Safeguard Mechanism in 2026: What's Changing for...

In the first year of the reformed Safeguard Mechanism, 147 out of 219 covered facilities exceeded their baseline. That's 67%. The year before, under the old settings, it was 18%.

That single stat tells you everything about where the safeguard mechanism changes in 2026 are heading. The reform did exactly what it was supposed to do: it eliminated the headroom that let Australia's biggest emitters coast through compliance year after year. In FY2023, covered facilities collectively sat 31.7 million tonnes below their baselines. In FY2024, that headroom vanished - the aggregate position flipped to a net exceedance of 300,000 tonnes.

And baselines keep falling. Every year. 4.9% until 2030. No pause. No grace period. If your facility emits more than 100,000 tonnes CO2-e per year and you haven't built a forward compliance strategy yet, you're already behind.

We build carbon accounting software, so we see this problem from the data side. Confusion about what the Safeguard Mechanism requires isn't usually the issue for environmental managers at covered facilities. The harder part is the operational detail of actually proving the numbers are right - facility by facility, fuel source by fuel source, reporting period by reporting period. And when your baseline drops another 4.9% this July, the margin for measurement error shrinks with it.

What's Changed Since May 2026

Three things moved from "coming soon" to "now in effect" this financial year:

FY2026-27 baselines are live. Every covered facility's baseline dropped another 4.9% on 1 July 2026. If you were sitting close to your line last year, you're almost certainly over it now unless production or abatement moved with it.
Borrowing just got expensive. The 2% concessional interest rate on borrowed baseline (pulling forward up to 10% of next year's allocation) expired with FY2025-26. From FY2026-27 onwards, borrowing costs 10% interest. Facilities that leaned on cheap borrowing to smooth compliance in the first two years of the reform need a different plan now.
The 2026-27 review's public consultation has closed - advice to the Minister is due in November. The Climate Change Authority ran its formal consultation window from 2 July to 9 August 2026, covering post-2030 decline rates, the future role of Safeguard Mechanism Credits and international units, the 100,000-tonne coverage threshold, and TEBA settings. The Authority's advice goes to the Minister for Climate Change and Energy and is scheduled for publication in November 2026, ahead of final settings due by July 2027. If your facility made a submission, November is when you'll see whether it landed.
A second, narrower consultation opened after the CCA's window closed. DCCEEW ran a further consultation on the 2026-27 review with written submissions closing 18 September 2026, separate from the CCA's earlier public consultation. If your facility didn't catch this one, check the DCCEEW review page directly for what it covered and whether a further submission window opens before the November advice lands - the department hasn't been running a single consultation process for this review.

How Baselines Actually Work (And Why They Keep Dropping)

The baseline is the emissions ceiling your facility can't exceed without triggering a compliance obligation. But it's not a fixed number. For most facilities, the Clean Energy Regulator calculates it using a production-adjusted formula: your actual production volume multiplied by an emissions-intensity value for each product, then scaled down by the annual decline rate.

That decline rate is 4.9% per year from FY2023-24 through FY2029-30. So if your facility's baseline was 150,000 tonnes in FY2024, it drops to roughly 142,650 in FY2025, then 135,660 in FY2026, and so on down to about 110,960 tonnes by FY2030 - roughly 26% lower than where you started. And your actual emissions haven't changed.

That's the squeeze. Production-adjusted baselines mean your ceiling moves with output - if you produce more, the baseline rises somewhat. But the decline rate eats into that adjustment every year. You can't outproduce the ratchet.

There are three baseline types in the scheme. Standard baselines cover most industrial facilities and use the production-adjusted formula. Landfill baselines apply to waste facilities and factor in a default methane capture efficiency of 37.2%. And then there's the sectoral baseline - a collective cap of 198 million tonnes CO2-e per year for all grid-connected electricity generators, which works differently again.

For trade-exposed facilities - the ones competing against international producers who don't face equivalent carbon costs - there's a relief valve. Trade-exposed baseline-adjusted (TEBA) facilities can apply for a reduced decline rate. Manufacturing facilities can get rates as low as 1% per year. Non-manufacturing trade-exposed facilities can get down to 2%. But the application process isn't automatic, and the CER assesses it based on scheme cost as a proportion of your EBIT or revenue. You have to prove the standard rate would cause genuine competitive harm.

The Cost of Exceeding Your Baseline

Miss your baseline, and the penalties are blunt.

The civil penalty for non-compliance is one penalty unit per tonne of excess emissions, plus 100 penalty units per day the excess continues during the two-year period after the compliance deadline of 1 April. One Commonwealth penalty unit is $364 for offences from 1 July 2026. So if your facility exceeds its baseline by 5,000 tonnes and you haven't surrendered enough credits by April, that's $1.82 million in per-tonne penalties alone - before the daily accrual even starts. The daily component runs at $36,400 per day.

These numbers aren't theoretical. The Clean Energy Regulator has shown with Beach Energy's enforceable undertaking (for NGER reporting failures, not Safeguard specifically) that it's willing to act. The Regulator published a late reporters list that names entities publicly. Compliance enforcement is real, and it's getting more sophisticated - the CER now uses advanced data analysis tools to identify high-risk reporters for targeted audits.

But here's the thing most environmental managers focus on: the penalties are the stick you want to avoid. The real cost of the Safeguard Mechanism is the cost of managing your exceedance, not the cost of failing to manage it. That's where ACCUs and SMCs come in.

ACCUs, SMCs, and the Maths of Compliance

You've got two main options for covering excess emissions: Australian Carbon Credit Units (ACCUs) and Safeguard Mechanism Credits (SMCs).

ACCUs are carbon credits generated from emissions reduction projects - things like reforestation, landfill gas capture, or avoided deforestation. You buy them on the open market and surrender them to the CER to offset your exceedance. The spot price was around $37 per tonne in early 2026 and had drifted up to roughly $38.75 by early September 2026. That's well below the government's cost containment measure price of $82.68 for FY2025-26 (which rises at CPI plus 2% each year from a $75 starting point in FY2023-24). The cost containment measure is a backstop - if market prices spike above it, covered facilities can buy ACCUs directly from the government at that fixed price. So far, it hasn't been needed. Market supply is outstripping demand, though the upward drift since early 2026 is worth watching.

In FY2024, covered facilities surrendered 7.1 million ACCUs to manage exceedances. Over 75% of those came from the cheapest project types: human-induced regeneration, landfill gas, and avoided deforestation. That concentration in low-cost ACCU categories is worth watching. As baselines keep declining and demand for ACCUs rises, the cheapest credits will get snapped up first. EY's analysis projects ACCU prices staying flat around $30-35 per tonne until 2028, then climbing toward $70 by 2035 as the squeeze tightens.

SMCs are different. They're not offsets. An SMC is generated when a covered facility reduces its emissions below its baseline. In FY2024, 61 facilities generated a combined 8.2 million SMCs - but 75% of those were created by just 12 facilities. Only 1.4 million SMCs were actually surrendered for compliance. The rest? Banked. Facilities can bank SMCs indefinitely until 2030, and most are holding them to cover future exceedances rather than selling. That banking behaviour makes sense - if your baseline drops another 4.9% next year, today's spare SMCs become tomorrow's compliance currency.

Whether SMCs can be banked beyond 2030 is one of the big open questions the 2026-27 review will settle.

The 2026-27 Review: Why It Matters More Than Any Single Compliance Year

The scheduled review of the Safeguard Mechanism in FY2026-27 isn't a check-up. It's where the government decides the rules for the next decade of industrial decarbonisation in Australia.

The Climate Change Authority ran the formal public consultation from 2 July to 9 August 2026 and is now working toward handing its advice to the Minister for Climate Change and Energy, with publication expected in November 2026 - well ahead of the July 2027 deadline for final settings. That November advice is the next real signal for facilities modelling post-2030 exposure.

Here's what's on the table:

Post-2030 decline rates. The current 4.9% annual decline is legislated through FY2029-30. After that, the indicative rate drops to 3.285%, with rates to be set in five-year blocks. But here's the problem - independent analysis from the Carbon Market Institute and RepuTex suggests that hitting Australia's 2035 NDC target (62-70% below 2005 levels) requires annual decline rates of 4.8% to 6.9%. The indicative 3.285% doesn't come close. The review must set post-2030 rates by July 2027, and those numbers will define whether the Safeguard Mechanism actually delivers on the 2035 commitment.

Coverage thresholds. The current 100,000 tonne CO2-e threshold could be lowered. Analysis suggests broadening coverage would modestly increase compliance demand and bring more facilities into the scheme. If you're currently just under 100 kt, the review could change your world.

TEBA arrangements. Whether the trade-exposed protections are too generous - or not generous enough - will be re-examined. The 1-2% decline rates for TEBA facilities are significantly below the standard 4.9%, and there's tension between competitiveness concerns and the need for the scheme to actually reduce emissions.

Banking and borrowing after 2030. Current borrowing rules let you pull forward up to 10% of next year's baseline, with interest rates increasing from 2% (FY2024-25 and 2025-26) to 10% from FY2026-27 onwards. Those settings expire at 2030. What replaces them will shape how facilities manage multi-year capital investment in abatement.

The future role of SMCs and international units. The review is explicitly weighing whether Safeguard Mechanism Credits should keep their current unrestricted banking rights past 2030, and separately, whether international carbon units should be admitted as an eligible compliance instrument alongside ACCUs and SMCs. Either change would reshape the supply side of the credit market facilities rely on to manage exceedances.

We don't know exactly where the review will land. And frankly, we're sceptical that anyone can predict post-2030 settings with confidence right now. But the direction is clear: tighter, not looser.

Which Industries Are Feeling It Most

The 219 covered facilities span mining, oil and gas, manufacturing, transport, and waste. Together they account for about 28% of Australia's national emissions - roughly 135.7 million tonnes CO2-e in FY2024, down 2.8 million from the prior year.

Mining and oil and gas facilities dominate the list. These are the operations with the highest absolute emissions and, often, the fewest short-term options for reducing them. You can't electrify a blast furnace overnight. You can't retrofit a natural gas processing plant in a compliance year. The physics of these industries means the abatement curve is long and capital-intensive.

And that's exactly why the flexibility mechanisms exist - MYMPs, borrowing, ACCUs, SMCs. The scheme is designed to give heavy emitters time and options. But "time and options" isn't the same as "indefinite tolerance." Multi-year monitoring periods are capped at five years and can't extend past June 2030. Borrowing gets expensive from FY2026-27 onwards with 10% interest. The longer you wait to invest in actual abatement, the more it costs in credits later. If you're already tracking against your NGER thresholds, you know how quickly these numbers compound.

If your facility sells coal, gas, or petroleum products rather than just consuming energy on site, don't stop at your Safeguard baseline. Your Scope 3 Category 11 (use of sold products) - the downstream combustion emissions from what you extract and sell - is disclosed separately under AASB S2 and is often the largest number in your entire emissions profile, dwarfing the Scope 1 and 2 figures your Safeguard baseline is built on. The two reporting obligations use the same underlying production data but answer different questions, and treating them as the same exercise is a common and costly mistake for resources-sector reporters.

For the waste sector, the picture is slightly different. Landfill baselines use a separate methodology, and methane capture upgrades can deliver relatively quick wins compared to mining abatement. But the default 37.2% methane capture efficiency baked into the baseline calculation can overstate your actual performance if your capture system isn't operating at that level.

Practical Compliance: What Environmental Managers Should Actually Do

We won't pretend there's a simple playbook for managing Safeguard Mechanism compliance at a facility emitting 100,000+ tonnes per year. The engineering and investment decisions are specific to your site, your process, and your sector. But the data side - the foundation everything else sits on - is the part most consistently under-invested in relative to how much rides on it.

Model your baseline trajectory out to 2030. This sounds obvious. It isn't being done rigorously enough. Your FY2026-27 baseline is knowable today - you have the decline rate, your production variables, and your emissions-intensity values. Map every year from now to 2030. Then model what happens at the indicative 3.285% post-2030 rate, and again at 4.9% (which independent analysis says is more likely). That gives you a realistic corridor for compliance exposure.

Get your emissions measurement right. When your baseline drops 4.9% and your actual emissions are measured with an uncertainty of plus or minus 5%, you might cross the line without your emissions actually changing. The quality of your NGER reporting data isn't just a compliance requirement - it's the input to every Safeguard Mechanism decision you make. A 2% error in your Scope 1 calculations could be the difference between generating SMCs and buying ACCUs. At $37 per tonne for 5,000 tonnes, that's $185,000 riding on whether your numbers are right.

Build a forward credit strategy. ACCUs are cheap now. They won't stay cheap. If your modelling shows increasing exceedances through FY2028-2030, buying ACCUs at $35-37 today and banking them might look wise in hindsight. But we're honestly not sure the current supply glut - estimated at 14 million surplus units in 2025 - will persist as more facilities tip into exceedance. The market dynamics here are genuinely uncertain, and anyone who tells you otherwise is selling something.

Track the 2026-27 review closely. The post-2030 decline rate decision will be the single biggest determinant of your long-term compliance costs. If the review sets rates at 4.9% or higher, facilities that planned for 3.285% will be badly exposed.

What the Post-2030 Decline Rate Actually Costs You

The gap between the indicative 3.285% rate and the 4.8-6.9% range independent analysts say is needed isn't an academic argument - it compounds into a real tonnage difference within five years. Take that same 150,000-tonne FY2024 baseline, run it down to roughly 110,960 tonnes by FY2030 under the legislated 4.9% rate, then project it forward under three different post-2030 scenarios:

Financial year	Indicative 3.285%	CMI/RepuTex low (4.9%)	CMI/RepuTex high (6.9%)
FY2030-31 baseline	107,320 t	105,530 t	103,310 t
FY2032-33 baseline	100,380 t	95,440 t	89,540 t
FY2034-35 baseline	93,900 t	86,310 t	77,610 t
Gap vs. 3.285% by FY2034-35	-	7,590 t tighter	16,290 t tighter

At an ACCU price around $37 per tonne (early 2026 spot), that 16,290-tonne gap between the indicative rate and the top of the analysts' range is worth roughly $600,000 a year in additional credit demand for a facility of this size by FY2034-35 - and that's before accounting for ACCU prices rising as the whole covered-facility population tightens against the same declining baselines. This is exactly why "model your baseline trajectory" above isn't optional: run your own facility's numbers at all three rates, not just the indicative one, so the November 2026 CCA advice tells you something concrete about your exposure rather than just a headline percentage.

Data Quality Is the Foundation - Not an Afterthought

Here's what ties all of this together. The Safeguard Mechanism isn't just an emissions cap. It's a financial instrument. Your baseline is calculated from production data and emissions intensity. Your compliance position depends on measured emissions. Your credit strategy depends on accurate forecasting. And all of it feeds from the same source: your facility-level data.

When the ANAO found that 72% of NGER reports contained errors, that wasn't just a reporting problem. For Safeguard facilities, every error in your NGER submission directly affects your baseline calculation, your exceedance position, and your credit obligations. A facility that under-reports production might get a lower baseline than it should. A facility that over-reports emissions might buy credits it didn't need.

It compounds, too, if your facility sits under AASB S2 / ASRS as well as NGER - which most large covered facilities do. Your Scope 1 emissions feed both your Safeguard baseline position and your mandatory climate disclosure, so a measurement error doesn't just misstate one filing. It creates an inconsistency between your NGER-reported emissions and your ASRS-disclosed emissions that an assurance provider or the CER can spot.

We built Carbonly to handle the data extraction and calculation layer - pulling consumption figures from utility documents, applying the right NGA emission factors by state and fuel type, and maintaining an audit trail that links every reported number to its source document. For Safeguard facilities, that kind of data infrastructure isn't nice to have. It's the difference between a compliance position you can defend and one you're guessing at.

The 4.9% annual decline won't pause while you sort out your spreadsheets. Your next baseline is already set. The question is whether you know, today, where you stand against it.

Quick Answers

When did the 2026-27 Safeguard Mechanism review's public consultation close? 9 August 2026. The Climate Change Authority ran the formal consultation window from 2 July to 9 August 2026 and is due to hand its advice to the Minister for Climate Change and Energy, for publication, in November 2026. Final settings are still due by July 2027.

Is the post-2030 baseline decline rate decided yet? No. The indicative rate is 3.285% from FY2030-31, but independent analysis from the Carbon Market Institute and RepuTex says hitting Australia's 2035 NDC target needs 4.8-6.9% annual declines. The review is modelling a range of scenarios, and the CCA's November 2026 advice is the next milestone - not the final answer.

What is the borrowing interest rate for FY2026-27? 10%, up from the 2% concessional rate that applied in FY2024-25 and FY2025-26. Facilities pulling forward baseline allocation now pay full freight for it.

Could international carbon units become eligible for Safeguard compliance? It's on the table. The 2026-27 review is explicitly considering whether international units should sit alongside ACCUs and SMCs as an eligible compliance instrument - a change that would affect credit supply and pricing if adopted.

Was there more than one consultation for the 2026-27 Safeguard Mechanism review? Yes. The Climate Change Authority ran the main public consultation from 2 July to 9 August 2026. DCCEEW then ran a further, narrower consultation on the review with written submissions closing 18 September 2026. Check the DCCEEW review page directly if you're tracking submission windows, since the department has run more than one process for this review.

Does my Safeguard Mechanism baseline cover my Scope 3 emissions too? No. Your Safeguard baseline is calculated from Scope 1 (and for some facility types, some Scope 2) covered emissions only. If you produce or sell fossil fuels, your downstream Scope 3 Category 11 emissions - the combustion emissions from what customers do with your product - are a separate AASB S2 disclosure obligation, calculated differently, and for most resources producers substantially larger than the Scope 1 figure your baseline is built on.

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