Australia’s 2035 NDC introduces a five-year emissions budget and higher ambition. We consider what this tells us about where policy is heading and what it could mean for the domestic market.
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Australia’s new 2035 climate target tightens the country’s long-term emissions trajectory, setting an economy-wide reduction of 62 to 70 per cent below 2005 levels.
Unlike previous commitments, the 2035 Nationally Determined Contribution (NDC) is framed as a five-year emissions budget for 2031–2035 rather than a single-year goal. That technical shift has important implications for how progress is measured and managed.
For the carbon market, however, this higher ambition doesn’t mean immediate change.
The Safeguard Mechanism remains the central policy architecture guiding Australia’s industrial emissions reductions. Current baselines, crediting rules and coverage thresholds stay in place until at least the outcomes of the 2026–27 Safeguard review. It is that review - not the NDC itself – that will determine how Australia’s compliance system might adjust to meet the steeper trajectory.
This article considers what the new NDC tells us about where policy is heading and what it could mean for the domestic market.
It looks at:
For now, policy settings hold steady. The test will come in the 2026–27 review, when the government reviews how firmly the 2035 target is built into the Safeguard Mechanism, and the market decides what it means in practice.
Australia’s 2035 NDC introduces two key shifts in how national emissions ambition is defined and managed:
The five-year budget establishes a cumulative cap – the total greenhouse gases Australia can emit across the period. Unlike the 2030 NDC, which included both a multi-year budget (2021–2030) and a single-year target, the 2035 framework applies only the budget approach. Progress will be assessed against total emissions released over 2031–2035, not a single point in time.
The range sets the level of ambition within that structure. It defines the upper and lower limits of the allowable emissions budget, derived from straight-line trajectories to 62% and 70% reductions below 2005 levels.
Earlier targets, such as 43% below 2005 levels by 2030, were single-year outcomes. The 2035 budget instead measures cumulative performance, altering how ambition and progress are evaluated.
By accounting for total emissions across the period, the budget structure makes it harder to defer reductions until the final years – a practical incentive for steadier progress through the 2030s.
CORE Markets’ upcoming Carbon Markets Report – exclusive to Carbon Intelligence Package subscribers - will provide a deeper analysis of how the 2031–2035 budget could influence future baseline decline rates under the Safeguard Mechanism.
Australia’s higher 2035 ambition does not change current Safeguard Mechanism settings.
Existing baselines, crediting rules and coverage thresholds apply until at least the scheduled 2026–27 review. The review is to be led by the Department of Climate Change, Energy, the Environment and Water (DCCEEW), with implementation and regulatory oversight by the Clean Energy Regulator (CER).
The review will assess the scheme’s performance to date, and is expected to re-calibrate parameters, not redesign the scheme. Market intelligence indicates the current architecture will remain in place while settings are adjusted to align the post-2030 pathway with national targets.
What stays steady to 2030:
Focus areas we expect to be in scope for the 2026-27 Safeguard review:
What does this mean for the market?
Through to 2030, policy stability holds. The review is the inflection where potential setting changes – even without structural reform – could shift ACCU demand, forward curves and liquidity, particularly if decline rates tighten and coverage broadens.
Australia’s 2035 NDC does not commit to importing or exporting international carbon credits – known as Internationally Transferred Mitigation Outcomes (ITMOs) – under Article 6 of the Paris Agreement. However, it also does not explicitly rule it out.
At present, Safeguard Mechanism compliance can be met only with Australian Carbon Credit Units (ACCUs) or Safeguard Mechanism Credits (SMCs). No international units are eligible for use.
The Climate Change Authority (CCA) has noted that government could in future support private finance flows to decarbonisation projects in developing countries by accepting ITMOs for compliance under schemes such as the Safeguard Mechanism.
This is not a policy commitment, but it does open the door for international credit use to be reconsidered in future policy cycles, subject to government direction and Australia’s evolving international accounting framework.
Potential drivers include cost containment, increased liquidity of eligible compliance credits, regional cooperation under Article 6.2, and private finance mobilisation.
Any future consideration of ITMOs under Australian policy would depend on a government decision to permit their use within the Safeguard Mechanism and on how equivalence with domestic integrity standards is defined. While Article 6 frameworks are operational in several countries, Australia’s participation remains a matter of policy choice.
The earliest likely window for the government to revisit international credit eligibility is expected to be during the 2026–27 Safeguard review.
Article 6 developments are also tracked by CORE Markets in our Carbon Markets Report.
The 2026–27 Safeguard review is expected to mark the transition point from framework design to operational tightening – ushering in a decade of incremental but sustained pressure across Australia’s compliance market.
The Safeguard Mechanism is expected to remain the cornerstone of Australia’s industrial emissions policy beyond 2030.
However, a stable structure does not mean a static market.
As decline rates tighten, ACCU demand will likely increase, prompting stronger forward procurement with liable entities developing longer-term strategies to secure their access to supply. We are already seeing a more sophisticated procurement approach from Safeguard entities, with contracting horizons extending, and counterparties beginning to price in post-2030 obligations.
Supply response – particularly the pace of new project establishment – will determine how the market balances supply with the growing demand.
The next decade’s ACCU market trajectory will hinge on the stringency of the post-2030 baselines, the government’s position on international credit use, and the availability of cost-effective domestic supply.
Each will influence how compliance costs, liquidity and price volatility evolve through the 2030s.
These dynamics are examined further in the latest CORE Markets ACCU Market Forecast Report.
In the lead up to the 2026-27 scheme review, this is the window for market participants to prepare. Policy stability may hold for now, but exposure will inevitably tighten, likely from 2030 onwards. Understanding potential baseline settings, sector impacts and the role of international credits will be central to cost and procurement planning.
CORE Markets continues to model these transition points - delivering live market insights, detailed market analysis, ACCU demand, supply and price forecasts and access to market experts through our Carbon Intelligence Package. Learn more here or contact the team to discuss your requirements.
Australia’s 2035 NDC: What it means for the Safeguard Mechanism and the carbon market’s next phase
