Australia

Australia’s current policies are rated as “Insufficient” against modelled domestic pathways. The CAT’s policies and action scenarios are based on the Australian Government’s emissions projections, last released in November 2023, and policies which have been subsequently implemented. The introduction of new measures to tackle transport emissions were not sufficient to improve the rating. The government’s 82% renewable electricity target remains an announced rather than current policies in our assessment as it is not enshrined in law and progress towards the target is lagging. With current policies, Australia will fall short of its 2030 target.

The “Insufficient” rating indicates that Australia’s climate policies and action in 2030 need substantial improvements to be consistent with limiting warming to 1.5°C. If all countries were to follow Australia’s approach, warming would reach over 2°C and up to 3°C.

Further information on how the CAT rates countries (against modelled domestic pathways and fair share) can be found here.

Although the government introduced several new policies towards the end of 2023 and throughout 2024, mostly in the power, transport and industry sectors, they were accompanied by continued support for both coal and fossil gas production for many decades to come. The ongoing revisions of historical and projected LULUCF estimates puts the government closer to meeting its emissions reduction targets without making meaningful emissions reductions across the economy.

Australia’s policies and action are projected to achieve emission reductions between 17% and 21% below 2005 levels by 2030, excluding LULUCF. Under current policies, Australia’s total GHG emissions excluding LULUCF are projected to fall to 438 MtCO₂e (446 MtCO₂e in AR5 GWPs) by 2030. When also taking announced policies into account, emissions excluding LULUCF would fall to 417 MtCO₂e by 2030 (424 MtCO₂e in AR5 GWPs) by 2030.

Slow progress towards 82% renewable energy

The Capacity Investment Scheme, expanded in November 2023, is the government’s main instrument to bridge the currently significant gap to the 82% renewable electricity target (DCCEEW, 2023b; Open Electricity, 2024a, 2024b). This expanded CIS aims to deliver 32 GW of new clean energy capacity by 2030, comprised of 23 GW of variable renewable capacity and 9 GW of dispatchable capacity, such as battery storage.

While not legislated, the 82% target is assumed in the government’s emission projections to apply to the nation’s four main grids (NEM, WEM, DKIS, NWIS), but not to other minor grids or off-grid generation. Under the government’s baseline projections, which excludes the expanded CIS, the share of renewables in Australia’s on-grid generation would reach 72% by 2030, largely due to solar and wind energy deployment (DCCEEW, 2023b). As of June 2024, renewables penetration of the National Electricity Market, Australia’s largest grid, stood at 38% (Open Electricity, 2024a).

Although it is too early to assess the impact of the expanded CIS, Australia’s power sector cannot yet be considered on-track to meet its 82% renewable electricity target, nor is it on a 1.5°C-compatible trajectory. Investment in large-scale renewable generation stalled in 2023, with just AUD 1.5bn committed to new projects, substantially down from 6.5bn in 2022 (Clean Energy Council, 2024). The rollout of renewables in Australia continues to be obstructed by slow planning and environmental approval processes, higher costs, and tighter markets for equipment and labour.

Coal power still accounted for nearly half of Australia’s total generation in 2023, while fossil gas accounted for 18% (DCCEEW, 2024a). There is no explicit emissions reduction policy for the electricity sector, nor a federal-level coal and fossil gas phase-out plan and timeline.

Green industry

In 2024, the government has unveiled new energy-related policy documents for the post-fossil fuel exports era. The ‘Future Made in Australia’ plan announced in 2024, allocates AUD 22.7bn (USD 14.9bn) over 10 years to attract investment in key industries and realise Australia’s potential to become a “renewable energy superpower” (Australian Government, 2024). The scheme is targeted at renewable hydrogen, green metals, low carbon liquid fuels, critical minerals processing, and clean energy manufacturing including battery and solar panel supply chains. The plan does not include support for fossil fuels.

The government’s updated National Hydrogen Strategy, released in 2024, sets targets for both production and export of hydrogen (DCCEEW, 2024c). The strategy specifically targets renewable-based hydrogen, which is an improvement on the 2019 strategy which also encompassed fossil fuel-derived hydrogen.

No end in sight to fossil fuels

Nevertheless, the government has also reaffirmed its commitment to fossil fuel production and exports. In some of the most impactful decisions made by the Albanese government, the government approved three coal mine extensions in September 2024, allowing them to continue operating for another 30–40 years (ABC News, 2024d; The Guardian, 2024). These decisions will result in well over an additional billion tonnes of CO₂ being emitted to the atmosphere, on top of the four previous coal mining approvals issued in 2023 (The Australia Institute, 2024b).

Australia remains a massive exporter of fossil fuels and, in 2023, was the world’s second-largest exporter of coal and third-largest exporter of liquefied natural gas (LNG) (Energy Institute, 2024). The government’s Future Gas Strategy, released in May 2024, doubles down on the role of gas in Australia’s domestic energy sector and exports to 2050 and beyond (DISR, 2024a). The strategy reinforces the government’s ongoing commitment to development of new fossil gas supply and continued LNG exports.

The Safeguard Mechanism is the Australian government’s central policy for reducing industrial emissions by imposing declining baselines on large industrial facilities. In 2023, the 219 facilities covered by the mechanism emitted 139 MtCO₂e (26% of Australia’s total emissions excluding LULUCF) (Clean Energy Regulator, 2024; DCCEEW, 2024i). The mechanism allows for unlimited use of offsets to meet declining baselines, creating uncertainty about actual emissions reductions that will be achieved and the effectiveness of the scheme. Alone the emissions from existing and committed LNG projects and all committed coal projects, which make up around half of Safeguard Mechanism facilities, would leave no room for other industries in the scheme, who would find themselves having to make additional steeper cuts to keep to the government’s set 100 MtCO2e limit (Climate Analytics, 2023).

The transport sector is projected to become the greatest source of emissions in by 2030, as power sector emissions decline (DCCEEW, 2023b). The government’s long-awaited New Vehicle Efficiency Standard (NVES) was introduced in 2024 and will apply to new cars sold from 2025 onward, making Australia one of the last developed countries to adopt such standards (DITRDCA, 2024). The standard sets emissions intensity targets imposed on suppliers across the fleet of vehicles they sell each year. The New Vehicle Efficiency Standard and the National Electric Vehicle Strategy, released in 2023, do not set a strategy or targets for public transport, cargo and modal shift, leaving a gap in the government’s transport sector policies.

The power sector is the greatest source of emissions in Australia, accounting for 29% of total emissions excluding LULUCF in 2024 (DCCEEW, 2024i). Power sector emissions have been declining since 2016, with this trend expected to continue as renewable energy displaces fossil fuels (DCCEEW, 2023b).

The government’s main policies for the power sector are the 82% renewable electricity target and the expanded Capacity Investment Scheme, both discussed in the Renewables section below. There is no explicit emissions reduction policy for the electricity sector, nor a federal-level coal and gas phase-out plan and timeline.

Australia has four main grids: the National Electricity Market (NEM), the Wholesale Electricity Market (WEM), the Darwin-Katherine Interconnected System (DKIS), and the North-West Interconnected System (NWIS) (DCCEEW, 2023b). The NEM covers the entirety of Australia’s east coast including Tasmania, linking all states and territories expect for WA and NT, and delivers around 80% of the country’s power (DCCEEW, 2023b).

Coal

Coal power generation represented 47% of Australia's electricity generation in 2023 (DCCEEW, 2024a). Australia has 18 remaining coal-fired power plants, totalling 22.6 GW, with the majority operating in NEM (21.3 GW) and the remainder in the WEM (AEMO, 2024a, 2024b).

The government is expecting a slow coal phase-out, projecting that coal power will still account for 20% of generation in 2030 and 3% in 2035 (DCCEEW, 2023b). To align with a 1.5°C-compatible coal phase out, developed countries must take the lead, phasing out coal from their power systems by 2030 (Climate Action Tracker, 2023a). Australia has not joined the Powering Past Coal Alliance and to this day, does not have a coal phase-out strategy.

Following announcements from the Western Australian government, the AEMO expects coal to be phased out of the WEM, under its ‘Expected’ scenario, by 2031 (AEMO, 2024c). However, on the east coast, coal power is not expected to be phased out of the NEM until 2037 under AEMO’s central ‘Step Change’ scenario (AEMO, 2024b). AEMO expects that 11.4 GW of coal power will still be online in the NEM in 2030.

The Liddel coal power plant, the oldest in Australia, was turned off in April 2023, seven years earlier than originally planned (Sydney Morning Herald, 2023). The Eraring plant, Australia’s largest remaining coal-fired power station at 2.88 GW, is the next plant scheduled for retirement from the NEM. It was originally due to close in 2025 but will now continue operating until 2027 after the NSW state government agreed to pay operator Origin Energy up to AUD 450m over two years to cover operating losses (ABC News, 2024a). Australia’s ageing coal fleet is a concern for the power system’s reliability.

Fossil gas and oil

Fossil gas accounted for 18% of Australia’s generation mix in 2023 (DCCEEW, 2024a). The government projects that this share will fall to 11% by 2030, but then remain steady until 2035 (DCCEEW, 2023b). Even considering overall growth in electricity demand, absolute fossil gas generation is still projected to fall 28% by 2030, relative to 2023 levels (DCCEEW, 2023b).

However, gas generation is not falling fast enough to align with 1.5°C compatible benchmarks which would see Australia’s share of fossil gas in the electricity mix fall to zero by 2035. Developed countries should take the lead, phasing out fossil gas power by 2035 (Climate Action Tracker, 2023a).

Western Australia (WA) is heavily reliant on fossil gas power which accounted for 61% of generation in 2023. In the WEM, WA’s main grid, this is much lower at 38%, while generation in WA outside of the WEM stood at 82% fossil gas in 2023 (DCCEEW, 2024a; Open Electricity, 2024b).

A significant share of fossil gas from domestic production is used for off-grid generation in mining and LNG production. Notably, more fossil gas is consumed for generation and other energy at LNG plants in Australia (435 PJ in 2023), than at Australia’s gas power plants combined (387 PJ in 2023)(DCCEEW, 2024a).

In the major grids, Australia has a gas-fired power capacity of 12 GW in the NEM and 2.9 GW in the WEM (AEMO, 2024b, 2024c). The government projects that nationwide gas power capacity will remain stable until 2035, increasing slightly from 19 GW in 2020 to 21 GW by 2035 (DCCEEW, 2023b).

Renewables

Renewable energy provided 34% of Australia’s electricity in 2023, up from 9% in 2005 (DCCEEW, 2024a). At COP28, Australia signed the pledge to triple the scale of renewables capacity by 2030 and double the global average annual rate of energy efficiency improvements to 2030 (COP28, 2023a). Australia possesses abundant solar and wind resources, providing ample opportunity for Australia to decarbonise its power grid and reduce dependence on fossil fuels. The realisation of this potential requires strong policy support and financial flows to accelerate the transition.

The government has announced a target of achieving 82% of renewable energy in the country’s grids by 2030. Although not legally binding, this target has been repeatedly mentioned in various policy documents (DCCEEW, 2022a, 2023b). The target is assumed in the government’s emission projections to apply to the nation’s four main grids (NEM, WEM, DKIS, NWIS), but not to other minor grids or off grid generation.

Despite being ambitious, the target still falls short of the 95–96% renewables penetration needed in 2030 for alignment with a 1.5°C compatible pathway (Climate Action Tracker, 2023a). Under the government’s baseline scenario, which does not include the 82% renewable electricity target, the share of renewables in the electricity mix is projected to reach 67% nationwide and 72% across the major grids by 2030. By 2035, this would rise to 83% nationwide and 89% on grid (DCCEEW, 2023b).

As of June 2024, renewables penetration of the NEM stood at 38% (Open Electricity, 2024a). This would need to rise to 48% in 2025 to align with AEMO’s central ‘Step Change’ scenario, which achieves an 82% renewable energy share by 2030 (AEMO, 2024b).

The Capacity Investment Scheme (CIS) is the main policy aimed at bridging the currently significant gap to the 82% renewable electricity target. The CIS, established in December 2022, is a government underwriting scheme that sets an agreed revenue ‘cap and floor’ for projects selected in a reverse auction tender process (DCCEEW, 2024e).

In November 2023, the government announced an expansion of the CIS, which aims to deliver 32 GW of new clean energy capacity by 2030, comprised of 23 GW of variable renewable capacity and 9 GW of dispatchable capacity, such as battery storage. The government expects the expanded scheme to stimulate AUD 67bn in private investment towards clean energy supply.

The expanded scheme is a significant increase on the original CIS which targeted 6 GW of new capacity by 2030, and reaffirms the government’s commitment to achieve its 82% target (Department of Climate Change, 2023a). Tenders from the first phase of the scheme for New South Wales (NSW), South Australia (SA) and Victoria have been awarded. The next expanded round of tenders will be awarded by December 2024 for the NEM and by March 2025 for the WEM (AEMO Services, 2024a, 2024b). The first CIS projects are expected to come online from 2026-27 (DCCEEW, 2024e).

Although it is too early to assess the impact of the expanded CIS, the rollout of renewables in Australia has been slow to date and continues to be obstructed by slow planning and environmental approval processes, higher costs, tighter markets for equipment and labour, and issues with social licence and community acceptance (AEMO, 2024b; Clean Energy Council, 2024). Investment in large-scale generation was particularly slow in 2023, with just AUD 1.5bn committed to new projects, substantially down from 6.5bn in 2022 (Clean Energy Council, 2024).

Australia is a world leader in rooftop solar with approximately 3.7 million households equipped with rooftop solar as of end-2023 (Clean Energy Council, 2024). Rooftop solar supplied 9% of the country’s electricity mix in 2023, while large-scale solar PV supplied a further 6% of electricity.

Wind energy continues to be the greatest individual source of renewable energy in Australia, providing 11% of the overall electricity mix in 2023 (DCCEEW, 2024a). Australia has 13.5 GW installed onshore wind capacity, but currently no offshore wind farms. This is despite having some of the world’s best wind resources and offshore wind technical resource potential, estimated at 2,900 GW (Global Wind Energy Council, 2024). As of end-2024, there were six zones defined as offshore wind areas (DCCEEW, 2024d).

All states and territories except for WA now have some form of renewable energy target (Climate Council, 2024). Both the Australian Capital Territory (ACT) and Tasmania have already achieved 100% of their power supply from renewables. The ACT met this target through wind and solar power purchase agreements for facilities that operate outside its borders (Climate Choices, 2023), while Tasmania’s electricity mostly comes from hydropower. Tasmania has set a new target for 200% renewable energy by 2040 (Gutwein, 2020). SA is targeting 100% renewable energy by 2027 (Climate Council, 2024).

South Australia is identified as a global leader in variable renewable energy (VRE) penetration, with the VRE share reaching 73% in 2023 (DCCEEW, 2024a). High periods of VRE in South Australia are managed by exporting power to neighbouring states, with battery energy storage systems (BESS), and through demand response and curtailment (IEA, 2024b). In December 2022, the supply of solar and wind power accounted for more than 100% of the demand over ten days (RenewEconomy, 2023).

Despite promising developments in government policy and financial support, Australia’s power sector cannot yet be considered on track to meet its 82% renewable energy target, nor is it on a 1.5°C compatible trajectory. It is crucial that further efforts are made to remove barriers to renewable rollout and increase the momentum of renewable energy deployment.

Nuclear

Nuclear power is prohibited by law in Australia under the Australian Radiation Protection and Nuclear Safety Act 1998 (the ARPANS Act), and the Environment Protection and Biodiversity Conservation Act 1999 (the EPBC Act) (Cronshaw, 2020).

Nuclear power has entered the public debate following the opposition party's proposal to deploy large-scale power plants and small modular reactors on the sites of existing coal plants (Liberal Party of Australia, 2024).

These plans have been criticised as unrealistic, misaligned with Australia’s already insufficient 2030 climate target, prohibitively expensive, administratively and technically complex, and serving as a tactic to delay the overdue retirement of the ageing coal fleet (Corrs Chambers Westgarth, 2024; Grattan Institute, 2024; IEEFA, 2024).

Sensing a political opportunity, the government has launched a parliamentary inquiry into nuclear power (ABC News, 2024e).

Australia’s industrial sector, including industrial energy use, industrial process emissions and fugitive emissions, accounted for 30% of Australia’s total emissions excluding LULUCF in 2023 (DCCEEW, 2023b).

The government announced the ‘Future Made in Australia’ plan in the 2024–25 budget, allocating AUD 22.7bn (USD 14.9bn) over 10 years to attract investment in key industries and realise Australia’s potential to become a “renewable energy superpower” (Australian Government, 2024). Priority industries identified under the scheme include renewable hydrogen, green metals, low carbon liquid fuels, critical minerals processing, and clean energy manufacturing including battery and solar panel supply chains.

Australia is a major exporter of both coal and LNG. Emissions from coal and LNG use at the final export destination are not accounted for in the national greenhouse gas inventory. Australia exports more than double its domestic emissions from its coal, fossil gas and oil exports (Climate Action Tracker, 2023b; Climate Analytics, 2024a).

Coal mining

Australia is the world's largest exporter of metallurgical coal, accounting for around half of all exports, and the second-largest exporter of thermal coal (DISR, 2024b). In 2023, Australia was the second-largest coal exporter overall and the fifth-largest coal producer (Energy Institute, 2024). Despite a projected decline in domestic coal power, coal production and exports are forecast to remain stable, at odds with the global efforts towards decarbonisation. Close to 90% of produced coal was exported in 2023 (DCCEEW, 2024a).

The government projects that run-of-mine coal production will increase by 9% from 559 Mt in 2023 to 612 Mt in 2027, before falling to 488 Mt by 2035 (DCCEEW, 2024h). Sustained or even increasing levels of coal production are clearly inconsistent with the goals of the Paris Agreement (IEA, 2023d). 1.5°C-compatible pathways would see coal production fall 78% below 2020 levels by 2030 (SEI et al., 2023).

Government approval of coal mine projects remains a contentious issue in Australia. In September 2024, the Environment Minister gave the green light for three NSW mines to extend their operations for another 30–40 years: the Narrabri Underground Mine Stage 3 expansion, the Ravensworth Underground Mine, and the Mount Pleasant project (ABC News, 2024d; The Guardian, 2024). Combined, these three projects are expected to result in additional emissions of 1.36 GtCO₂e (The Australia Institute, 2024b). These approvals are in addition to the four coal mining projects approved in 2023: the Isaac River and Ensham mines in Queensland, and the Narrabri Underground and Mount Pleasant mines in NSW.

As of December 2023, there were 53 coal projects in the development pipeline, of which ten were already committed (DISR, 2023). While many of the proposed coal projects are still speculative, Australia has the highest number of proposed coal mine projects among OECD nations (Global Energy Monitor, 2023).

Fugitive emissions from coal mining are discussed below in the Methane section.

Oil & gas production

Australia was the world's third-largest exporter of liquefied natural gas (LNG) in 2023, after being the largest exporter in 2021 (Energy Institute, 2024). Around 80% of fossil gas production goes towards LNG production for export, including LNG plant own consumption (DCCEEW, 2023a).

The Federal government released its Future Gas Strategy in May 2024 which sets out the government’s ongoing commitment to development of new fossil gas supply and continued LNG exports as a “reliable and trusted trade and investment partner” (DISR, 2024a). The strategy embeds the role of fossil gas in Australia’s domestic energy sector and exports to 2050 and beyond, and (wrongly) claims that fossil gas is needed for the global energy transition. This is despite the inclusion of the IEA’s Net Zero Emissions scenario in the analysis, which clearly calls for a rapid decline in global gas demand (IEA, 2023d). As is the case for coal, Australia still does not have a gas phase-out strategy and timeline.

The government projects that LNG production and export will be sustained at current levels until at least 2035, with 82 Mt expected in 2035 – the same as in 2023 levels (DCCEEW, 2024h). These projected exports account for several large-scale projects sanctioned across 2021 and 2022.

• The Barossa backfill to Santos’ Darwin LNG is expected to commence in 2025.
• Woodside’s massive Scarborough development and linked Pluto LNG plant expansion is expected to start up in 2026.
• Backfill to Shell’s Prelude FLNG facility from the Crux field is expected to come online in 2027.

Both Crux and Barossa are carbon-intensive fields with a high percentage of reservoir CO₂ (DCCEEW, 2022b). The government’s LNG projections also assumed that Woodside’s Browse project would startup in 2030, but the project appears to have stalled with the state Environment Protection Agency deeming the project “unacceptable” (ABC News, 2024b).

The biggest uncertainty for future gas production in Australia is Tamboran Resources’ plan to frack the Beetaloo basin in the Northern Territory (NT) and export the gas via a new 6.6 Mtpa LNG plant to be built in the Middle Arm Precinct in Darwin. This could eventually be expanded to 20 Mtpa. Far from achieving net zero domestic lifecycle emissions, as recommended by the NT government’s Pepper Inquiry, emissions from Beetaloo and Middle Arm development have been found to be severely underestimated, and the potential to offset its emissions are greatly exaggerated: it would generate more emissions than the 2030 emissions reduction goal under the Safeguard Mechanism regulations, and require international offsets currently banned under that legislation (Climate Analytics, 2023).

The Middle Arm development was the subject of a recent federal Senate Inquiry into the environmental impact of the development and the federal government’s AUD 1.5bn commitment for the project, which failed to reach a unanimous set of recommendations (ABC News, 2024c). Despite being presented as a sustainable precinct, the industrial project could include fossil gas-generated hydrogen (“blue” hydrogen) production, minerals processing, and petrochemical processing, in addition to the current and planned LNG facilities (ABC News, 2024c). Fossil gas companies are also exploring opportunities to frack the Canning Basin, in Western Australia (ABC News, 2023b; Climate Analytics, 2024b).

The oil and gas industry continues to benefit from significant government support, which included AUD 14.5bn in spending and tax breaks in 2023–24 (The Australia Institute, 2024a). The largest component of this total is the Fuel Tax Credit Scheme at AUD 9.6bn which subsidises fossil fuel consumption. In 2023, the government revised the Petroleum Resource Rent Tax (PRRT) to introduce a cap on the use of deductions by LNG producers to no more than 90% of their assessable income. To date, no Australian LNG project has paid any PRRT (Minister for Finance, 2023). These subsidies support the fossil fuel industry and its exports, despite the need for a global phase-out.

CCS

Carbon capture and storage (CCS) is being proposed as a solution to mitigate reservoir CO₂ from gas fields which historically has been vented directly to the atmosphere. This is the case at Chevron’s Gorgon plant, Australia’s only operating CCS project, and at Santos’ Moomba CCS project, which is under construction and scheduled to commence operation in 2024.

However, implementing CCS for reservoir CO₂ does nothing to mitigate fugitive methane emissions that occur throughout the gas lifecycle, and therefore would mitigate only a portion of the greenhouse gas emissions associated with fossil fuel production. Nevertheless, CCS projects continue to be pursued by gas producers with government backing.

Chevon’s CCS facilities at its Gorgon LNG plant have consistently underperformed and fallen short of sequestering the 80% of reservoir CO₂ as required by the project’s state environmental approvals. Despite having an announced annual capture capacity of 4 MtCO₂/year, Gorgon CCS has sequestered just 10 MtCO₂ in total over the five years to August 2024 (ABC News, 2023a; Chevron, 2021, 2024).

Santos is also planning the Bayu-Undan CCS project to enable the development of the Barossa field offshore near Darwin. The project would involve capturing CO₂ from the carbon-intensive Barossa field, transporting it via Darwin by pipeline, and then sequestering in the depleted Bayu-Undan field in the Timor Sea, off the coast of Timor-L'este. The government’s 2023 sea dumping legislation paves the way for the project to proceed (ABC News, 2023c). The Bayu-Undan CCS project has a design capacity of up to 10 MtCO₂/year and is one of two projects proposed as part of the Middle Arm development, with the other being INPEX’s Bonaparte project (Northern Territory Government, 2024).

The government is counting on CCS as its predominant strategy to reduce fugitive emissions under the Safeguard Mechanism. The government estimates that by 2030, CCS will capture 1 MtCO₂e (AR5 values) from LNG facilities, in addition to CO₂ captured at Gorgon, and 1.5 MtCO₂e from domestic gas production at Moomba (DCCEEW, 2023b). The government projects that CCS at LNG plants will scale up to 4 MtCO₂e by 2035. However, given the experience at Gorgon, it is doubtful whether any of these projects will achieve their design capture rate.

Hydrogen

The government released an updated National Hydrogen Strategy in 2024 (DCCEEW, 2024c). Under the strategy the government has set baseline and stretch targets for renewable hydrogen production of 0.5–1.5 million tonnes per year by 2030 and 15–30 million tonnes per year by 2050. The government is also targeting exports of green hydrogen (or equivalent derivatives) of 0.2 million tonnes by 2030, and a stretch target of 1.2 million tonnes.

The 2024 National Hydrogen Strategy specifically prioritises renewable hydrogen production in comparison to the 2019 National Hydrogen Strategy which defined ‘clean’ hydrogen as hydrogen produced via electrolysis with renewable energy or hydrogen derived from fossil fuels with greater than 90% carbon capture. The proposed Guarantee of Origin Scheme would measure and verify the emissions intensity of produced hydrogen.

The Hydrogen Production Tax Incentive, a component of the Future Made in Australia policy package, will provide an incentive of AUD 2/kg renewable hydrogen for up to 10 years of production for projects that reach final investment decision by 2030. The AUD 4bn Hydrogen Headstart program, introduced in 2023, provides funding support to selected large-scale renewable hydrogen projects to cover the current gap between production cost and market prices (DCCEEW, 2024c).

As of October 2024, there were 14 pilot-scale hydrogen projects operating in Australia with all except two producing renewable hydrogen (CSIRO, 2024).

Safeguard Mechanism

The Safeguard Mechanism is the Australian government’s central policy for reducing industrial emissions. It has been in place since 2016 and was substantially reformed in 2023. The Safeguard Mechanism applies to large industrial facilities emitting more than 100 KtCO₂e per year and imposes declining limits on facility net emissions or ‘baselines’. The power sector is treated separately from industrial facilities.

Under the reformed SGM, baselines will decline by 4.9% each year to 2030 (DCCEEW, 2024k). To comply with declining baselines, facilities must either cut their emissions, acquire Australian Carbon Credit Units (ACCUs), or purchase newly introduced Safeguard Mechanism Credits (SMCs). The reform allows for unlimited use of offsets to meet declining baselines. Past 2030, baselines decline rate will be determined in five-year blocks to align with the 2050 net zero target (DCCEEW, 2023b).

The design of the mechanism assumes significant new fossil fuel projects to come online, such as new carbon-intensive gas fields and coal mines (Clean Energy Regulator, 2023b; Department of Climate Change, 2023e; Reputex, 2023). The reform mandates new shale gas projects must have net zero scope-1 emissions, i.e. domestic emissions occurring during fossil gas production, and that new gas fields will be given a zero baseline for reservoir CO₂ (DCCEEW, 2024k). The effectiveness of the mechanism depends on the extent to which existing and new facilities covered under the mechanism rely on offsets to meet their baselines.

In 2023, 219 facilities were covered by the SGM accounting for gross emissions of 138.7 MtCO₂e (Clean Energy Regulator, 2024), which was approximately 26% of Australia’s total emissions excluding LULUCF (DCCEEW, 2024i). The same facilities also surrendered 1.2 million ACCUs in 2023, meaning that SGM facilities collectively offset 1.2 MtCO₂e to meet their baselines in preference to making direct on-site emissions reductions.

The reformed SGM aims to reduce net SGM facility emissions from 138 MtCO₂e in 2022 to around 100 Mt in 2030 (AR5 values). The government projects that gross emissions from SGM facilities will reduce from 138 MtCO₂e in 2022 to 121 MtCO₂e in 2030, and that net emissions (i.e. accounting for offsets), would fall to 93 MtCO₂e in 2030. This reduction implies that less than half of the abatement to 2030 will result from on-site emissions cuts.

Transport emissions represented 19% of Australia’s total emissions (excluding LULUCF) in 2023/24 (DCCEEW, 2024i). The sector is projected to become the greatest source of emissions in by 2030 as power sector emissions decline (DCCEEW, 2023b).

The government introduced the long-awaited New Vehicle Efficiency Standard (NVES) in 2024, which will apply to new cars sold from 2025. Until this year, Australia was one of the last developed countries, along with Russia, to lack such standards. On average, new cars in Australia consume 40% more fuel than those in the EU and 20% more than in the US (DCCEEW, 2023c).

Under the NVES, emissions intensity limits (g CO₂/km) are imposed on suppliers across the fleet of new vehicles they sell each year, with higher limits allowed for heavier vehicles. There are no restrictions on which cars may be sold, but the sale of emissions intensive cars must be offset by the sale of more fuel-efficient cars or buying credits from other suppliers (DITRDCA, 2024). The emissions intensity targets are set to decline each year leading to a projected reduction in transport emissions by 4% between 2023 and 2030, and a further 15% between 2030 and 2035.

During the legislation’s consultation period in early 2024, the government watered down the proposed standard, allowing some four-wheel drives to be counted as light commercial vehicles (LCVs) instead of passenger vehicles (PVs), with the former being subject to higher CO₂ limits. The government also raised the ‘headline target’ for LCVs, which effectively increases the average emissions intensity allowed for LCVs, and increased ‘breakpoints’ for both LCVs and PVs, which gives heavier vehicles greater emissions headroom. Combined, these changes will allow an additional 17 MtCO₂e to be emitted cumulatively by 2035 — one sixth of the sector’s current annual emissions (DITRDCA, 2024).

The National Electric Vehicle Strategy, published in 2023, outlines a roadmap to encourage EV adoption with a focus on cooperation between the government and states. However, it does not include quantified targets for EV adoption beyond state-level targets that now exist for all states and territories, with varying levels of ambition, except the Northern Territory and Tasmania (DCCEEW, 2023c; IEA, 2023a). The government has committed to building a National EV Charging Network, with charging stations on average every 150 kilometres along the country's major highways by 2026 (DCCEEW, 2024f).

Australia’s EV uptake remains slow compared to other countries. EVs made up only 8.5% of new car sales in 2023, including battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs) (Electric Vehicle Council, 2024). Comparatively, the market share of EVs (BHEVs and PHEVs) reached 22% in the European Union, 38% in China, and 93% in Norway in 2023 (IEA, 2024a).

The government projects that battery EV sales will reach 23% of new light duty vehicle sales by 2030, and 47% by 2035 (DCCEEW, 2023b). The anticipated slow electrification of Australia's vehicle fleet is a missed opportunity to leverage the power sector's transition for decarbonising transportation.

The government’s current policies do little to address emissions from heavy-duty vehicles, such as trucks which account for more than a fifth of transport emissions (DCCEEW, 2023b), nor do they address the lack of planning for public transportation and modal shifting. Australia has also not set a phase out date for fossil fuel vehicles.

The buildings sector accounted for 20% of Australia’s total final energy consumption, and 3% of total emissions excluding LULUCF in 2023 (DCCEEW, 2023b, 2024a). Emissions from the sector are expected to decline just 7% by 2030 and 12% by 2035.

Energy efficiency measures in buildings and for appliances are essential to decarbonise. The IEA notes that while there has been progress in energy efficiency for commercial buildings, the residential sector is still lagging (IEA, 2023b). Jurisdictions have not fully implemented the latest 2022 National Construction code (Climate Change Authority, 2024a). The Energy Savings Package, announced in the 2023/24 federal budget, allocates AUD 1.7bn to improve energy efficiency and help households and businesses save on energy costs, including energy efficient renovations and energy efficiency improvements for social housing (DCCEEW, 2024g).

Fossil gas accounted for 30% of final energy consumption in residential buildings in 2023, and 16% in commercial buildings (DCCEEW, 2024a). The government refused a call from the Climate Change Authority in 2023 to phase out new and existing gas connections for residential and small commercial buildings (Climate Change Authority, 2023).

Agriculture accounted for 16% of Australia’s total emissions excluding LULUCF in 2024 (DCCEEW, 2024i). Emissions from the sector are expected to remain stable until 2035, falling just 3% below 2023 levels (DCCEEW, 2023b).

Emissions in the agriculture sector are mainly derived from enteric fermentation (digestive processes of animals), which accounted for 69% of the sector’s emissions in 2022/23 (DCCEEW, 2023b). Emissions from beef account for over half of agricultural emissions at 52% in 2023. This share is expected to remain steady, accounting for 53% of agricultural emissions in 2035 (DCCEEW, 2023b). Application from lime, urea and fertilisers are other sources of emissions from the sector.

The government has allocated an additional AUD 30.8m to the Carbon Farming Outreach Program, aimed at supporting farmers and land managers to reduce emissions and store carbon (Department of Climate Change, 2023c). At COP28, Australia signed the Emirates Declaration on Sustainable Agriculture, Resilient Food Systems and Climate Action to foster adaptation and resilience in the sector (COP28, 2023b).

The overall LULUCF sector is a net sink. It sequestrated 88 MtCO₂e (AR5 GWPs) in 2023/24 (DCCEEW, 2024i). In 2005, the baseline year for Australia’s NDC target, the LULUCF sector was a net source of emissions, contributing to 12% of Australia’s total emissions for that year. It became a net sink in 2015. LULUCF sinks massively contribute to Australia’s ability to reach its 2030 climate target.

The government regularly recalculates LULUCF data. In the December 2023 quarterly inventory report, released in May 2024, the government increased historical LULUCF sequestration for years 2021–2023 by 25 MtCO₂e. LULUCF sequestration levels for 2023 were revised from 63 MtCO₂e to 88 MtCO₂e (AR5 values) (DCCEEW, 2024h, 2024j). This recalculation has the effect of reducing reported total emissions including LULUCF in 2023 by 6%. This was attributed to “enhanced methods for estimating emissions from cropland and grassland” (DCCEEW, 2024h).

The government had also made significant revisions to LULUCF estimates in 2023, increasing historical LULUCF sequestration by 24 MtCO₂e for years 2021 and 2022 (DCCEEW, 2023d, 2023e). This recalculation was attributed to new spatial data used to model historical tree growth following the degradation in orbit of a satellite from which data was previously taken (DCCEEW, 2023d).

The government’s recalculations also extended to projected sequestration estimates. The government increased its projections for LULUCF sequestration in 2030 by 24 MtCO₂e between its 2022 and 2023 projections, and by 17 MtCO₂e between its 2021 and 2022 projections (AR5 values) (DCCEEW, 2022b, 2023b; DISER, 2021). The changes in the 2022 projections were attributed to updated land clearing estimates, while the changes in the 2023 projections were attributed to “the impact of updated state policies around native forest harvesting, and other updates including higher estimates of ACCU supply” (DCCEEW, 2023b).

The successive recalculations of historical and forecasted LULUCF emissions highlight how uncertain estimates from this sector are. They also greatly impact Australia’s progress towards its 2030 emissions reduction commitments. The successive revisions to historical and projected LULUCF emissions have made the NDC target progressively easier to reach in terms of emissions reductions in the energy, industry, agriculture and waste sectors.

In 2022, when the Albanese government submitted its updated NDC to reduce total emissions including LULUCF by 43% below 2005 levels by 2030, this would have required a reduction in total emissions excluding LULUCF, i.e. from the energy, industry, agriculture and waste sectors of 29%. Now in 2024, following substantial LULUCF revisions, the same 43% target translates to a reduction in total emissions excluding LULUCF of just 20% below 2005 levels by 2030.

Legally mandated use of offsets

LULUCF sequestration is also strongly linked to Australian Carbon Credit Units (ACCUs). ACCUs are a tradeable financial instrument theoretically corresponding to the abatement of one tonne of CO₂ equivalent. Since two thirds of the ACCUs issued to date are linked to the land sector, and the majority of ACCUs to be issued until 2035 are expected to be generated from the LULUCF sector, the future of ACCUs and LULUCF sink levels in Australia are in close interaction (Clean Energy Regulator, 2023a; DCCEEW, 2023b).

The reform of the Safeguard Mechanism is expected to be the main driver of ACCU demand. Australia is heavily relying on domestic carbon offsets to compensate for industry emissions under the scheme. To meet their decreasing SGM baselines, facilities have the option to surrender ACCUs. Demand for ACCUs linked to the Safeguard Mechanism is expected to surge from under one million in 2022 to 26 million by 2030, while annual ACCU issuance is projected to increase from 16–17 million in 2023 to 27 million by 2030 (DCCEEW, 2023b).

ACCU prices are projected to stay below the cost containment price set by the government, reaching AUD 65 by 2035, even after accounting for the rise in demand generated by the Safeguard Mechanism reform (DCCEEW, 2023b).

Despite being a central component of Australia’s current climate policy framework, ACCUs have been criticised for their lack of integrity (Andrew Macintosh, 2022; Macintosh, Butler, Ansell, et al., 2022; Macintosh et al., 2023; The Australia Institute, 2021). The use of carbon offsets with carbon storage on land by, for example, tree planting, is scientifically flawed (Climate Analytics., 2022). The current ability for ecosystems to absorb carbon mainly reflects the previous reduction in carbon caused by historical land use.

Several studies have found that Australia's ACCU projects are not resulting in actual abatement. This is because they are crediting, for example, avoided deforestation that was never going to happen, human-induced regeneration projects that actually oversaw a decline in forest cover, or initiatives to generate electricity waste-related methane that were already economic (Macintosh, Butler, Evans, et al., 2022; The Australia Institute, 2021). The lack of integrity of these offsets undermines the markets credibility.

The waste sector accounted for 3% of total emissions excluding LULUCF in 2024 (DCCEEW, 2024i). Emissions from the sector are expected to remain stable until 2035, falling just 1% (DCCEEW, 2023b). Emissions are mainly due to methane related to landfill, wastewater treatment, waste incineration and treatment of solid waste.

The National Waste Policy published in 2019, and subsequent Annexure published in 2022, do not focus on reducing emissions from this sector (Department of Climate Change, 2022). It includes a target of reducing total waste generated in Australia by 10% per person by 2030.

About 20% of Australia’s total greenhouse gas emissions are methane. Australia joined the Global Methane Pledge in October 2022, committing to reduce global methane emissions across all sectors by at least 30% below 2020 levels by 2030. Despite this, Australia’s total methane emissions including from LULUCF are projected to increase in the near-term and remain 4% above 2022 levels in 2030 (DCCEEW, 2024b).

Methane emissions mostly come from agriculture (58% in 2023) and fossil fuel fugitives (28% in 2023) (DCCEEW, 2024b). Methane emissions from agriculture are projected to remain at around current levels, reducing just 1% below 2023 levels by 2030.

Fugitive greenhouse gas emissions occur during the production, processing, transportation and storage of fossil fuels, and accounted for 9% of total emissions excluding LULUCF in 2024 (DCCEEW, 2024i). Coal mining was responsible for 52% of all fugitive emissions in 2023, with oil and fossil gas production accounting for the remaining 48% (DCCEEW, 2023b).

Fugitives from coal mining are mostly methane, 91% in 2023, whereas fugitives from oil and fossil gas have a smaller proportion of methane, namely 36% in 2023 (DCCEEW, 2024b). This is because fugitive emissions from the oil and fossil gas sector also include a significant share from vented CO₂ and emissions from flaring, which is mostly CO₂. Fugitive methane emissions from fossil fuels are expected to increase 10% between 2023 and 2030, mostly driven by coal mine methane which is projected to rise 14% over the same period (DCCEEW, 2024b).

Despite efforts for improving monitoring, like the 2021 reassessment of emissions from coal mines in Queensland following analysis of satellite data, fugitive emissions from coal mining are still widely underestimated (Department of Industry, 2021; Ember, 2022; IEA, 2022; Sadavarte et al., 2021). The IEA has estimated that methane emissions from Australian coal mines are underreported - by as much as two-thirds (IEA, 2023c).