From electricity to agriculture, buildings to road freight, and health to heavy industry, climate change will have an impact on every corner of Australia’s economy and ultimately determine our future export revenues.

Over the past decade or so, we have learned much about the challenges and opportunities created by the changing climate and our response to it, yet we have not escaped the climate change policy gridlock that has ensnared our leaders for too long.

We are amid the next industrial revolution, and time is not on our side. Australia urgently needs a comprehensive and co-ordinated suite of credible policies and focused incentives for carbon-emission reductions across multiple sectors if we are to avoid a very disruptive and costly transition.

The major parties have committed to net-zero emissions by 2050. The interim 2030 target of a 43 per cent reduction below the 2005 level is looking doable, but only if all goes well. And a target for 2035 should be decided this year.

Time-based and specific targets are necessary but not sufficient to drive the actions and investments needed to meet the targets. Whichever side wins the next federal election should implement a package of emissions-reduction policies consistent with meeting the targets and supported by mechanisms that implicitly or explicitly establish efficient carbon pricing. There are five priority areas.

First, industrial emissions that have been growing should begin to decline with the reformed Safeguard Mechanism. This mechanism includes an emissions cap on the group of facilities that each create more than 100,000 tonnes of emissions per year. The cap will steadily decline in line with the 2050 target, to drive lowest-cost reductions directly or via trading in credits. This will be made harder by any opening of new gas or coal mines whose emissions must fit within the declining emissions cap. And support from the current government’s emerging 21st century industry policy will be necessary to deal with difficult-to-decarbonise sectors such as steel, aluminium, and cement.

Second, the recently legislated New Vehicle Efficiency Standard will set light vehicles – a major part of the transport sector – on the net-zero pathway. The priority now needs to be more difficult sub-sectors such as heavy vehicles.

The challenge of emissions from grazing livestock will not be addressed overnight. However, a third priority is to invest in a national program advising farmers on how to reduce on-farm emissions and create new income streams.

Fourth, and most exciting, the government’s Net Zero Transition Authority should drive opportunities in Australia’s regions where carbon-intensive industries are currently located. The expanded support for early-stage hydrogen projects, critical minerals processing, and manufacturing based on Australia’s comparative advantages, could more than replace the export revenues and jobs that currently flow from carbon-intensive industries.

Finally, and most critically, is energy policy. There has never been a worse time to stall on energy market reforms. The commitment to net-zero emissions means a transition out of coal and natural gas in less than 30 years. The era of electrification is now upon us. Electricity demand has been flat for the past 10 years, but big changes are coming – electrification of most of the current gas demand, electrification of much of the transport load, meeting the power demands of artificial intelligence, and supporting the huge potential growth in zero-emissions energy exports.

To create such an electricity system dominated by solar and wind generation will require transformative investment in transmission and dispatchable capacity. Energy ministers, market agencies, and the industry have been debating these reforms since before prime minister Malcolm Turnbull’s support for the National Energy Guarantee contributed to his demise.

After a period of consistent progress, we are facing some hard issues. Renewables’ share of generation grew from about 10 per cent to almost 40 per cent over the past 20 years, primarily driven by subsidies and a transmission grid with space for new connections. This, in hindsight relatively easy progress, was never going to continue and the challenges were vastly underestimated – cost and time overruns, regulatory barriers, and lack of planning for social licence.

Governments must act immediately on two major fixes. Deals to manage the timing of coal closures must be expedited and co-ordinated, while momentum on emissions reductions is maintained via the Capacity Investment Scheme and renewable targets. And, pragmatic action is required to remove roadblocks and bottlenecks to building new transmission.

During these final stages of coal generation, governments should work with industry to plan.

There are three priorities for planning this future market: a fit-for-purpose reliability framework, an emissions reduction policy for the energy sector beyond renewable electricity targets, and better integration of so-called distributed energy resources. While gas is the most likely technology to balance a very high renewables system, we need detailed planning for its cameo role, and replacement.

Natural gas has been a valuable contributor to our energy and chemical industry for 50 years. Although the transition will not be easy, two initiatives will help. The next federal government, whether Labor or Coalition, should co-ordinate state and territory policies to degasify gas networks, primarily through electrification. And it should support the development and deployment of gas replacement technologies, including hydrogen and biomethane where electricity is not viable.

A renewables-dominated electricity system will require a step-up in generation, shallow and deep storage, and transmission. We already know the weather patterns – still, cold winters in the south, and cyclonic depressions in the north – that will need to be managed over the next 20 years. Gas – either hydrogen or natural gas with carbon capture and storage – may be the best fit. And small modular nuclear reactors should not be ruled out if they become commercially viable.

We need our political leaders, federal, state, and territory, to provide a comprehensive vision of how all this fits together. All governments need to plan more directly for the physical and economic consequences of a changing climate, and to integrate climate change issues into all decisions on infrastructure planning, land use, and resource extraction.

No country has greater opportunities than Australia from the transformation to a net-zero global economy. It behoves our political leaders to set out a policy agenda that ensures we can seize those opportunities. Current and future generations deserve no less.

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.