Safeguard mechanism puts a price on inaction, WesCEF climate chief says

Wesfarmers Chemicals, Energy and Fertilisers (WesCEF) has led the industrial decarbonisation movement in Australia.

In this Q&A, Mussaret Nagree, WesCEF’s General Manager of Climate Opportunities talks about how it funds decarbonisation initiatives, and the things that keep her awake at night.

WesCEF was an early mover on abatement, why?

We started abating our emissions back in 2012. Climate change didn't have the level of scrutiny back in 2012 as it does now, but it wasn't a non-issue either.

It was easier because the technology existed and had been rolled out in other countries by others in the same industry sector, so we knew it worked. I say easier because there is nothing easy about abatement technology. It absolutely added cost, but not to the extent to which some other decarbonisation solutions add cost to businesses.

How far have you moved the decarbonisation dial?

WesCEF has already abated 40% of our emissions since 2012. We’re avoiding 850,000 tonnes of emissions a year as a result of the decisions and technology we implemented then.

We’ve also adopted innovative approaches to shift the thinking across the business to deliver our emissions reduction targets, through mechanisms like the Wesfarmers Sustainability-Linked Bond. This is an Australian first and links directly to WesCEF’s Ammonium Nitrate CO2e emissions intensity. It requires WesCEF to achieve an emission intensity of 0.25 tonnes of CO2e per tonne of AN or lower and meeting this target provides Wesfarmers with a favourable interest rate on this loan. In the 24 months leading to December 2022, WesCEF recorded an emissions intensity of 0.14 tonnes of CO2e per tonne of AN.

What underpins the bulk of WesCEF’s abatement activity?

We make nitric acid which produces nitrous oxide emissions with a global warming potential of 265 times CO2. The technology we invested in is a catalytic process that breaks that nitrous oxide into nitrogen and oxygen.

Our next interim target of 30% by 2030 is essentially underpinned by more nitrous oxide abatement.

How important is having runs on the board to convince the organisation to take the harder steps to Net Zero?

Really important. The technology we have implemented early was the most efficient at the time and also was more cost effective than other decarbonisation options. From here it gets more expensive. Having runs on the board brings that belief to the organisation that we've done it, and we can do it again. A net zero world requires wholesale change. It requires changes to the inputs we use, the way we're working, the way we make decisions.

How do you justify the investment required for decarbonisation changes, and what role do levers like the Safeguard Mechanism and Cross border adjustment mechanisms play?

More favourable rates of finance help. Government funding is not to be underestimated.

The Safeguard Mechanism helps because now we have a real penalty and a good price signal with the safeguard mechanism cap. You can say, this is how much abatement is going to cost me, and this is what the cost of inaction is. But not all our businesses are covered by the safeguard mechanism, and as we get into the pointy end of abatement paying the penalty is still cheaper.

Cross border adjustment mechanism is a tough one. Conceptually I really like it. The principle of a level playing field with respect to carbon is sound. We will lose a lot of competitive advantage if we have to abate and others, importing product to compete with our local manufacture, don't. The devil is in the detail, how do you successfully administer that kind of program?

How do you rate Australia's overall carbon literacy?

It's improving. There's a lot of unintended consequences in some of our behaviours. For example, we feel good about recycling, but it requires a lot of electricity that predominantly still comes from coal and gas. Synthetic fabrics are essentially plastic derived from oil. People don't necessarily understand that.

I would love to see sustainability labelling in the same way we have nutrition labelling so people can make better decisions - how much water is in the product, how much electricity was used in making the product, what is the net carbon footprint of that product.

What are the issues we should be concerned about, particularly the ones that are under recognised?

We must be honest about how hard it is, how long it will take, and the likely additional cost. There are a few quick wins but not many. This is a long game. And it's comprehensive change. However, the cost of inaction needs to be weighed against the difficulty and expense.