Australia has passed the Safeguard Mechanism (Crediting) Amendment Bill 2023 to encourage its biggest carbon polluters to cut their greenhouse gas emissions or purchase carbon credits.

The mechanism places a legal obligation on companies that emit over 100,000 tons of carbon dioxide equivalent per year to keep their emissions below a set baseline determined by their historical emissions.

They must purchase carbon credits to offset their excess emissions if they exceed their baseline.

The legislation makes it easier for companies to purchase credits by allowing them to receive credits for activities that reduce emissions beyond what the law requires.

The program will allow companies to earn credits for reducing emissions through activities such as reforestation and soil carbon sequestration, which the Safeguard Mechanism does not currently cover.

The amendment to the existing legislation will come into effect on July 1, 2023. The Safeguard Mechanism was introduced in 2016 as part of Australia’s efforts to meet its emissions reduction targets under the Paris Agreement.

The law is intended to work alongside other emissions reduction measures, such as the Emissions Reduction Fund, which provides funding for projects that reduce emissions.

These credits can be sold to other companies to help them meet their obligations under the Safeguard Mechanism.

Australia has faced international criticism for its high levels of greenhouse gas emissions, particularly from coal-based electricity generation. The government has set a net-zero emissions target by 2050, but critics say that more is needed to achieve this goal.

The legislation represents a step towards reducing Australia’s greenhouse gas emissions by placing greater responsibility on the country’s largest emitters.

In the Budget for 2022-23, the Australian government committed AU$25 billion (~$16.2 billion) in clean energy spending over the next four years.

Decarbonizing the global energy system will need over $1 trillion more every year, over and above the current level of capital financing, said UK-based asset manager Legal and General Investment Management.