage of methane. ACCARP has estimated that pre- mine drainage using nitrogen is economic at a $20/tonne carbon price6. For open cut mines, this must be done prior to development or expansion. For underground mines pre-mine drainage is also preferable, since “methane is best captured prior to mining and becomes more expensive with VAM technologies after the mine has opened.”7

Reservoir CO2

We note that changes are also proposed for the production variables for reservoir CO2 and for compression stations in gas transfer facilities. The rule for new facilities for reservoir CO2 puts the emissions intensity at zero, as committed. However, we are concerned about the effect of subclause
35A (4) and ask the Department to review and amend it as part of this update process. The definition of gasfields captured by this clause clarifying the meaning of “new” facilities excludes gasfields where “part of the field” was “included in an area” that was commercially producing “in accordance with a licence (however described) granted under a law of the Commonwealth, a State or a
Territory” prior to 1 July 2023. The imprecision of these terms leaves the operation of this clause open to considerable dispute. It seems possible to us that this clause enables new production gasfields to claim to be “existing facilities” for the purposes of reservoir CO2 if there was so-called
‘beneficial commercial re-use’ of gas extracted during exploration and appraisal activities, as is permitted by some states and territories. This is entirely out of keeping with the commitment made during the Safeguard negotiations and needs to be removed as there is no other apparent policy purpose to this clause.

Georgina Woods
Head of Research and Investigations
Lock the Gate Alliance

6 ACARP. 2022. “The Feasibility Of Enhanced Gas Drainage For Coal Mine Operations” https://www.acarp.com.au/abstracts.aspx?repId=C17055
7 ibid.