Safeguard Mechanism before 1 July 2023

The Safeguard Mechanism commenced on 1 July 2016. It was designed to complement the Australian Carbon Credit Unit (ACCU) Scheme by sending a signal to businesses to avoid increases in emissions beyond business-as-usual levels. It achieved this by placing a legislated obligation on safeguard facilities to keep net emissions below their baseline.

Safeguard facilities that exceeded their baselines were required to manage their excess emissions by either:

• acquiring and surrendering Australian carbon credit units (ACCUs)
• applying for a multi-year monitoring period (MYMP) to allow more time (up to 3 years) to purchase ACCUs or reduce emissions.

Five baseline types existed under the original Safeguard Mechanism:

• reported baseline
• calculated baseline
• production-adjusted baseline
• sectoral baseline of 198 million carbon dioxide equivalent (tCO₂-e)
• default baseline of 100,000 tonnes of tCO₂-e.

The Australian Government reviewed Australia’s climate change policies in 2017, including the ACCU Scheme and Safeguard Mechanism. As an outcome of the review, the Australian Government committed to simplifying the Safeguard Mechanism.

The Safeguard Mechanism was amended in March 2019 following the 2017 review.

The 2017 review changed baseline requirements:

• Calculated baseline applications were simplified by giving businesses the option to use Australian Government-determined prescribed production variables and default emissions-intensity values for calculating baselines.
• Production-adjusted baselines were no longer just fixed, so facility baselines could be adjusted annually for actual production when they used eligible production variables. This required facilities to report production.

This included a transition period that covered the 2018–19 and 2019–20 financial years. All safeguard facilities could apply for a transitional calculated baseline during this period, and use either:

• default values: government-determined prescribed production variables and default emissions-intensity values
• estimated (facility-specific) values: which took account of individual facility circumstances, either as a site-specific production variable (with a site-specific emissions-intensity value) or a prescribed production variable (with a site-specific emissions-intensity value).

The amendments set reported baselines to expire on 1 July 2021 for all safeguard facilities except grid-connected electricity generators:

• If a facility with a reported baseline did not apply for a new baseline, it would receive a default baseline of 100,000 tCO₂-e from 2020–21.
• If a facility applied for a transitional calculated baseline from 2020–21, they would be required to use Australian Government-determined prescribed production variables and default emissions-intensity values.

The National Greenhouse and Energy Reporting (Safeguard Mechanism) Rule 2015 (Safeguard Rule) was amended in September 2019 to extend the application deadline for calculated emissions baselines starting in the 2018–19 financial year in certain circumstances. This amendment also provided facilities with greater access to the new framework established in the March 2019 amendment.

Due to the impacts of the COVID-19 pandemic, the Safeguard Mechanism was further amended in May 2020. This was to extend the transition period by one year to include the 2020–21 financial year.

Across March and October 2020, July 2021 and August 2022, the Safeguard Rule was amended to insert the Australian Government-determined prescribed production variables and corresponding default emissions-intensity values into Schedules 2 and 3 to give effect to the amendments.

In October 2021, the Safeguard Rule was amended to insert a prescribed capture efficiency rate and finalise the implementation of the landfill baseline approach.

The Safeguard Mechanism was reformed in 2023. The reforms aimed to ensure Australia's largest emitters would reduce their emissions in line with Australia's climate targets.

The reforms introduced:

• baselines that decline at a default rate of 4.9%
• Safeguard Mechanism credit units (SMCs) to incentivise facilities to operate below their baselines
• new options for facilities that exceed their baselines to manage their excess emissions.

Find out how the Department of Climate Change, Energy, the Environment and Water consulted on the reforms.

Facilities with calculated baselines could apply for a transitional calculated baseline when using a prescribed production variable not used originally. From 1 July 2021, new transitional calculated baselines used both:

• default production variables
• default emissions-intensities.

Facilities in the natural resources sectors could apply to have their emissions-intensity value increased. This was to account for inherent emissions variability with the extraction of a natural resource or reserve.

To be eligible, a facility mustn't have had more than one previous calculated baseline.

This type of calculated baseline used default production variables. These could be site-specific or default emissions intensities.

Production-adjusted baselines were set annually if the facility used a prescribed production variable suitable for annual adjustment. The baseline was based on actual production each year.

All other production-adjusted baselines were fixed using the highest production year of the production assessment period.