Meeting Safeguard Mechanism Obligations: Proactive Steps for Compliance Success

Australia’s Safeguard Mechanism is in full swing, mandating an ambitious annual emissions reduction of 4.9% for the nation’s largest industrial facilities until 2030. With an anticipated 10 million tons of compliance demand in the first period alone, companies under the scheme face a rapidly changing landscape for Australian Carbon Credit Units (ACCUs). The urgency for businesses to secure ACCUs and develop proactive compliance strategies cannot be overstated.

Why ACCU Prices Are Set to Rise

The ACCU market’s trajectory is shaped by two dominant forces: supply uncertainty and rising demand. Here’s why prices are poised to climb in the coming years:

• Tightening supply due to delayed methodologies. According to the Q3 NGERS Market Update, 61% of the 41.3 million ACCUs currently held are concentrated in Safeguard accounts, leaving little room for new entrants.
• Rising demand from compliance entities. The first compliance period drives unprecedented demand. With the first major deadline approaching on March 31, 2025, companies are scrambling to procure ACCUs. ANZ Bank expects ACCU prices to increase by 75% to AUD 70 per ton by 2025, reflecting the ramp-up in demand and dwindling availability of credits. Current ACCU prices around AUD 36/t are 15% below AUD 43/t highs, with simultaneous market volume entering in Q1 2025.

Additional pressure from voluntary demand. Certifications like “Climate Active” add to demand, putting further strain on the market.

The Financial Risks of Waiting

Delaying ACCU procurement has costs. Companies could face:

• Price volatility. ACCU prices have shown year-on-year fluctuations of up to ±30%, and future spikes are expected as demand outpaces supply.
• Limited availability. Most spot and forward volumes are already contracted by top emitters, developers, and speculators. Waiting until 2027 or later could leave businesses without access to needed credits.
• Compliance penalties. Missing reduction targets or deadlines may lead to penalties (including a AUD $275/t penalty fee for non-compliance) and reputational damage.

Access the Key Insights for Navigating Australia’s Safeguard Mechanism

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Lessons from Global Markets

Companies under Australia’s Safeguard Mechanism can draw valuable insights from established compliance markets such as the EU Emissions Trading Scheme (ETS). In Europe, early movers who secured compliance credits ahead of deadlines managed to hedge against price surges and protect financial stability. Australian companies that act early can benefit similarly by developing risk-management and procurement strategies tailored to their needs.

Proactive Strategies for Safeguard Compliance

To navigate the complexities of the Safeguard Mechanism and the ACCU market, companies should consider adopting the following:

• Lock in ACCU prices now through forward contracts. This secures ACCUs at today’s rates, reduces exposure to future price hikes and helps with budget planning. Delivery dates typically occur in the future (months later), with payment after delivery. This flexibility can ease working capital constraints.
• Diversify procurement approaches. Use floating price structures to maintain flexibility while balancing market risks. Gradually lock in prices over time through forward ratable hedging to average out costs and minimize exposure to volatility.
• Stay ahead with market intelligence. Partner with experts to access real-time updates on policy developments, supply trends, and price forecasts. For example, Reputex reports anticipate significant supply constraints by 2027, emphasizing the value of early planning.
• Invest in facility-level abatement. While procuring ACCUs is essential, exploring emissions reductions within your operations helps reduce costs and complements external compliance strategies.

Upcoming Deadline: March 31, 2025

Time is of the essence. Compliance entities must surrender ACCUs by March 31 annually. The 2025 deadline looms large. Delaying increases exposure to price surges, liquidity issues and limited options for procurement.

Take Action Today

The Safeguard Mechanism represents both a challenge and an opportunity for Australian companies. By acting now, you can secure ACCUs, stabilise compliance costs and position your business for long-term success in a low-carbon economy. Don’t wait for prices to escalate or supply to run thin — proactive planning is your best defence against market uncertainty.

Contact STRIVE by STX today to explore tailored solutions for your Safeguard Mechanism obligations and begin your path toward compliance and sustainability.

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