Overview of Australia’s industrial decarbonization framework
Introduced: July 1, 2016; reformed July 2023
Effective from: July 2023 (baseline & credit scheme)
Last modified:March 2023 (credit market and baseline updates)
Region(s): Australia
About the Safeguard Mechanism
The Safeguard Mechanism manages emissions from Australia’s largest industrial emitters through declining emissions baselines. Recent reforms transitioned it into a baseline-and-credit system, aligning industry emissions reduction with Australia’s national climate targets—43% reduction by 2030 and net-zero by 2050.
Covered facilities are assigned declining emissions baselines (4.9% annually through 2030). Facilities emitting below their baselines earn tradeable credits (SMCs); those exceeding must surrender credits or Australian Carbon Credit Units (ACCUs).
Criteria for compliance
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
- Trade-Exposed Baseline Adjusted(TEBA): 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
