Australians’ concerns about the emerging reality of climate change contributed to the Labor Party winning government a year ago this week.

As it begins its second year in office, the government can reflect positively on what has been achieved on climate and energy policy. A platform has been established. But a looming gas shortfall and delays to critical projects such as Snowy 2.0 and transmission systems could mean trouble ahead.

Two themes dominated energy and climate change policy in the past year. The first was an unprecedented energy crisis when the combination of the Ukraine war, disruptive weather patterns and coal generator outages threatened electricity supply and put pressure on power and gas prices in Australia.

The market operator worked with the industry to avoid outages, and governments capped wholesale gas and coal prices to prevent them rising as high as had been feared.

The second theme was progress on elements of national climate change policy. Having legislated Australia’s 2030 emissions reduction target as 43 per cent below the 2005 level, the government significantly improved its predecessor’s safeguard mechanism to reduce emissions from heavy industry.

Now the government is finalising long-overdue emission limits for light vehicles. Together with continuing growth in solar and wind power, this means the 2030 target is in range.

Several policy initiatives in the past few months, and in last week’s federal budget, will together form the basis of a future industry policy built on low-emissions energy and resource-based manufacturing. The list includes strategies covering critical minerals and the future of gas, together with funding to support decarbonisation of existing industries covered by the safeguard mechanism, and new clean energy industries such as green hydrogen.

These initiatives illustrate how the transition to a low-emissions future will cover multiple economic sectors and ministerial responsibilities. Cross-government co-ordination, including with the states, will be essential.

Energy and Climate Change Minister Chris Bowen has made progress towards connected energy policy with his state and territory counterparts through the National Energy Transformation Partnership. The newly announced National Net Zero Authority is a specific example. It should work with and support communities and workers across regional Australia.

Alignment across governments is always difficult to sustain. The fact that there are no state or territory elections due until the second half of next year provides a window of opportunity to make progress in two critical areas, gas and electricity, before political pressures could emerge to fracture the partnership.

Natural gas is now an expensive fuel (as well as being a fossil fuel) and south-east Australia is facing shortages as traditional sources decline.

Recent government actions on gas have been necessary. The revised safeguard mechanism will drive emissions reduction in the upstream sector, notably for gas fields with high reservoir CO2. The compromise on the mandatory code of conduct, to extend the wholesale price cap on gas and abandon the impractical regulatory alternative, was sensible if still messy and resisted by the industry. And the modest changes to the Petroleum Resource Rent Tax will deliver $2.4 billion of needed government revenue over the next few years.

Yet the disturbing fact is that these actions will not prevent the looming gas shortfall.

In the electricity sector, emissions have been steadily falling, wholesale prices are lower than a year ago, and reliability has been stable. Yet, the National Electricity Market is facing strong headwinds.

The government’s Rewiring the Nation Fund and actions by state governments are intended to support new transmission infrastructure. Yet, slow progress in building transmission and storage to support lower emissions and renewable electricity targets suggests serious problems in timing and cost.

Further delays with Snowy Hydro’s pumped hydro project and gas-fired power plant have created concern we won’t have enough dispatchable capacity as coal-fired plants continue to close. Disagreements on the role of gas in meeting this challenge have not helped Bowen.

A third critical issue for the government is that Australia has an international obligation to set a 2035 emissions reduction target by the end of 2025. Equally important will be the policies it lays out to achieve this new target and create credible momentum towards net zero by 2050.

Climate policy contributed to federal Labor’s 2022 success. How it meets these three big challenges in the remainder of this term may well determine its prospects in 2025. Bowen and his cabinet colleagues have built a strong platform over their first year. It will have to be even stronger if they are to be successful.

Tony Wood

Energy and Climate Change Program Director
Tony has been Director of the Energy Program since 2011 after 14 years working at Origin Energy in senior executive roles. From 2009 to 2014 he was also Program Director of Clean Energy Projects at the Clinton Foundation, advising governments in the Asia-Pacific region on effective deployment of large-scale, low-emission energy technologies.

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