Intervene to transform industrial emissions and hit net zero

If the Prime Minister’s preferred target of net zero emissions by 2050 is to be achieved, a sector that is 31 per cent of the problem but makes no progress over a decade is simply not doing its fair share.

There are practical actions that governments can take now to change that outcome in the lead-up to November’s international conference on climate change.

In Australia, 194 large industrial facilities produced about 130 million tonnes of emissions in 2019. Tens of thousands of mines and manufacturing facilities, together with the construction sector, contributed the remaining 30 million tonnes.

These emissions come from three main sources: fugitive emissions that escape into the atmosphere when fossil fuels are extracted; emissions from combustion of fossil fuels; and chemical-process emissions released during manufacturing.

Across these sources there are immediate opportunities to reduce emissions through fuel efficiency, process efficiency, and management of fugitive emissions.

Maximising the uptake of these opportunities will help to maintain the competitiveness of Australian industries as carbon begins to be priced into global supply chains.

It will reduce the pressure on the development of new technology to achieve high levels of emissions reductions, and it will help to put Australia on a net zero pathway if breakthrough technology takes longer than predicted to become commercially viable.

There is no valid excuse for inaction. Acting now to reduce industrial emissions is unlikely to be regretted later.

Unfortunately, there is little political appetite at the federal level for an economy-wide carbon price. But the government can turn to its existing safeguard mechanism and the recommendations of the King review to help fund reductions in emissions from large industrial facilities.

Periodic tightening of baselines that reflect companies’actions would deliver sustained emissions reductions across a diverse range of sources at low cost. The government should also set stringent emissions’ intensity standards for new industrial facilities, to avoid locking in emissions and to encourage new, cleaner facilities.

Each of many small industrial facilities contributes only a tiny part of national emissions. The technology to reduce these emissions is (for the most part) available now and will become cheaper over time.

But because there are so many widely dispersed small facilities, a different policy approach is needed to reduce these emissions. Here, state governments are better placed than the federal government to assist.

All the states should consider using energy savings schemes, such as those already in place in NSW and Victoria, to begin moving small industrial facilities towards net zero emissions. This would also save each facility money in the short term, and place downward pressure on energy bills for all consumers in the long term.

Beyond the above actions, significant emissions reductions will depend on technology development, and governments are already supporting such actions. Deployment of these technologies at scale when they approach commercial viability will mean major investment in asset renewal in the 2030s and 2040s. Planning must start in the 2020s.

The scale and pace of change will require a level of co-ordinated industrial policy seldom seen in Australia.

Governments should put in place measures to efficiently allocate risk between the public and private sectors, to support effective industrial development and transformation of the existing asset base.

The federal government should establish an industrial transformation future fund to mitigate technology risk and discourage the locking-in of long-lived emissions-intensive industries.

And it should begin planning now for how it might use concessional financing facilities to mitigate financial risk.

Finally, there are emissions sources such as fugitive emissions from open-cut coal mining that will only be addressed when the action itself ceases. The best strategy for Australian governments is to apply their resources to the industries where Australia will have a competitive advantage in a low-emissions world.

For example, by 2050 export revenue from the mining and processing of the critical minerals used in clean energy technologies could be more than twice what Australia currently gets from coal.

There is no valid excuse for inaction. These recommendations should be less politically contentious than taxes or carbon pricing. Acting now to reduce industrial emissions is unlikely to be regretted later, and represents a practical and prudent strategy.

If adopted now, our recommendations will create momentum towards the national net zero goal, while allowing flexibility to speed up and adjust as global markets change and political pressures increase.