The Safeguard Mechanism, explained

The Safeguard Mechanism is one of Australia’s most important policies for improving economic security by reducing carbon emissions.

It covers a range of industries including mining, oil and gas, manufacturing, transport and waste. 

What is the Safeguard Mechanism?

The Safeguard Mechanism is a legally binding policy to ensure Australia’s largest industrial polluters cut their carbon emissions, helping to meet Australia’s emissions targets.

The mechanism applies to a facility if it releases more than 100,000 tonnes of scope 1 emissions per year. Scope 1 emissions are those produced on-site at the facility.

This is roughly equivalent to what 23,326 petrol-fuelled passenger cars would emit over an entire year. 

Facilities covered by the Safeguard Mechanism are required to reduce emissions every year, but may use offsets that represent emissions reductions elsewhere (known as carbon credits) to meet these obligations.

This includes credits from investing in planting trees or protecting forests, as well as buying credits awarded to other facilities that do better than their obligation. This effectively sets a price on carbon.

Unless it has special arrangements, a facility is required to reduce its net emissions intensity by 4.9 per cent every year between 2023 and 2030. 

The rate for after 2030 is to be confirmed in 2026–27. 

Why does the Safeguard Mechanism matter?

Non-fossil fuel-producing mining and manufacturing facilities covered by the Safeguard Mechanism account for around 10 per cent of Australia’s scope 1 emissions. This includes industries such as iron ore mining, aluminium, steel, cement and critical minerals.

These are sometimes called ‘hard-to-abate’ or ‘late-to-abate’ industries and face a challenging pathway to net zero emissions. Industrial decarbonisation projects usually have high up-front costs and can take many years to deploy.

Despite having a more difficult pathway, it is important that these facilities –  like all other sectors – contribute to Australia’s progress to net zero.

In addition, about half of the facilities covered by the Safeguard Mechanism are fossil fuel-producing or processing plants.

Emissions reduction can help keep Australian industries competitive in the long term. Some of the world’s biggest economies are moving toward net zero, and are putting in place mechanisms that put an additional price on imports with high emissions, such as the European Union’s Carbon Border Adjustment Mechanism (CBAM).

How does the Safeguard Mechanism work – and how are industries responding?

A stable, forward-looking policy landscape is essential to ensure public and investor confidence in the important task of decarbonisation. 

The Safeguard Mechanism is a clear signal that high-emitting facilities are expected to reduce emissions. This helps provide the stability to underpin long-term investment decisions in low-emissions technology; companies can plan complex projects with reduced financial risk and reap the rewards once they are deployed.

Some facilities have successfully deployed large-scale decarbonisation projects. But there are opportunities to go further, including electrification of mining equipment, switching to low-carbon fuels for heat and new ways to reduce emissions from chemical reactions. 

Whether the Safeguard Mechanism is influencing these investment decisions is unclear. The cost of carbon credits is generally still lower than the high upfront costs of new projects, so some facilities may choose to buy offsets rather than reducing actual emissions. 

For this reason, it is important that the Safeguard Mechanism is strengthened and complemented by other policies that reduce risks for investors and increase access to new and emerging technology.

What else is needed?

Some government support exists to complement the Safeguard Mechanism, including the Future Made in Australia agenda and the Net Zero Economy Authority. But other solutions are needed to address investment and technical barriers.

In turn, companies can demonstrate genuine commitment to emissions reduction and invest in the decarbonisation technologies showing the most promise. 

With long-term investment, heavy industry can contribute to Australia’s pathway to net zero while protecting Australia’s prosperity, energy security and sovereign capabilities.

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