Under the changed scheme's hybrid baseline model, Safeguard coal facilities will need to transition from a baseline weighted 95% to their site-specific emissions intensity in the 2023-24 financial year, to one weighted 50% to the industry average emissions intensity of 0.0653 carbon dioxide tonnes per run-of-mine coal tonne by FY30.
The Safeguard Mechanism is aimed at reducing greenhouse gas emissions from large industrial facilities, however, coal mining will carry a large part of this burden.
South32's Appin and Dendrobium underground coal mines in New South Wales' Illawarra region have long been known as "gassy" mines and they - along with other mine operators of existing and former coal mines - will need to act diligently to adhere to the mechanism's requirements.
Possibly confusing matters is the fact that some coal mines will actually benefit from the Safeguard Mechanism changes.
Coal mines are not the worst offenders, but they are right up there.
The Safeguard Mechanism is part of the National Greenhouse and Energy Reporting Act 2007 and administered by the Clean Energy Regulator, which monitors and enforces compliance with the scheme.
It was introduced in 2016 and modified in 2023 to ensure covered facilities contributed to meeting Australia's climate targets, while strengthening their competitiveness as the world moves to net zero.
It sets limits, or baselines, on the amount of emissions these facilities can produce each year.
If a facility exceeds its baseline, it must take actions to manage its excess emissions, such as buying and surrendering carbon credits, or applying for more time to reduce emissions.
The baselines are adjusted annually to reflect changes in production and align with Australia's emission reduction targets of 43% below 2005 levels by 2030 and net zero by 2050.
The Safeguard Mechanism covers facilities that emit more than 100,000t of carbon dioxide equivalent per year, such as mining, oil and gas, manufacturing, transport and waste facilities. It also applies to the electricity sector as a whole, by setting a sectoral baseline for all grid-connected electricity generators.
Coal mines may have on-site electricity production, such as back-up generators or from their own combustion of coal mine waste gas captured from gas drainage. Where on-site electricity production occurs, it must be reported as energy production if above the reporting threshold.
The applicable reporting threshold is where the generating capacity of the unit is greater than 500 kilowatts and the unit generates greater than 100,000 kilowatt hours of electricity in the reporting year.
Scope 1 emissions
Covered emissions are defined as scope 1 emissions, including fugitive emissions and emissions from fuel combustion, waste disposal, and industrial processes such as cement and steelmaking.
For the financial year beginning July 1 2023, the Safeguard Mechanism requires Safeguard facilities to reduce their emissions in line with Australia's climate targets.
While Safeguard facility baselines will adjust with annual production, the overall emissions limits will tighten each year in line with Australia's climate targets.
If a Safeguard facility does not exceed its baseline for a financial year starting on or after July 1 2023, it may be eligible to receive Safeguard Mechanism Credit units. SMCs incentivise Safeguard facilities to reduce their emissions below their baselines.
Those coal mining operations that do not or cannot cut their emissions will be obliged to purchase Australian Carbon Credit Units.
The number of ACCUs issued peaked in 2021-22.
That peak may be exceeded.
Legal firm Clayton Utz said in a report titled Australia's Emissions Safeguard Mechanism gets teeth that the scheme aimed to ensure compliance through civil penalties and anti-avoidance measures.
"Importantly, to ensure integrity, the federal government is proposing to introduce anti-avoidance measures that would prevent a business from defining a facility with the intention of avoiding Safeguard Mechanism obligations," it said.
"This means an existing facility could not split into a number of smaller facilities to bring each new facility below the 100,000t coverage threshold.
"Further, according to the position paper, a facility will not be able to attach itself to a grid-connected power station to avoid Safeguard Mechanism obligations."
If a Safeguard facility exceeds its baseline for a financial year beginning on or after July 1 2023, it has several options to manage its excess emissions, including purchasing and surrendering ACCUs or SMCs; applying to borrow baseline from the following year, which has to be repaid with interest; applying to become a trade-exposed baseline-adjusted facility; and receiving a discounted decline rate for up to three years.
Penalised for success
The Safeguard Mechanism may penalise Australia's coal miners for years because of their past successes in developing highly productive underground and open pit coal mines.
Fugitive emissions from underground coal mines typically involve the release of methane and carbon dioxide due to the fracturing of gas-bearing strata disturbed by coal extraction.
Fugitive emissions from venting or other fugitive release of gas before extraction of coal are treated as a separate fugitive emission under subsection 3.4(5) of the National Greenhouse and Energy Reporting Measurement Determination, according to the Clean Energy Regulator.
This may also include pre-gas drainage during mine development ahead of coal extraction at the facility.
"Management of air quality is central to controlling operational hazards in the underground environment," the CER said.
Underground coal mines have extensive mechanical ventilation systems for this purpose.
These ventilation systems work by injecting ambient air into the mine to displace and dilute toxic (chiefly carbon monoxide), and explosive (mainly hydrocarbon) gases to safe levels.
This displaced air is vented via return roadways leading to one or more ventilation shafts.
This is a highly regulated safety area, with standards governing operating air quality limits and required gas monitoring defined in state-based mine safety legislation.
The amount of emissions from mine return ventilation is mostly a function of how gassy the coal seams being extracted are, and the amount of open coal faces during the year.
"In preparing an estimate of emissions from this source, the parameters that typically have the largest impact on the final estimate are the volumetric flow rate and the gas proportion of methane in mine return vented air," the CER said.
"In applying the NGER Measurement Determination to an individual mine, it is a requirement to directly measure these parameters, along with temperature and pressure."
According to federal government figures, fugitive emissions from Australia's coal mines are decreasing.
Closed underground mines
Greenhouse gas may continue to be emitted even after an underground coal mine is closed.
"This may include leakage to the atmosphere through fractured gas-bearing strata, open vents and seals over daily to decadal timescales," the CER said.
"However, emissions will be reduced by flooding of the mine, which prevents desorption of gases from the remaining gas-bearing strata in the decommissioned mine."
Fugitive emissions from open pit coal mining primarily relate to in situ methane and carbon dioxide in gas-bearing strata being released as the coal is extracted.
The International Energy Agency's estimate for Australian coal mine methane emissions is about 1.5 million tonnes for 2022, which is higher than the official submission to the United Nations of 1Mt.
This difference is mostly driven by auxiliary data, including data from studies indicating higher fossil emissions based on satellite inversions and in particular from mining in Queensland's Bowen Basin.
"Intensities vary significantly according to mine characteristics within each country," the IEA said.
"For example, Australia's coking coal methane intensity is estimated to be relatively small as most of its production comes from low-depth mines with lower methane content.
"Emissions from abandoned mines are not included in our estimates as related measurement studies cover a limited number of facilities and regions."
Queensland fugitive emissions
If all progressing coal mine applications are built in Queensland, fugitive emissions are likely to become the biggest single source of emissions in Queensland by 2030, outstripping electricity, transport and agriculture, according to a report by environmental groups Lock the Gate and the Queensland Conservation Council.
The report warns that fugitive emissions could grow by 2030 due to new coal mine approvals, despite some reductions under the Safeguard Mechanism, to reach 26.6Mt CO2e/year.
In 2021-22, 75% of coal mine emissions reported under the Safeguard Mechanism and 33% of gas emissions were fugitive emissions.
"While some of these proposed new coal mines may not get built, there is also increasing evidence that fugitive emissions from coal mines are significantly underestimated for both new and existing coal mines, and could be much higher than currently reported," the report says.
"Satellite technology that can detect methane leaks is increasingly showing that fugitive emissions from Queensland coal mines have been massively underestimated.
"The International Energy Agency compiled monitoring, which found that Queensland's fugitive emissions were 60% higher than reported.
"These new mines are not just a climate bomb we are exporting but will ensure fugitive emissions from fossil fuels become the biggest source of carbon emissions by 2030."
Partners in Performance director Michael Huggins told Australia's Mining Monthly that coal miners were large emitters, and this is evident by the number of coal miners who are registered emitters under the Safeguard Mechanism.
Huggins said in the past coal mine methane gas was primarily a safety issue.
"It has almost been treated as a nuisance that needed to be dealt with as cheaply as possible - and in some cases just extracting and handing it over to a third party to deal with or commercialise," he said.
High cost of methane
"However, the Safeguard Mechanism has put a real cost on methane emissions. We are seeing mines where the impact on the mine NPV [net present value] will reduced by more than half a billion dollars assuming the miner does not change anything."
This value of $500 million would depend on how gaseous the mine is, whether it is an underground or open pit and the assumed pricing of credits at the mining operation.
"Some mines are more like $100 million to $300 million and some less if there is no gas," Huggins said.
"As a result, we are now working with many coal miners on what they can do to reduce emissions and meet the declining baseline. There is a lot of work to plan out what a coal mine can do in terms of emissions, energy and the Safeguard roadmap.
"We are finding it is possible to reduce emissions and it is possible to reduce the Safeguard Mechanism liability - but there is a lot of work to do."
Estimating the cost at the mine site of the introduction of the Safeguard Mechanism despite may be challenge despite the strides miners have made in recent years to reduce emissions.
Minerals Council of Australia chief executive Tania Constable said in the 2021-22 financial year, MCA member facilities' scope 1 emissions reported to the Safeguard Mechanism were more than 9% lower than in FY18, while total safeguard mechanism emissions remained basically flat.
"In the National Greenhouse and Energy Reporting scheme, MCA member's scope 1 and 2 emissions fell by more than 7% in FY22 while total NGERs reporting entities emissions fell 2.1%," she said.
"On July 1 2023, the federal government's new safeguard mechanism came into effect. This is particularly relevant for Australia's resources sector, which represents about 40% of safeguard mechanism emissions and over two-thirds of Australia's total exports."
Many coal mining companies are still determining to what extent the Safeguard Mechanism will eat into their margins. Others, such as Whitehaven Coal, are being upfront about expected costs.
Early modelling of potential costs of the Safeguard Mechanism in the 2023-24 financial year indicates Whitehaven Coal's overall unit costs will go up about $1 per run-of-mine tonne.
The financial impact of the scheme on Whitehaven will be a function of the existence of and adoption of available abatement technologies, the cost of carbon offsets, any scheme design changes arising from the government's scheduled 2026-27 review, and the emissions intensity profiles of its Maules Creek open pit coal mine and Narrabri longwall coal mine in New South Wales.
"We are continuing to assess site-based abatement opportunities and undertake investigative projects to evaluate the technical and financial viability of fugitive emissions abatement options at Narrabri," Whitehaven said.
"Where viable technologies are not able to achieve our carbon reduction obligations, carbon offsets will be required."
The government has decided to adopt a single production variable of RoM coal and corresponding industry average emissions intensity.
"This does not acknowledge the distinct differences between open pit and underground coal mine emissions profiles and is favourable for open pit mines but unfavourable for underground mines," Whitehaven said.
"While itself having a portfolio weighted towards open cut operations, Whitehaven advocated strongly to the Australian government for an approach that would deliver an equitable distribution of the emissions reduction task across the entire coal sector, one that would recognise the characteristics and geology of underground mines and open pit mines."
A Yancoal spokesman told AMM that the company continued to assess the government's changes to the Safeguard Mechanism and how these would affect the company's operations and financial performance.
"These reforms will introduce costs on our emissions profile and our exposure to these costs will grow over time as our emissions baseline limits decline," he said.
"In response, we have started work to mitigate the expected financial impacts of this reformed mechanism.
"This work includes an assessment of ACCU [Australian Carbon Credit Unit] generation potential across our land portfolio and operations, both through nature-based projects and the implementation of infrastructure or equipment that reduces or abates emissions."
The spokesman said initial analysis identified a number of sites within the company's property portfolio that could be developed as nature-based ACCU projects.
"We are progressing an assessment of the feasibility and level of investment that would be required," he said.
"Industrial-based opportunities could include initiatives related to gas capture and machinery modifications."
A South32 spokesman told AMM that the company was supportive of the Australian government's approach to strengthening the role of the Safeguard Mechanism and of industry playing its part in reducing Australia's greenhouse gas emissions and supporting global decarbonisation efforts.
"The declining baselines being implemented under the reformed Safeguard Mechanism will impact each of our Australian operations," he said.
"We will continue to monitor and assess the level of impact as further supplementary regulation is released by the Australian government."
South32 also set a goal of net zero Scope 3 greenhouse gas emissions by 2050.
The South32 spokesman said the flexible compliance arrangements available under the modifications such as Safeguard Mechanism credits, banking and borrowing arrangements, and extended multiyear monitoring periods would let the company manage the inherent annual variability in greenhouse gas emissions performance across its facilities.
"This flexibility, together with our decarbonisation planning, means that we are well positioned to meet our obligations under the reformed Safeguard Mechanism and contribute to Australia's national greenhouse gas emissions reduction target," he said.
A Glencore spokesman said the company would continue to engage with the government on the implementation of the Safeguard Mechanism changes.
However, the company expressed concerns about the effect it would have on its possible implementation of carbon capture and storage technology.
In a submission it lodged in 2022's December quarter on the draft legislation, Glencore said eligibility requirements might discourage investment in critical emissions reduction technology such as CCS.
"Some CCS projects may be developed as an integrated component of a Safeguard Mechanism facility, in which case the CCS component of the project would serve to abate scope 1 emissions that would otherwise be generated by that facility," it said.
"In this scenario, the CCS component of the project would not appear to be eligible for generation of ACCUs under the proposed eligibility rule and, subject to the approach to baseline setting for new facilities, the facility would not necessarily have access to SMCs [Safeguard Mechanism credits] if the abatement technology had already been factored into the facility's baseline.
"Preventing proponents from generating ACCUs in this scenario may act as a disincentive to invest in important carbon abatement projects such as CCS."
In its submission, Glencore said decarbonisation would be multifaceted and require a broad approach to emissions reduction technologies.
"The policy measures should not disadvantage particular technologies relative to others," it said.
"As such, Glencore recommends that the eligibility criteria should allow new projects at new facilities that require additional financial incentives [in the form of carbon credit revenue] to enable the incorporation of leading carbon capture technologies into the facility design, where certain additionality criteria are met and double counting is avoided."
While the Safeguard Mechanism poses challenges for the mining industry, there is an array of technologies and methodologies being developed to assist in the process.
The Minerals Council of Australia flags the use of gravitational energy, industrial heat, catalyst abatement and renewable energy among others as strategies already taken up by the industry.
Environmental, mining, and management consultants are turning their attention to the unprecedented challenges faced by the mining industry and are developing sustainable solutions to help carry the industry into the next decade.
Yancoal has partnered with Green Gravity to study the application of its innovative energy storage technology at the former Austar underground coal mine in New South Wales.
A pre-feasibility study will investigate the use of decommissioned ventilation shafts for renewable energy storage.
In preparing the study, the team will assess the potential for Green Gravity's gravitational energy storage technology to provide long-duration energy storage to the NSW electricity grid.
The study will also assess how gravitational energy storage can assist in delivering beneficial post-mining land use.
South32's Worsley Alumina operation in Western Australia is pursuing initiatives to reduce operational demand for steam and improve efficiencies through more effective use of industrial heat.
As well as reducing water consumption, these initiatives could reduce the operation's CO2 emissions by between 10% and 20%.
A dilution reduction project that began last year reduces energy demand through evaporation in the Bayer process at the refinery.
Once fully commissioned, this project has the potential to abate more than 80,000 tonnes of CO2-e per year.
Further energy efficiency and energy conversion projects are being studied as Worsley Alumina pursues longer-term energy transition solutions focused on electrification and renewable energy.
Rio Tinto is investing in renewable energy assets to decarbonise its WA iron ore operations.
Rio Tinto is working to develop 1 gigawatt of renewable energy assets, a mix of solar, wind and storage, in the Pilbara by 2030.
These efforts are part of a global commitment to invest approximately $7.5 billion to halve scope 1 and 2 emissions by 2030.
Initial funding has been approved for a 100 megawatt solar photovoltaic system, and associated transmission infrastructure, on the Pilbara coast.
Orica is rolling out an Australian-first emissions reduction technology using catalyst abatement across its manufacturing sites at Newcastle in New South Wales and Gladstone in Queensland.
Its Kooragang Island Decarbonisation Project aims to eliminate at least 567,000t CO2-e per year from the site's operations and 11% of Australia's total chemical industry process emissions.
The tertiary catalyst abatement technology has been installed at Newcastle and is expected to reduce the site's total emissions by 48%. Part of the program is a digital platform to monitor and forecast emissions in real-time developed by Cognizant.
The same technology will be deployed at Yarwun manufacturing facility in Gladstone.
This project is estimated to reduce scope 1 emissions from the site by 200,000t CO2-e per year.
Whitehaven Coal is investing in emerging emissions reduction technologies for Scope 1 emissions.
One such technology is a process owned by Hydrobe in which Whitehaven is a significant investor.
Hydrobe has a world-patented process to run industrial emissions through chambers of specially selected microbial algae and bacteria that turn CO2 into saleable products including fertiliser, green hydrogen and syngas.
Whitehaven is considering the application of this technology to mine sites and to end users of its products.
The difference in the Hydrobe approach to decarbonisation is that the company's patented biological process converts CO2 without generating new CO2.
Hydrobe's energy requirements would be generated from biological reactions.
Huggins said PiP was working with coal miners to help develop their roadmap to reduce emissions.
PiP is advising coal mining companies on developing small tactical ideas to reduce emissions, pre-drainage of gas, as well as energy transition and carbon offset strategies.
"Sometimes - depending on whether the mine's gaseous and if it is underground or open pit - one can get 5-10% emissions reductions," he said.
"But this is in no way enough - especially given baseline reductions."
Depending on the site, nearby infrastructure, potential off-takes, renewables resources on site PiP is helping miners to think about maximising the value of this gas.
"There is real value here," Huggins said.
"For undergrounds they also need to understand VAM [ventilation air methane] but it really depends on methane concentrations and future approvals of the regulator.
"However, we also believe coal miners have an even larger role to play in helping the east coast of Australia in energy transition.
"It is much more than reducing their direct emissions but also helping the east of Australia to develop more renewable energy."
Huggins said coal miners had a very important role to play in the energy transition and they were often well-placed to generate renewables on-site not just for their own energy requirements but to support the grid.
Given some of the required technologies are not yet good enough to make most coal mines zero emission, some coal miners will need to obtain Australian Carbon Credit Units.
"We are helping miners to develop their offset strategy," Huggins said.
"It is much more than just what volume of carbon offsets.
"There is potentially much more value thinking about what types of projects, what other benefits, and where to do projects, especially in a market where the price of carbon offsets is likely to be quite volatile."
Wood Mackenzie metals and mining research vice president Robin Griffin said a panel discussion at the recent 2023 Coal and the Future of Energy Forum in Brisbane highlighted the need for collaboration between industry, government, and research institutions to accelerate the development and deployment of new technologies and practices.
"The pressure to decarbonise is increasing, but the barriers to do so are significant," he said.
Griffin said the panel discussed five key areas where mining operators can proactively manage their operations within the Safeguard Mechanism guidelines: decarbonising mining equipment; tackling trucks; a smart approach to managing underground mines; alternative explosives; and automation.
"Decarbonising mining equipment will play a significant role in the industry's sustainability efforts," he said.
"Mining equipment can last for up to 15 years, meaning companies will need to decide whether to retrofit or replace them with more sustainable technologies. Mining service contracts tend to be shorter than the lifespan of mining equipment, which can also impact decarbonisation plans."
Griffin said the panel's discussion revealed that as the industry moved towards a site-by-site approach to decarbonisation, contracting companies would need to reconsider their investments in mining equipment.
"Currently, they can purchase equipment they know will be usable across several shorter-term contracts," he said.
"However, if individual sites have different equipment requirements, knowing which long-term equipment investments to make becomes a challenge."
Griffin said mining trucks were identified by the panel as one of the mining industry's biggest carbon offenders.
"The discussion revolved around several technologies, each with their own challenges and benefits," he said.
"Battery electric trucks emerged as a promising solution, given their ability to reduce emissions and, in some cases, operational costs. However, recharging infrastructure and battery weight are barriers to mainstream use.
"Hydrogen fuel cell technology was another contender, with its potential to significantly cut carbon emissions. However, as a developing technology, it has extensive capital costs, as well as meticulous maintenance requirements.
"It's important to weigh these factors against energy needs, deposit geometry and safety considerations."
Griffin said while Australian coal mines were typically subject to the same laws and levies within their state borders, not all mines faced the same challenges when it came to decarbonisation.
"Underground mines are more emissions-intensive due to fugitive methane, which contributes more than 90% of total emissions," he said.
"Given underground mines' higher rate of emissions than surface mines, it can mean companies operating underground mines will face higher levies.
"In addition, current technologies to decarbonise fugitive emissions - particularly ventilation air methane - are not mature enough to allow deep decarbonisation at underground mines."
Griffin said the panellists argued that the industry needed to find ways to reduce emissions in underground mines, with more research and collaboration needed into renewable energy applications, cleaner machinery, and VAM technology approaches.
Turning to explosives, the product of choice - ammonium nitrate - could be replaced with hydrogen peroxide.
"Hydrogen peroxide has been found to release fewer toxic fumes," Griffin said.
"Its production also has a lower carbon footprint, which would support supply chain decarbonisation."
Griffin recognised the mining industry's autonomous capabilities still have some way to go, but automation could play a crucial role in decarbonisation.
"The panel discussed the potential to reduce the number of large, diesel-powered vehicles, as well as the opportunity to optimise autonomous vehicles' routes, reducing fuel consumption," he said.
"Challenges come in the form of reliable communication networks and technology investments but the consensus is that the benefits outstrip the risks in this particular area."
Griffin said a transformation in the design of open cut mines - and their mobile equipment fleets - was likely as automation and emissions reduction goals incentivised larger fleets of smaller, lighter haul trucks.
Environmental performance improvement
University of New South Wales head of minerals and energy resources engineering school professor Ismet Canbulat accepts mining needs to become more environmentally friendly over the next two decades.
He believes big improvements have already been made in mining practices.
"The mining industry is changing and there's been so much improvement in responsible mining operations compared to 20 years ago for example," he said.
"If we can't produce critical minerals it will be a bottleneck for the net carbon zero future. And if they become expensive, that means the energy will be very, very expensive as well.
"So we need to be able to produce them at a reasonable cost and obviously, sell them at a reasonable cost, so they can get implemented in renewable energy technologies.
"How is that sixfold increase [in the need for critical minerals] going to happen? That can only happen with increased productivity, increased resource recovery, and then increased investment into mining operations."