INSIGHTS: Quick take – What to make of the government’s 2026–27 Safeguard Mechanism Review?

The Australian Government has formally commenced consultation on the 2026–27 Safeguard Mechanism Review, marking the beginning of the policy process that will refresh the framework for Australia’s industrial emissions scheme beyond 2030, aligned to Australia’s Nationally Determined Contribution (NDC).

In line with our previous updates, the consultation paper does not propose wholesale reform of the Safeguard Mechanism, instead focusing on recalibrating the existing framework to support Australia’s 2035 emissions target. This is consistent with the review scope, set when the Safeguard Mechanism reforms were legislated in 2023.

Per that previously disclosed scope, the paper covers the broad range of issues, including:

• post-2030 baseline decline rates and the scheme’s contribution to Australia’s 2035 target;
• the role of ACCUs and SMCs in compliance, including banking and borrowing;
• the operation of the Cost Containment Measure;
• treatment of trade-exposed industries and carbon leakage;
• potential changes to scheme coverage, including the existing 100,000 tCO2-e threshold; and
• a range of sector-specific and administrative issues.

Review principles provide the clearest signal to set expectations

The most notable aspect of the consultation paper is the set of guiding principles released by Government. In particular, the Government confirms that:

• the review