What a 2050 Net-Zero Emissions Target Means for Australia

The Morrison Government has taken a small step towards stronger climate policy this week, following the Prime Minister’s announcement that carry-over credits from the Kyoto Protocol will not be used to achieve Australia’s climate commitments under the Paris Agreement. This decision may indicate a pivot towards stronger climate policies in Australia, particularly as the Morrison Government faces growing pressure from the international community to strengthen its climate commitments.

‘Australia is increasingly standing alone in its resistance to climate change prevention. Our large trading partners such as Japan and South Korea have pledged to achieve net-zero emissions by around 2050, and China by 2060. President-elect Joe Biden will likely ramp up pressure on Australia to improve its policies in 2021,’ said IBISWorld Senior Industry Analyst James Caldwell.

During a visit to Japan in November, the Prime Minister asserted that Australia shares an ambition for net-zero emissions. However, the Australian Government has so far remained resistant to a 2050 target for net-zero emissions. In October, UK Prime Minister Boris Johnson lobbied Prime Minister Morrison to accept that bold action is needed to address climate change, and that reducing emissions and driving economic growth can go hand in hand. The United Kingdom is scheduled to host the 26^th UN Climate Change Conference in November 2021.

In 2019-20, emissions per capita and the emissions intensity of the Australian economy were at their lowest levels in 30 years, as the COVID-19 recession reduced emissions by about 3%. New modelling released yesterday by the Federal Government suggests that Australia will miss the 26% emissions reduction target specified in the international Paris Agreement. However, the modelling also suggests that low-emissions technologies developed and rolled out through the government’s Technology Investment Roadmap may enable Australia to surpass its 2030 emissions target.

‘The Morrison Government appears to be banking on technology improvements to achieve the 2030 emissions target. These projections should be taken with caution, as these low-emissions technologies may not be developed and rolled out in time to achieve the 2030 target,’ said Mr Caldwell.

A government pledge to achieve net-zero emissions by 2050 would significantly influence several Australian sectors.

Electricity

Electricity generation is expected to account for 34.7% of Australia’s total greenhouse gas emissions in 2020, due to Australia’s reliance on coal and gas-fired power stations. Black coal, brown coal, natural gas and oil products are expected to account for 83.7% of Australia’s electricity supply in 2020. A push towards net-zero emissions in 2050 would involve a shift to green energy.

Currently, 160 gigawatts of renewable energy projects are in the development pipeline in Australia. However, many may not be completed due to insufficient capacity in the Electricity Transmission network.

‘The Solar Electricity Generation industry is expected to grow at an annualised 19.7% over the five years through 2025-26, while the Wind Electricity Generation industry is expected to grow by 7.2% over the same period. The real problem isn’t a lack of investment in generation, but rather a lack of investment in the network infrastructure to connect these generators to consumers,’ said Mr Caldwell.

If the Federal Government were to pursue a 2050 net-zero target, it may follow the policy leads of state governments. Both Victoria and New South Wales have committed funding to developing bespoke transmission assets, which would assure private investors that new renewable generator projects will be able to deliver their electricity into the market.

‘A unified electricity transmission plan supported by all sides of politics would remove a major hurdle for the renewable energy transition, paving the way towards net-zero emissions by 2050,’ said Mr Caldwell.

All state and territory government in Australia have expressed support for a 2050 net-zero target.

Agriculture

Agriculture is expected to contribute 10.2% of Australia’s total carbon emissions in 2020. Reducing the emissions of agriculture could include improving soil carbon sequestration, reducing food waste and boosting bioenergy. Farmers may also receive subsidies to reverse past deforestation in Australia, by freeing up land for the regrowth of native vegetation. Farms comprised about 58% of land use in Australia in 2019-20. The National Farmers Federation supports a 2050 net-zero target.

Most plans to achieve net-zero emissions in the agricultural sector are based on offsetting farm emissions. These emissions can be offset through carbon capture mechanisms to balance the methane and nitrous oxide produced by livestock and crop production.

‘Australia’s agricultural emissions have fallen since December 2017, primarily due to drought conditions that lowered livestock herd sizes. However, as the Agribusiness industry continues to grow over coming decades, farms will have to pursue carbon abatement strategies, such as purchasing carbon credits,’ said Mr Caldwell.

The Federal Government may pursue several strategies to reduce agricultural emissions. Farmers may receive grants to help breed low-emission livestock, or subsidies for animal dietary supplements that restrict methane production in animals’ stomachs. Research and development funding in this area may support the Prepared Animal and Bird Feed Manufacturing industry.

Transport

Transport is expected to contribute 18.3% of Australia’s national emissions in 2020. Road transport accounted for 84.0% of Australia’s transport emissions in 2019-20, followed by aviation, rail, and shipping. Australia’s road transport emissions are particularly high due to an overdependence on cars with high average fuel use, and an overreliance on the energy-intensive Road Freight Transport industry.

‘The average emissions intensity for new passenger vehicles sold in Australia is 45% higher than in Europe, as Australia has fewer government incentives for lower emissions vehicles. To achieve a 2050 net-zero target, the government may introduce subsidies for climate-friendly vehicles in the Motor Vehicle Dealerships industry,’ said Mr Caldwell.

The CSIRO has forecast that more than 70% of all new vehicle sales in Australia will use electric drivetrains by 2030. However, according to forecasts from the Department of Industry, Science, Energy and Resources, Australia’s transport emissions are expected to increase at an annualised 0.6% over the next decade. While emissions from cars are expected to decline, this will likely be offset by rising emissions from shipping, aviation and road-freight trucking.

‘While Australia has begun reducing emissions in agriculture and electricity generation, emissions from transport continue to rise. Additional steps in this area will be required to achieve net-zero emissions by 2050, including introducing more electricity-based transport and hydrogen-fuelled vehicles for heavy transport,’ said Mr Caldwell.

Outlook

To achieve net-zero emissions by 2050, Australia’s largest industries will need to undergo significant change.

‘The longer Australia puts off lowering emissions, the more disruptive the shift to net-zero emissions will become as we approach 2050. By starting now, Australia would have more time to ensure a smoother transition towards a low-carbon economy,’ said Mr Caldwell.

IBISWorld reports used to develop this release:

For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647
Email: mediarelations@ibisworld.com