The release of the 2024-25 Safeguard Mechanism data by the Clean Energy Regulator (CER) shows the mechanism is moving in the right direction though the Australian Government’s 2026-27 Review of the Safeguard Mechanism (2026-27 Review) will be timely.
Carbon Market Institute (CMI) Director of Corporate Transition, Kurt Winter said: “In this second year of compliance, the data shows the mechanism is on track to deliver its legislated goals towards 2030, with continued modest net and gross emissions reductions. The Government’s Review later this year provides an opportunity to strengthen investment signals towards achieving Australia’s 2035 ambition”.
Winter highlighted that 2024-25 was the first year in which total covered emissions were higher than total baselines in the reformed Safeguard Mechanism, establishing a key market driver for on-site emissions reductions and market engagement.
“Over time the cumulative impact of declining baselines will continue to sharpen the driver for investments in decarbonisation,” noted Winter.
Winter also noted covered entities’ increased surrender of ACCUs and SMCs to meet compliance obligations, which reflects the maturity, deployment and commercial viability of alternative on-site solutions.
“The market provides essential flexibility so that progress continues to be made on Australia’s emissions reduction targets as industrial entities navigate a diverse set of transition pathways”, said Winter.
CMI looks forward to engaging with the 2026-27 Review that is scheduled to commence in July, that will provide an opportunity to ensure the mechanism remains fit-for-purpose in supporting Australia’s emissions reduction targets.
“It is important that Australia stays the course in embedding durable and effective market-based mechanisms to drive progress towards net zero,” Winter emphasised.
“Building upon Australia’s existing carbon market to strengthen investment signals will be critical to scaling decarbonisation efforts,” he added.
Leveraging the expertise of CMI’s industry-based Safeguard Mechanism Taskforce, CMI’s engagement with the 2026-27 Review will focus on opportunities to support policy stability and certainty for investment, broaden and deepen the Safeguard Mechanism and better incentivise on-site emissions reduction.
The Safeguard Mechanism is administered by the CER under the National Greenhouse and Energy Reporting Act 2007 (NGER Act). It puts a limit on an individual facility’s net emissions within a given reporting period. Under current settings, baselines for each facility decline at a flat, linear rate of 4.9% annually from 2023-24 to 2029-30. The decline rate for 2030-31 onwards is yet to be determined but baselines will ultimately decline to net zero in 2049-50.
Facilities can also purchase unlimited Australian Carbon Credit Units (ACCUs) or Safeguard Mechanism Credits (SMCs) to cover required emission reductions not achieved on-site.
Key findings and insights from the report:
- Facilities’ emissions declined in both gross and net terms
- covered emissions have reduced by 3.2 Mt CO2-e to 132.8 Mt CO2-e (2.3%) in 2024-25 compared with 2023-24.
- net emissions have reduced by 5.5%, from 127.3 Mt CO2-e in 2023–24 to 120.3 in 2024-25.
- SMCs (representing cases where facilities reduced emissions to be below their baseline) were generated and surrendered alongside ACCUs for the purposes of meeting compliance. Aligned with the cumulative impact of declining baselines:
- 7 million SMCs were generated. This is fewer than the 8.3 million from the first compliance year.
- 6 million SMC and 10.8 million ACCUs were surrendered for compliance, resulting in an overall increase of 4.9million surrendered units compared with 2023-24.
The Safeguard Mechanism data is available from the CER website.
CMI has a range of resources available to better understand the reformed Safeguard Mechanism, including our published FAQs.
CMI’s Safeguard Mechanism Taskforce is currently undertaking a range of investigations and analysis to support the 2026-27 Review with evidence-based reform recommendations.
