December 9, 2025 | 
Author
The Clean Energy Regulator (CER) has released preliminary insights for the 2024–25 Safeguard Mechanism, offering the clearest signal yet of where Australia’s industrial emissions trajectory is heading. While these results will be finalised in April 2026, the preliminary data already shows a tightening compliance environment that will affect almost every large energy user, whether they are directly covered by the Safeguard Mechanism or indirectly exposed through energy costs and supply chain expectations.
Some figures are likely to shift in the final report as facilities resubmit National Greenhouse and Energy Reporting (NGER) data, outstanding Trade-Exposed Baseline Adjustment (TEBA) applications and multi year monitoring period applications are assessed, and baseline adjustments are finalised. Covered emissions, exceedances and the total volume of Safeguard Mechanism Credits (SMCs) issued may all move as these processes unfold.
However, even with expected refinements, the preliminary results point clearly to rising carbon pressure, constrained credit supply and increasing exposure for industrial and multi-site businesses. For businesses managing complex operations, carbon risk is increasing, and proactive planning now matters more than ever.
Covered emissions declined by 2.4%, but baselines fell by 7.3%. That difference matters. Policy is moving faster than most facilities can decarbonise, and the gap will only widen as the annual baseline decline continues towards 2030.
For large energy users, this makes carbon exposure a strategic planning priority. Retail energy markets, reporting obligations and investor expectations are already adjusting to the reality that emissions reductions must accelerate.
Total exceedances have surged by 48.9% this year, with more than 140 facilities now operating above their baseline and a combined excess of 13.7 million tonnes of emissions.
An exceedance simply means a facility has emitted more than its allowable baseline for the year. When this happens, the business must either reduce emissions quickly or purchase credits to make up the difference. The growing volume of exceedances highlights two issues. On site abatement is not scaling at the pace policy demands, and the supply of credits will become increasingly important and contested.
Even businesses well below the safeguard threshold will feel these effects. Rising compliance pressure influences how retailers price carbon exposure, which in turn affects the structure and cost of electricity and gas procurement.
SMCs are issued when a facility emits below its baseline. Each credit represents one tonne of avoided emissions and can be sold or surrendered to help another facility meet its obligations. This year, only 59 facilities generated SMCs, a 15.7% decrease from last year.
With fewer credits entering the market and more facilities operating above their baselines, SMC availability is likely to tighten. In this environment, both SMCs and ACCUs remain essential compliance tools, but reduced supply increases competition and potential cost.
For large energy users, this reinforces the need for deliberate planning. Relying on short term or reactive credit purchases will become more difficult as the market tightens and policy pressure increases.
Seven new TEBA applications and two new multi year monitoring period applications suggest many businesses are already feeling tangible compliance pressure.
TEBA is a mechanism that allows eligible trade exposed facilities to reduce the rate at which their baseline declines.This often includes operations producing globally traded commodities, such as metals, minerals, cement and other heavy industrial products. It is designed to prevent significant cost impacts for businesses that compete in international markets, where they cannot easily pass on carbon costs.
A successful TEBA application gives a facility temporary relief by slowing the annual baseline decline to as low as 1 percent for manufacturing and 2 percent for non manufacturing. These measures help facilities manage near term obligations while they work on longer term abatement, but they are not a substitute for action. TEBA relief is temporary, conditional and requires evidence that emissions reductions will still occur over time.
For energy intensive industries, flexibility is a strategic tool, not an escape route. Credible abatement planning remains central to accessing and benefiting from these measures.
There are encouraging signs of emerging abatement activity across safeguard facilities, including tertiary nitrous oxide (N₂O) abatement and carbon capture and storage (CCS). N₂O abatement involves installing specialised catalysts that destroy nitrous oxide produced during industrial chemical processes, significantly reducing emissions. CCS captures carbon dioxide from industrial exhaust streams and stores it underground to prevent it entering the atmosphere. Both technologies have real potential, but cost, commercial maturity and long lead times continue to slow widespread adoption.
The largest operational emissions reductions this year were also influenced by market conditions, temporary closures and production shifts rather than permanent technology upgrades. This means headline improvements may not reflect sustained decarbonisation. Businesses cannot rely on operational variability to stay below future baselines.
Even if your facility is not directly covered by the Safeguard Mechanism, the downstream effects are already reshaping the broader energy and carbon landscape. Policy is tightening, compliance costs are rising and market behaviour is shifting in ways that every large energy user needs to understand.
Retailers are adjusting their commercial models to reflect the rising cost of compliance for safeguard facilities. As exceedances grow and credit markets tighten, the carbon profile of electricity and gas products will become part of price differentiation. This will influence contract structures, negotiation dynamics and long term budget planning.
Mandatory climate disclosures will lift the bar on emissions transparency. Businesses will need clear line-of-sight over Scope 1, 2 and in many cases Scope 3 emissions, as well as credible transition plans. Supply chain expectations are tightening too, meaning customers may look for evidence that you understand your carbon exposure and have a plan to manage it.
In a tightening policy environment, emissions reduction and energy procurement can no longer be treated as parallel workstreams. Decisions about contract length, renewable supply, demand response, and on-site technologies now carry direct carbon implications. The strongest strategies link procurement, operations, finance and ESG into a single forward plan.
Baseline decline is built into the Safeguard architecture. Each year, the compliance bar gets lower. Delayed abatement, deferred investment or reactive credit purchases all become more expensive and more disruptive over time. Acting early protects operational certainty and gives businesses more flexibility in how they manage their transition.
The Safeguard Mechanism is shifting from a transitional policy to a transformative one. Businesses operating in carbon-exposed sectors now need to move beyond short term compliance and begin planning for structural change. Priority areas should include:
The businesses that get ahead of these changes will be better placed to manage rising risk, control long term costs and demonstrate credible progress to stakeholders, investors and regulators.
Utilizer helps complex organisations understand these shifts and make confident, informed decisions. If you would like deeper insights for your sector or tailored implications for your operations, we are here to help. Reach out to our energy experts today or watch our recent webinar on Australia's 2035 Carbon Mandate for further insights.
