Industrial challenges give false impression of Safeguard Mechanism emissions cuts
Key Takeaways:
Closures and production declines have driven most officially reported emissions reductions in Australia’s non-fossil mining, minerals processing and manufacturing sectors since the Safeguard Mechanism reforms of 2023.
The Safeguard Mechanism design has incentivised little obvious investment in onsite abatement, with credit-based compliance dominant.
Clean investment is still occurring in industry, but at a relatively slow pace and driven more by voluntary targets, commercial advantages and additional taxpayer assistance.
Fossil fuel-linked inflation has been more a driver of industry competitiveness than decarbonisation regulations. Factors other than emissions regulation and ambitious decarbonisation best explain industry competitiveness challenges.
11 November 2026 (IEEFA Australia): Significant emissions reductions under Australia’s Safeguard Mechanism have been driven by plant closures and lost production rather than the policy itself, according to a briefing note released today.
Non-fossil fuel production sectors — mining, minerals processing, and manufacturing — responsible for a third of all emissions covered by the Safeguard Mechanism, recorded a 5% decline in emissions in FY2024–25 from the previous year.
While some reductions were achieved through onsite abatement, 2.5 million tonnes of carbon dioxide equivalent (MtCO2e) evaporated from the official figures as facilities suspended or ceased production, finds the note What drives decarbonisation and deindustrialisation?
“Under the Safeguard Mechanism, emissions cuts are only materialising when facilities close or cut back production,” says the author James Bowen, IEEFA’s lead analyst, Australian industrial decarbonisation.
“Overall, the emissions savings attributed to lost industrial output were equivalent to the total net reduction in emissions from the facilities assessed. Those operating normally actually increased emissions year-on-year.”
Seven facilities, including BHP’s Nickel West operations, temporarily or permanently closed at some point in the two years covered, removing 1.1MtCO2e of tallied emissions alone.
The Safeguard Mechanism, the federal government’s main instrument to lower emissions, covers facilities generating more than 100,000tCO2e a year. It was reformed in 2023 and is undergoing another major review. IEEFA’s analysis of 86 Safeguard facilities in non-fossil fuel sectors also found:
- Policies such as the Fuel Tax Credit system run counter to the Safeguard Mechanism, acting as a disincentive to decarbonisation.
- Factors other than Safeguard compliance costs or investment in emissions abatement have driven most output decreases.
- Where investment in onsite abatement is occurring, it is difficult to directly attribute to the Safeguard — AU$900 million in government grants accompanied investments in onsite abatement identified since FY2023–24.
Sources: IEEFA calculations from Clean Energy Regulator Safeguard Mechanism Baselines and Emissions Table 2024-25 and Safeguard Mechanism Baselines and Emissions Table 2023-24; company statements; media reports.
Critics of the Safeguard Mechanism argue that decarbonisation drives deindustrialisation. However, IEEFA’s analysis found more evidence that escalating fossil fuel costs influenced industry competitiveness challenges.
“We examined the extent to which the Safeguard Mechanism and Australia’s broader policy landscape invite decarbonisation and/or deindustrialisation. The firm conclusion is they do neither convincingly,” Mr Bowen says.
“Most observable industrial decarbonisation progress is advancing with the aid of taxpayer carrots over regulatory sticks. Stronger emissions regulation, less fossil fuel support and a broader decarbonisation-enabling environment might even increase — not decrease — the competitiveness and sustainability of industry while reducing pressures on taxpayers.”
Note: 86 facilities in the assessed sectors generated 44.13MtCO2e during FY2024–25 (compared with 93 facilities generating 46.44MtCO2e in the previous year).
Just 22 of the 86 facilities recorded emissions under their required baselines. Only six of these results could potentially be attributed to observable decarbonisation investments.
For the remaining 64 facilities operating above Safeguard baselines in FY2024–25, 58 surrendered Australian Carbon Credit Units or Safeguard Mechanism Credits for compliance.
Read the note: What drives decarbonisation and deindustrialisation?
Media contact: Eloise Lane, [email protected]
Author contact: James Bowen, [email protected]
About IEEFA: The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends, and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy. (ieefa.org)
