Under the Safeguard Mechanism, facilities are given a baseline which is the reference point against which annual emissions levels are assessed. Safeguard facilities are required to keep their net emissions levels at or below their baselines.

For financial years commencing on or after 1 July 2023, 3 types of baselines apply to Safeguard facilities:

• 'standard'
• landfill
• sectoral.

All Safeguard facility baselines, other than the sectoral baseline, will reduce in line with Australia's climate targets.

For 'standard' baselines, the annual baseline emission number is influenced by the emissions-intensity of products produced at the Safeguard facility:

• existing products produced by existing Safeguard facilities (from the 2017–18 to 2021–22 financial years) 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 the 2022–23 financial year 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.

How baselines work for financial years commencing on or after 1 July 2023

'Standard' baseline

'Standard' baselines can vary year-to-year with changes in production. This ensures that the Safeguard Mechanism operates flexibly and does not penalise Safeguard facilities for increases in production.

In broad terms, 'standard' annual baselines are determined by multiplying the Safeguard facility's actual production by an emissions intensity value, and a decline rate. In practice, the calculation of a Safeguard facility's annual baseline emissions number for financial years commencing on or after 1 July 2023 depends on several factors.

Production variables

Safeguard facilities may produce several different products, each with different emissions sources that can contribute to the facility's overall emissions-intensity.

Each 'standard' baseline Safeguard facility must identify and measure production for each product that is produced at the facility.

• Schedule 1 of the Safeguard Rule defines a range of products ('production variables') applicable to Safeguard facilities.
• The Department of Climate Change, Energy, the Environment and Water's (DCCEEW) Safeguard Mechanism document provides additional guidance on how these production variables are to be identified and measured.

Please be aware that DCCEEW is currently undertaking a review of production variables to ensure there is a comprehensive set of suitable production variables to support the reformed Safeguard Mechanism. For more information, see Safeguard Mechanism on DCCEEW's website.

Emissions-intensity

Existing production variables at existing Safeguard facilities

For each financial year from 1 July 2023 through to 30 June 2030, the emissions-intensity of existing production variables at existing Safeguard facilities will be set using a hybrid model.

The model will initially be weighted towards the use of facility-specific emissions-intensity values, transitioning to industry-average emissions-intensity values by the 2029–30 financial year, with the following ratios:

Facility-specific emissions-intensity values are calculated for each existing production variables based on 5 years of emissions and production data (from 2017–18 to 2021–22). Industry-average emissions-intensity values are prescribed by Schedule 1 of the Safeguard Rule.

If an existing Safeguard facility reports a new production variable in the 2022–23 financial year, the new production variable will be subject to the 'industry-average' emissions-intensity value.

New Safeguard facilities and new production variables at existing Safeguard facilities

For financial years commencing on or after 1 July 2023, all new production variables at new Safeguard facilities, as well as new production variables at 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.

In addition to the above, all shale gas extraction facilities will be subject to a 'zero' baseline, and the 'reservoir carbon dioxide from new gas fields' production variable has a 'zero' emission intensity value.

Landfill baseline

Landfill facilities have different coverage and baseline setting arrangements to other Safeguard facilities. The landfill baseline recognises that waste facilities do not have an identifiable production variable. Only emissions from waste deposited after scheme commencement on 1 July 2016 (known as 'non-legacy waste emissions') are covered under the scheme.

The landfill baseline calculates emissions based on:

• non-legacy waste emissions produced in the financial year
• a default methane capture efficiency rate of 37.2%
• the near-surface methane oxidisation factor prescribed by section 5.4(1) of the National Greenhouse and Energy Reporting (Measurement) Determination 2008.

The landfill baseline is calculated each financial year based on information reported annually under the National Greenhouse and Energy Reporting Act 2008.

Baseline decline rate

For each financial year from 1 July 2023 through to 30 June 2030, both 'standard' and landfill baselines will be subject to an annual decline rate of 4.9%.

The decline rate will be applied using a scaling factor, known as the 'emission reduction contribution'. The emission reduction contribution represents the total baseline decrease from the start of the reformed scheme:

The default decline rate of 4.9% does not apply to 'standard' baseline Safeguard facilities if they are trade-exposed baseline-adjusted (TEBA) facilities. These Safeguard facilities may have decline rates as low as 1%. See Managing excess emissions for financial years commencing on or after 1 July 2023 for more information.

Sectoral baseline

A single sectoral baseline of 198 million tCO₂-e applies collectively to grid-connected electricity generators, unless the sector collectively exceeds the baseline in a financial year. If the sectoral baseline is exceeded individual 'standard' baselines will apply to each generator.

A sectoral approach is taken to grid-connected electricity generators because the electricity sector behaves more like a single entity, where the output produced is centrally coordinated to meet demand in real time. The sectoral baseline is based on the electricity sector's emissions from the 2009–10 to 2013–14 financial years.

The sectoral baseline only applies to electricity generators connected to designated electricity networks, which comprise Australia's 5 main electricity grids: the National Electricity Market, the South West interconnected system, the North West interconnected system, the Darwin to Katherine network, and the Mount Isa-Cloncurry supply network.

For financial years commencing on or after 1 July 2023, if a grid-connected electricity generator facility includes more than 100,000 tCO₂-e of covered emissions not directly related to electricity generation (such as fugitive emissions from coal mining), the facility will receive a 'standard' baseline for the purposes of those covered emissions.

Apply for an emissions-intensity determination

For financial years commencing on or after 1 July 2023, existing 'standard' baseline Safeguard facilities may apply for an emissions-intensity determination to set the facility specific emissions-intensity for all existing production variables at the Safeguard facility.

If an existing Safeguard facility does not apply to receive a facility-specific emissions-intensity number for an existing production variable, or an industry-average emissions-intensity for a transitional production variable, 'best practice' emissions intensity values will apply.

The following Key dates apply to applications for emissions-intensity determinations:

• applications that specify the financial year beginning on 1 July 2023 as the first financial year to which the determination would apply are due by 30 April 2024
• applications that specify the financial year beginning on 1 July 2024, or a later 1 July, as the first financial year to which the determination would apply are due by the first 31 October after the end of the relevant financial year.

Applications for facility-specific emissions-intensity determinations must:

• provide information about each production variable at the facility during the historical financial years (the 'historical production variable')
• identify any production variable that is new to the facility in 2022–23 (the 'transitional production variable')
• be accompanied by an independent audit report.

Applications may also include a request that a new production variable at the facility that is substantially similar to an existing historical production variable (the 'comparative production variable') be considered a 'related production variable', and therefore receive the same facility-specific emissions-intensity as the comparative production variable.

Please be aware that DCCEEW is currently undertaking a review of production variables to ensure there is a comprehensive set of suitable production variables to support the reformed Safeguard Mechanism. For more information, see Safeguard Mechanism on DCCEEW's website.

See Forms and guidance for more information.