Carbon Markets

IN FOCUS: Safeguard Mechanism policy threads the needle to addresses structural concerns

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The government yesterday presented its detailed design proposal for the Safeguard Mechanism emissions compliance framework, releasing a position paper and draft amendments to the Safeguard Rule and related subordinate legislation. Consultation will run to 24 February 2023, with the enhanced safeguard framework to commence from 1 July 2023 (start FY24).

The position paper outlines the government’s proposed approach on:

  • the Safeguard Mechanism’s share of the national emissions reduction target;
  • setting baselines for existing and new facilities, including the annual decline rate;
  • arrangements for issuing and using Safeguard Mechanism Credits (SMCs);
  • compliance arrangements, including access to credits, offsets, banking and borrowing, multi-year monitoring periods and cost containment measures; and
  • the treatment of emissions-intensive, trade-exposed facilities.

Notably, changes to the Safeguard Mechanism will now align industry emissions with Australia’s 43% emissions reduction target by 2030, and net-zero by 2050, with the setting of a transparent emissions reduction trajectory providing a critical signal for industry investment in on-site emissions reductions and external offsets.

In this update, we summarise the key outcomes of the government’s newly announced Safeguard Mechanism reform, along with potential impacts on market prices and forward dynamics.

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