Carbon Markets

Aligning Australian industry with net-zero emissions under the Paris Agreement

While the government continues to reject calls for a net-zero emissions target, policymakers are unlikely to be able to hold their finger in the dyke for much longer, with Australia’s major trading partners adopting targets to reach net-zero emissions by 2050, while industry continues to press for clear direction to decarbonise the economy.

The US election in November also looms as a key trigger point for climate action, with Democratic candidate, Joe Biden, proposing an ambitious climate agenda that would return the US to the Paris Agreement, set a net-zero goal of no later than 2050, and implement carbon border fees or quotas on carbon-intensive goods.

The UNFCCC’s postponed Conference of the Parties (COP 26), initially scheduled for 9-19 November in Glasgow, will now be held in November 2021 – potentially with a new leader in the White House – suggesting that Australia will soon be required to fall into line with the net-zero objectives of the Paris Agreement.

While Australia is on a slight downward trajectory from peak emissions in 2007, key sectors of the economy continue grow their emissions, with only the electricity sector (-34%) currently projected to reach a minus 26% target trajectory by 2030. Comparably, emissions from Australia’s largest emitting industrial facilities, covered by the safeguard mechanism, are projected to grow to 77% above 2005 levels over the same period, with peak emissions not yet in sight.

Setting an emissions reduction target for industry is therefore the missing piece in the government’s climate policy framework, with a transparent pathway critical to transition Australia’s largest emitting facilities toward net-zero emissions, and ensure the contribution of near-term abatement in support of Australia’s 2030 emissions target.

In this update, we take a closer look at Australia’s progress toward its 2030 emissions reduction target, including the impact of key emissions reduction policies on Australia’s long-term emissions profile. We then consider the policy adjustments required to fill the government’s projected abatement shortfall, including scenarios to align industry emissions covered by the safeguard mechanism with a long-term net-zero target.

Findings indicate that the design of a net-zero target will have notable impacts for the timing and volume of required industry emissions reductions – and therefore the cost of delivering emissions reductions – with a condensed timeline increasing the annual emissions reduction task by around double relative to an earlier, more shallow trajectory.

As a result, the deferral of a net-zero target, while politically convenient, will come at a cost to industry, reducing the lead time to reach net-zero emissions, while compounding the cost of action for Australia’s largest emitting facilities.

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