Under the Paris Agreement, countries must update their Nationally Determined Contribution (NDC) every 5 years. Australia’s updated NDC is due by the end of February 2025, one month prior to the first compliance deadline under the reformed Safeguard Mechanism (31 March) framework, and will include a 2035 emissions reduction target.
In April 2024, the Climate Change Authority advised that, based on current evidence, a 2035 emissions target in the range of 65% to 75% below 2005 levels would be ambitious, achievable and sustainable.
For Australia’s carbon market, this provides stakeholders with an upper and lower bound to inform the design of the Safeguard Mechanism policy framework after 2030, including the implications for emissions baseline decline rates.
While final baseline decline rates for FY31-35 will not be set until 1 July 2027, we expect Australia’s new 2035 target to more immediately impact the market from February next year (just one month prior to first compliance under the reformed safeguard scheme) as policy ambition shifts sentiment, and underlying forecast market balance.
Market participants must therefore begin to understand the potential impact of Australia’s updated NDC on Safeguard Mechanism policy settings, and how the new 2035 target could impact broader market shape.
In this briefing, we model the potential impact of Australia’s new 2035 emissions target, including scenarios for post-2030 Safeguard Mechanism baseline decline rates, long-term ACCU demand, and more immediate spot and forward pricing impacts.
