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Climate Capital Forum welcomes the opportunity to contribute to the 2026-27 Review of the Safeguard Mechanism (SGM). We are a network of investors, climate finance experts, decarbonising companies and philanthropists who came together to provide advice on how Australia can lead the world in decarbonising renewable energy and cleantech innovation.
Summary
The SGM is shaping the long term decarbonisation trajectories and investment pipelines of the largest emitters in Australia. It is critical to have the right settings in place so the SGM supports genuine net zero transition while maintaining industrial competitiveness to deliver on a Future Made in Australia.
The current system however is failing to deliver sustained investment into genuine decarbonisation of our industrial emitters. Low ACCU prices and unrestrained use of the credits is resulting in major emitters buying their way to compliance rather than investing in the capital improvements that will deliver structural emissions reductions and underpin Australia’s long term industrial competitiveness.
The core focus of the review should be on addressing this market failure and ensure that genuine onsite emissions reductions are preferenced. The root issue is that ACCU prices are structurally insufficient to incentivise on-site abatement. One pathway to achieving this is to require the preferential usage of Safeguard Mechanism Credits (SMCs) before ACCUs to incentivise industry to invest in genuine emissions reduction efforts, and reward industries that drive greater emissions reductions – creating an ongoing market driver for genuine emissions reductions and higher industrial emissions ambition.
Climate Capital Forum recognises this is one way of tackling the core issue, and regardless of the exact mechanism decided upon, we strongly encourage the government to actively change the Safeguard Mechanism to ensure that onsite abatement is incentivised and prioritised by eligible entities.
Recommendations
1. Activate the Safeguard Mechanism Credits through an on-site abatement premium for eligible activities. Require the preferential purchase of Safeguard Mechanism Credits over ACCUs to meet Safeguard compliance obligations. This ensures that the on-site abatement premiums are passed onto the carbon market, increasing carbon credit costs and disincentivising the long-term reliance on offsets alone.
2. Set a 2035 emissions reduction target share for the Safeguard Mechanism of 70% below 2005 levels. This will drive onsite emissions reductions and set industry up for a long term competitive future.
3. Improved transparency for the issuance of Safeguard Mechanism Credits and ensure that on-site abatement premiums are only awarded to genuine abatement and not variations in carbon accounting. Examples can include investment into facility electrification, energy performance upgrades and uptake of new feedstocks such as green hydrogen or biomethane.
4. Lower the Safeguard Mechanism threshold initially to 75kt CO₂-e and plan for a future reduction to 50kt CO₂-e