Report shows biggest trading year by volume for Australian carbon credits

As more businesses and facilities access the scheme, the CER’s 2023-34 safeguard data insights report offers insight into the bright future under the reformed Safeguard Mechanism, with the data being captured from the first reporting period after the introduction of declining baseline requirements. 

How the scheme works 

A large portion of the safeguard mechanism credit units (SMCs) issued have been banked and will be available for surrender in upcoming years. The Safeguard Mechanism requires Australia’s highest greenhouse gas emitting facilities to reduce emissions in line with reduction targets of 43% below 2005 levels by 2030 and net-zero by 2050.

The reformed safeguard mechanism follows a simple approach:

• Energy intensive ‘safeguard facilities’, facilities across a range of sectors including mining, oil and gas extraction, manufacturing, and transport that emit more than 100,000 tonnes of carbon dioxide equivalent (CO2-e) in a year, are given annual greenhouse gas (GHG) emission limits, known as emissions baselines.
•  Emission baselines will generally decline by 4.9% each year to ensure that net emissions fall in line with the legislated targets.
• If a safeguard facility’s annual emissions are under the emissions baseline for that year, it may be eligible to generate and receive SMCs, which are a form of tradeable carbon credit unit that can be surrendered under the safeguard mechanism to ensure net emissions fall below the emissions baseline.
• If a safeguard facility’s annual emissions exceed the emissions baseline, it is required to manage the excess emissions through several options, including surrendering ACCUs or SMCs, or accessing a range of flexibility measures under the Safeguard Mechanism Rules, and will be subject to meeting the required eligibility criteria.
• It is intended that facilities decrease GHG emissions through implementing emission reduction projects. Only limited use of ACCUs – no more than 30% of total annual emissions – should be made in any given reporting year. 

Failure to comply with requirements to manage excess emissions will result in enforcement action by the CER.

Overview of reporting

In the 2023–24 reporting year, 219 facilities were covered by the safeguard mechanism. These facilities accounted for 31% of Australia’s total GHS emissions for the reporting period.

The data reported by the CER shows that emissions covered by the mechanism have reduced by 2.7 Mt CO2-e to 136 Mt CO2-e, and net emissions have reduced from 137.9 Mt CO2-e in 2022-23 to 127.8 Mt CO2-e in 2023–24, and that 62 facilities had annual emissions below their baselines.

This resulted in the issuance of approximate 8.3 million SMCs. Given one SMC represents a reduction of one tonne of CO2-e, this is a significant result, being a reduction of 8.3 Mt CO2-e from the baseline of these 62 facilities - an average reduction of 133,871 tonnes of CO2-e per facility.

142 facilities had annual emissions above their baselines. These facilities incurred a total liability of 9.2 Mt CO2-e - an average exceedance of 64,789 tonnes of CO2-e per facility.

To manage excess emissions, facilities surrendered 8.5 million prescribed carbon units (PCUs), made up of 1.4 million SMCs and 7.1 million ACCUs. 18 facilities surrendered ACCUs equivalent to 30% or more of their baselines.

Five facilities, operated by three operators, did not manage excess emissions situations by the 1 April deadline. Two of these operators are said to have failed to comply given they are in administration, with the remaining operator, Fitzroy (CQ) Pty Ltd, being the subject of enforcement action by the CER that resulted in the operator entering into a court enforceable undertaking, under which it has undertaken to retire PCUs to account for its liability for the 2023-24 year on a staggered basis by 15 December 2025, and to undertake various feasibility studies “in order to demonstrate its commitment to reducing GHG emissions at its facilities.”