Australia will need every credible tool available to accelerate industrial decarbonisation, with no single technology, investment pathway or compliance option able to meet the needs of every industrial facility, according to the Carbon Market Institute (CMI).
“The Safeguard Mechanism has established a strong foundation for industrial decarbonisation. The opportunity now is to build on that foundation and make sure businesses have every credible tool available to accelerate emissions reductions,” CMI CEO Dr Sasha Courville said.
“With only two years of post-reform data, changes should be targeted and evidence-based, giving industry the certainty needed to make long-term investments.”
The Safeguard Mechanism is becoming an increasingly important part of Australia’s climate policy architecture. Declining baselines provide a long-term emissions constraint, while Safeguard Mechanism Credits (SMCs) and ACCUs provide flexibility in how businesses manage their transition.
In its submission to the 2026–27 Review, CMI advises that the core architecture of the Safeguard Mechanism is working and should be retained, recommending that any reforms be targeted and focus on three key priorities: providing certainty for investment, better enabling on-site emissions reductions, and retaining access to flexibility, including ACCUs.
“Facilities will need every tool in the toolbox to achieve the scale of decarbonisation needed to reach our 2035 and 2050 targets. There is no single technology, investment pathway or compliance option that will work for every Australian industrial facility,” Dr Courville said.
CMI sees the following as foundational to a successful outcome from the Review.
- Protect the core architecture of the Safeguard Mechanism and give industry certainty to invest
CMI’s submission emphasises that policy stability and predictability are fundamental to unlocking long-term investment in industrial decarbonisation.
Major industrial investments are made over long timeframes, often extending well beyond individual compliance years and the current 2030 policy horizon. CMI maintains that businesses need confidence that the policy framework they are investing against will endure.
The Review should therefore provide greater clarity on future settings for the Mechanism, including post-2030 settings, while avoiding unnecessary changes.
“Significant or frequent changes to Safeguard settings can add uncertainty at precisely the time businesses need to make long-lived investment decisions,” Dr Courville said.
- Diagnose the barriers and address them at the source
CMI supports prioritising on-site abatement at Safeguard facilities, while recognising that the challenges faced by facilities extend beyond price-related barriers. The Review should focus on identifying these barriers and targeting them directly.
“Decarbonising the industrial sector is messy, lumpy and highly complex. The pathway will look very different across Safeguard facilities,” Dr Courville said.
Price is an important barrier for some projects, but it is not the only factor holding back on-site decarbonisation. Technology readiness, enabling infrastructure, access to finance and investment timing can also determine whether projects proceed. These barriers require targeted responses.
The Safeguard Mechanism can provide the long-term signal to decarbonise, but it cannot address every barrier. In some cases, complementary policy may be the solution rather than changing the Mechanism itself. Government needs to develop a stronger understanding of the barriers to on-site industrial decarbonisation so they can be addressed directly.
- Retain ACCU flexibility and ensure the market can deliver
CMI strongly supports continued access to high-integrity ACCUs as an important part of the Safeguard Mechanism’s flexible, market-based design.
“Australia should absolutely be prioritising on-site industrial decarbonisation, but major industrial projects can take years to move from investment decision to delivering emissions reductions. Safeguard baselines continue to decline during that time. ACCUs have an important role in bridging this timing gap. They enable emissions reductions to occur elsewhere in the economy while major industrial projects are being developed and delivered,” Dr Courville said.
Restricting ACCU access does not shorten project development timelines, build the infrastructure needed or accelerate the development of emerging technologies. Where these are the barriers, restricting ACCU access may increase compliance costs without unlocking additional on-site abatement.
CMI does not support quantitative limits, discounting or qualitative restrictions on ACCU use as a substitute for addressing the underlying barriers to on-site decarbonisation.
Retaining ACCU flexibility also means ensuring that the market can deliver.
“This means Government needs a much clearer picture of forward ACCU supply and demand. If ACCUs are going to play an important role, and we believe they are, we need confidence that a deep, high-integrity market will be there when Safeguard facilities need it,” Dr Courville said.
As Safeguard baselines decline and compliance demand grows, CMI is calling for Government to develop a much clearer forward picture of ACCU supply and demand, including where future supply is expected to come from, when it is likely to become available and whether the market is developing at a pace capable of supporting future demand.
The ACCU Scheme and Safeguard Mechanism have an intertwined future. They are complementary measures that can support Australia’s progress towards its climate goals.
There is no credible path to net zero that doesn’t use both these sources of abatement.
The next phase of the Safeguard Mechanism should provide certainty for long-term investment, address the barriers to genuine on-site decarbonisation, and preserve the flexibility needed as Australia’s industrial transformation is delivered.
“The scale of the challenge means we need every credible tool available, and we need them working together,” Dr Courville said.
