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Demystifying the Safeguard Mechanism and the ACCU Market 

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An update from the NG trading desk: the Safeguard Mechanism and markets 

The Australian Government’s Safeguard Mechanism is a federal policy aimed at reducing emissions from Australia’s largest industrial facilities.   

Key messages 



Obligations Under the Safeguard Mechanism  

Facilities emitting over 100,000 tCO2-e (Tonnes of CO2 equivalent) must operate within specific emissions baselines and to reduce these emissions by 4.9% p.a. in line with 43% reduction (on 2005 levels by 2030) and net zero by 2050. 

In 2023-24, total emissions from the 215 safeguard facilities were approximately 136 MtCO2-e, down from 138.7 MtCO2-e in 2022-23.  

Managing Emissions: SMCs and ACCUs 

Facilities that emit below their declining baselines can earn Safeguard Mechanism Credits (SMCs), which can be sold to other entities or banked for future compliance needs. Whilst facilities exceeding their baselines must offset the excess emissions either by surrendering SMCs or Australian Carbon CreditA certificate that is equivalent to 1 tonne CO2-e. Credits often refer to instruments issued under a cap and trade scheme, where companies are allocated credits up to their emission cap. If they exceed the cap they need to purchase more credits. Units (ACCUs). 

Trading SMCs and ACCUs: Supply and Demand 

Following the 2024 reporting period  



The market had expected a much lower number of SMCs to be issued and hence much more of the existing 50M in ACCU holdings to be consumed in the first year of surrender under the revamped Safeguard mechanism. 

In early March, Core Markets reported that SMCs commenced trading in the brokered markets, and at a slight discount of $0.50 to $1.00 to the ACCU price ($33.25), presumably this reflects that SMCs can only be used for Safeguard sites. 

In preparation for the Safeguard Mechanism we can see that over 50% of the ACCUs in holding accounts are being retained by Safeguard sites. 

Impact on ACCU Prices 

The introduction and trading of SMCs influences the ACCU market. An increase in SMC availability can lead to a reduced demand for ACCUs, potentially stabilising or lowering their market price. Conversely, if fewer SMCs are issued than anticipated, facilities may turn to ACCUs to meet compliance, thereby driving up prices. In late 2024 the ACCU price rose substantially, likely in anticipating of the increased demand under the Safeguard.  However, with the large number of SMCs being issued for sites being under their baseline emissions, the ACCU prices retreated to prices similar to mid 2024.  



Distinguishing Between SMCs and ACCUs 

While both SMCs and ACCUs serve as instruments to offset emissions, their origins differ. SMCs are exclusive to the Safeguard Mechanism, awarded to facilities that operate below their emissions baselines. In contrast, ACCUs are generated from a broader range of projects, including land-based carbon sequestration and energy efficiency initiatives. Facilities under the Safeguard Mechanism can utilize either SMCs or ACCUs to meet their compliance obligations.  

Forecast and Registration of SMCs 

The Clean Energy RegulatorThe Clean Energy Regulator is the Australia Government body responsible for accelerating carbon abatement for Australia through the administration of the National Greenhouse and Energy Reporting scheme, Renewable Energy Target and the Emissions Reduction Fund. More (CER) had projected the issuance of SMCs based on anticipated emissions performances. However, the actual number of SMCs registered can vary due to factors such as operational changes and emissions reduction initiatives implemented by facilities. Detailed statistics on the forecasted versus actual SMC registrations for the December Quarter 2024 are available in the CER’s Quarterly Carbon Market Report.  

Cost Containment Mechanism 

To prevent excessive compliance costs, the Safeguard Mechanism incorporates a Cost Containment Measure. This mechanism ensures that ACCU prices remain within a manageable range, providing price predictability for facilities. The CER sources ACCUs for this purpose from various channels, including those delivered under Commonwealth carbon abatement contracts.  One source for the CCM is that those exiting their ERFThe Emissions Reduction Fund is a voluntary scheme that aims to provide incentives for a range of organisations and individuals to adopt new practices and technologies to reduce their emissions. contracts (through a mechanism known as the “buyers damages” clause) must still deliver 20% of the contracted volume to government at the auction price from their agreement. 

Implications for Facilities and ACCU Market Dynamics 

Facilities regulated under the Safeguard Mechanism must proactively manage their emissions to stay within declining baselines. This necessitates investing in emissions reduction technologies or securing sufficient credits (SMCs or ACCUs) for compliance. The interplay between SMC issuance and ACCU demand is crucial; a shortfall in SMCs can heighten ACCU demand, influencing market prices.  

In summary, the Safeguard Mechanism plays a critical role in steering Australia’s industrial sector towards sustainable practices. Understanding the nuances of SMCs, ACCUs, and their market implications is essential for facilities to navigate compliance effectively and contribute to national emissions reduction goals. 

Take “direct action” with Northmore Gordon 

Looking for energy efficiency or decarbonisation projects? Need expert guidance on your ACCU and SMC strategy? Whether you’re looking to secure forward contracts, explore energy-saving opportunities, or navigate compliance requirements, Northmore Gordon can help. 

Consider not only your carbon strategy, but also renewable energy and energy efficiency to maximise the value from environmental attribute certificates. 

Disclaimer: The information in this article is general only and has been prepared without considering your business’ particular circumstances and needs. You should assess or seek advice from Northmore Gordon Environmental (AFSL 533927) on whether it is appropriate for your business’s objectives. 

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What is the Australian Government's Safeguard Mechanism?

The Safeguard Mechanism is a federal Australian policy aimed at reducing emissions from Australia's largest industrial facilities. It is administered by the Clean Energy Regulator (CER) and covers facilities exceeding 100,000 tonnes CO2-e of covered emissions per year, requiring them to reduce emissions in line with declining baselines.

How many facilities are covered by the Safeguard Mechanism and what is the emissions threshold?

The largest 215 facilities in Australia, each emitting over 100 ktCO2-e per annum (100,000 tonnes CO2-e), fall under the Safeguard Mechanism.

What emissions reduction rate must Safeguard Mechanism facilities meet?

Safeguard-covered sites must reduce emissions by 4.9% per annum, in line with a target of a 43% reduction on 2005 levels by 2030 and net zero by 2050.

What happens if a covered facility exceeds its emissions baseline?

Facilities exceeding their baselines must offset the excess emissions by surrendering either Safeguard Mechanism Credits (SMCs) or Australian Carbon Credit Units (ACCUs).

What are Safeguard Mechanism Credits (SMCs) and how do they differ from ACCUs?

SMCs are credits exclusive to the Safeguard Mechanism, awarded to facilities that emit below their declining baselines; they can be sold to other entities or banked for future compliance. ACCUs, by contrast, are generated from a broader range of projects, including land-based carbon sequestration and energy efficiency initiatives. Facilities under the Safeguard Mechanism can use either SMCs or ACCUs to meet compliance obligations.

What were the total emissions from Safeguard facilities in 2023-24?

In 2023-24, total emissions from the 215 Safeguard facilities were approximately 136 MtCO2-e, down from 138.7 MtCO2-e in 2022-23.

How many SMCs were issued and how much demand was estimated following the 2024 reporting period?

Following the 2024 reporting period, over 8 million SMC units were issued to 57 facilities—much higher than anticipated. The Clean Energy Regulator (CER) estimated that excess emissions from 144 facilities would require 9.2 MtCO2-e to be surrendered, either from SMCs or ACCUs.

How did SMC prices compare to ACCU prices when SMC trading began?

In early March, Core Markets reported that SMCs commenced trading in brokered markets at a slight discount of $0.50 to $1.00 relative to the ACCU price of $33.25, presumably reflecting that SMCs can only be used for Safeguard sites.

How has the introduction of the Safeguard Mechanism affected ACCU prices?

The ACCU price rose substantially in late 2024, likely anticipating increased demand under the Safeguard Mechanism. However, with a large number of SMCs being issued for sites that were under their baseline emissions, ACCU prices retreated to levels similar to mid-2024.

What is the Cost Containment Measure under the Safeguard Mechanism?

The Cost Containment Measure is a mechanism designed to prevent excessive compliance costs by ensuring ACCU prices remain within a manageable range, providing price predictability for facilities. The CER sources ACCUs for this purpose from various channels, including those delivered under Commonwealth carbon abatement contracts. One source is facilities exiting their ERF contracts (via the 'buyers damages' clause), which must still deliver 20% of the contracted volume to government at the auction price from their agreement.

Why does the market pay close attention to how many SMCs are registered?

The Safeguard Mechanism represents the largest potential source of demand for ACCUs, so the quantity of SMCs registered has a direct impact on ACCU prices — a shortfall in SMCs can heighten ACCU demand and push prices up, while higher-than-expected SMC issuance can reduce demand and stabilise or lower ACCU prices.

How is the Safeguard Mechanism different from NGER reporting?

The Safeguard Mechanism and NGER (National Greenhouse and Energy Reporting) are different, separate reporting regimes with different facility thresholds — the Safeguard Mechanism covers facilities exceeding 100,000 tonnes CO2-e, while NGER has its own separate facility thresholds (25,000 tonnes CO2-e or 100 TJ) and corporate-group thresholds. They should not be collapsed into a single test or checklist.

Who administers the Safeguard Mechanism?

The Clean Energy Regulator (CER) administers the Safeguard Mechanism, including projecting SMC issuance, determining facility coverage, and publishing quarterly carbon market reports on Safeguard and ACCU scheme statistics.

What proportion of ACCU holding accounts are being retained by Safeguard sites?

According to the article, in preparation for the Safeguard Mechanism, over 50% of the ACCUs in holding accounts are being retained by Safeguard sites.

What services does Northmore Gordon offer related to the Safeguard Mechanism and ACCUs?

Northmore Gordon offers expert guidance on ACCU and SMC strategy, including securing forward contracts, exploring energy-saving opportunities, and navigating compliance requirements, alongside broader energy efficiency and decarbonisation project support.

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