Launched in 2016, the Safeguard Mechanism is the Australian Government’s primary policy for reducing GHG emissions and is part of the  Australian Carbon Credit Unit (ACCU) Scheme (formerly known as the Emissions Reduction Fund or ERF).

The Federal Government, through the ERF, aims to achieve Australia’s emission reduction goals in the most cost-effective way possible. This is achieved by acquiring ACCUs through a reverse auction mechanism and establishing long-term carbon abatement contracts.

Whilst the safeguard mechanism limits emissions from industry by applying emissions baselines (emission limits) to large businesses that restrict their carbon emissions to business-as-usual levels. As per the latest Safeguard mechanism amendments in 2023, three baselines exist.

Australia is currently in the process of developing an improved unit register for the Australian Carbon Credit Units (ACCUs) and an Australian Carbon Exchange to facilitate the emergence of an exchange trading market. The new Unit Register is anticipated to be launched by the end of 2023 and the Australian Carbon Exchange by early 2024.

The Safeguard Mechanism also underwent major reforms in 2023, with a key focus on:

• Declining baselines
• Managing excess emissions
• Safeguard Mechanism credit units (SMCs)
• New data publication requirements

The 2023 reforms are expected to drive substantial emission abatement, along with creating greater demand for credits.

Department of Climate Change, Energy, the Environment and Water (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. Additionally, it is also in the process of setting international best practice emissions intensities benchmarks, for use by new facilities under the Safeguard Mechanism.

The Government intends to consult in late 2023 on the possibility of establishing the legislative framework for international units.

This primer provides an in-depth overview of the mechanism, recent performance and the recent policy changes that are going to reshape the system over the coming period.