The Safeguard Mechanism (SM) is the federal government’s marquee net zero policy, which targets and mandates large projects and facilities to reduce emissions.
The SM mandates that Australia’s most emission-intensive facilities must reduce their carbon emissions below a specified yearly threshold, with the excess to be offset by way of purchasing and surrendering carbon credits.
The use of the carbon credits is to offset emissions to a net baseline level or below. Each carbon credit represents a tonne of carbon dioxide or carbon dioxide equivalent and, by mandating entities to participate in the trade and the surrender of carbon credits, functions as a form of carbon tax.
The analysis of the emissions data of 233 facilities currently listed in the Safeguard Mechanism database finds that:
- The SM will impose a carbon tax cost of up to$1.7 billion per annum to 2030, more than the projected cost of the tariffs imposed on Australia by the United States.
- 80 per cent of projects targeted by the SM are exporters of goods.
- Western Australia, which accounts for 35 per cent of all emissions nationally, will be the most impacted state, with a cumulative carbon tax cost of up to $4 billion between 2024 and 2030.
Over time, as the emission threshold for inclusion in the Safeguard Mechanism automatically declines, more facilities will fall within the scope of the Safeguard Mechanism, meaning more projects will likely be liable to pay this carbon tax.
In an environment of heightened uncertainty in international trade, due in part to the global tariffs imposed from the world’s foremost economic power, it is vital that Australia supports its exporters.
Australia cannot control the tariffs that are placed on its exports, but Australian governments at a state and federal level can control the regulatory burdens they are imposing.
As the analysis in this paper finds, even without calculating the lost economic opportunities and activity resulting from emission reduction mandates, the carbon credit cost under the safeguard mechanism represents a more significant risk to Australia’s exporters than the tariffs imposed by the Trump Administration.
