Australia has a legislated target to reduce greenhouse emissions, a federal government with commitments to increase the share of renewable electricity and reduce power prices, and a globally important economic opportunity at its feet.
Author
Tony Wood
Program Director, Energy, Grattan Institute
In the second half of the government’s current term, delivery looks hard across the board. All is not lost, but we must transform our economy to a timetable. The unprecedented scale and pace of the economic transformation, and the consequences of failure, demand an unprecedented response.
To get things on track requires the government to develop a plan with the right mix of political commitment, credible policies, coordination with industry, and support from communities. And, critically, the plan must be implemented. Too often targets have been set without being linked to policies to achieve them, or linked so poorly that the extra cost and delay sets back the climate transition.
By the middle of this year, Australia’s emissions were 25 per cent below the 2005 level. But the trend of steady reductions has stalled, and sectors such as transport and agriculture have moved in the wrong direction.
Such ups and downs will continue in response to external events, as we have seen with COVID, droughts, and war on the other side of the world. Policies must be flexible if they are to remain broadly on course in the face of such events.
Trouble in the power department
The detail matters: national emissions reductions have slowed, as has the growth in renewable generation towards the government’s 2030 target of 82 per cent.
At the same time, the government’s target of lower power bills by 2025 looks out of reach, and electricity reliability is threatened as coal-fired generation closes without adequate replacement.
The production and use of natural gas contributes around 20 per cent of Australia’s emissions. The use of gas in industry will be covered by the Safeguard Mechanism, a policy designed by the Coalition and now revised by Labor, to drive down emissions from the country’s 200 biggest emitters.
Emissions from gas-fired power generation will fall with the growth of renewables. But there are no constraints on fossil gas use in other sectors, such as our homes.
Industrial emissions are slowly growing. The huge amount of hype about green hydrogen has so far proven to be little more than that: Australia continues to have lots of potential green hydrogen projects, but virtually none are delivered.
Finally, we remain without constraints on vehicle emissions, and with a large herd of grazing cattle and sheep whose emissions are determined more by the weather than the actions of our best-meaning farmers.
The risk of swinging from naive to negative
So, we are in a hard place. Naïve optimism about an easy, cheap transition to net zero is at risk of giving way to brutal negativity that it’s all just too hard. The warnings of early spring fires and floods in Australia and extreme heat during the most recent northern hemisphere summer will feed this tension.
The federal government’s latest Intergenerational Report provides a deeply disturbing snapshot of the potential economic impacts if we fail to get climate change under control. Yet in a world 3 to 4 degrees hotter than pre-industrial levels, economic impacts could be the least of our worries.
The task is unparalleled outside wartime. Within 30 years we must manage the decline of fossil fuel extractive sectors, transform every aspect of our energy and transport sectors, reindustrialise much of manufacturing, and find solutions to difficult problems in agriculture.
What’s to be done?
The need for a Net Zero National Cabinet Committee
We should begin with leadership across the federal government, coordinated with the states and territories. The best structure might be a Net Zero National Cabinet Committee with two clear objectives – to develop and begin implementing a national net zero transformation plan by the end of 2024.
Modern governments are more than happy to set targets and announce plans to meet them. They seem to have lost the capacity or will to implement such plans. The Net Zero Economy Agency, created in July and chaired by former Climate Change Minister Greg Combet, could be charged with that task.
The first step is being taken – the Climate Change Authority is now advising on emissions reduction targets for 2035 and perhaps beyond. The government’s work to create pathways to reducing emissions in every economic sector must be used to build a comprehensive set of policies that are directly linked to meeting the targets.
How to get electricity moving in the right direction
The electricity sector can be put on track with three actions. One, drive emissions reduction towards net zero using a sector-focused policy such as the Renewable Energy Target or the Safeguard Mechanism.
Two, implement the Capacity Investment Scheme, a policy intended to deliver dispatchable electricity capacity to balance a system built on intermittent wind and solar supply.
Three, set up a National Transmission Agency to work with the Australian Energy Market Operator (AEMO) to plan the national transmission grid and with authority to direct, fund, and possibly own that grid.
For heavy industry, the scale and pace of change demands a 21st-century industry policy, in three parts. Activities such as coal mining will be essentially incompatible with a net-zero economy. Activities such as steel-making may be able to transform through economic, low-emissions technologies.
Finally, activities such as low-emissions extraction and processing of critical energy minerals, which are insignificant today but which in time could help Australia to capitalise on globally significant comparative advantages.
Create a plan – and stick to it
The government has made a good start by revising the Safeguard Mechanism and the Hydrogen Strategy and developing a Critical Minerals Strategy. These should be brought together in an overarching policy framework with consistent, targeted policies linked to clear goals, developed and executed in sustained collaboration with industry.
The Safeguard Mechanism will need to be extended beyond 2030 and its emissions threshold for the companies it covers lowered to 25,000 tonnes of emissions per year.
Industry funding will probably need to expand, and give priority to export-oriented industries that will grow in a net-zero global economy. And the federal and state governments should phase out all programs that encourage expansion of fossil fuel extraction or consumption.
In transport, long-delayed emissions standards should be set and implemented. Finally, government-funded research, some of it already underway, should focus on difficult areas such as early-stage emissions reduction technologies in specific heavy industries, transport subsectors, and emissions from grazing cattle and sheep.
There is little new or radical in the elements of this plan. What would be new is a commitment to its design and implementation. This is what government needs to do now. The consequences of failure are beyond our worst fears, the benefits of success beyond our best dreams.
Tony Wood may have a financial interest in companies relevant to the article through his superannuation fund.
