AIDC policy position and response to the Climate Change Authority’s 2026 Annual Progress Advice consultation
Executive Summary
The Australian Industrial Decarbonisation Council (AIDC) welcomes the Climate Change Authority’s 2026 Annual Progress Advice consultation paper. Part I of this submission sets out AIDC’s policy position on industrial transformation under the Safeguard Mechanism. Part II responds directly to the Authority’s consultation questions.
AIDC considers the Safeguard Mechanism to be an essential and broadly sound policy approach. The fundamental issues addressed in this submission concern how its performance should be assessed, how aggregate scheme settings translate into physical change at covered facilities, and how the mechanism informs and interacts with broader climate and industrial policy.
Only two completed compliance years of the reformed Safeguard Mechanism are currently available for assessment, which is insufficient time to reach firm conclusions about the mechanism’s effectiveness. More time and more data will be necessary, although they will not be sufficient on their own. The Australian Government must also be able to distinguish between reductions achieved through onsite abatement and those associated with lower production, closure or other changes in industrial activity.
The next phase of the Safeguard Mechanism should preserve the integrity of the net emissions task while improving the likelihood that Safeguard obligations and complementary policy produce investable onsite abatement, successor assets and new low-emissions production in Australia.
AIDC’s central proposition is that industrial decarbonisation is a system problem wrapped around a real asset. Physical transformation occurs when a company decides to modify or replace an existing production system, or to build a new one. Those decisions concern identifiable facilities, projects and precincts and are made within capital cycles that create only a limited number of opportunities for fundamental change.
A stronger carbon obligation can improve the relative value of lower-emissions investment. It cannot, by itself, make a project technically deliverable, provide competitively priced energy, construct shared infrastructure, create customer demand, resolve technology risk or ensure that an Australian project receives capital within a global portfolio. Depending on the circumstances, a facility’s response to increasing obligations may include onsite investment and operational improvements. It may also include capital deferral, lower production, investment elsewhere or closure.
Assessment of the Safeguard Mechanism’s performance, and the design of future settings, should therefore begin with the scheme-wide emissions task and then test how that task is expected to be delivered across sectors and facilities. Where covered production has enduring economic, regional or strategic value, the obligations applying to it should be connected to credible and investable pathways for facility owners.
For the hardest-to-abate sectors, this will sometimes require government to coordinate or support key actions, particularly where critical enabling conditions cannot be secured by an individual facility owner. Such intervention should be based on a clear public interest case and accompanied by appropriate commitments from participating companies.
Australia is not starting from scratch. The Authority’s Sector Pathways Review [1] already provides parts of the required architecture. The Authority’s advice and the 2026-27 Safeguard Mechanism Review should connect those elements into a durable pathway from technology demonstration and project development through enabling infrastructure, market formation and commercial deployment.
The recommendations that follow establish a framework for assessing the mechanism’s emissions, physical and investment outcomes; testing future settings against credible sector and facility pathways; coordinating complementary policy; and addressing competitiveness and leakage risks without weakening the scheme-wide emissions task. AIDC will work with members through the Australian Government’s 2026-27 Safeguard Mechanism Review to develop more detailed policy positions required to apply this framework.
Recommendation 1: Assess the effectiveness of the Safeguard Mechanism against both its emissions task and its consequences for industrial capability in Australia, and test whether its sector pathways are capable of being delivered through investable facility pathways.
The effectiveness of the Safeguard Mechanism should be judged against two linked public interest tests: its contribution to Australia’s national emissions targets; and whether it supports the transformation of, and continued investment in, valuable Australian production, including strategically important industrial capability.
This requires the Industry Sector Plan to be treated as a delivery proposition and tested against facility evidence. The Review should assess whether sector trajectories are consistent with facility investment and decision windows and whether the policy framework provides a credible process for identifying material technology, infrastructure, market and other enabling dependencies, resolving responsibility for them, and ensuring that government and industry decisions occur early enough to influence investment. Where these arrangements are absent or inadequate, the Review should recommend that they be established.
Recommendation 2: Evaluate and report separately on three principal outcomes of the Safeguard Mechanism.
Assessment of the mechanism should distinguish:
1. The scheme’s net emissions outcome and its contribution to Australia’s national targets.
2. What covered facilities physically emit before unit surrender, how they meet their obligations, and whether changes reflect onsite abatement, changes in production or closure.
3. Whether the mechanism is driving enduring investment in low emissions production in Australia, through the transformation of existing facilities, successor assets or new production.
Recommendation 3: Establish a whole-of-government route for assembling tailored industrial transition packages.
The Australian Government should establish a clear pathway through which credible industrial projects can combine existing programmes, tailored funding arrangements, infrastructure commitments, project-specific commitments and, where standard approaches are insufficient, tailored investment structures. The resulting package should address the barriers preventing the next material decision and be proportionate to the public value and risk involved.
Government support should form part of a forward-looking industrial transition bargain. Government should address defined barriers that an individual project cannot reasonably resolve and for which there is a clear rationale for public intervention, including shared infrastructure, coordination failure or public benefits extending beyond the private return. This is not intended as a means of underwriting ordinary commercial returns or routine Safeguard compliance costs.
The company should retain responsibility for commercial risks within its control and make staged commitments to development, investment and emissions reduction. The respective commitments of government and the company should be clear and proportionate to the stage of the pathway.
Recommendation 4: Assess Safeguard settings against the facility investment decisions that determine whether industrial transformation occurs in Australia.
The Australian Government and the Climate Change Authority should examine how baseline obligations, ACCU and SMC settings, and complementary policies affect whether facility projects progress from technical development to final investment. Scheme-wide analysis should use transparent sectoral assumptions, representative facility evidence and clearly disclosed sensitivities.
Analysis should consider total capital requirements for major facility transformations, expected risk-adjusted returns and material project risks; the facility’s capital cycle; competition from other projects and jurisdictions; and the timing at which policy can still influence corporate capital allocation. The purpose of this analysis is to understand likely investment and emissions outcomes while preserving the integrity of the scheme-wide emissions task.
The analysis should test whether the timing of facility capital decisions and enabling infrastructure is consistent with the transition phases assumed in the Australian Government’s Industry Sector Plan.
Recommendation 5: Establish facility transition pathways as a selective evidentiary and planning instrument.
The Australian Government should enable facility transition pathways to inform differentiated treatment, public support and coordinated planning where deeper assessment is warranted. A pathway may be initiated by a facility or through targeted government engagement where existing evidence indicates an approaching material decision or a significant consequence for emissions, infrastructure planning or industrial capability. Pathways should be proportionate to a defined purpose and should not form part of routine annual compliance for every covered facility.
A pathway should substantiate the facility’s physical options, external dependencies, investment timetable, owner commitments and expected emissions outcomes. It forms a foundation for discussions with government and does not create an entitlement to public support or provide a general basis for renegotiating a facility’s baseline.
Recommendation 6: Use facility pathways to match government action to the barrier, timing and stage of investment.
The Australian Government should use facility pathways to identify the intended long-term industrial and emissions outcome, the next material decision or commitment required to keep that outcome achievable, and the barriers or uncertainties affecting it.
Government action should be matched to the nature and stage of the problem and may require a combination of existing programmes, project-specific commitments or tailored investment arrangements. Responsibilities, timing, evidence and consequences should be clearly identified. Where constraints accumulate or emerge during development, policy should support their resolution in sequence rather than expect a single intervention to carry the project directly to final investment.
Barriers shared across facilities should be addressed at precinct, sector or economy-wide level wherever possible; facility-specific action should be reserved for residual matters that cannot sensibly be resolved through common policy.
Recommendation 7: Establish a durable Safeguard architecture with predictable flexibility built into the rules.
The scheme-wide direction of the mechanism, the method for setting baseline decline rates, the treatment of ACCUs and SMCs, the principles governing differentiated treatment, and the timetable for formal reviews should be sufficiently stable to support long-lived investment. Where settings may need to change, the relevant triggers, criteria and processes should be published in advance.
Routine annual compliance should remain formulaic, data driven and consistently administered. More detailed consideration of a facility pathway should be reserved for circumstances in which it can materially affect an investment, emissions or public interest outcome, with any additional reporting and review proportionate to the differentiated treatment or targeted support sought.
Recommendation 8: Establish transparent and bounded principles for reciprocal responsibility in facility transition arrangements.
The Safeguard Mechanism Review should develop and publicly consult on a tiered framework for reciprocal responsibility where a facility seeks differentiated treatment, substantial public support or coordinated government action, or where a qualifying irreversible transition investment may be materially affected by a later policy change.
The framework should address the respective responsibilities of facilities and government, external dependencies, good faith changes in pathway and the consequences of material non-delivery. Its detailed application should be developed through the Safeguard Mechanism Review using facility evidence. It should not create an open-ended entitlement to unchanged policy settings or transfer ordinary commercial risk to government.
Recommendation 9: Publish the modelling and analytical basis for alternative post-2030 baseline decline rates before the final trajectory is determined.
The Climate Change Authority and the Australian Government should publish the assumptions, scenarios and expected outcomes used to assess alternative baseline decline rates for 2031-2035. The analysis should use the Authority’s Sector Pathways Review as a starting framework, report results against the three outcomes identified in section 2.2 and disclose the material assumptions and sensitivities on which those results depend.
Recommendation 10: Retain proportional share as a transparent starting point for setting the post-2030 Safeguard target, and test the baseline decline rate against a bottom-up assessment of credible sector and facility pathways.
The proportional-share approach should remain a transparent basis for identifying the aggregate contribution expected from Safeguard-covered facilities to Australia’s national emissions task.
The baseline decline rate required to deliver that contribution should then be assessed against credible sector and facility pathways and the complete policy package. The analysis should consider technically and commercially deliverable abatement, infrastructure and energy availability, capital and asset cycles, risk-adjusted investment decisions, ACCU and SMC settings, production, competitiveness, new entry, contraction, leakage and closure.
The Authority should explain how the selected decline rate translates the aggregate Safeguard task into a credible delivery pathway. Where bottom-up evidence indicates a gap between the aggregate contribution sought and the abatement expected to be delivered under the proposed settings, the analysis should identify that gap and the additional policy, investment, timing or economy-wide contribution required to address it.
Recommendation 11: 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 with relevant state and territory governments to consider selective facility pathways and barriers shared across industry projects.
The process should:
- Maintain a high-level, periodically refreshed view of likely facility decision windows and shared dependencies using information already held across government, public disclosures and targeted engagement, and use that view to identify cases warranting deeper consideration. Relevant evidence already generated should carry across programmes, while barriers shared by several facilities should be resolved at the appropriate collective level.
- Respect the constitutional responsibilities and legitimate policy role of state and territory governments while pursuing mutual recognition, coherent administration and avoidance of unnecessary duplication.
- Establish agreed interface principles for additional state requirements applying to Safeguard-covered facilities, including identification of the gap being addressed and assessment of the combined effects on emissions, investment and competitiveness.
- For priority industrial precincts, governments should agree a coordinated plan identifying the infrastructure, policy and financing decisions within public control, the private decisions on which progress depends, and the points at which each must be revisited. Sector pathways and selective facility evidence should be used together to identify the dependencies, responsible parties and decision dates required to keep credible industrial transition options available.
Recommendation 12: Do not treat a border carbon adjustment as an automatic substitute for TEBA.
The Australian Government should recognise that TEBA affects the Safeguard obligation applying to eligible Australian production, including exported output, while a border adjustment principally addresses the carbon policy treatment of covered imports in the Australian market.
Export competitiveness and investment leakage should be treated as distinct policy design problems. Government should develop and model legally and administratively viable responses rather than assume that a domestic border measure resolves them. The effects on import competition, exports, downstream substitution, cash flow, decarbonisation investment and capital allocation should be assessed separately.
Any combination of TEBA, border measures and targeted industrial support should avoid double protection, respond to substantiated competitiveness or leakage risks, and remain linked to measurable decarbonisation outcomes.
Recommendation 13: Retain TEBA for facilities confronting material leakage or competitiveness risks until replacement competitiveness arrangements are demonstrably effective and any material remaining risks have been addressed.
TEBA should be materially reduced or replaced only where government has demonstrated that replacement arrangements are operating effectively, and where it has assessed and addressed material remaining export competitiveness and investment leakage risks. Any continuing TEBA treatment should remain conditional, time limited and subject to periodic review, with expectations tightening as relevant risks decline and technically and commercially deliverable abatement becomes available.
[1] Climate Change Authority (2024) Sector Pathways Review, September, see Sector Pathways Review project | Climate Change Authority.
The full submission can be downloaded here.