Australia’s net zero plan is looking a lot like an electricity-only plan

The past three years have seen a stronger commitment to encouraging economy-wide decarbonisation, as seen through reforms to the Safeguard Mechanism and new policies like the New Vehicle Efficiency Standard and Future Made in Australia. But the release of two emissions reduction progress reports paints a sobering reality – no sector other than electricity is doing anything to help Australia meet its 2030 target. 

Is this leading to the proverbial “all eggs in one basket”? Or is electricity decarbonisation really the only viable pathway to 43 per cent by 2030?

Australia’s emissions projections 2024

Each year, the Department of Climate Change, Energy, Environment, and Water (DCCEEW) publishes its emissions projections. This document tracks the trajectory of Australia’s emissions since 2005 and uses certain policy assumptions to test what the future emissions decline rate is likely to be.

DCCEEW’s Emissions Projections 2024 indicate that Australia is on track to meet its 43 per cent emissions reduction target by 2030. This represents a sizeable jump from the previous year which said Australia was closer to 37 per cent.

The main reason for this difference is because of a change in policy assumptions. The Department is now assuming  Australia will be 82 per cent renewables by 2030, which it says is achievable due to the implementation of the Capacity Investment Scheme (CIS).

The practical impact of this policy assumption is illustrated in the figure below, which shows the emissions reductions of each sector from now until 2030.

Figure 1: Change in the baseline scenario emissions from 2024 to 2030 by sector, Mt CO₂-e

Source: DCCEEW’s Emissions Projections 2024, p21.

It goes without saying that Australia’s ability to meet its 43 per cent target rests almost solely on the electricity sector being 82 per cent renewables by 2030. In fact, if the above is realised,  Australia’s emissions will, according to DCCEEW, decline faster between 2027 and 2030 (-82 Mt CO₂-e) than they will for the next ten years after that (-81 Mt CO₂-e).

But a simultaneous report released by the independent Climate Change Authority (CCA) casts doubt about the realism of this policy assumption.

The CCA’s word of caution

The CCA’s Annual Progress Report measures Australia’s emissions progress compared to the previous year, as well as how Australia is tracking towards its targets. Its headline finding is that “Australia’s emissions are falling, but not yet at the rate needed to meet the 2030 target”.

The CCA says emissions from here on must fall by 15 Mt CO₂-e per year on average to reach the 2030 target. For perspective, emissions only fell by 3 Mt CO₂-e on the previous year.

Figure 2: Sector emissions in 2023 and 2024 and the annual change in emissions

Source: CCA’s Annual Progress Report 2024, p33.

More tellingly, the CCA raised caution about progress towards the Federal Government’s 82 per cent renewable energy target: “Australia is currently deploying renewable energy infrastructure at about half the annual rate needed to reach the 2030 renewables target”, and  “when accounting for projects in the pipeline that are also eligible for the CIS, a gap of approximately 8 GW is projected to remain to reach the additional 33 GW the authority considers is necessary for the 82% target”.

These concerns are not new. The AEC presented to the CCA back in mid-2023 that 82 per cent faces severe supply-side challenges that make a 2030 deadline “appear overwhelming”:

• Supply-chain limitations on the complex equipment required to build and connect large-scale renewables.
• Skill shortages, particularly with respect to electrical networks.
• Land-use resistance to network infrastructure and extended permitting processes.
• Extended design, technical approval and build times for connection assets, stabilization equipment (e.g. synchronous condensers), long-distance transmission and pumped-hydro storage.
• Slow progress in developing the necessary tools to understand the complex phenomena resulting from deep penetration of inverter-based resources on a large electrical grid.

While the Capacity Investment Scheme has helped create new demand signals to incentivise renewable build, many of these supply-side constraints still remain. In fact, some of the CCA’s recommendations this year to improve the rate of renewable deployment focus squarely on improving the supply side of things.

Figure 3: Some of the CCA’s recommendations to improve renewable deployment

Source: CCA’s Annual Progress Report 2024

What happens if Australia does not reach 82 per cent?

The challenge facing the Federal Government is there is nothing scientific about the 82 per cent target – it is a policy target, but an arbitrary one at that. This makes planning an electricity system around it extremely difficult, especially while balancing reliability and affordability.

This all invites a very obvious question: what happens if the electricity sector is not 82 per cent renewables by 2030? The CCA answered this in last year’s report: “every percentage point we fall short of achieving 82 per cent renewables equates to roughly 2 Mt CO₂-e that needs to be reduced elsewhere in the economy”.

This seems to take a point-in-time approach – i.e. if the electricity sector is 78 per cent in 2030, then we need to abate around 8 Mt CO₂-e across the other sectors to cover the difference.

To gain some perspective on how substantial this is, the Federal Government’s flagship policy to reduce transport emissions, the New Vehicle Efficiency Standard, is only projected to achieve a 6 Mt CO₂-e reduction in light vehicle emissions from now until 2030.[1]

But the reality is likely to be far more difficult than this, as Australia has set a carbon budget. Consequently, the effect of not achieving an accelerated renewable buildout consistent with 82 per cent is that: a) the electricity sector’s emissions will be higher on an annual basis, and b) the small emissions reductions in other sectors will become even smaller, as those reductions are based mostly on electrification.

Can Australia better hedge its bets?

Whether the electricity sector is 82, 72, or 62 per cent renewables by 2030, it will still do most of the heavy lifting to decarbonise Australia’s economy. But it is also a reality that accelerated renewable deployment is not simply a matter of will – as stated, there are many supply side barriers that the AEC, CCA, AEMO and many other stakeholders understand must be overcome in a very short space of time.

In this environment, it seems ambitious at this stage to assume 82 per cent renewables by 2030 and highly ambitious to have it as essentially the only policy assumption for reaching the 43 per cent target.

The Grattan Institute foresaw this “all eggs in one basket” conundrum last year and contemplated what other, complementary policy options governments have to reduce emissions. It considered there are immediate actions governments could take to better hedge their bets on the way to 2030. These actions include:

• A more aggressive New Vehicle Efficiency Standard – Grattan said a more ambitious model could achieve abatement up to 30 Mt CO₂-e.
• Lowering the Safeguard Mechanism coverage threshold to 25,000 t CO₂-e per annum.
• Coordinated plan to decommission the gas networks to accelerate electrification of buildings.

Absent that, Grattan suggested the Government might need to consider compensating for likely shortfalls to the 2030 target through its 2035 target carbon budget.

Aside from Grattan’s suggestions, many stakeholders had been hoping that the sectoral pathways would provide much needed perspective on how the Federal Government intends to tackle other sectors to encourage a truly economy-wide decarbonisation strategy. But the procrastination on the progress of these sectoral pathways seems to indicate there are not many politically palatable policies for governments to pursue, at least before an election.

If there is some silver lining, it is that the existing Safeguard Mechanism and NVES have not had much time to take effect (about one year). Once these reforms have settled, it is possible that they might drive more emissions than currently projected, and/or the Government could ratchet up the level of ambition to achieve that.

There is still plenty of time to play out between now and 2030, but the more players there are on the field, the better chance Australia has of achieving its climate goals.

[1] According to the Emissions Projections 2024, emissions from passenger and light commercial vehicles are estimated to be 58 Mt CO2-e in 2024 and are projected to decrease to 52 Mt CO2-e in 2030.