When the Safeguard Mechanism counts an explosion as a win you know it’s time for reform

The Safeguard Mechanism covers 208 of Australia's largest industrial facilities. Most people picture coal mines and gas processors, i.e. the infrastructure we are trying to wind down. And yes, they are in there.

But so are the aluminium smelters, alumina refineries and steel works that will anchor Australia's clean industrial economy. Tomago Aluminium in the Hunter. Boyne Smelter and Queensland Alumina Refinery in Gladstone.

These are not sunset industries. They are what regional communities are built around, what global customers are demanding clean products from, and what Australia will need so we can manufacture and recycle in the clean economy for generations.

The scheme covers both populations. The upcoming review needs to treat them very differently.

Metal manufacturing, including smelters, refineries, steel, has the lowest offset reliance of any sector at 4.8 per cent. Their emissions are not falling yet. But Boyne Smelter has signed one of Australia's most ambitious power purchase agreements, so the question is not whether heavy industry will buy clean power, it’s whether we can build a system capable of selling it to them at the scale and certainty they need.

Coal mining, by contrast, runs at 20 per cent offset reliance. That’s more than four times more than manufacturing. Individual mines are buying offsets equivalent to 70 per cent of their covered emissions just to comply. That is a different problem entirely.

Now look at what the headline number is actually telling us. The scheme covers roughly a third of Australia's annual emissions. The government says the 2.3 per cent reduction is the scheme working as expected. Translate that percentage into tonnes, trace where each tonne came from, and a very different picture emerges.

An explosion is not decarbonisation

A single facility - Grosvenor Mine in Queensland's Bowen Basin - was shut down by a gas explosion in June 2024. Workers evacuated safely, but the mine was sealed for months. That accident removed 1.07 megatonnes from the scheme's covered emissions. By itself, that's 16 per cent of the entire claimed net reduction for the year.

The mine will restart. When it does, those emissions come straight back. Nothing was actually decarbonised. No clean technology was installed. No capital decision was made. A gas explosion happened, and the scheme recorded a win.

Grosvenor wasn't alone. Across eight facilities: nickel operations suspended because of a global price crash, a gas plant undergoing a maintenance shutdown, a petrochemical and a fertilisers facility in market decline - the combined effect was 1.94 megatonnes of net reduction. Around 28 per cent of the headline number came from crisis events that have nothing to do with the scheme driving investment in cleaner production.

The largest single driver of the claimed reduction was facilities buying more carbon credits.

ACCU surrenders jumped from 7.6 million tonnes to 10.8 million tonnes, a 42 per cent surge in a single year. SMC surrenders jumped 86 per cent. Combined, the increase in offset purchases accounts for 4.4 megatonnes of the headline reduction. That is 63 per cent of the government's claimed net result.

When a coal mine buys a vegetation credit, the mine keeps emitting. Someone else, somewhere else in Australia, is storing carbon that offsets the ledger. Emissions are real. The reduction is accounting.

We can't count deindustrialisation as decarbonisation

Set those crisis events aside. Among the 208 fully-covered facilities, 188 were operating in both years. Of those, 102 increased their physical emissions and only 86 decreased. The scheme, across the bulk of Australia's industrial base, produced something close to zero net physical abatement.

When a facility shuts down through an accident, a price crash, a market collapse, the scheme records a win. The percentage improves. The tonnes fall. But we cannot count facilities going dark as a climate achievement. That is not a transition. It is industrial decline with better branding.

If Australia's industrial base quietly hollows out, the safeguard percentage will keep looking better. But the workers in Gladstone and the Hunter won't feel it. And when the clean economy eventually needs someone to build and recycle the next generation of solar panels, wind turbines and batteries, we will have given away the industrial capacity to do it. The circular economy is literally a circle. You cannot close it without making things here. A scheme that records a win every time a facility goes dark is not measuring decarbonisation. It is measuring absence.

The facilities that matter are waiting

In Gladstone, our analysis found that only 12 per cent of the renewable generation capacity needed to power a clean industrial precinct is currently operational or under construction. The Boyne Smelter, the anchor of one of Queensland's most important industrial regions - cannot electrify without transmission infrastructure that isn't yet sized to meet its needs.

We have sat in rooms with some of the people running these facilities and heard what it will take for this region to still be making things in 2040. The answers are always practical: Transmission timing. Renewable energy contracts. Long-term policy stability. The confidence that the rules won't shift before the investment pays back.

Buying offsets is what you do while you are waiting. It is not a substitute for investment.

What the review should actually do

The upcoming review should make two things clearer than they currently are.

First, it should distinguish between the facilities that have a genuine decarbonisation pathway and give them a policy signal strong enough to justify the capital commitment. That means stronger on-site abatement requirements for facilities that can act, and a more honest accounting of what offset reliance at what scale actually tells us about a facility's direction of travel.

Second, it should integrate with the infrastructure sequencing that determines whether clean energy is actually available for industrial facilities to use.

The review cannot build transmission lines, but it can stop penalising facilities for delays they didn't cause, and explicitly recognise infrastructure readiness as a condition of compliance expectations. The safeguard drives demand for clean energy. Transmission and renewable investment determine whether supply can meet that demand. Right now those two systems are not talking to each other at the regional level in any meaningful way.

The regions that get this sequencing right in the next five years will be making things for the next 50. The review is one of the levers that determines whether that happens.

The facilities gaming this scheme are the ones we’re winding down. The ones we need to keep are the ones it's failing.