Safeguard Mechanism: Production Variables Update

Australian Projections Pty Ltd

australianprojections.com.au

Safeguard rules for coal mines

Australian Projections provides actuarial advice on issues of national policy, such as aged care, education, energy and climate. We are trying to help Australians and their politicians contribute to climate policies. This submission to the Department of Climate Change, Energy, the Environment and Water is in response to their Safeguard Mechanism production variables consultation. Please contact Dr Richard Cumpston on richard.cumpston@gmail.com with any questions.

Summary

The removal of the distinction between open cut and underground coal mines, in section 17 of Schedule 1, is very sensible.

Based on Queensland coal mine data, the default emission intensity for coal mines should be higher than 0.0653

Taking the default emission intensity for a coal mine as the average of 0.0653 and the facility-specific emissions intensity is a logical nonsense.

A slower transition to the default emissions intensity could be achieved by amending the transition proportion table in section 13 of schedule 1 in the Safeguard Rule to show slower increases for coal

The claim that the variability in emissions intensity is widest in the coal sector is not supported by any published figures, and may not be accurate.

The high emission intensities of all seven Queensland underground mines may largely reflect failure to use methane capture or flaring. The proposed slower transition to default emission intensities would reduce the financial incentives for these high-emitting mines to introduce abatement measures.

In a further submission to this consultation, we will estimate the reduction in abatement likely from a 50% transition to the coal benchmark emissions intensity by 29-30, rather than 100%.

Removal of distinction between open cut and underground coal mines

The removal of the distinction between open cut and underground coal mines, in 17(2) and 17(3) of Schedule 1, is very sensible. One of the assumptions underlying the reformed Safeguard Mechanism is that all facilities producing the same product should have baselines from 29-30 based on the default emission intensity for that product.

The default emission intensity for coal mines should be higher than 0.0653

The above emission intensities for Queensland coal mines are from emissions by Safeguard coal mines in Queensland (CER 2023) and earlier similar publications, divided by Queensland Government mine production statistics (2023). The “All Queensland mines” average of 0.070 for 21-22 is likely to underestimate average emission intensities of Queensland coal mines, as

the denominator includes the production of active mines not producing enough emissions to reach the Safeguard threshold of 100,000 tonnes of CO2 equivalent

none of the open cut figures reflect the increase from 1 July 2023 in the method 1 value for Queensland

the method 1 value for NSW, the only other significant coal exporter, is higher than for NSW.

The default emission intensity for all active coal mines should be identical

Taking the default emission intensity for a coal mine as the average of 0.0653 and the facility-specific emissions intensity is a logical nonsense. The definition of default emissions intensity makes no mention of facility. The DCCEEW Position paper of 10 January 2023, and the Safeguard Mechanism Reforms paper of 5 May, both implied that the default emissions intensity would be based on industry averages, and not on the facility’s performance. No similar proposal has yet been made for any other product.

Achieving a slower transition to default emission intensities for coal mines

If considered desirable, a slower transition to the default emissions intensity could be achieved by amending the transition proportion table in section 13 of schedule 1 in the Safeguard Rule to show slower increases for coal, perhaps reaching a value of 1.0 by 34-35.

High emission intensity variability of some other products

The exposure draft of the explanatory document says on page 3

"...in 29-30, the industry average for existing facilities will be a 50-50 split between the calculated industry average value 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."

The claim that the variability in emissions intensity is widest in the coal sector is not supported by any published figures, and may not be accurate. For example, part 18 of schedule 1 relates to run-of-mine metal ore, and may have great variability between facilities.

High emission intensities of underground mines

The table in 2. shows that, in nearly all years, the 7 underground mines had much higher emission intensities than the 33 open cut mines. CER has recently told us that sampling of 1100 locations near active coal mines has shown that methane content increases linearly with depth below the surface. This may partly account for the much lower reported emission intensities of open-cut mines, as they are likely to shallower than underground mines. We also believe that the method 1 used by about half of open cut mines is likely to be under-reporting emissions, as it caps the reported methane emission intensity. No similar method is available for underground mines.

We believe that the high emission intensities of all seven Queensland underground mines largely reflect failure to use methane capture or flaring. The proposed slower transition to default emission intensities would reduce the financial incentives for these high-emitting mines to introduce abatement measures.

Risks to target abatement of over 200 Mt by 2030

The exposure draft also says, in relation to the coal production variable

"The finalisation of the production variable does not adversely impact the delivery of the over 200 Mt of abatement expected in the period to 2030 from the reforms as a whole or the contribution of the coal sector to the emissions reduction task."

In a further submission to this consultation, to be made by 15 August, we will estimate the reduction in abatement likely from a 50% transition to the coal benchmark emissions intensity by 29-30, rather than 100%.

Abbreviations

CERClean Energy Regulator

CO2Carbon dioxide

DCCEEWDepartment of Climate Change, Energy, the Environment and Water

NGER ActNational Greenhouse and Energy Reporting Act 2007

References

CER (31 March 2023) Safeguard facility reported emissions 21-22

https://www.cleanenergyregulator.gov.au/NGER/The-safhttps://www.cleanenergyregulator.gov.au/NGER/The-safeguard-mechanism/safeguard-data/safeguard-facility-reported-emissions/safeguard-facility-reported-emissions-2021-22eguard-mechanism/safeguard-data/safeguard-facility-reported-emissions/safeguard-facility-reported-emissions-2021-22 (accessed 20 June 2023)

DCCEEW (January 2023) Safeguard Mechanism reforms position paper

https://consult.dcceew.gov.au/safeguard-mechanism-reform-consult-on-design

(accessed 25 January 2022)

DCCEEW (5 May 2023) Safeguard Mechanism reforms https://www.dcceew.gov.au/sites/default/files/documents/safeguard-mechanism-reforms-factsheet-2023.pdf (accessed 7 May 2023)

Queensland Government (8 March 2023) Production by individual mines

https://www.data.qld.gov.au/dataset/coal-industry-review-statistical-tables/resource/9c3c1aaf-0afa-4e58-b67c-75c0d3574abd?inner_span=True (accessed 20 June 2023)

Australian Projections Pty Ltd

australianprojections.com.au

Reductions in abatement from a slower transition for coal mines

Australian Projections provides actuarial advice on issues of national policy, such as aged care, education, energy and climate. We are trying to help Australians and their politicians contribute to climate policies. This submission to the Department of Climate Change, Energy, the Environment and Water is in response to their Safeguard Mechanism production variables consultation. Please contact Dr Richard Cumpston on richard.cumpston@gmail.com with any questions.

Summary

In a submission on 11 August 2023 to this consultation, we said we would make a further submission, estimating the reduction in abatement likely from a 50% transition to the coal benchmark emissions intensity by 29-30, rather than 100%.

Under the legislated transition to baselines based on industry emission intensities by 29-30, we estimate that Safeguard coal mines will need about 47 Mt of offsets, and earn about 39 Mt of SMCs. Under a transition to 50% of baselines base on industry emission intensities by 29-30, Safeguard coal mines would need about 33 Mt of offsets by 29-30, and earn about 3

3 Mt of offsets.

Ful details of our data, assumptions and projection results are in the spreadsheet “Coal emissions.xlsx”, uploaded with this submission. The individual coal mines have been sorted in ascending order of their estimated emission intensities.

Data

Emissions from each Safeguard facility in each year from 16-17 to 21-22 were obtained from CER (2023) and similar earlier publications. Coal production for Queensland coal mines for each year from 16-17 to 21-22 were obtained from Queensland Government mine production statistics (2023). Coal production estimates for 19-20 for most NSW mines were obtained from Assan (2022, p23). Further data for some mines were obtained from the internet, generally through GEM or Wikipedia.

Emissions by a Safeguard facility are usually not reported when they drop below the Safeguard threshold of 100,000 tonnes of CO2e. CER does not appear to monitor the consistency of facility name reporting, and their names often change when ownership changes occur. The available production data for NSW mines was generally only for 19-20, or was for planned production capacity rather than actual production

Estimation methods

We assumed that production from 23-24 to 29-30 would continue at the highest production level reported from 19-20 to 21-22. Similarly, we assumed that emission intensities from 23-24 to 29-30 would be at the highest emission intensity reported from 19-20 to 21-22. We made no allowance for the high production growth likely from the Carmichael mine, and no allowances for new facilities. Our future estimates for any one mine are likely to be unreliable, but our overall estimates may be of some use.

Summary of projections from 23-34 to 29-30

Offsets and SMCs were assumed to have a value of $75 per tonne of CO2 equivalent.

Risks to target abatement of over 200 Mt by 2030

The exposure draft for the consultation says, in relation to the coal production variable

"The finalisation of the production variable does not adversely impact the delivery of the over 200 Mt of abatement expected in the period to 2030 from the reforms as a whole or the contribution of the coal sector to the emissions reduction task."

Our projections suggest that about 47 Mt of offsets would be needed by Safeguard coal facilities under a 100% transition by 39-30, but only about 33 Mt under a 50% transition. The loss of 14 Mt of abatement might make corrective action necessary to meet the Safeguard objectives to 2030.

Abbreviations

CERClean Energy Regulator

CO2Carbon dioxide

DCCEEWDepartment of Climate Change, Energy, the Environment and Water

SMCSafeguard Mechanism Credit

References

Assan S (8 June 2022) Tackling Australia’s coal mine methane problem

https://ember-climate.org/insights/research/tackling-australias-coal-mine-methane-problem/

(accessed 15 August 2023)

CER (31 March 2023) Safeguard facility reported emissions 21-22

https://www.cleanenergyregulator.gov.au/NGER/The-safhttps://www.cleanenergyregulator.gov.au/NGER/The-safeguard-mechanism/safeguard-data/safeguard-facility-reported-emissions/safeguard-facility-reported-emissions-2021-22eguard-mechanism/safeguard-data/safeguard-facility-reported-emissions/safeguard-facility-reported-emissions-2021-22 (accessed 20 June 2023)

DCCEEW (January 2023) Safeguard Mechanism reforms position paper

https://consult.dcceew.gov.au/safeguard-mechanism-reform-consult-on-design

(accessed 25 January 2022)

DCCEEW (5 May 2023) Safeguard Mechanism reforms https://www.dcceew.gov.au/sites/default/files/documents/safeguard-mechanism-reforms-factsheet-2023.pdf (accessed 7 May 2023)

Queensland Government (8 March 2023) Production by individual mines

https://www.data.qld.gov.au/dataset/coal-industry-review-statistical-tables/resource/9c3c1aaf-0afa-4e58-b67c-75c0d3574abd?inner_span=True (accessed 20 June 2023)