Safeguard Mechanism: 2023 reforms, baselines and 100,000 tCO2-e threshold
The reformed Safeguard Mechanism from 1 July 2023 - covering facilities emitting more than 100,000 tCO2-e per year with baselines declining 4.9% annually to 2030.
Coverage and the 100,000 tCO2-e threshold
The Safeguard Mechanism applies to facilities that emit more than 100,000 tonnes of carbon dioxide equivalent (CO2-e) in a financial year. Coverage is determined by scope 1 emissions reported under the NGER greenhouse and energy reporting Act 2007. The Clean Energy Regulator administers the Safeguard Mechanism under Part 3H of the NGER Act.
Around 219 facilities were covered in 2023-24. These facilities represent roughly 31% of Australia's greenhouse gas emissions.
Covered sectors include mining, oil and gas, manufacturing, transport and waste.
Baselines and the 4.9% decline
Reformed baselines commenced on 1 July 2023. These baselines decline by 4.9% each year to 30 June 2030. The baselines transition from site-specific values toward industry-average benchmarks over time.
New facilities receive baselines based on international best-practice benchmarks. Trade-exposed baseline-adjusted (TEBA) facilities can apply for a slower decline rate to address competitiveness concerns. Carbon Border Adjustment Mechanism (CBAM) Australia may also be relevant to some facilities.
Baseline decline rates beyond 30 June 2030 will be determined by future rules, aligning with Australia’s net-zero target.
Compliance options: ACCUs and SMCs
Facilities exceeding their baseline emissions must offset the difference by surrendering Australian Carbon Credit Units (ACCUs) or Safeguard Mechanism Credits (SMCs). SMCs are issued to facilities that emit less than their baseline, with each SMC representing one tonne of carbon dioxide equivalent (tCO2-e) below baseline. Further information on ACCUs can be found in the ACCU Scheme article.
The cost of ACCU surrender is not fixed, although a cost-containment reserve operates between the 2023-24 and 2030-31 financial years. This reserve is indexed annually by the Consumer Price Index (CPI) plus 2%.
Failure to surrender the required number of ACCUs or SMCs to cover excess emissions can result in civil penalties under Part 5 of the National Greenhouse and Energy Reporting (NGER) Act. Facilities can elect a multi-year monitoring period (MYMP) of up to 5 years to manage compliance positions.
Outcomes test and reporting
The Safeguard Mechanism’s rules are designed to align with prescribed safeguard outcomes. Section 22XS of the NGER Act requires the Minister to ensure these rules are consistent with those outcomes. A key outcome is limiting net Safeguard-covered emissions to no more than 1,233 Mt CO2-e from 1 July 2020 to 30 June 2030. ASRS Group 1 disclosure walkthrough provides further information.
Facilities are required to lodge an annual Safeguard report through EERS. This report must be submitted by 31 October each year following the financial year. The report details emissions and compliance with baseline requirements, including any borrowing undertaken. Borrowing up to 10% of baseline is permitted, with repayment required in the subsequent compliance period, including interest.
The reformed baselines, methods and outcomes are subject to review. This review will occur in 2026-27 as part of the legislated review cycle.
Frequently asked
When does a facility become a Safeguard facility?
A facility is covered when its scope 1 emissions exceed 100,000 tCO2-e in a financial year. Once covered, it must comply with its baseline obligations and report under the NGER Act each year.
How much does the baseline decline each year?
Reformed Safeguard baselines decline by 4.9% per year from 1 July 2023 to 30 June 2030. The decline rate applies to all covered facilities, including new entrants, subject to specific adjustments for trade-exposed baseline-adjusted facilities.