A2EP calls for a fairer path to industrial decarbonisation in Safeguard Mechanism review
On Friday 18 September, A2EP lodged its submission to the federal Department of Climate Change, Energy, the Environment and Water's (DCCEEW) 2026-27 Review of the Safeguard Mechanism, arguing that the instrument driving Australia's largest emitters to decarbonise needs to be matched to the very different economics facing manufacturers versus resource extraction companies.
We support the decarbonisation of trade-exposed manufacturing: our Members - including Manildra, CSR and Tronox - are already investing in it, often well ahead of any regulatory requirement. However, we argue in the submission that the Safeguard Mechanism, in its current form, is the wrong tool for that sector. The Mechanism was designed around high-margin extraction sites, where the emissions in question typically carry no direct cost (fugitive emissions) or a small share of total cost (diesel, gas). For manufacturers, energy is usually the very input that turns raw material into higher-value product - so making it dearer taxes value-add rather than waste, on businesses with far less capacity to absorb the cost.
The evidence backs this up. Our analysis shows extraction-sector businesses switching from diesel to electricity already save money, with electricity is roughly 80% cheaper on a like-for-like basis. Manufacturers switching from gas to electricity face the opposite with electricity costing 1.5 to 2.2 times more. It's close to a tenfold swing in relative attractiveness between the two fuel switches, which explains why the same mechanism can drive genuine abatement in one sector while simply imposing cost without a pathway in the other.
HIGHLIGHT - Table 1: Gas and diesel prices compared with electricity, $/MWh equivalent (efficiency-adjusted)
Fuel | Typical price | Typical efficiency | Price ($/MWh, adj.) | Electricity price | Spark gap |
Gas - large site | $10.00/GJ | 80% | $45.00/MWh | $100.00/MWh | 2.2× |
Gas - medium site | $15.00/GJ | 80% | $67.50/MWh | $100.00/MWh | 1.48× |
Diesel | $1.70/litre | 30% | $528.50/MWh | $100.00/MWh | 0.19× |
A ratio above 1× means electricity is the more expensive energy source; below 1× means electricity is cheaper. Source: A2EP submission, Part C2, Table 1.
The submission sets out nine recommendations, built around one practical goal: matching the policy instrument to the constraint manufacturers actually face.
Key recommendations in our submission include replacing the current cost-trigger test for Trade-Exposed Baseline Adjustment (TEBA) eligibility with an automatic, criteria-based four-gate test - covering sector, sovereign risk, ability to pay and technology availability - so at-risk facilities get a low, predictable decline rate without needing to separately prove cost impact each time. A2EP also urges DCCEEW not to lower the current 100,000 t CO2-e coverage threshold in this review, and if it is lowered regardless, to set it no lower than 50,000 t CO2- e and only once viable abatement pathways exist for newly captured facilities.
Other recommendations call for a longer, technology-linked catch-up timeline for manufacturing (rather than the same convergence schedule as extraction), extended multi-year monitoring for facilities pursuing feedstock-constrained pathways like biomethane, a redesign of government support to combine a simple criteria-based track for smaller projects with a price-discovery auction for larger ones, and a review of whether the existing cost-containment pool can handle an expanded, harder-to-abate cohort.
The submission also raises a caution often missing from the broader debate: facility closures shouldn't automatically be counted as clean emissions reductions. For example, Sydney meat-processing facility whose closure has reportedly pushed offcuts to landfill instead of processing, generating methane emissions that wouldn't otherwise have occurred. We need a Scope 3, economy-wide lens before any closure is treated as a genuine abatement outcome.
Our positions in the submission were drawn from workshops with our Members, interviews and case studies, including real examples of manufacturers already investing in decarbonisation - such as Manildra's $44 million heat-recovery upgrade at Shoalhaven Starches (expected to cut around 95,000 t CO2-e a year) and Tronox's ARENA-backed feasibility study for a thermal energy storage system at its Kwinana plant. The message throughout is not that manufacturers won't decarbonise, but that they need an instrument suited to their economics, not a heavier version of the one built for a different sector.
