Australia’s safeguard demand at 13.4mn, new SMCs at 7mn | Latest Market News

Australia’s industrial emitters are on track to surrender up to 13.4 million carbon units for the July 2024–June 2025 compliance year, a sharp year-on-year rise of roughly 4.2 million. At the same time, issuance of safeguard mechanism credits (SMCs) is poised to remain substantial at around 7 million units, according to preliminary figures released alongside the latest national climate progress assessments.

Key takeaways from the latest data

• Up to 13.4 million carbon units could be surrendered in 2024–25 as facilities exceed their emissions baselines.
• About 59 of 207 covered facilities could generate as much as 7 million SMCs in 2024–25, only slightly lower than the final eligibility tally of 8.5 million the year before.
• Facilities face a 4.9% annual decline in emissions baselines through 2029–30, tightening the pathway and raising compliance pressure.

The safeguard mechanism applies to large sites emitting more than 100,000 tonnes of CO2-equivalent per year across sectors such as resources, manufacturing, and energy. Facilities that keep scope 1 emissions below their baseline can earn SMCs; those above must acquit the excess with SMCs or Australian Carbon Credit Units (ACCUs).

Why compliance demand is rising

Preliminary analysis indicates that 140 facilities exceeded their baselines in 2024–25 by a combined 13.4 million tonnes of CO2e. A year earlier, 142 facilities overshot by 9.2 million tonnes. The lift reflects tighter baselines and the time needed for heavy industry to deploy cleaner technologies, optimize operations, or shift to lower-carbon fuels.

SMC eligibility is also narrowing as baselines fall. While potential issuance remains robust at about 7 million units for 2024–25, it is trending lower than initial estimates in the previous year, underscoring how much harder it is to earn credits without significant abatement or efficiency gains.

Flexibility tools will temper the headline number

Despite the 13.4 million-tonne exceedance figure, actual surrenders are likely to finish lower once flexibility measures are applied. These include trade-exposed baseline-adjusted (TEBA) arrangements and multi-year monitoring periods, which can smooth compliance over time for emissions-intensive, trade-exposed operations.

Recent history illustrates this pattern. An earlier estimate of exceedances for 2023–24 was about 10.7 million tonnes, yet surrenders totaled 8.44 million units by the 31 March 2025 deadline, with a small number of facilities missing around 800,000 units. SMC eligibility for 2023–24 was initially placed near 9.2 million but finalized closer to 8.5 million, with most already issued and others still claimable as there is no deadline to request eligible SMCs.

Updated projections reshape the medium-term outlook

New projections indicate SMC generation in 2024–25 is stronger than previously expected. Earlier forecasts had put 2025 issuance at around 5.7 million units. For 2026, projected SMC creation has been revised up to roughly 5.34 million from 4.86 million. Beyond that, however, expectations are more conservative: total SMC issuance across 2026–2035 is now placed near 58.17 million, down about 8.63 million compared with prior estimates. The recalibration suggests steadily tightening baselines and more challenging pathways to exceed them.

On the demand side, net requirements for ACCUs and SMCs in 2026 are now seen closer to 11.42 million, reduced from a previous outlook of 14.33 million. For later years, projected demand is mostly higher than earlier estimates, signaling a compliance landscape where abatement investment and credit market dynamics will both play crucial roles.

Emissions trend: modest decline amid structural change

Total gross emissions across covered facilities are expected to come in around 132.7 million tonnes of CO2e for 2024–25, down from 135.9 million a year earlier — a decrease of about 2.4%. Net emissions are estimated at roughly 119.6 million tonnes, compared with 127.5 million previously. That differential implies anticipated surrenders of approximately 13.1 million units to close the gap between gross and net outcomes.

The reduction in gross emissions stems in part from a smaller number of facilities meeting the 100,000-tonne threshold, some due to permanent closure, lower production, or temporary shutdowns. While not driven exclusively by decarbonization, this structural shift aligns with the broader trend toward lower emissions intensity and the increasing stringency of the safeguard mechanism.

What it means for industry and the carbon market

For large emitters, the tightening baseline trajectory amplifies the business case for near-term abatement: energy efficiency, process changes, electrification, fuel switching, and adoption of low-emissions technologies. Companies able to get ahead of the baseline decline can earn SMCs and reduce exposure to rising compliance needs. Others may lean more heavily on ACCUs and flexibility provisions in the short run, but will face mounting pressure to cut direct emissions over time.

For the carbon market, higher surrender volumes alongside solid SMC issuance imply active trading conditions. The balance between ACCU demand, SMC supply, and the pace of industrial abatement will shape price signals and investment decisions across the coming years. With baselines set to keep tightening through 2029–30, the incentive to invest in permanent emissions reductions — rather than relying solely on credits — is set to grow stronger.