Orange Book 2025: Australia’s net-zero challenge
by Tony Wood
Australia’s next government will have some big choices on climate change and energy. We are cleaning up from a major cyclone event and power prices are again rising, while there is global climate policy uncertainty exemplified by the positions being taken by new leaders in the US and Canada.
Yet transforming Australia’s economy to net zero is a necessary response to a real threat to our economy, our environment and our way of life. The choice is whether we do it well or badly.
No issue before the Australian people at the 2025 federal election is more important. This is why it is a priority in Grattan Institute’s new Orange Book, which sets what the next government – whether Labor or Coalition – should do in the interest of all Australians, current and future.
There are two, closely related dimensions to the challenge. First, we have made significant progress on emissions reduction this century, but things have stalled in recent years. And second, energy prices are contributing to cost-of-living pressures.
Australia’s emissions have reduced by almost 30 per cent below the 2005 baseline. However, progress has stalled this decade as building renewables-based electricity infrastructure has run into obstacles, and sectors such as heavy industry, transport and agriculture have made little progress.
our major actions will be necessary to get Australia on track to the net-zero 2050 target.
First, the government will set a 2035 emissions reduction target. Climate science and economics indicate that the target should be 65-to-75 per cent below 2005. A range allows for inevitable uncertainties. Prominent among these are President Trump’s expected action against climate action and climate-credentialled Prime Minister Carney’s equally expected moves to replace an unpopular carbon tax with a broad range of financial incentives.
Second, Australia needs a national net zero plan, to provide the framework for longer-term investment. The government should build such a plan by consolidating work already being done at a sector level.
Third, the impact of the current government’s revised Safeguard Mechanism for heavy industry and New Vehicle Efficiency Standard for light vehicles will grow over time – we need to stay the course on both.
And fourth, the Future Made in Australia framework should be used to bring together several disconnected policies, including hydrogen and critical minerals production tax credits, to form an industry policy fit for the 21st century. Australia’s mineral and renewable energy resources provide an almost-unique opportunity, but the opportunity will not be delivered on a plate, as recent obstacles to hydrogen developments have shown.
Turning to energy, Australia’s electricity and gas markets have delivered reliable and affordable energy over many decades, while electricity emissions have been falling for much of the last 15 years.
But problems are emerging: coal generation plants are closing faster than they are being replaced with renewable generation, transmission, storage, and gas backup; the national electricity market (the NEM) requires an overhaul to deliver investment and lowest-possible prices in a renewables-dominated system; and the natural gas market is in disarray, with the prospect of gas shortfalls in south-east Australia as traditional resources are depleted.
Three swift actions must be taken to ensure that our energy markets deliver reliable and affordable energy in the transition.
Political quibbling
First, the federal government must work with the states to accelerate and deliver the transmission investment, to support new renewable generation and storage in line with emissions targets.
Second, federal and state energy ministers must take seriously the current expert review designed to ensure the NEM remains fit for purpose. The review is our best chance to keep prices down and reliability on track in a post-coal future. We cannot afford yet another round of political quibbling and delay.
And third, the federal government should work with the states to sort out Australia’s gas policy mess. We need a policy framework that reconciles the apparent contradiction of gas being a friend and a foe. More urgently, the south-east is running out of gas and a solution is needed yesterday.
There is great pressure on governments to deliver relief on power prices. Another round of broad-based cash rebates should be resisted. A targeted package would be better, linking financial support to things that will deliver ongoing lower prices, such as battery storage and better home insulation.
The prime minister after the election must be clear on net zero: This is what we are doing and why; we understand the consequences and will manage them; but there are many uncertainties, and we will adapt as they arise.
This is a vision that Australians will follow.