The federal government’s annual climate statement and the Climate Change Authority’s (CCA) progress report reinforce that emissions from industrial facilities covered by Australia’s Safeguard Mechanism are coming down and highlight the value of carbon crediting for regional Australia.
“However, the CCA’s Annual Progress Report outlines that all sectors need to reduce emissions faster for Australia to meet its 2030 and 2035 targets, and that Australia’s current policy suite may require additional measures to support the pace of change,” said Carbon Market Institute chief executive Dr. Sasha Courville.
“The CCA Report focusses on the electricity sector and the reformed Safeguard Mechanism. Its call for faster approvals highlights the importance of changes to the EPBC Act which CMI welcomed last week. Other policy intervention will be required to allow decarbonisation of the electricity to be the backbone of Australia’s decarbonisation efforts as some existing policy measure come to an end.”
The CCA reported preliminary CER data showing Safeguard facilities’ net emissions declining 6.2% which is consistent with the 4.9% decline rate in the second year of the reformed scheme. The data also revealed gross emissions reduction for safeguard facilities of 2.4% for that same period. The CCA projects that emissions will be 8Mt below the 2030 net emissions target in Safeguard of 100Mt.
The government points out that over the first 2 years of the reformed Safeguard Mechanism emissions have declined consistently with legislated outcomes. It accepts the CCA view that ‘meeting longer-term outcomes will depend on the adjustment of Safeguard policy settings over time’.
With the Government’s planned 2026-2027 Safeguard Mechanism Review, the design of the Safeguard Mechanism will come into the public focus, providing an opportunity to advance further reforms to unlock additional abatement.
“CMI welcomes the CCA’s view that the 2026-27 Review should consider key elements of broadening and deepening the Safeguard Mechanism, a long-standing advocacy position of the CMI,” said Courville.
The CCA suggested that the Review also consider scheme coverage of sectors and facilities, elements that CMI previously advocated to the Productivity Commission on the basis of modelling research that CMI undertook earlier this year.
A key dimension of this consideration is the opportunity to broaden and deepen the Safeguard Mechanism so that it covers additional facilities, organisations and sectors, and facilitates deeper emissions reductions.
“CMI has long advocated for a deepening and broadening of the Safeguard Mechanism, and earlier this year CMI has published modelling to inform the 2026-27 review,” said Courville.
The modelling shows that the 2026-27 Review will need to consider a combination of changes to the Safeguard Mechanism to achieve Australia’s 2035 NDC target range of 62-70%.
“Single small changes to the Safeguard Mechanism may not be sufficient to support Australia emissions reductions goals. Policymakers will need to consider the broader policy suite to drive sectoral transition outcomes,” commented Courville.
The Annual Climate Change Statement recognises contribution of carbon markets as many sectors have residual emissions to 2050 and the need for investment and development of novel technologies to complement the current cost-effective land-based removals.
The CCA also noted that it will closely monitor covered facilities’ reliance on carbon credits as compared with cutting emissions on-site. CMI acknowledges the importance of driving material net and gross emissions reduction outcomes.
CMI looks forward to engaging with the 2026-27 Review to explore policy options to further incentivise on-site abatement efforts and highlights that the Safeguard Mechanism will continue to operate in a broader suite of decarbonisation drivers.
“It is important that companies appropriately balance on-site decarbonisation and market engagement to demonstrate credible approaches to corporate transition. In hard-to-abate sectors covered by the Safeguard Mechanism, additional incentives may be required to facilitate ambitious transition pathways,” concluded Courville.
