COP27: What about Australia?
So far in our COP27 series we have revisited and reflected on the outcomes of COP26, the progress that has been made, and what we can expect for the future. We have also looked at the NDCs of key economies across major geographic regions. Our third article takes a home grown approach, and looks at what is happening particularly in industry across Australia, and where the major policy challenges lie for the future ahead.
Our first article, which looks at the high-level happenings since COP26, and what we can expect for COP27 can be found here.
Our second article, which looks at the Nationally Determined Contributions and policies across major geographic regions can be found here.
Background
The IPCC has stated that the road to 1.5 degrees requires the imposition of stringent near-term emissions reductions: a halving of greenhouse gas emissions by 2030, and CO2 emissions globally reaching net-zero by 2050. This emissions reduction approach will provide the greatest opportunity to avoid the worst impacts of climate change.
As of September 2022, Australia has legislated its commitment to net-zero by 2050, with shorter term targets under its NDC providing for a 43% reduction on 2005 levels by 2030.
Australia is ranked 14th in emissions output compared to all countries (contributing ~1-2% to global emissions levels), and as of March 2022 (per the Department of Climate Change, Energy, the Environment and Water) had emissions 1.5% higher than those of 2021 levels (albeit ~2% lower than 2020 levels). However, despite this short-term rise, looking at the bigger picture, Australia’s current levels of emissions are 21.6% below 2005 levels (the baseline year for Australia’s 2030 target under the Paris Agreement), and 23.9% below 1990 levels. Australia’s emissions intensity is also at its lowest level in 32 years, down 68.9% on 1990 levels.
Whilst significant, it is predicted that the current policies in place will only keep warming between 2 and 3 degrees – with significant work to be done to reach the 43% reduction mentioned earlier. The challenge to meet these proposed targets is substantial. Australia’s emissions profile is not dominated by an individual industry or sector, and so reform will be needed across the entire economy. Also, while overall emissions have decreased on 1990 levels, several industries have continued to rise in the intervening period. Since 1990, direct emissions have increased by 115.6% within the mining sector, 64.3% across construction & transport, 31.5% across the residential sector, and 24% across electricity, gas, water and waste. However, the outsized proportion of direct emissions from agriculture, forestry and fishing have dropped by 68%, leading to the net overall decrease in national emissions. Below we examine, by sector, the major steps taken by industry, and government policies related to emissions reduction.
Energy
Emissions from the energy sector accounted for 34% of Australia’s total emission in 2019 (now sitting at 32.8% in 2022), or 179 Mt CO₂-e. This level of emissions was reached on the back of a reliance on the burning of fuels for power to generate electricity. The DCCEEW predicts that this will decrease to 127 Mt CO₂-e by 2025 and 88 Mt CO₂-e by 2030. This downward trend is due to the large amount of renewable capacity that is expected to enter the market. The reduction in emissions is mainly expected in the National Electricity Market (NEM) on the east coast, with a predicted drop in emissions from 150 Mt CO₂-e in 2019 to 64 Mt CO₂-e in 2030. Comparably, the WEM is only predicted to fall from 11 Mt CO₂-e to 8 Mt CO₂-e. The DCCEEW emissions projections, given the time of publication, does not account for the WA Governments recent announcement to phase out coal by 2030.
The Federal Government policies which will have the most effect on emissions in the energy sector, include the Safeguard Mechanism, the Technology Investment Roadmap, as well as the Large-Scale Renewable Energy Target (which inventivises the development of renewable energy through the creation and sale of Large-Scale Generation Certificates (LGCs). Compared to other sectors, the Federal Government has been proactive also introducing other policies, such as:
The Small-Scale Renewable Energy Scheme, which provides financial incentives to individuals and small business to install small-scale renewable energy systems; and
The National Energy Productivity Plan, which looks to establish firm commitments to reaching an energy productivity target of 40% improvement.
On a state-based level, there has been significant undertakings to decarbonise the energy sector such as:
The introduction of state-based renewable energy targets, across QLD (80% by 2035), Victoria (50% by 2030), the ACT (already 100% renewable from 2020), Tasmania (already 100% with plans to be 200% by 2040), NT (50% by 2030), and SA (100% by 2030). WA has also recently introduced an emissions reduction target of 80% by 2030; and
The NSW Electricity Infrastructure Roadmap, which coordinates investment across transmission, generation, storage and firming. Other examples of state-based infrastructure plans include the QLD Energy and Jobs Plan, and Victoria’s Infrastructure Strategy 2021-2051.
Overall, the DCCEEW predicts this reduction in emissions largely as the result of coal-fired power plant closures, and subsequent replacement by utility scale renewables and storage. For example, Origin has brought forward the closure of the Eraring power plant by 7 years to August 2025, with the site to be repurposed into a large-scale battery with a capacity of up to 700MW.
Construction
Construction generates nearly 25% of Australian emissions, 10% of which comes from embodied emissions (emissions from the manufacturing and construction processes). Additionally, construction generated ~29.6% of total waste in 2016-2017. Whilst there are methods to reduce emissions in the construction industry, it is predicted this will incur 8%-30% increase in additional costs.
At a Federal and State Level, relevant policies to assist the decarbonization of the construction sector include:
The Trajectory for Low Energy Buildings, looking to achieve zero energy and carbon ready commercial/residential buildings; and
Energy efficiency measures across states, for example the QLD Development Code which sets a base level for a 6-star energy equivalence rating.
Whilst there are many types of technologies being developed overseas (e.g. reducing emissions in concrete), the technology that is currently being most developed in Australia is 3D printing. An example of lower emissions technology in Australia is the use of the 3D printing by Luyten in it’s Indigenous housing project in Alice Springs.
Transport
Emissions from the transport sector accounted for ~19% of Australia’s total emissions in 2019, or 100 Mt CO₂-e, on the back of emissions form the combustion of fuels for a variety of transport methods. These emissions are expected to decrease by 3 Mt CO₂-e between 2019 and 2030, in which the DCCEEW predicts will be driven primarily by an increasing number of EVs on the roads (up to 1,732,000 in 2030) and the potential for increased scope of fuel emissions standards.
At a sector-specific policy level, the new Labour Government is looking to introduce a new National Electric Vehicle Strategy, which will look to create a globally competitive market for EVs. The previous Liberal Government had also introduced the Future Fuels and Vehicles Strategy. At a state-based level, industry plans such as this have already been seen in every state across the nation.
Industry is also taking actions in this section, an example of industry action includes Qube partnering with OZ Minerals and Janus Electric heavy vehicles to begin use of electric trucks across the Australian outback, which will assist in assessing the feasibility of electric trucks across long-haul trucking routes.
Agriculture
The agricultural industry accounted for 14% of emissions in Australia in 2019 and is expected to increase by 1 Mt CO₂-e between 2019 and 2025, stabilising until 2030. The primary emitters among the agricultural sub-sectors include grazing beef and sheep.
At a Federal and State Level, relevant policies include:
The National Soil Strategy, National Soil Carbon Innovation Challenge. and technology trials for low-emissions feed supplements, with the objective of fast-tracking development of lower-cost, accurate technical approaches to quantifying the impact of land management on soil organic carbon; and
Other notable measures within agriculture, for examples, including the QLD Low Emissions Agriculture Roadmap, NSW Primary Industries Productivity and Abatement Program and Victoria’s Agriculture Sector Emissions Reduction Pledge. These measures are designed to help land managers, investors and the supply chain in understanding environmental performance and action within the sector.
Industry led initiatives include Meat & Livestock Australia (MLA), the declared industry marketing and research body for the Australian Meat and Livestock industry, announcing its intention to be carbon natural by 2030. To do so, they will be targeting $120m of investment into R&D and adoption initiatives. In addition, the National Farmers Federation has backed the Net Carbon Zero by 2050 pledge made by the Federal Government.
Manufacturing
Australia’s manufacturing industry is expected to see a decrease in emissions from 30 Mt CO₂-e to 28 Mt CO₂-e by 2025, and then to 27 Mt CO₂-e by 2030. Currently, manufacturing accounts for 6.6% of Australia’s emissions, which has remained significant overtime due to overproduction, waste, and reliance on fossil fuels. The downward trend in the reduction of emissions will occur despite an increase in expected manufacturing output, due to an increase in the uptake of emission reduction opportunities.
At a Federal Level, policies include:
The Safeguard Mechanism, in addition to the Climate Solutions Fund and Climate Active Framework (which support the overall Technology Roadmap);
Increasing development of Clean Hydrogen Industrial Hubs, which forms part of the National Hydrogen Strategy and the activation of the regional hydrogen industry through the Clean Hydrogen Industrial Hubs Program;
Increased funding for carbon capture, use and storage projects, with $500,000 to $25m available for pilot or pre-commercial CCUS projects, that could potentially connect into a regional hub. Overall, $50m is available for dispersion; and
A legislated phase down of hydrofluorocarbons (HFCs), which looks to reduce the maximum amount of HFCs permitted to be imported, over a gradual timeframe.
QLD also has a 10-year Manufacturing Strategy, with similar strategies being seen in NSW through the Advanced Manufacturing Industry Development Strategy, as well as other strategies in Victoria, the NT and SA.
Some private sector initiatives include:
Tomago Aluminium has opened talks to be predominantly powered by renewable energy post-2028. Currently, Tomago uses 11% of the energy within the NSW Grid; and
BlueScope Steel is investing $150 million to decarbonise its operations., first focusing on a green steel pilot project.
Mining
Whilst the transition to net zero demands a reduction in emissions, new technologies have increased demand for other materials, such as gold, iron, copper, nickel, and lithium. The uptake in demand for these metals is the primary driver behind an increase in emissions from 19 to 20 Mt CO₂-e, of which coal mining contributes nearly 50% of all fugitive emissions. This increase in emissions will continue to 2025 before being predicted to stabilize pre-2030. These assumptions and forecasts used (plus future references to these) have been extracted from the Department of Climate Change, Energy, the Environment and Water’s (DCCEEW) Australia’s Emissions Projections 2021 Report, and National Greenhouse Gas Inventory Quarterly Update: March 2022.
Federal Government policies that are likely to touch upon the mining sector, include:
The Safeguard Mechanism, which places baseline emissions limits on large emitters and is a way to measure, report and manage their emissions;
The Technology Investment Roadmap and Low Emissions Technology Statement, which sets a process and targeted government investment to develop and then deploy low emissions technologies;
The Climate Solutions Fund, which provides incentives to emitters to avoid or reduce emissions;
The Climate Active Framework, which awards Climate Active Certification to businesses that have credibly reached net-zero emissions; and
The development of Clean Hydrogen Industrial Hubs, which forms part of the National Hydrogen Strategy.
At a state-based level, industry plans such as the Queensland Resources Industry Development Plan, are placing an increased focus on decarbonisation and the strengthening of ESG credentials.
In addition, the DCCEEW mention this relatively small increase in emissions primarily results from the introduction of emissions reducing technologies, such as advanced engine technologies, increasing automations, and the electrification of mining equipment. An example of this includes:
Pilbara Minerals’ Pilgangoora Project, which has invested in emissions measurement and monitoring technologies, installed sources of renewable energy to replace 3.8m liters of annual diesel usage, and adopted external reporting in line with the TCFD Framework.
Waste
Waste accounted for 3% of Australia’s emissions in 2019 (or 13 Mt CO₂-e), and this is expected to reduce to 12 Mt CO₂-e by 2025 and 11 Mt CO₂-e by 2030. Waste’s contributions now sit at around 2.7% of Australia’s emissions, with this level being reached on the back of methane emissions from organic matter and other emissions from wastewater.
This downward trend in the Waste sector is driven by reduced emissions from solid waste, to be achieved through reducing the amount of waste reaching landfill. Solid waste is expected to decrease by 3 Mt CO₂-e between 2019 and 2030 which will be offset marginally by increased wastewater emissions due to population growth (mentioned above).
The Federal Government policies, at a sector-specific level include:
The National Waste Policy Action Plan, which sets key objectives (e.g. reducing total water per person by 10%) to reduce waste and implement the 2018 National Waste Policy; and
The National Food Waste Strategy, to support the halving of Australia’s food waste by 2030, aided by $10m in research funding and $4m in established an oversight body.
At a state level, QLD has introduced an Organics Strategy and Action Plan, and NSW has introduced a Waste and Sustainable Materials Strategy. Nearly all other state governments have some sort of plan, program, or target with regards to food waste.
From an industry perspective, several organisations have a focus on reducing food waste, with an example including Stop Food Waste Australia, in collaboration with other organizations, releasing Section Action Plans for the reduction in waste across specific parts of the supply chain or food sectors.
Policy challenges ahead
Alarmingly, once the electricity sector (which is decarbonising quickly) and forestry-specific sectors (which has already drastically reduced emissions) are factored out, emissions from the remaining industries are expected to increase by 9% above 2005 levels by 2030. This encompasses Transport, Agriculture, Manufacturing, Waste and Mining.
With emissions expected to continue to rise in the medium term across every sector other than energy, there are serious questions as to whether other sectors can meet longer term challenges. Even with the introduction of the new Labour Government, there remains some skepticism over the sustainability of core Federal policy. Such an issue has been raised with the recent Safeguard Mechanism, where the Government is consulting on an independent review of the Australian Carbon Credit Units Scheme after backlash and criticism from multiple parties. Issues have also been raised around amount of funding and commitment to carbon capture and storage, which is expected to play a significant role in offsetting Australian emissions where decarbonisation is not possible.
The expectations for other sectors also places an extraordinarily heavy burden on the energy sector to decarbonise quickly and, while there is line of sight to how this may be achieved, there are significant challenges in the regulatory, financial and construction environment.
When you compare state led initiatives to that of the Federal Government, the industry plans for sectors are more targeted, and ambitious than those at a federal level. The proliferation of comprehensive renewable energy targets, as well as integrated infrastructure plans provide a more efficient and organised approach to emissions reductions across vulnerable sectors. There remains a challenge for the Federal Government to bring its own policies up to speed with states and industry.
For more information, please contact Arvind Sharma at asharma@rennieadvisory.com.au
Contributions: Arvind Sharma, David Northcott, Angus Mival, and Dylan Tyler-Moss