Mining companies will benefit from being well prepared for changes to two key pieces of Australian Government legislation that will affect their response to decarbonisation and its reporting.
According to SRK's Senior Consultant (ESG) Ludovic Rollin, recent reforms to the Safeguard Mechanism and mandatory climate-related financial disclosures will add complexity to environmental compliance and reporting requirements.
“These are very important changes,” he told Australian Mining. “There will be more pressure on mining companies to accelerate their progress in reducing greenhouse gas emissions, and to report on how they are managing climate change risks.”
Rollin’s colleague, SRK's Principal Consultant (ESG) Kate Vershinina, said smaller mining companies, in particular, could struggle with the reforms.
“Large mining companies with internal ESG resources have capacity to respond to the changes,” she said. “Smaller firms might not recognise the impact of the changes, how quickly the new requirements will be upon them, and what will be required of them.”
Mining suppliers are also affected by the changes, particularly through mandatory climate-related financial disclosure reforms.
“Mining companies will increasingly require more information from their suppliers on their greenhouse gas emissions as part of Scope 3 reporting requirements,” Vershinina said.
Scope 3 refers to indirect emissions that occur as part of a company’s value chain.
Safeguard Mechanism
The first reform relates to the Safeguard Mechanism, which applies to facilities that emit more than 100,000 tonnes of carbon dioxide equivalent in a year. There were 219 such facilities in Australia in the 2022–23 financial year (FY23).
Put in place in 2016, the Safeguard Mechanism sets legislative targets, known as baselines, on the net greenhouse gas emissions from defined facilities. The legislative framework for the Safeguard Mechanism is set out in the National Greenhouse and Energy Reporting Act 2007 (the NGER Act).
In March 2023, the Australian Government secured parliamentary support to amend the Safeguard Mechanism.
The Bill, which officially commenced on July 1 2023, mandated that Australia’s largest industrial facilities reduce emissions in line with national targets – and from a baseline – by 4.9 per cent each year to 2030.
If a safeguarded facility exceeds its baseline, it must manage excess emissions through on-site abatement or by purchasing Australian carbon credit units (ACCUs). Facilities that don’t exceed their baseline may be eligible to earn, trade or store Safeguard Mechanism credits (SMCs), which are awarded to facilities that surpass their reduction targets.
The Bill also introduced a carbon emission ‘trigger’, which requires the Climate Change Minister to assess new or expanded projects that meet the Safeguard Mechanism threshold against the targets. Mining companies will have to account for their potential emissions during the project approval process.
Rollin said this change has ramifications for mine planning.
“Companies seeking government approval for new mines, or to expand existing ones, will need to understand how their facility achieves the baseline target,” he said. “They’ll need to incorporate data from emission-reduction modelling into their mine planning and approval processes. This could add significant new costs.”
Some mining companies may need additional studies to justify their emission-reduction targets.
“There is a risk of greenwashing if companies disclose emission-reduction targets for new projects that cannot be achieved,” Rollin said.
The Bill provides some flexibility through ‘disclosure buffers’ for emission-reduction targets. Companies can choose different mechanisms to reduce emissions (on-site abatement, ACCUs or SMCs) and choose to manage their reductions in a way that best meets their operational needs.
Also included in the Bill are transparency and accountability measures requiring companies that rely heavily on carbon offsets (more than 30 per cent of their baseline) to disclose why they have not made more on-site progress with emission reduction.
“Mining companies will need to think through any potential ramifications of this disclosure, particularly if they have not achieved their baseline target,” Rollin said.
