Net zero by 2050 – does this matter for renewables?

On 26 October 2021, the Prime Minister and Federal Minister for Industry, Energy and Emissions Reduction jointly released Australia’s Long Term Emissions Reduction Plan (Plan), a Commonwealth Government whole-of-economy plan to achieve net zero emissions by 2050.

While this is a welcome move, is it a game-changer in Australia’s emissions policy? What will it mean for renewables investment in Australia?

What is the Plan?

The Plan is built on the following five key principles:

• Technology, not taxes: The Plan has a technology-led approach that, through investments in research and innovation, focuses on reducing the cost of new and emerging technologies rather than taxing existing industries
• Expand choices, not mandates: Under this approach, government and businesses aim to partner to unlock investment and accelerate technology deployment at scale. Incentives and finance for firms will be provided to deploy emerging technologies. However, the Commonwealth Government has said that consumers’ choices will be respected and the Commonwealth will not regulate technology adoption or impose new costs through mandated targets for technologies that are not able to compete on their own merits
• Drive down the cost of a range of new technologies: The Plan recognises the already existing Technology Investment Roadmap (TIR), which prioritises the following six technologies to reduce emissions across all sectors, including from areas that continue to require significant support to be financially viable:
  • clean hydrogen
  • ultra low-cost solar
  • energy storage
  • low emission steel and alloy production
  • carbon capture and storage
  • soil carbon.
• Keep energy prices down with affordable and reliable power: The Plan aims to maintain Australia’s competitive advantage in reliable and affordable energy resources such as coal, natural gas, uranium and solar
• Be accountable for progress: The Commonwealth has reported that Australia is on track to reduce emissions by up to 35 per cent by 2030. Under the Plan, Australia will continue to monitor and evaluate progress and encourage the broader take-up of its approach to emissions measurement and reporting.

The Plan’s release comes amidst significant commentary on Australia’s commitment to action on emissions and against the backdrop of a global move towards decarbonisation by business and government. It also comes after the recent issuance of the AR6 IPCC report.

Is this new?

Yes and no.

The concept of having an emissions target and policies intended to support that target is not new. The Commonwealth Government has had various emission reduction policies in place over the last decade. For example:

• the Commonwealth has a current emission reduction target of 26 to 28 per cent below 2005 levels by 2030
• a low emission obligation was included in the Turnbull Government’s National Electricity Guarantee, removed in late 2018
• the Gillard Government introduced a carbon pricing scheme in the early 2010s that sought to create a market-based emission trading scheme in line with several European schemes in place at the time.

What is new at a Commonwealth level is the introduction of a target for net zero emissions by 2050. While this does not tighten the current 2030 Federal Government target (see above), it sets a further waypoint in the future at 2050 and brings the Commonwealth more into line with:

• the current net zero emission policies of most other states and territories in Australia
• targets set by other developed nations such as the US, Japan, China and South Korea.

How will this affect renewables?

Investment in renewable projects in Australia is influenced by a number of factors, ranging from power prices, grid connection issues and the regulatory regime to the rise of environmental, social and corporate governance (ESG) considerations.

In terms of policy settings, one of the key Commonwealth Government schemes has been the Renewable Energy Target (RET), which set a target of 33,000 GWh of additional large-scale renewable generation (down from 41,000GWh) by 2020 and which target remains the same from 2020 to 2030. The industry’s view at present appears to be that, unless the target is increased to drive demand for large-scale renewable energy certificates, the RET will no longer be a significant catalyst for investment in large-scale renewables.

Consistent with the Commonwealth’s focus on direct investment in renewable technology in accordance with the TIR and its recent funding injections into the Australian Renewable Energy Agency (ARENA) in support of this, the Plan does not appear to contemplate increasing the RET.

States and territories appear unlikely to change their policies and emission target ambitions as a result of the Plan. Indeed, we would expect the states and territories to continue taking the lead in policy initiatives to drive the uptake and development of renewables. For example:

• Victoria is currently conducting its second round auctions for contracts for difference as part of its Victorian Renewable Energy Target scheme
• Queensland is heavily investing through CleanCo in renewable energy projects (including through direct investment and project delivery)
• NSW, Queensland and Victoria are creating renewable energy zones to assist in focusing efficient grid investment and increasing capacity in their own states and across the eastern seaboard.

The Plan’s assumptions around technology and lack of detail and modelling have been criticised and would seem to only add to the policy’s uncertainty. Unfortunately, uncertainty is the enemy of investment and this bane of the sector seems set to continue.

The transition from fossil fuels to renewable energy is increasingly being led by businesses (encouraged by investor and community expectations) and is only increasing in pace. Policy settings which do not recognise this transition risk jeopardising the economic upside for Australia from the move towards renewables (not to mention the obvious environmental benefits).

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Authors: Scott Schlink, David Harley & Ignacio Payarola

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Scott Schlink

Ignacio Payarola

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