The federal Labor government examined the possibility of imposing stricter emissions obligations on individual coal-fired power stations under its Safeguard Mechanism but ultimately hesitated to proceed, citing the complexity and potential political fallout. Such a move would represent a major shift in Australia’s energy policy by enabling the commonwealth to exert greater control over coal plant operations and retirements, traditionally managed by state governments.

Discussions with industry stakeholders in Canberra revealed that the government considered amending the Safeguard Mechanism, which currently applies emissions reduction targets to grid-connected electricity generators as a whole rather than to individual facilities. Under existing rules, the electricity generation sector faces an overall emissions reduction target of approximately 4.9 percent per year, a mandate that has been largely met through the rapid expansion of renewable energy sources. This sector-wide application has allowed individual coal plants to avoid equivalent annual emissions cuts since the increasing share of renewables lowers overall emissions across the grid.

A revised approach imposing declining emissions baselines on each coal-fired station would force these plants to reduce emissions by similar percentages annually. Operators would face limited options, including generating less energy, investing in emissions abatement, or purchasing additional credits to comply. For ageing coal generators already grappling with competition from renewables and battery storage, this could accelerate their decline by increasing operational costs and hastening eventual closure.

This policy adjustment would not require explicitly mandating the shutdown of coal plants but would indirectly drive closures by pushing costs higher over time. However, the federal government has not formalized any proposals nor indicated a commitment to pursuing this approach, as industry sources suggest the political costs of confronting state governments may be prohibitive.

Several states have taken steps to extend the operation of ageing coal plants to ease electricity price pressures and supply concerns amid rising living costs. New South Wales provides a notable example, where the Eraring power station’s closure has been deferred multiple times. Originally slated to close in 2025, the state government reached an agreement with owner Origin Energy to keep Eraring running at least until 2027, with the potential to extend operations to 2029 or beyond. Premier Chris Minns recently signaled openness to a longer extension.

Eraring, which accounts for about a quarter of New South Wales’ electricity generation, highlights the challenge facing Canberra’s national emissions targets. While the federal government can set emissions reduction goals and incentivize renewable energy investments, it lacks direct authority over individual power stations, leaving such decisions to states concerned with energy reliability and affordability.

Granting the federal government the power to impose facility-level emissions limits could disrupt this balance, provoking pushback from states reluctant to relinquish control over coal plant management. Coal-fired generation remains a significant source of dispatchable electricity, vital for maintaining grid stability when renewable output is variable. Any policy accelerating coal retirements would require parallel investments in renewable capacity, energy storage, and transmission infrastructure to ensure reliable supply.

The energy sector continues to grapple with reconciling these competing priorities. While Canberra’s exploration of stronger emissions regulations signals a willingness to revisit its approach, official consultation documents suggest a more cautious, measured strategy for the immediate future.