The Safeguard Mechanism is the federal government’s marquee net zero policy implementation, which targets and requires large projects and facilities to reduce emissions.
The Safeguard Mechanism mandates that Australia’s most emission-intensive facilities reduce their carbon emissions below a specified threshold, with the excess to be offset by way of purchasing carbon credits. These can be in the form of Safeguard Mechanism Credit units (SMCs) from other facilities that emit below their regulated levels, or Australian Carbon Credit Units (ACCUs) which are created through carbon abatement activities such as land reforestation.
The regulated levels are based on a facility’s gross emission levels. The use of the carbon credits is to offset emissions to a net baseline level or below.
The total costs of the Safeguard Mechanism are multi-faceted and highly uncertain. For instance, a significant cost of the Safeguard Mechanism will be incurred in the form of lost economic output due to reduced industrial activity (to meet emissions reduction targets), or the unrealised value of projects that never commence because of the regulatory hurdles or uncertainty.
This analysis updates and expands on the IPA’s estimates on the compliance cost associated with the value of carbon credits that facilities are required to obtain and then surrender in order to reduce their emissions under the baseline level.
Click here to read the original report
