Safeguard Mechanism
Safeguard is transitioning! Don’t keep your head in the sand…
Safeguard. What is it, and why is it important?
The Safeguard Mechanism was introduced in 2016 under section 22XS of the National Greenhouse and Energy Reporting (NGER) Act and provides a framework for Australia’s largest emitters to measure, report and manage their greenhouse gas (GHG) emissions. The aim of the Safeguard Mechanism is to provide an incentive for facilities to reduce emissions and make meaningful steps to achieve climate targets.
Administered by the Clean Energy Regulator (the Regulator), facilities that emit 100,000 tCO2-e or more Scope 1 emissions annually are required to meet Safeguard requirements. If an existing facility exceeds this threshold, it may be eligible for a baseline that adjusts annually based on production levels.
If a facility exceeds its baseline, the facility is required to manage its excess emissions by:
Purchasing and surrendering eligible Australian Carbon Credit Units (ACCUs) or Safeguard Mechanism Credits (SMCs) to mitigate against excess emissions such that net emissions remain below the facility’s baseline, or
Applying for a multi-year monitoring period (MYMP) (for up to 5 years) to allow more time to reduce emissions. In this option, a facility can exceed its baseline in one year provided the average emissions over the multi-year monitoring period remains below their baseline, or
Applying to borrow baseline from the following compliance year. In this option, a facility’s baseline would then decrease by a corresponding amount the following year plus the applicable interest rate, or
Applying to become a trade-exposed baseline-adjusted (TEBA) facility and receiving a discounted decline rate (for up to 3 years), or
Seeking an exceptional circumstances exemption, if applicable.
What are the Safeguard Mechanism reforms?
During 2023, the Safeguard Mechanism has been reformed following a consultation process undertaken by the Department of Climate Change, Energy, the Environment and Water (DCCEEW). New obligations and reporting requirements will apply to Safeguard facilities under these reforms.
Applicable from 1 July 2023, some of the reforms include:
A decline rate to be applied to Safeguard facilities’ baselines in line with Australia’s emission reduction targets. Initially the decline rate for most facilities will be set at 4.9% each year to 2030.
TEBA facilities, a sub-set of trade-exposed facilities that face an elevated risk of carbon leakage, will be eligible to apply for a discounted decline rate.
All Safeguard facilities will move to production-adjusted baselines, using the production variables outlined in Schedule 1 of the Safeguard Rule. Other baseline options will no longer be available.
The production-adjusted baseline may be set using a hybrid model, initially weighted towards the use of facility-specific emissions intensity values.
Facility-specific emissions intensity values will be set using historical data from FY2018 to FY2022, with applications required to be accompanied by an audit.
New facilities with no historical production, or facilities with new products, will have their baselines set using international best practice emissions intensity values.
SMCs will be generated by facilities where their emissions are below their baselines.
MYMPs can be applied for, but are required to have a firm and credible plan to reduce emissions before the end of the period. The Regulator will be able to vary the period if emissions are not being reduced.
An explanation will be required if ACCUs surrendered to meet compliance obligations are more than 30% of the facility’s baseline emissions number.
The Safeguard Rule has been amended to incorporate these changes and DCCEEW’s recent review of the production variables listed in Schedule 1. Further consultation and amendments are expected in coming months for some production variables and the setting of best practice emissions intensity values.
Why take action?
Existing Safeguard facilities may apply for an emissions-intensity determination by 30 April 2024, to have facility-specific emissions intensity values in place from FY2024 to be used in the calculation of the facility’s annual baseline.
Applications for facility-specific emissions-intensity determinations must:
provide information about each production variable at the facility during the historical financial years FY2018 to FY2022 (the 'historical production variable'),
identify any production variable that is new to the facility in FY2023 (the 'transitional production variable'),
provide information about the covered emissions for each production variable at the facility during the historical financial years, and
be accompanied by an independent audit report.
Facility-specific emissions-intensity values will then be calculated for each existing production variable based on the 5 years of historical emissions and production data (from FY2018 to FY2022).
Only production variables from Schedule 1 of the Safeguard Rule can be used in an emissions-intensity determination application. If a facility has a form of production that is not captured by the production variables in Schedule 1, it is recommended that the facility get in contact with DCCEEW as soon as possible.
If an existing facility does not have an emissions-intensity determination for a financial year, the best practice emissions intensity (if legislated) for each relevant production variable will be used to calculate the facility’s annual baseline, or the industry-average ‘default’ emissions intensity will be used if the best practice emissions intensity is not legislated.
Best practice values are likely to be lower than the actual emissions intensity levels of the facility and as a consequence, it is far more likely that the facility will need to undertake emissions intensity reducing projects or purchase and surrender ACCUs or SMCs.
How Greenbase can help?
Greenbase are leaders in environmental accounting and can assist corporations to navigate the complexities of the Safeguard Rule and the NGER legislation in preparation for complying with the reforms. In relation to this, Greenbase offer strategic advice and consultation on the impact of the reforms, assistance with the process of preparing emissions-intensity determination applications and provide full support with any audits.
If your facility is an existing Safeguard facility or is at risk of exceeding the 100,000 t CO2-e threshold, it may be worth exploring your options and the impacts of the Safeguard Mechanism on the facility. For more information on how Greenbase can assist with your Safeguard application and ease your reporting headaches, contact us on (08) 9322 9966 or email us at projects@greenbase.com.au.
Safeguard Mechanism factsheet
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