Sector by sector: The making of the government's Net Zero Plan

Australia aims to reach its net zero target by dividing domestic emissions into six sectors, each with its own transition plan.

This month, we gained further insights into the Australian Government’s strategy for achieving a net zero emissions economy.

The Climate Change Authority, chaired by former NSW Treasurer Matt Kean, released its review of Australia’s technology transition and emissions pathways to reach net zero by 2050. Commissioned by the Australian Parliament, the Sector Pathways Review is a key deliverable for the independent authority, which is also responsible for advising government on the country’s forthcoming 2035 emissions reduction target.

The review outlines six potential pathways and recommends actions to address known barriers for the six highest-emitting sectors: electricity and energy; resources; industry and waste; transport; built environment; and agriculture and land.

It will inform government departments as they develop transition plans for each of these sectors. Their efforts will culminate in a more comprehensive national Net Zero Plan, expected in 2025.

Australia’s current climate commitments

Australia has committed to cutting emissions by 43 per cent by 2030 and achieving net zero by 2050. Progress will need to accelerate. Recent data shows that emissions declined by 0.6 per cent in the year leading up to March 2024 compared to the previous year, with Australia’s national emissions estimated at 441 Mt CO2-e by June 2024.

Two CSIRO emissions reduction scenarios – both aligned with the Paris Agreement goal to limit the increase in global average temperature to well below 2°C above pre-industrial levels, while pursuing efforts to limit the increase to 1.5°C – frame the sector pathways review analysis.

The 2°C scenario aligns with Australia achieving its current 2030 and 2050 emissions reduction targets. In the 1.5°C scenario, Australia overachieves on its 2030 target and reaches net zero by 2040. This path sees a 75 per cent reduction on 2005 levels by 2035, reflecting greater ambition and more rapid emissions reductions.

It is widely acknowledged that there is likely to be a significant difference between a 1.5°C and a 2°C world in terms of outcomes for the climate and environment. For example, an IPCC special report warns: ‘Coral reefs are projected to decline by a further 70–90 per cent at 1.5°C (high confidence) with larger losses (>99%) at 2°C (very high confidence).’

What does the review tell us about the pathway for each sector?

The review outlines the abatement potential for each sector on Australia’s path to net zero emissions by 2050 but does not set specific sector reduction targets.

It highlights that the journey to net zero will vary across sectors. Mature technologies, like solar and battery storage, will play a key role in some areas, while others will rely on the rapid development of emerging technologies, such as hydrogen and engineered carbon removals. The review sets out its findings in sector chapters, with highlights provided below.

Electricity and energy

In 2022, the electricity and energy sector was responsible for 35 per cent (153.4 Mt CO2-e) of Australia’s emissions, predominantly from electricity generation.

Mature technologies include wind, solar, pumped hydro and battery storage. Emerging technologies highlighted are hydrogen production, hydrogen turbines and long-duration storage solutions. Although nuclear power is currently banned in Australia, the review suggests it should be monitored as a potential option if there is a future dramatic cost reduction or other such shift in context.

Australia’s Capacity Investment Scheme provides a national framework to encourage new investment in renewable and clean dispatchable capacity, such as battery storage, to help meet the Government’s target of 82 per cent renewable electricity by 2030. The scheme uses a competitive tendering process to deliver 32 gigawatts of renewable capacity, with the first round this year ‘massively’ oversubscribed, largely due to a long pipeline of battery storage projects. Social license issues are among the challenges affecting the rollout of energy infrastructure, including the estimated 10,000 km of new transmission lines that the Australian Energy Market Operator forecasts will be required.

Resources

Emissions from the resources sector were 99 Mt CO2-e in 2022, contributing almost a quarter (23 per cent) of national emissions. These emissions were primarily associated with fossil fuel combustion in the mining, oil and gas sectors, as well as fugitive emissions (those that are unintentional and undesirable).

While the review found that Australia can continue as a world-leading resource producer, it will need to shift away from coal and (eventually) gas, while increasing the production of iron and other metals and minerals. Electrification of mining haulage and ore processing presents significant opportunities for Australia to build on its strengths as a resource exporter and position itself as an exporter of low-emissions resources.

Industry and waste

The industry and waste sector emissions are relatively concentrated: over half of the emissions (64 Mt CO2-e in 2022) were from 20 facilities. The Safeguard Mechanism requires covered facilities to achieve annual net emissions reductions of 4.9 per cent, but the review found the mechanism insufficient on its own, especially as it does not extend beyond 2030.

Decarbonisation opportunities include electrification for low- and medium-temperature process heat, energy efficiency measures, circular economy practices and organic waste diversion. Emerging technology opportunities include electrification and hydrogen for high-temperature process heat, hydrogen in ammonia and iron production, carbon capture and use (CCU) and direct air capture. Large-scale carbon capture and storage (CCS) has a minor role, its use is in high CO2-emitting industries such as cement manufacturing.

Transport

The transport sector emitted 90 Mt CO2-e in 2022 and is projected to be Australia's largest emission source by 2030. Mode-switching, for example from car use to public transport, and a rapid electric vehicle roll-out can help decarbonise passenger and light commercial vehicle fleets, responsible for about half of these emissions. A mixture of other solutions, including alternative liquid fuels and potentially hydrogen, will be needed for other transport categories. The review finds biofuels like biodiesel and Sustainable Aviation Fuel will play a niche role, requiring further planning and clarity for industry growth.

Built environment

Decarbonisation of this sector is heavily dependent on the broader energy sector, material efficiency and consumer choice. Targeted funding is required to accelerate progress in this sector by addressing upfront costs of installing energy-efficient appliances for heating and cooking. Expanding standards and reporting to a broader range of commercial buildings, implementing a mandatory residential building efficiency scheme, and boosting energy efficiency and demand response will also be needed – these can potentially lower the amount of investment in new clean energy infrastructure.

Agriculture and land

This is the only sector that serves as a net carbon sink – absorbing more carbon each year than it emits. In 2022, Australia’s agriculture and land sectors together created a net sink of 3 Mt CO2-e, with agriculture contributing 85 Mt CO2-e in emissions and land acting as an 88 Mt CO2-e sink. The review's agricultural pathway suggests that emissions in this sector are expected to remain stable until 2035, with a modest decline by 2050. This reduction will result from scaling up existing practices and technologies, alongside the commercialisation of new low-emissions technologies from the 2030s to the 2040s.

Over the past 20 years, the land-use sector already increased the amount of carbon it absorbs and stores, a process known as sequestration. Under the review’s most ambitious 1.5°C scenario, deforestation is reduced, and approximately 5.9 million hectares of land are converted to forest to achieve the projected sequestration levels. While the National Farmers Federation welcomed the review as ‘balanced’, they expressed concerns that: ‘Achieving offsets through land reallocation on this scale would have a profound and detrimental impact on food and fibre production.’ More rapid emissions reductions in other sectors could lessen the need for such extensive reforestation.

But will a technology-led approach be enough?

To achieve net zero by 2050, the review makes it clear that Australia cannot simply rely on each sector advancing along its own decarbonisation pathway. It calls for a ‘coordinated, major’ reorganisation of public and private finance, supply chains, production systems, industrial zones, energy sources, infrastructure, and workforces within Australia.

‘A zero-carbon mindset must become the new normal,’ the review states, so that decarbonisation permeates operational, policy, investment and purchasing decisions.

It outlines six strategies for Australia to achieve its emissions targets, including:

• Overcoming the ‘green premium’ through policies and markets that incentivise investment (without explicitly calling for a carbon price or broad-based emissions trading scheme).
• Accelerating the deployment of net zero infrastructure by reforming planning and approval processes and fast-tracking renewable energy.
• Strengthening the social license for a just transition by enhancing climate literacy and capability in businesses and communities.
• Capitalising on international cooperation on decarbonisation and strengthening Australia’s competitiveness in a global decarbonising economy, including through the introduction of a carbon border adjustment mechanism.
• Rapidly addressing workforce shortages to promote capability and capacity in the renewable energy and low-carbon sectors.
• Addressing data gaps by expanding, simplifying, and automating data collection and dissemination, including through the introduction of a Net Zero Data Strategy.

The government’s has recently legislated the Net Zero Economy Agency whose role is to support workers, coordinate policies and programs across government, attract clean industry, and help investors and companies to realise opportunity in the transition.

ANU’s Professor Frank Jotso writes in The Conversation that while technological advances often outperform projections, the review refrains from proposing new and necessary policy approaches specific to each sector.

The Grattan Institute's Tony Wood told the AFR that the absence of an economy-wide carbon price remains a challenge for the Climate Change Authority in advising the government on achieving national targets.

High stakes as Australia aims to host COP31 and set its next climate target

Australia is the frontrunner to host COP31 in 2026, alongside Pacific nations, with the decision set to be announced at COP29 in November this year. Expectations are that host nations, especially those that are advanced economies, will use the position to drive climate ambition globally.

It is likely the Sector Pathways Review 1.5°C scenario, which is more ambitious but a significant step up from current targets, will be of strong interest to Pacific co-hosts as well as those wishing to see Australia show stronger leadership.

Next year, Australia’s 2035 emissions target is required to be submitted as part of an updated Nationally Determined Contribution under the Paris Agreement. With a federal election due by May 2025, the challenge for the government will be to balance ambitious climate action with cost of living and broader economic concerns.

Net Zero Plan consultations

Many companies are already participating in government consultations on sector transition plans. The Department of Climate Change, Energy, the Environment and Water (DCCEEW) is the lead agency for the government’s whole of economy Net Zero Plan.

The review sets out the opportunity for government to: ‘prepare a Net Zero Plan that provides clear, long-term signals to businesses, investors and households on the transition of the Australian economy in a world moving to net zero emissions.’

A plan that achieves this would be highly valuable as a guide to all involved in the economy-wide transition.