Compliance with the Safeguard Mechanism for financial years commencing on or after 1 July 2023

The Safeguard Mechanism has been reformed following a consultation process.

To determine Safeguard facility Baselines for financial years commencing on or after 1 July 2023:

• Safeguard facilities may apply for an emissions-intensity determination by 30 April 2024
• emissions and production data reported for Safeguard facilities as part of the National Greenhouse and Energy Reporting (NGER) reporting cycle (NGER reports) will be used to determine each facility’s emissions and baseline numbers (NGER reports are due by 31 October after the end of each financial year).

NGER reports must be accompanied by an audit report if a Safeguard facility has covered emissions of more than 1,000,000 tonnes of carbon dioxide equivalent (tCO₂-e) in the relevant financial year.

Safeguard facilities that do not exceed their baselines for financial years commencing on or after 1 July 2023 may be eligible to apply for Safeguard Mechanism credit units (SMCs).

Safeguard facilities that exceed their baseline for a financial year commencing on or after 1 July 2023 have several options to manage their excess emissions, including:

• purchasing and surrendering Australian carbon credit units (ACCUs) or SMCs
• applying to borrow baseline from the following year (to be repaid with interest)
• applying to become a trade-exposed baseline-adjusted (TEBA) facility and receiving a discounted decline rate (up to 3 years)
• applying for a multi-year monitoring periods (MYMP) to allow more time to reduce emissions.

There are a range of enforcement powers available to the Clean Energy Regulator (CER) where a Safeguard facility’s responsible emitter fails to take one of the above actions by the 1 April compliance deadline.

Safeguard data will be published following the compliance deadline. See Key dates for more information.

The Safeguard Mechanism for financial years commencing on or after 1 July 2023

The policy intent of the Safeguard Mechanism is available on the Department of Climate Change, Energy, the Environment and Water’s (DCCEEW) website.

Key aspects of the Safeguard Mechanism for financial years commencing on or after 1 July 2023 include:

• Declining baselines

  A default decline rate of 4.9% p.a. applies to ’standard and landfill baselines. If the Safeguard facility is a TEBA facility, the decline rate could be reduced on application to as low as 1% p.a. for the manufacturing sector, or 2% p.a. for other sectors.

  Grid-connected electricity generation facilities are not subject to an annual baseline decline. This is because a single sectoral baseline of 198 million tCO₂-e applies collectively to grid-connected electricity generators. If the sectoral baseline is exceeded, individual ‘standard’ baselines will apply to each generator.

• Emissions-intensity

  ‘Standard’ baselines are calculated by multiplying the quantity of product that a Safeguard facility makes, by the defined emissions budget per unit of production (emissions-intensity). For financial years commencing on or after 1 July 2023 the emissions-intensity of:

  • existing products produced by existing Safeguard facilities will transition from ‘facility-specific’ emissions-intensity values to ‘industry-average’ values by the 2029–30 financial year
  • new products produced by existing Safeguard facilities in 2022–23 will be subject to ‘industry-average’ values
  • all products produced by new Safeguard facilities, as well as new products produced by existing Safeguard facilities, will be subject to ‘best-practice’ emissions-intensity values.

  If the Safeguard Rule does not include a best-practice emissions-intensity value for a production variable, the industry-average value applies until the best-practice value becomes available. The facility-specific emissions-intensity for each product produced at a facility will be published on the CER’s website.

  In addition to the above, the reformed scheme also introduces ‘zero’ baselines for shale gas extraction facilities, and ‘zero’ emission intensities for the ‘reservoir carbon dioxide from new gas fields’ production variable.

• Safeguard Mechanism credit units

  SMCs are tradable credits that provide financial incentives to Safeguard facilities to reduce their emissions beyond their baselines. SMCs can be sold to other Safeguard facilities or banked for future use.

  ’Standard’ baseline Safeguard facilities may be issued SMCs if, in a particular financial year, their emissions are below their baseline. SMCs may also be issued following the conclusion of a MYMP that commences after 30 June 2023 if the Safeguard facility’s net emissions are below its baseline at the end of the extended compliance period.

  In addition to purchasing and surrendering ACCUs, all Safeguard facilities that exceed their baselines may purchase and surrender SMCs.

  Once SMCs have been issued and are in circulation, supply and demand dynamics will result in the market creating a price for these units.

The reformed scheme includes flexibility measures to help Safeguard facilities manage their compliance obligations for financial years commencing on or after 1 July 2023:

• Cost containment

  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 $75 in 2023-24 and will be indexed in future financial years by the Consumer Price Index (CPI) plus an additional 2% per annum.

  This measure is intended to provide certainty to Safeguard facilities about the maximum compliance costs they will face under the reformed scheme.

• Borrowing baseline

  Safeguard facilities may apply to borrow baseline from the following compliance year. The Safeguard facility’s baseline would then decrease by a corresponding amount the following year, plus:

  • 2% interest for the 2024-25 and 2025-26 financial years, and
  • 10% interest for financial years from 2026–27 onwards.

  Safeguard facilities cannot apply to borrow baseline if it they have a MYMP in place, or if they have been issued with SMCs in the relevant financial year.

• Multi-year monitoring periods

  If a Safeguard facility’s net emissions have or are likely to exceed its baseline, and it has a plan to reduce its cumulative emissions before the end of a maximum 5-year period, it may apply for a MYMP of up to 5 years in length. A summary of the Safeguard facility’s emissions reduction plan will be published on the CER’s website.

  Safeguard facilities with a MYMP may be eligible to apply for SMCs following conclusion of the MYMP if the facility’s net emissions are below its net baseline amount.

• Trade-exposed, baseline-adjusted facilities

  Emissions-intensive trade-exposed Safeguard facilities may apply to become TEBA facilities and receive a discounted decline rate for up to 3 years:

  • non-manufacturing TEBA facilities must demonstrate that they meet a cost impact metric threshold based on revenue, and may be eligible to receive a decline rate as low as 2%
  • manufacturing TEBA facilities must demonstrate that they meet a cost impact metric threshold based on ‘earnings before interest and taxation’, and may be eligible to receive a decline rate as low as 1%.

In addition to the information that is already published for Safeguard facilities, the reformed scheme requires the CER to publish additional information for financial years commencing on or after 1 July 2023, including:

• the amount of their emissions from the major greenhouse gases, namely carbon dioxide, methane and nitrous oxide
• the amount of SMCs issued to a facility
• if ACCUs are surrendered for compliance, the method under which the ACCUs were created
• for Safeguard facilities that surrender ACCUs equivalent to 30% or more of their baselines, the facility’s statement explaining why they haven’t undertaken more on-site abatement activities
• TEBA facility decline rates
• the details of all borrowing adjustment determinations
• the details of all emissions intensity determinations
• the details of all MYMP declarations.

The Safeguard Mechanism’s scheme settings will be reviewed in the 2026-27 financial year. See DCCEEW’s fact sheet for more information.