Australia’s industrial decarbonization framework
Introduced: July 1, 2016
Effective from: July 1, 2023 (applies to FY 2023/24 onward)
Last modified:March 2023 (declining baselines, emissions cap, credit market launched)
Region(s): Australia
About
The Safeguard Mechanism is Australia’s central regulatory framework for managing greenhouse gas emissions from large industrial facilities. Under recent reforms, the mechanism transitioned from a static emissions cap to a dynamic baseline-and-credit system that drives emissions reductions in line with Australia’s national climate targets—specifically, a 43% reduction by 2030 and net-zero by 2050.
The scheme applies to approximately 215 major emitters, including mining, manufacturing, LNG, and heavy industry. Each facility is assigned a site-specific declining emissions baseline, with annual reductions of 4.9% through 2030. Facilities emitting below their baseline can generate Safeguard Mechanism Credits (SMCs), while those exceeding it must surrender SMCs or Australian Carbon Credit Units (ACCUs).
Compliance criteria
The mechanism applies to all facilities that:
-
Emit ≥100,000 tCO₂-e per year in direct (Scope 1) emissions
-
Are covered under the National Greenhouse and Energy Reporting (NGER) Act
-
Include sectors such as:
-
Mining (coal, iron ore, etc.)
-
Oil & gas (including LNG export)
-
Cement, steel, and aluminum manufacturing
-
Waste and chemical processing
-
Responsible entity: The operator with operational control of the facility, as defined by NGER legislation.
Special status – TEBA (Trade-Exposed Baseline Adjusted): Facilities in emissions-intensive trade-exposed (EITE) sectors may apply for tailored baseline treatment to preserve competitiveness.
Electricity generators: Covered by a sectoral emissions cap, not individual baselines.
Compliance timeline
-
FY 2023–24: First reporting year under the reformed baseline and credit system; Safeguard Mechanism Credit (SMC) market officially launches.
-
March 31 (annually): Deadline to surrender SMCs or ACCUs for the prior financial year.
-
FY 2026–27: Statutory review of the Safeguard Mechanism and sector-wide emissions cap.
-
FY 2029–30: Sector-wide emissions cap reduced to approximately 100 million tonnes CO₂-e.
-
Post-2030: Continued baseline tightening to align with Australia’s 2050 net-zero commitment.
Disclosure requirements
Facilities must submit an annual report under the National Greenhouse and Energy Reporting (NGER) system by October 31, including:
-
Total Scope 1 emissions
-
Emissions intensity
-
Credits surrendered
-
Justification for ACCU use >30% of baseline
The Clean Energy Regulator publishes all facility-level data, including compliance status and offsets used.
Key obligations
-
Annual NGER Reporting: Required for all covered facilities
-
Emissions control: Stay within baseline or offset excess with SMCs/ACCUs
-
Credit registry participation: Track and retire credits through the Clean Energy Regulator
-
Optional mechanisms:
-
Multi-year monitoring periods
-
Borrowing against future baseline
-
Baseline adjustment via TEBA application
-
-
Record-keeping & audit preparedness: Maintain verifiable data trail for 5 years
Third-party assurance and auditing
-
Mandatory assurance: Facilities emitting ≥1 Mt CO₂-e annually must obtain independent greenhouse audits every year
-
Other facilities: Subject to random or risk-based audits at the discretion of the Clean Energy Regulator
-
Credit registry verification: All credits are tracked and validated through the federal registry, ensuring environmental integrity and preventing double counting
Penalties for non-compliance
-
Fines up to AU$330 per excess tonne of emissions
-
Infringement notices of approx. AU$110/tCO₂-e
-
Publication of violations by the Clean Energy Regulator
-
Injunctions and legal orders
-
Mandatory surrender of owed credits
-
Reputational and investor risk, particularly for listed companies
