Safeguard Mechanism | 18 September 2026
Submitted to: Department of Climate Change, Energy, the Environment and Water
Download the full submission (PDF)
What the consultation was about
In August 2026, the Department of Climate Change, Energy, the Environment and Water released a consultation paper for its review of the Safeguard Mechanism. GreenCollar lodged its submission on 18 September. We concentrated on three areas of greatest relevance to GreenCollar: how to encourage facilities to cut emissions on site, how ambitious the scheme should be, and how the scheme connects to the Australian Carbon Credit Unit (ACCU) market.
Our overall view
We want the Safeguard Mechanism to push harder on emissions reductions at Australia’s largest industrial sites. We also want the ACCU market to stay strong and stable, because that market funds the carbon and nature repair projects we run with farmers, Traditional Owners and regional communities.
The two schemes depend on each other. As baselines decline, facilities either cut emissions on site or buy ACCUs, and that demand pays for new land-sector projects. So the review should measure success in both places: are emissions falling at covered facilities, and are investors still backing new ACCU supply? Because if Australia is to achieve net zero, carbon sequestration in the land sector needs to be scaled up significantly.
How the Safeguard Mechanism works
Australia’s largest industrial facilities (those emitting more than 100,000 tonnes of CO2-e a year) each have an emissions limit, or baseline, that declines each year. A facility that emits more than its baseline must cover the excess by surrendering carbon units to the Clean Energy Regulator. These can be ACCUs from carbon projects, or Safeguard Mechanism Credits (SMCs), which facilities earn when they emit less than their baseline. Each unit surrendered cancels one tonne of excess emissions and can’t be used again. Facilities usually buy these units from the market, from project developers, other facilities or traders, at the going price. This is why the Safeguard Mechanism is the main source of demand for ACCUs. It is also why the market price of ACCUs acts as a form of carbon price, which industrial facilities use to make decisions about investing in emissions-reducing technology.
We see a number of risks to the system including:
- Over-reliance on ACCUs. Facilities could use credits instead of investing in on-site cuts, a concern critics have raised. If that happens, it undermines confidence in both schemes.
- Supply falling short. Compliance demand is projected to reach about 26 million ACCUs in 2030 and 35 million in 2035. New methods take four to five years to develop, and methods are sunsetting without replacements. Without enough new projects in the ACCU Scheme, prices could spike and the scheme could fall short of its emissions reduction goals.
- Demand and prices being undermined. Hard caps, method or vintage restrictions, restrictions on 25-year permanence ACCUs, a price cap and SMCs that don’t reflect real abatement could all reduce demand or depress prices. That cuts the finance for new land-sector projects.
- Policy instability. Both carbon projects and on-site industrial decarbonisation projects are financed over decades. Frequent or retrospective rule changes raise costs and deter investment.
Encouraging on-site cuts without weakening the ACCU market
The first risk above, over-reliance on ACCUs, is best addressed by making heavy use of credits more expensive rather than capping it.
Discount ACCUs for heavy users. Instead of a hard limit on how many ACCUs a facility can use, we propose a discount. Each facility would have a threshold set as a share of its baseline, which could vary by sector; the submission gives 20% as an example. Below the threshold, each ACCU surrendered covers one tonne, as now. Above it, each ACCU covers less than a tonne. So the more a facility relies on credits, the more each extra tonne costs, and the more attractive on-site cuts become.
To illustrate, using hypothetical figures: with a 1 million tonne baseline, a 20% threshold and a 50% discount, the first 200,000 ACCUs used to offset above-baseline emissions would count in full. After that, it would take two ACCUs to cover each extra tonne. The submission doesn’t propose a discount rate. This approach matches one of the options the Climate Change Authority has put forward.
A discount raises the effective carbon price for facilities that rely most on credits, while still letting them use ACCUs where they have no alternative. A hard cap could leave some facilities unable to comply without producing any extra emissions cuts. It would also lower ACCU demand and prices, which cuts funding for new land-sector abatement projects. Any discount should be phased in and set with its effect on the market in mind.
Safeguard Mechanism Credits (SMCs). Some facilities sit below industry-average baselines because of how their sites were built or their particular geological features, not because they’ve invested in cutting emissions, and they earn SMCs for it. SMC and ACCU prices move together, so this lowers the effective carbon price. The rules should be reviewed so SMCs only reward real abatement.
Raising ambition
These recommendations would allow the Safeguard Mechanism to deliver deeper emissions cuts, by tightening baselines and covering more facilities and sectors.
Baseline decline rates after 2030. These should be set so covered facilities are on track for the top of the 62–70% range for the 2035 national target, not just the bottom. We also support an approach the Investor Group on Climate Change has raised: sectors with more ways to cut emissions would face a steeper decline rate, and those with fewer near-term options would get more time. That keeps the overall pace of cuts while recognising that some sectors can move faster than others. Whatever rate is chosen should take into account what uncovered sectors are expected to deliver, so Safeguard facilities don’t carry more than their share.
We support aligning the Safeguard Mechanism’s share of the 2035 target from 28.1% to 29.8%. That reflects covered facilities’ share of national emissions in the two years before the 2023 reforms.
Coverage threshold. We’d like the threshold lowered gradually from 100,000 tonnes a year to 25,000 tonnes by 2035, in steps of 75,000 and then 50,000. Facilities of that size already report their emissions under the National Greenhouse and Energy Reporting scheme. The Productivity Commission and the NSW EPA both support the 25,000 tonne level. Coverage is also shrinking as facilities fall below the current threshold.
New sectors. We’d add sectors one at a time, where emissions can be measured reliably, there are realistic ways to reduce them and the administration is manageable. We don’t support bringing every sector in automatically.
Cost Containment Measure. The Cost Containment Measure (CCM) is a price safety valve. A facility over its baseline can buy ACCUs from the government at a fixed price instead of from the market. The price was set at $75 a tonne in 2023–24 and rises each year by CPI plus 2%. Because no facility needs to pay more than this, the CCM in effect caps the carbon price for Safeguard facilities.
We think the cap weakens the incentive to cut emissions on site and the incentive to invest in new ACCU projects.
We’d phase it out in stages, tied to ACCU supply milestones and announced well in advance. Industry has planned around a known maximum cost, so ending it overnight wouldn’t be fair. In the long run, making the existing penalty regime easier to enforce would be a better backstop than a price cap.
Keeping ACCU supply strong
Don’t restrict ACCUs by method or vintage without evidence. Every ACCU is issued under the same legislated integrity rules. Nature-based methods are among the most scalable and cost-effective sources of carbon removal, and the Net Zero Plan for agriculture and the land sector expects them to be an important source of removals. A credit’s vintage (the year it was issued) is a poor guide to its quality. Vintage restrictions could strand legitimate credits and unsettle the market, and the New Zealand, California, China and EU schemes don’t use them, apart from limited rules between trading phases in the EU. If a vintage rule were ever introduced, it should apply only to future credits.
Protect existing 25-year permanence projects. As of 9 September 2026, Clean Energy Regulator records show 1,742 of 2,179 registered, active sequestration projects (80%) had chosen the 25-year permanence option. Those projects already receive 20% fewer credits to account for that choice. There is no risk assessment showing the discount is inadequate, and we’re not aware of any market modelling of what a change would do. Landholders and investors signed up in good faith under the current rules. Any change that makes ACCUs from 25-year permanence projects ineligible for Safeguard offsetting purposes should apply only to new projects. For new projects, the government could consider a 40–50 year middle option, since 100 years can deter landholders from participating in the scheme.
Fix method development. New methods take four to five years to develop. When a method sunsets without a replacement, supply dries up; GreenCollar’s own issuances are forecast to fall to 2030 largely for this reason. Constant rule changes add to the burden: one of our projects has faced more than ten overlapping changes since 2019. Methods that deliver high-value removals should be prioritised, because land-sector projects have long lead times.
No international units for now. The better response to rising demand is building domestic supply. Offshore credits would draw investment away from Australian land-sector projects and the emissions reductions they contribute to our national targets. If international units are considered later, they would need equivalent integrity, robust corresponding adjustments and compatibility with Australia’s registry and measurement, reporting and verification (MRV) systems.
What we don’t support
- Hard caps on ACCU use
- Restricting ACCUs by method or vintage without clear evidence
- Retrospective changes affecting existing 25-year permanence projects
- International units in the short to medium term
- Replacing the scheme with something new. We support an economy-wide emissions trading scheme in principle, but refining the current system is the practical path for now.
Where to find each point in the submission
| This explainer | Submission recommendations |
|---|---|
| On-site cuts and the ACCU market | 1. Discounting ratio; 3. Safeguard Mechanism Credits |
| Raising ambition | 4. Cost Containment Measure; 5. Facility coverage threshold; 6. Sectoral coverage expansion; 7. Baseline decline rates post-2030 |
| ACCU supply | 2. Linkage with the ACCU Scheme; 8. ACCU method planning and development; 9. Permanence |
| Other issues | International units (section 5); scheme structure (section 10) |
Read the submission
The public version of our submission, with commercially confidential information removed, is here
