How Safeguard Mechanism baselines are calculated

The reformed Safeguard Mechanism took effect on 1 July 2023, ending a decade in which baselines for Australia's largest industrial emitters were effectively static. From that date, each of the roughly 215 covered facilities has had its baseline decline year-on-year on a published trajectory designed to bring covered emissions in line with national 2030 and 2050 targets.

For a compliance officer, this is a different kind of planning problem from the pre-reform era. A baseline that sits comfortably above current emissions in 2026 is, on the published trajectory, going to sit below current emissions within a few years unless the facility changes its emissions intensity. The shortfall must be made up by surrendering Australian Carbon Credit Units (ACCUs), Safeguard Mechanism Credits (SMCs), or Cost Containment Measure (CCM) units at the statutory price ceiling.

Understanding exactly how baselines are calculated is the foundation for that planning. The Clean Energy Regulator (CER) uses two methodologies, and the choice between them has a material effect on year-on-year baseline movement. This article walks through both, with an illustrative worked example.

The two baseline methodologies

Under the reformed Safeguard Mechanism, the CER calculates baselines using one of two approaches:

• Production-adjusted baselines. The baseline scales with the facility's production each year. It is calculated as production volume multiplied by a default emissions intensity for the relevant production variable, multiplied by an annual decline factor. This is the default methodology under the reformed scheme and is the form most covered facilities now operate under.
• Site-specific baselines.A fixed tonnes-of-CO₂-equivalent figure set with reference to the facility's historical emissions. Site-specific baselines remain available on a transitional basis for facilities whose actual emissions intensity is materially above the default values, with the intent that facilities transition to production-adjusted baselines over time.

The structural difference matters. A production-adjusted baseline rises and falls with output, so a facility running below capacity in a given year does not automatically incur a surrender obligation purely from declining output. A site-specific baseline is fixed in absolute terms, which can either flatter or punish a facility depending on production swings.

Production-adjusted baselines in detail

The production-adjusted formula has three inputs:

1. Production variable. The CER defines a production variable for each covered activity. For a cement clinker plant, that is tonnes of clinker produced. For an LNG facility, it is petajoules of LNG produced. For a coal mine, it is tonnes of run-of-mine coal. The production variable is reported by the facility each year under the National Greenhouse and Energy Reporting (NGER) scheme.
2. Default emissions intensity. For each production variable, the CER publishes a default emissions intensity expressed in tCO₂e per unit of production. These are sector-wide benchmarks drawn from industry-average emissions performance. A facility's baseline applies the default intensity, not the facility's own intensity — which is the policy lever that rewards above-average performance and penalises below-average performance.
3. Decline factor.An annual multiplier applied to the default emissions intensity. The headline figure is a 4.9% decline in aggregate covered emissions per year through to 2030, but the decline is implemented at the level of the default emissions intensity, not the absolute baseline. A facility's baseline can therefore rise year-on-year if production grows fast enough to offset the falling intensity factor.

Put together, the calculation is:

A worked example

Consider an illustrative manufacturing facility producing 300,000 tonnes of product per year. Assume a default emissions intensity of 0.85 tCO₂e per tonne of product (a stylised figure used here for arithmetic clarity, not drawn from any specific sector determination). The 2023–24 baseline is the starting point, with the decline factor at 1.000:

If production holds flat at 300,000 tonnes and the decline factor falls by 4.9% per year on a compounding basis, the baseline trajectory through to 2029–30 looks like this:

Illustrative trajectory at 4.9% per year compounding decline. Sector-specific decline rates may differ. Production held flat for clarity — in practice, production movement is the dominant driver of year-on-year baseline change.

Over seven years, the baseline falls from 255,000 to roughly 184,937tCO₂e — a cumulative reduction of about 30%. If the facility's actual emissions remain at the default intensity, that cumulative gap is the surrender obligation it needs a plan for.

Site-specific baselines and the transitional pathway

Some facilities cannot move to production-adjusted baselines without immediately incurring a large compliance shortfall. The reformed scheme provides a transitional pathway: a site-specific baseline is calibrated against the facility's historical reported emissions and declines from that absolute starting point. The decline rate is set with reference to the facility's baseline year and the aggregate trajectory, with the intent that site-specific baselines converge toward production-adjusted levels by 2030.

The site-specific route also accommodates trade-exposed activities under the trade-exposed baseline-adjusted (TEBA) treatment, which allows for additional flexibility where international competition constrains the ability to pass through carbon costs. The eligibility tests and adjustment factors are published by the CER and updated periodically.

The practical implication: when looking up a facility's baseline in the CER's published data, the methodology used is not constant across facilities or across years. A facility that switched from site-specific to production-adjusted in 2025–26 will show a step change in baseline that is methodological, not operational. gridIQ flags this in the Safeguard Mechanism Tracker surface so that the baseline series can be read correctly.

Why the decline rate isn't uniform across sectors

The headline 4.9% per year is the aggregate trajectory — the rate at which total covered emissions need to fall to hit the national pathway. Individual sector decline rates can sit above or below that figure depending on the sector's default emissions intensity and its share of total covered emissions.

Sectors that have made faster recent abatement progress may face slower per-tonne intensity declines because the aggregate target is partly already accounted for. Trade-exposed sectors may receive different decline treatment under the TEBA mechanism. New facilities entering the scheme apply the international best-practice emissions intensity, which is set tighter than the default for incumbent facilities.

The implication is that you cannot apply a single 4.9% figure to every covered facility and expect to land on the published trajectory. The sector-specific factors matter, and they shift each time the regulator updates the determinations.

What this means for compliance planning

The planning horizon for a Safeguard-covered facility is now structural rather than reactive. A few practical implications follow:

• The trajectory is published, so the shortfall in each year can be projected with confidence. Forward planning is no longer guesswork.
• The choice of surrender instrument — ACCU, SMC, or CCM — needs to be made against current and expected future prices, not just the spot rate in the surrender year. We work through this decision in the third article in this series.
• Banking strategy matters. Facilities expecting to be below baseline in early years can generate SMCs to bank against future shortfall, or sell them. Facilities expecting shortfall in 2027–28 may choose to buy ACCUs in 2026 rather than wait.
• Sustainability and ASRS reporting now needs to disclose Safeguard exposure as a material policy risk. The trajectory is on the regulator's public record — omitting it from disclosure is increasingly difficult to defend.

Where the data sits in gridIQ

gridIQ ingests the CER's published Safeguard facility data each year and surfaces it alongside the rolling carbon market series (ACCU spot, SMC spot, CCM ceiling) drawn from the Quarterly Carbon Market Report. The Safeguard Mechanism Tracker provides facility-level baseline and emissions context. Watt AI can synthesise across the dataset — ask for the baseline trajectory for a specific facility, or how the published intensity compares to a peer in the same sector, and Watt drafts the answer from the underlying time-series without requiring you to open a workbook.

Continue with the second article in this series, which walks through the Quarterly Carbon Market Report itself — how the CER publishes the data, which figures matter, and how to read the seasonal patterns in ACCU and SMC issuance: Reading the QCMR.

Getting started

Every gridIQ account includes a 21-day Professional trial with full access to the Safeguard Mechanism Tracker and Watt AI. Safeguard Mechanism context is included on Professional, PPA Pro, and Enterprise plans; the underlying carbon market data (SMC, ACCU, CCM) is available from Team and above.

Start your trial or read more about the Safeguard Mechanism Tracker.