The Safeguard Mechanism: the baseline a large facility must stay within

Which facilities: more than 100,000 tonnes of scope 1

The Regulator describes the Safeguard Mechanism as “Australia’s principal policy for reducing greenhouse gas emissions from the country’s largest industrial facilities”. The line is drawn in two places. The Act says a facility is a designated large facility for a financial year if its covered emissions in that year have a carbon dioxide equivalence of a number of tonnes, and “that number exceeds the number specified in the safeguard rules” (s 22XJ(1)). The rules supply the number:

“For paragraph 22XJ(1)(b) of the Act, the specified number is 100,000.”

National Greenhouse and Energy Reporting (Safeguard Mechanism) Rule 2015, s 8, as compiled on 31 August 2024

So the test is more than 100,000 tonnes: a facility at exactly 100,000 is not over it. “Covered emissions” means scope 1 emissions only, other than kinds the safeguard rules specify (s 22XI). The Regulator lists the scope 1 emissions that are not covered: “from legacy waste at a landfill facility (deposited before the Safeguard Mechanism began on 1 July 2016)”; “from the Greater Sunrise special regime area”; “from a grid-connected electricity generator in a financial year covered by the sectoral baseline”; and “emissions not covered under the National Greenhouse and Energy Reporting (Measurement) Determination 2008”.

The Regulator says covered facilities include mining, oil and gas production, manufacturing, transport and waste facilities, and that the person with operational control of a safeguard facility is known as the “responsible emitter”. Every safeguard facility also reports under the NGER Scheme, and a responsible emitter that is not yet registered must apply to register under NGER by 31 August after it meets the safeguard threshold; a controlling corporation that is also the responsible emitter does not register again.

The test on 1 April

An “excess emissions situation” exists for a facility for a monitoring period if its net emissions number “exceeds the baseline emissions number for the facility for the monitoring period” (s 22XE(1)). Section 22XF then sets the duty: the responsible emitter “must ensure that an excess emissions situation does not exist”, tested on the 1 April next following the financial year. If that 1 April is not a business day, the date is the first business day after it (s 7).

The Regulator says responsible emitters over their baseline must act before the 1 April compliance deadline, and can either surrender Australian carbon credit units or Safeguard Mechanism credit units, or obtain a flexibility measure from the Regulator. How carbon credit units come into being is in the guide to Australian carbon credit units.

The exemption declaration

The safeguard rules may let the Regulator declare that no excess emissions situation exists for a facility and period, but only on the responsible emitter’s application (s 22XE(2), (3)). Under s 22XE(4), the rules must require the Regulator to be satisfied of all of these first:

• disregarding s 22XK(2) and (3), the net emissions number exceeds the baseline emissions number;
• the excess is the direct result of a natural disaster, criminal activity, or circumstances the safeguard rules treat as exceptional, or any of these together;
• the responsible emitter took reasonable steps, both before and after the event, to mitigate the risk of it causing the excess; and
• any other conditions in the safeguard rules are met.

The penalty is a formula, not a figure

The civil penalties for the NGER registration and reporting duties are set as numbers of penalty units, 2,000 each (ss 12(1), 19(1)). The one in s 22XF is worked out from the facility’s own numbers:

Section 30(2C) adds a daily one: a person who fails the s 22XF duty on a particular 1 April is liable to a civil penalty of 100 penalty units for each day of the failure in the 2 years that begin immediately after that 1 April. None of these is an automatic fine: under s 31, a court decides the penalty, and it must not exceed the amount set for the provision plus any amount the person is liable for under s 30 when the court makes the order.

A baseline that declines each year

The Regulator says responsible emitters must keep their facility’s net emissions below “a legislated baseline, which declines steadily over time”, and that the Safeguard Mechanism aligns with the Australian Government’s emissions reduction targets: net zero by 2050, and 43% below 2005 levels by 2030. In the Rule, the decline shows in the default emissions reduction contribution it sets for each financial year:

The steps are even. Section 32 of the Rule calls the yearly step the default decline rate: 0.049 for each financial year beginning 1 July 2023 to 1 July 2029, then 0.03285 from 1 July 2030. It is a fixed amount taken off the number each year, not a percentage of the year before. The Regulator says the department will review the Safeguard Mechanism’s policy settings in 2026–27.

Safeguard Mechanism credit units

The Act lets the Regulator, on behalf of the Commonwealth, “issue units (to be known as safeguard mechanism credit units)” to one or more persons in relation to a facility, with the detail left to the safeguard rules (s 22XNA(1), (2)). The Regulator says a facility whose net emissions are below its baseline may be eligible to earn them, and that they can be sold or surrendered. In the Act, both kinds of unit, the Australian carbon credit unit and the safeguard mechanism credit unit, are “relinquishable” units (s 7).