The safeguard mechanism is an emissions reduction policy, first introduced as a component of the Emissions Reduction Fund (ERF). The ERF was established in 2014 and is now known (and is referred to in this paper) as the ACCU Scheme. The scheme’s objective is to provide incentives for businesses to reduce their emissions or sequester carbon dioxide and thus contribute to achieving Australia’s greenhouse gas (GHG) emissions reduction targets.

The scheme has 3 key components:

• a voluntary scheme to credit emissions reductions, whereby emissions reductions delivered by registered emissions reduction projects using an approved methodology can be issued with credits, known as Australian Carbon Credit Units (ACCUs)
• a process to purchase emissions reductions, via competitive reverse auctions run by the Clean Energy Regulator, whereby the regulator enters into contracts with successful bidders, and
• the safeguard mechanism, which requires Australia’s largest GHG emitting facilities to reduce their emissions in line with legislated limits called baselines.

This research paper focuses on the last component, the safeguard mechanism, which was initially introduced to ensure that emissions reductions purchased through the ACCU Scheme are not displaced by significant increases in emissions elsewhere in the economy.