The Safeguard Mechanism (SM) is the federal government’s net zero policy which targets and mandates large projects and facilities to reduce emissions. The SM mandates that Australia’s most emission-intensive facilities must reduce their carbon emissions below a specified yearly threshold, with the excess to be offset by way of purchasing and surrendering carbon credits.

The use of the carbon credits is to offset emissions to a net baseline level or below. The paper proposes that the mandating of entities to participate in the trade and the surrender of carbon credits functions as a form of carbon tax. Australia cannot control the tariffs that are placed on its exports, but Australian governments at a state and federal level can control the regulatory burdens they are imposing.

Key findings

• The SM will impose a carbon tax cost of up to$1.7 billion per annum to 2030, more than the projected cost of the tariffs imposed on Australia by the United States.
• 80% of projects targeted by the SM are exporters of goods.
• Western Australia, which accounts for 35% of all emissions nationally, will be the most impacted state, with a cumulative carbon tax cost of up to $4 billion between 2024 and 2030.
• The total costs of the SM are multi-faceted and highly uncertain.