To reach net zero we need a new playbook for collaboration

Oct 21, 2024 – 8.55am

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The transition to a net zero-economy has often been compared to a second industrial revolution. While the scale of the transition makes the comparison appropriate, our current progress does not match the urgency that defined the industrialisation of many economies across the world.

In Australia, the integration of fast-evolving renewable infrastructure is heavily restricted by the pace at which the regulatory frameworks, supply chains and the grid can adapt. This is not a result of one challenge but a number of related but distinct challenges operating together to slow necessary change. As things stand, the persistence of these barriers is putting our net zero by 2050 target at risk.

Sandra James, national lead partner for power, utilities and renewables at Deloitte Australia.

Our next step is clear - we need to expedite critical energy projects from “actionable” to “committed” to avoid our energy transformation stalling. But how can we achieve this without compromising the market’s integrity? And how can we move forward at pace given the challenges we face?

First, we need to see industry and governments coordinating to resolve the supply chain challenges that prevent us getting projects off the ground. One way of doing this is to enhance the Australian government’s adoption of regulatory experimentation.

Regulatory sandboxing, or the practice of allowing some market participants to trial innovative ideas free of certain regulatory constraints, already exists in our national energy market. To really make an impact on project development times, a much broader regulatory sandboxing scheme needs to be introduced to support trials and new processes across the project approval and deployment lifecycle, to test what works, understand impacts, and build an evidence base for wider adoption at a local level.

Going faster will create additional commercial value for investors and industry, but speed must be conditional on an element of this new value being reinvested in shared prosperity with communities. Building a bigger regulatory sandbox isn’t the only shift we need to see.

According to the Australian Energy Market Operator (AEMO), other threats to timely infrastructure delivery include fragmented policies and market mechanisms, labour shortages, supply chain constraints, and the difficulties large projects have in obtaining social licences from local communities and other stakeholders.

In addition to expanding our regulatory toolkit, we must make every effort to attract foreign and domestic capital towards energy infrastructure projects. The need for investment is huge, and we mustn’t forget that we are competing for investor funds against other economies, like the US and EU, who are already bankrolling enormous green transformation initiatives.

Hand in hand with securing the right kit on the ground is securing the right talent. AEMO estimates energy sector demand from workers will approximately double to 60,000 people out to 2050, across all disciplines. At the same time, Deloitte Access Economics estimates 26 per cent of Australia’s workforce are employed in industries vulnerable to disruption as the transition accelerates.

This means government and industry must work together to proactively identify current and emerging skill gaps in the sector and then fill them through a combination of retrained workers from disrupted industries, pipelines of graduates and upskilled workers from universities and the VET sector, and highly skilled international talent.

Another piece of the puzzle involves making it easier for new transmission and energy projects to obtain the social licence to operate from local communities.

A significant share of already announced solar and wind projects are concentrated in Australia’s 15 biodiversity hotspots and more than 80 per cent of announced projects overlap with First Nations land. Almost half of announced hydrogen projects are in areas of high-water stress.

These projects may be crucial, but we must realise they will also deliver considerable disruption to some landholders, communities, and First Nations groups – these projects will require a social licence to be developed and maintained.

Social licence underpinned by early and meaningful engagement with communities is critical to the timely deployment of capital. Developers need to account for the fact that communities are increasingly demanding more information on impacts and mitigation strategies earlier in the project development lifecycle. Government must do more to allow all parties to move through this process in a timely and informed manner and the sharing of benefits with communities should be clear.

The final piece of the puzzle is embracing digitisation and data-enabled tools. To support timely decision making, co-ordination and monitoring across the project life cycle, and the uplift in capability and capacity for our people who will ultimately deliver the transition.

Our transition timeline is at a hinge point. If we act now, and collaborate effectively together, net zero by 2050 is a possibility. If we don’t, our decarbonisation efforts as a nation will only continue to slow, setting up cascading economic consequences that extend well beyond the boundaries of the energy market.

Sandra James is national lead partner for power, utilities and renewables at Deloitte Australia.