Executive summary
AIDC supports a credible and progressively tightening Safeguard Mechanism that makes a material contribution to Australia’s emissions targets.
The 2023 reforms were an important and necessary starting point. Two years of operation show that aggregate headroom has been removed, baselines are declining and real compliance obligations are being created. That evidence does not yet establish whether the mechanism is producing the physical industrial transformation and investment Australia will require through the 2030s and beyond. The 2026-27 Review should test the complete post-2030 framework against both the aggregate emissions task and the way covered facilities can actually deliver physical decarbonisation and investment.
For foundational industrial capabilities such as steel, alumina and aluminium, cement and lime, and ammonia, deep emissions reduction can require major transformation of long-lived productive assets, together with a need for new energy, feedstocks, infrastructure, technology and commercial arrangements. The investments required occur through infrequent capital decisions and long development cycles. Australia already has many of the institutions, funding mechanisms and policy tools required to support industrial decarbonisation, but they do not yet operate as a complete delivery architecture around the investment decisions that determine whether projects proceed. This delivery challenge also arises for Future Made in Australia priorities and other new industrial opportunities.
Government needs a much stronger understanding of sector transition pathways, the investment pathways of major facilities, the timing of material decision windows and the barriers preventing credible projects from progressing. Where Australia has a public interest in retaining or developing productive capability, policy should be organised around those pathways and directed to the particular technology, energy, infrastructure, finance, market or coordination constraint affecting the next material decision.
Safeguard performance should be assessed separately against its net emissions outcome, physical outcomes at covered facilities and enduring investment in lower-emissions Australian productive capability. For the Safeguard Mechanism itself, AIDC considers that Government should:
- Establish the Safeguard contribution to Australia’s 2030 and 2035 targets by reconciling the national emissions constraint with credible bottom-up evidence on physical abatement, production and investment across covered sectors. Government should make transparent how it expects the task to be delivered through onsite abatement, ACCUs and SMCs, changes in production, facility entry and closure and investment in Australian industrial capacity.
- Require physical abatement that is technically available and reasonably investable, while allowing differentiated treatment where credible sector and facility evidence shows that major physical abatement occurs on a different timetable from the standard annual baseline trajectory. Selective facility pathways should provide the evidence needed to distinguish genuine transition constraints from ordinary compliance behaviour.
- Remove the blanket 2030 limit on multi-year monitoring and establish transition-aligned MYMPs for qualifying facilities. These arrangements should align the timing of compliance with evidenced development, investment, construction and commissioning pathways while preserving the cumulative emissions task, accountability and transparent residual liabilities.
- Retain effective existing compliance flexibilities unless evidence demonstrates a case for change. AIDC supports continued SMC banking and borrowing, retention of the Cost Containment Measure and continued access to high-integrity ACCUs where physical abatement cannot yet reasonably occur. International units should remain outside the Safeguard Mechanism through this review while the option is preserved for future consideration as Article 6 markets mature.
- Assess the cumulative commercial effects of post-2030 settings, including Safeguard costs passed through energy, gas, feedstocks and other industrial inputs. Trade exposure arrangements should distinguish import leakage, export exposure and investment leakage and use TEBA, a BCA, or any other successor measure, according to the particular competitive risk each instrument can actually address.
- Calibrate coverage, the aggregate 2035 Safeguard task, the reserve and the post-2030 decline rate as an integrated package. Any expansion of coverage should be based on evidence about the facilities affected, the physical response available to them and the policy benefit expected from bringing them into the mechanism.
The Safeguard Mechanism can alter the relative economics of emissions-intensive production, but major industrial transformation also depends on conditions that sit beyond the facility’s direct control. Sector pathways should therefore operate increasingly as investment and delivery plans, working backwards from expected transition windows to identify the steps required for real projects to reach FID and deliver physical emissions reduction.
Selective facility transition pathways should connect those sector expectations to actual investment decisions. They should identify the proposed transformation, the next material decision, its timing and the principal dependencies on which delivery rests. Government should then match its response to the barrier. Where several projects depend on the same enabling system, Government should address that constraint collectively instead of expecting each facility to solve it separately.
For priority industrial investments, there must also be a clearer route through Government. Shared information, sustained project case management and coordinated international investment and market development should allow Government decisions to be assembled around the investment timetable so that companies do not have to assemble the machinery of Government themselves.
Where a facility receives differentiated Safeguard treatment, substantial public support or coordinated Government action, this should form part of a reciprocal transition arrangement. Government and other relevant parties should commit to the actions required to resolve demonstrated external barriers, while the facility should commit its own capital, development work, physical decarbonisation outcomes and delivery milestones. Commitments should increase as evidence improves and the project progresses, with clear accountability for matters within each party’s control.
Recommendations
Part I: Key policy positions
Recommendation 1: Assess the Safeguard Mechanism separately against its net emissions outcome, physical facility outcomes and enduring investment in Australian productive capability, and test its assumptions against investable sector and facility pathways.
The effectiveness of the Safeguard Mechanism should be assessed across three related outcomes:
- Its net emissions outcome and contribution to Australia’s national targets.
- Physical outcomes at covered facilities, including gross emissions before unit surrender, onsite abatement, production and utilisation, facility entry and closure, and the respective use of ACCUs and SMCs.
- Whether the policy framework is contributing to enduring investment in lower-emissions Australian production through transformation of existing facilities, successor assets or new productive capability.
Government should also test the physical abatement assumptions underlying Safeguard settings against relevant sector pathways, representative facility pathways and the technology, energy, infrastructure, market and investment conditions required to deliver them. Aggregate compliance with the Safeguard emissions task should remain a central measure of effectiveness, while these additional measures establish how that outcome is being achieved and whether the policy is building the productive capability required for the longer transition.
Recommendation 2: Establish a Safeguard transition framework informed by sector pathways and applied selectively at facility level.
The Australian Government should use credible sector pathways to establish the broad timing and dependencies of physical industrial abatement and allow qualifying facilities to demonstrate how those conditions apply to their individual assets. Differentiated treatment should be selective, evidence based and conditional on a credible facility transition pathway, while preserving the aggregate Safeguard emissions task and requiring available and investable physical abatement to be undertaken.
Recommendation 3: Provide transition-aligned MYMPs for qualifying facilities with evidenced transformation pathways.
The Safeguard framework should remove the prohibition on MYMPs extending beyond 2030 and allow qualifying facilities to enter enhanced multi-year arrangements aligned with credible development, investment, construction, commissioning and ramp-up pathways. The arrangements should preserve the cumulative emissions task, incorporate review and accountability milestones, prevent artificial SMC generation or overlapping borrowing, and retain a transparent obligation for residual emissions that have not been physically abated.
Recommendation 4: Retain existing Safeguard flexibilities unless evidence demonstrates a case for change.
The Australian Government should retain SMC banking and borrowing beyond 2030, continue access to high-integrity ACCUs without introducing general new surrender restrictions, and retain the Cost Containment Measure with a credible post-2030 reserve strategy. International units should not be introduced through this review.
Recommendation 5: Assess Safeguard cost pass-through and cumulative competitiveness effects through industrial value chains.
The Australian Government should assess where material costs related to the Safeguard Mechanism ultimately fall, including where costs imposed upstream are passed into strategically important and trade-exposed downstream industries. Post-2030 settings should be tested for their cumulative effect on production, transformation investment, import and export competitiveness and the location of future industrial capital.
Recommendation 6: Establish reciprocal transition arrangements for foundational industrial assets and other facilities with a demonstrated public interest case and credible transformation pathways.
For foundational industrial assets, and other facilities where Government has identified a clear public interest in retaining or developing the productive capability, these interventions should form part of a reciprocal transition arrangement where a credible facility pathway exists. Government action should be matched to demonstrated barriers and may include technology and engineering support, enabling infrastructure, energy and feedstock arrangements, finance, revenue or market support and appropriate Safeguard treatment. The facility should commit material capital, agreed development and delivery milestones, transparent reporting and appropriate consequences for commitments within its control.
Part II: The industrial transition delivery architecture
Recommendation 7: Use the Industry Sector Plan and relevant sector pathways as industrial decarbonisation investment and delivery plans.
Building on Recommendation 2, the Australian Government should use the Industry Sector Plan and relevant sector pathways as investment and delivery timetables, working backwards from expected transition windows to identify the material conditions, development activity and decisions required for real projects to be developed, reach FID and deliver the physical transformation Government is relying upon.
Sector pathways should also identify shared enabling requirements and points of convergence across projects and sectors so that common barriers can be addressed collectively rather than repeatedly at individual facilities.
Recommendation 8: Assess Safeguard and complementary policy settings against the facility investment decisions required to deliver credible sector pathways.
The Industry Sector Plan and relevant sector pathways should provide the overarching physical and temporal framework for industrial decarbonisation. The Australian Government should then assess Safeguard and complementary policy settings against the investment decisions through which those pathways must be delivered at real facilities.
That assessment should consider whether the physical abatement assumed by the sector pathway is available within the relevant investment window and whether the technology, energy, infrastructure, market and other enabling conditions required for the investment can be delivered in time. A stronger carbon obligation should not be assumed to produce additional physical abatement where those conditions are not yet available.
Recommendation 9: Use selective facility transition pathways to coordinate Government action around the barriers to be managed, the timing and stages of major industrial investments.
TheAustralian Government should use facility transition pathways selectively where a facility seeks differentiated Safeguard treatment, substantial public support or coordinated Government action, where an important investment window is approaching, or where the consequences for Australian production justify closer consideration.
The pathway should identify the proposed transformation, its timing, the next material investment decision and the major conditions on which delivery depends. Government should use that evidence to match action to the barrier and stage of the investment, addressing shared constraints collectively where possible.
Recommendation 10: Build a continuous support pathway through project development, engineering, demonstration and first commercial deployment.
The Australian Government should recognise project development, engineering, demonstration and first commercial deployment as distinct investment stages in industrial transformation. For qualifying projects, support should be capable of progressing through feasibility, pre-FEED, FEED, integration engineering, industrial testing, demonstration and the work required to reach FID. This must fill the missing middle between an isolated early-stage grant and concessional financing at FID.
The form of support should change as the project and its risks mature. Depending on the barrier and stage of development, this may include co-funded development and engineering, grants or recoverable support, concessional debt, subordinated or mezzanine finance, equity, guarantees, blended finance and export finance.
Public support should be linked to the evidence expected from each stage, agreed milestones and meaningful company commitments. Projects should be able to progress, redesign or stop as evidence develops, without treating a change in the preferred pathway as a failure where the development work has produced useful information.
Recommendation 11: Match operating cost, revenue and demand support to the commercial gap preventing investment.
TheAustralian Government should distinguish between persistent input and operating cost gaps, product price and revenue risk, and volume or offtake risk when designing support for industrial transformation. These are different commercial problems and should not be treated as interchangeable.
Support should be matched to the actual gap preventing investment and reduce as that gap closes. Government should address common market problems collectively where possible and use facility pathways to identify residual barriers affecting major individual investments.
Recommendation 12: Integrate industrial energy and feedstock requirements into energy and fuel system planning.
TheAustralian Government should use sector, regional, precinct and facility pathways to identify material industrial energy and feedstock requirements and when they will arise.
Energy and fuel policy should be tested against whether industrial users can secure the inputs required for credible transformation projects on commercially workable terms within the relevant investment window. Aggregate supply targets should not be treated as proof that those conditions exist at the facility.
Recommendation 13: Support the delivery of common user industrial infrastructure.
The Australian Government should identify common infrastructure requirements early enough for development to proceed alongside the industrial investments they are intended to enable.
Where credible demand exists but no individual user can efficiently carry the development or first mover risk, Government should be prepared to support a shared delivery model, including through an SPV where appropriate. Publicly supported infrastructure should preserve fair access for later users and, where useful, link public and private investment milestones so that certainty increases on both sides as projects progress.
Recommendation 14: Review fiscal settings for consistency with industrial decarbonisation objectives.
The Australian Governmentshould review material tax expenditures and fiscal settings where they may weaken incentives for industrial transition or work against substantial public investment elsewhere in the decarbonisation policy suite. Where changes are justified, Government should consider how any resulting savings could support the industrial transition.
Recommendation 15: Establish a shared view of industrial decarbonisation investment, delivery and project learning.
The Australian Government should use information already generated across relevant programs, institutions and project engagement to maintain a shared view of whether material industrial decarbonisation projects are progressing, where credible projects repeatedly stall and what those experiences reveal about common barriers to investment.
Relevant learning should be retained and shared across Government, subject to appropriate protection of commercial information, and used to update sector pathways, program design and the targeting of Government intervention. Selective facility transition pathways should draw on and supplement this existing evidence.
Government should also make relevant aggregate analysis and assumptions available where this would allow industry and other stakeholders to test emerging policy settings against real investment and delivery conditions.
Recommendation 16: Establish a standing cross-government process for facility transition pathways and shared industrial barriers.
The Australian Government should establish a standing process across Commonwealth portfolios and relevant state and territory governments to consider selective facility pathways and barriers shared across industrial projects.
The process should use information already held across Government, public disclosures and targeted industry engagement to identify material decision windows and common dependencies. The Investor Front Door should provide a principal route into this process for qualifying projects, with case management continuing through the material development and investment stages.
Recommendation 17: Establish a coordinated Team Australia investment and market development proposition for priority industrial projects.
The Australian Government should work with state and territory governments to develop a recognisable national investment proposition for priority industrial transition and lower emissions manufacturing opportunities.
For nationally significant projects and value chains, Government should coordinate domestic project facilitation and public finance with international investment attraction, technology partnerships and market development, working from agreed priority propositions across Commonwealth and state governments.
Where an Australian project depends materially on an overseas market or counterpart, Government should use bilateral and other international arrangements to help develop the commercial relationship.