Safeguard Mechanism reforms now in effect

The Federal Government’s Clean Energy Regulator (CER) says its Safeguard Mechanism reforms – which came into effect on 1 July – will deliver more than 200 million tonnes of emissions reductions by 2030. 

The Safeguard Mechanism, introduced in 2016, imposes limits on Australia’s largest greenhouse gas emitting industrial facilities – those that release at least 100,000t of Scope 1, or direct, emissions each year. 

Safeguard Mechanism reform was a key recommendation within CCIWA’s Climate Change Position Statement, with the WA business community suggesting it needed to be strengthened, expanded and ultimately more effective in reducing emissions.  

EY expects around 215 of Australia’s largest industrial facilities are now on a net zero trajectory, with a default obligation to reduce their greenhouse gas emissions by an average of 4.9% each year until at least 2030. 

This policy will affect businesses across a broad range of industry sectors, including electricity generation, mining, oil and gas extraction, manufacturing, transport and waste. 

The mechanism sets a baseline of emissions for each facility covered. These can be set on either a production-adjusted basis, or an absolute figure. 

Heavy-emitting facilities that don’t cut their pollution will be required to buy either Australian carbon credit units (ACCUs) or safeguard mechanism credits (SMCs) equivalent to the volume of carbon emissions that exceed their cap. 

Emission intensive and trade-exposed industry sectors will be given additional concessions and further support to decarbonise, ensuring they remain competitive.  

CER Chair David Parker says the safeguard reforms create a clear incentive for onsite emissions reduction, but also maintain flexibility including using ACCUs. 

“We expect substantial aggregate ACCU supply to 2030 which will need to be complemented by material emissions reductions at source over the period to 2030,” he says. 

EY also estimates the price of ACCUs could double before 2035, from about $40 a tonne today to around $80 (or $60 per ACCU in real 2023 dollars), which is just below the Government’s price cap.

“This policy ensures that companies that lean into emissions abatement sooner will benefit, reduce their risk exposure, and capitalise on other benefits, including the sweeping technological and market changes we will see because of decarbonisation,” EY Net Zero spokesperson Emma Herd says. 

“It all comes down to their willingness to act.” 

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