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Australian Safeguard Mechanism

ETS Status
in force
Jurisdictions
Australia
Sectoral coverage
Maritime
Mining and extractives
Waste
Domestic Aviation
Transport
Industry
Power
Allocation
Free Allocation (Output-based Benchmarking)
Offsets and credits
Domestic, unlimited
Cap or total emissions limit
135.9 MtCO2e
GHGs covered
CO2, CH4, N2O, SF6, HFCs, PFCs
Average secondary market price
AUD 36.05 (USD 23.23)

General Information

The Safeguard Mechanism assigns mandatory facility-level emissions baselines for over 200 large facilities in Australia. It applies to all facilities that emit more than 100,000 tonnes CO2e of covered emissions in a financial year. Covered entities must surrender credits for emissions that exceed the installation’s annual emissions limit (baseline), which is set using an emissions intensity framework.

Facilities emitting above their baseline must offset excess emissions by surrendering Safeguard Mechanism Credits (SMCs) or Australian Carbon Credit Units (ACCUs). In some cases, facilities can also apply to average their emissions over a longer period, reduce their baseline decline rate if eligibility criteria are met, or borrow from their baseline from a future year. 

The Safeguard Mechanism was introduced in 2016 but had not been classified as a baseline-and-credit system as no tradeable permits were issued. However, following legislative changes passed in March 2023 which took effect as of July 2023, the government is able to issue SMCs to facilities that over-achieve on their baseline. This reform was accompanied by a tightening of baselines and a default decline rate of 4.9% per year, to align the outcome with Australia’s 2030 targets and pave the way towards carbon neutrality by 2050. This in effect turned the Safeguard Mechanism into a baseline-and-credit system.

FY2024 was the first full compliance year under the reformed Safeguard Mechanism. Australia’s Clean Energy Regulator (CER) issued the first SMCs in February 2025, following emissions reporting for FY2024. 

In April 2025, the CER published comprehensive compliance data for FY2024. Of the 219 facilities that were assigned baselines under the Safeguard Mechanism, 62 received a total of 8.3 million SMCs for emissions performance below their baselines, while 7.1 million ACCUs and 1.4 million SMCs were surrendered to meet compliance obligations. The compliance rate was 98%. Covered emissions decreased from 138.7 MtCO2e in FY2023 to 135.9 MtCO2e in FY2024, representing a reduction of 2.7 Mt (~1.9%).

Maritime
Mining and extractives
Waste
Domestic Aviation
Transport
Industry
Power

Emissions & Targets

527.2 MtCO2e (2023)

By 2030: 43% below 2005 levels (NDC 2.0) 

By 2035: 62-70% below 2005 levels (NDC 3.0)

By 2050: Net zero emissions (Updated first NDC)

Australia’s GHG reduction targets cover LULUCF and all other sectors, categories and carbon pools, as defined by the IPCC 2006 guidelines, and additional sources reported in Australia’s annual National Inventory Report.

AUD 36.05 (USD 23.23) (average secondary market price 2025)

Size & Phases

138.70MtCO2e
CO2, CH4, N2O, SF6, HFCs, PFCs

The total net emissions limit under the Safeguard Mechanism changes as a function of production (output) and is the sum of the bottom-up installation-level emissions limits (baselines) for all individually covered entities. However, the bottom-up emissions limits do not represent an absolute cap.

The facility-level baselines are calculated using output-based benchmarking based on emissions intensity (see ‘Allowance Allocation’ section). A default decline rate of 4.9% per year applies to standard and landfill baselines up to 2030. 

Standard baselines apply to all covered facilities that produce products, whereas landfill baselines are calculated differently and apply exclusively to waste facilities as they provide a service rather than a product.

Net emissions from all Safeguard facilities should not exceed 100 MtCO2e in FY2030; the total net emissions should not exceed 1,233 MtCO2e between FY2021 and FY2030; and should reach net zero by FY2050. 

Gross emissions from all Safeguard facilities must also reduce over time, measured on a five-year rolling average. Since July 2024, the rolling average of Safeguard-covered emissions over the previous five years must be lower than the five-year rolling average from three years earlier; and from July 2027, the five-year rolling average of Safeguard-covered emissions must be lower than the five-year rolling average from two years prior. 

SECTORS: The Safeguard Mechanism covers all direct (scope 1) GHG emissions from facilities emitting over 100,000 tCO2e per year. This currently includes around 220 facilities in the mining, manufacturing, domestic transport, oil, gas, and waste sectors.

Grid-connected electricity facilities are covered by a “sectoral” baseline that is not expected to be exceeded and is not declining. Individual grid-connected electricity generators are not covered as long as total emissions do not exceed the sectoral baseline. Grid-connected power sector facilities thus do not face a compliance obligation. Off-grid generators, including electricity generation integrated into Safeguard facilities, are not covered by the sectoral baseline. Their emissions are reported by the facility.

As for waste, only a very small share of total sectoral emissions (~1%) is covered as the majority of installations do not exceed the coverage threshold.

COVERAGE THRESHOLDS: Facilities and companies with annual scope 1 emissions over 100,000 tCO2e.

Point source 

219 entities (FY2024) 

Allowance Allocation & Revenue

Under the reformed Safeguard Mechanism, baselines are set using a production adjusted emissions intensity framework. Baselines are initially weighted towards a facility’s emissions intensity. However, by 2030, baselines transition to being set based on an industry average emissions intensity value. Baselines for new products produced by existing facilities, as well as all products produced by new facilities, from July 2023 are set using ‘best-practice’ emissions intensity values. 

A sectoral baseline applies to grid-connected electricity generation, based on historical emissions. 

For facilities with no other baseline determined or where a baseline of less than 100,000 tCO2e is calculated, a default of 100,000 tCO2e is applied.

Facilities that overachieve on their baseline (with the exception of landfills and facilities accessing borrowing arrangements or during a multi-year monitoring period) are issued SMCs that can be banked for future use or sold to other facilities.

Facilities that are considered at risk of carbon leakage (“trade-exposed baseline-adjusted”, or TEBA, facilities) can apply for reduced baseline decline rates (see ‘Compliance Mechanism’ section). 

Flexibility & Linking

Unlimited banking of SMCs is allowed up to 2030. The option to use banked SMCs after 2030 will be considered in the 2026 to 2027 review of the Safeguard Mechanism (see ‘Evaluation/ETS review’ section). 

Borrowing up to 10% of a facility’s baseline each year will be allowed until 2030. The facility’s baseline would then decrease by a corresponding amount the following year, plus:

  • 2% interest for FY2025 and FY2026;
  • 10% interest from FY2027 onwards.

The use of ACCUs issued under the domestic offset scheme is allowed. 

QUALITATIVE LIMITS: Only ACCUs are allowed for compliance.

QUANTITATIVE LIMITS: None. However, if a facility surrenders ACCUs equal to more than 30% of its baseline in a given financial year, it must submit a statement to the CER setting out why more onsite abatement has not been undertaken. This statement is then published on the CER’s website.

In FY2024, a total of 7.1 million ACCUs were surrendered for compliance purposes under the Safeguard Mechanism. 

The Safeguard Mechanism is not linked with any other system. 

Domestic offsetting mechanisms: Australian Carbon Credit Unit (ACCU) Scheme

Compliance

Annual reporting and compliance 

  • End of compliance period: June 30
  • Reporting deadline: October 31
  • SMC issuance: early February in the following year
  • Surrendering deadline: March 31 in the following year 

FRAMEWORK: Emissions monitoring according to the “National Greenhouse and Energy Reporting Act” (NGER Act) 2007.

MONITORING: Monitoring and reporting rules under the Safeguard Mechanism use the framework of the NGER Act. The NGER scheme imposes a single national framework for the reporting of GHG emissions (including scope 1 and scope 2), energy production and energy consumption. Reporting obligations apply for all facilities exceeding the annual inclusion threshold (emissions of at least 25,000 tCO2e, incl. scope 1 and scope 2 emissions; production of 100 TJ or more of energy; or consumption of 100 TJ or more of energy).

REPORTING: Facilities covered under the Safeguard Mechanism are required to report their emissions annually by October 31 to the CER. Reporting is done digitally through the Emissions and Energy Reporting System (EERS).

VERIFICATION: Verification according to the NGER Act. All facilities with emissions greater than 1 MtCO2e per year are required to undergo an independent emissions audit each year.

The maximum civil penalty is set at one penalty unit per tonne of excess emissions per year. As of November 2024, a penalty unit is valued at AUD 330 (USD 213). The infringement notice is charged at one-third of the maximum civil penalty to a maximum of 150,000 penalty units.

Market Regulation

MARKET PARTICIPATION: Compliance entities, non-compliance entities (ACCU project proponents). 

MARKET TYPES: 

Primary: Allowances are currently not auctioned. SMCs are issued for free to facilities that overperform their baseline. 

Secondary: The CER in 2024 launched a new Unit and Certificate registry which consolidates previous unit registers and enables the trading, clearing and settling of ACCUs and SMCs.

LEGAL STATUS OF ALLOWANCES: ACCUs and SMCs are treated as financial products under “Australia’s Corporations Act (2001)”. Certain exemptions apply. 
 

COST-CONTAINMENT MECHANISM

Instrument type: Set price (rising over time)

Functioning: Safeguard facilities that exceed their baseline may apply to the CER to purchase the required number of ACCUs at a fixed price. The price of these ACCUs is set at AUD 75 (USD 49.90) in FY2024 and will be indexed in future financial years by the Consumer Price Index (CPI) plus an additional 2% per year. This measure is intended to provide certainty to Safeguard facilities about the maximum compliance costs they will face under the reformed scheme.

Other Information

Clean Energy Regulator (CER): Federal authority overseeing the mechanism; tasked with setting baselines, collecting and publishing emissions data, issuing SMCs, and making determinations on borrowing, MYMPs and TEBA applications.

Department of Climate Change, Energy, Environment, and Water (DCCEEW): Federal ministry responsible for climate policy and the Safeguard Mechanism. 

Climate Change Authority (CCA): Independent advisory body providing expert advice to the Australian government on climate policy, including the performance of the Safeguard Mechanism.

The government will review Safeguard Mechanism policy settings over 2026 and 2027, to ensure they are appropriately calibrated and effectively delivering emissions reductions in line with Australia’s targets.

As part of this review, the CCA will advise the government on the extent to which on-site abatement is being driven by the reforms, and whether any additional incentives are required. The review will also consider the use of international

Following reforms to the Safeguard Mechanism in 2023, the government reviewed additional policy options to address carbon leakage due to differences in emissions reduction policies between Australia and key trading partners. The review assessed carbon leakage risks and found existing policy measures mitigate leakage risks in the short- to medium-term. The review examined whether further policy measures in the medium to longer term would support a level playing field by ensuring domestic and imported goods face the same emissions reduction obligations in the Australian market.

The review recommended that a border carbon adjustment be introduced for a select group of commodities that are at particular risk of carbon leakage from imports, with it initially covering cement and clinker, and to be considered for other commodities subject to further assessment. The Australian government will give further consideration to the issues and whether to implement a border carbon adjustment in the 2026 to 2027 review of the Safeguard Mechanism.

National Greenhouse and Energy Reporting Act 2007 (NGER Act)

National Greenhouse and Energy Reporting (Safeguard Mechanism) Rule 2015

Carbon Credits (Carbon Farming Initiative) Rule 2015

Australian National Registry of Emissions Units Act 2011

Australian National Registry of Emissions Units Regulations 2011

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