Anthony Albanese’s net-zero transition won’t be cheap or easy, Productivity Commission warns
The Productivity Commission declares Anthony Albanese’s clean-energy transition will cost more than expected and require greater government intervention to hit climate targets without crippling the power grid.
Anthony Albanese has been given a green light to turbocharge his clean energy revolution, with the Productivity Commission declaring the net-zero transition will cost even more than expected and greater government intervention, regulation, incentives and carbon pricing are needed to hit Labor’s climate targets without crippling the power grid or damaging productivity.
The second of five interim reports published by the PC ahead of Jim Chalmers’s economic reform roundtable has warned the government must take stronger action across the electricity, heavy industry, transport and housing sectors to achieve net-zero emissions by 2050.
The commission said the Safeguard Mechanism, broadened by the Albanese government after the 2022 election, should be significantly expanded to capture more companies operating facilities deemed to be heavy emitters.
It also cautioned that reducing emissions “comes with costs”, and warned “Australia faces significant climate-related risks regardless of future emissions reductions” and is taking “too long to develop energy infrastructure”.
Despite repeated Labor assurances that gas has a long-term role to play in Australia’s electricity generation mix as firming energy, the PC declared gas use would “need to be minimised over time” to achieve net zero by 2050.
Unlike its detailed proposals for a controversial cashflow tax for businesses, released last week, the PC did not provide any firm numbers on what its proposed revved-up net-zero push would cost businesses and taxpayers.
Amid concerns about economic, energy and regional community impacts of the transition, the commission’s net-zero transformation and clean-energy report, released on Sunday, provides cover for the Prime Minister, Treasurer and Climate Change and Energy Minister Chris Bowen to turbocharge Labor’s renewables and climate change agenda.
The PC’s net-zero blueprint comes amid growing fears the Albanese government will use the PC reports and its roundtable as triggers to pursue a high-taxing, big-spending agenda in its second term.
ACTU secretary Sally McManus on Sunday launched a $25bn wishlist of new taxes on property investors, family trusts and the resources industry, all but guaranteeing trench warfare between unions and business at the roundtable despite Labor’s claims it wants consensus on economic reform.
Recommendations in the 83-page net-zero report include a proposal for the government to develop national carbon values, or “estimates of the implied carbon prices needed to meet emissions targets”, that would be used as benchmarks for policy and reporting. Other measures in the report include handing new powers to Matt Kean’s Climate Change Authority to monitor and evaluate government policies and work out if they are doing enough to prepare the nation for the effects of climate change.
The PC also calls for overhauling environment and planning laws by inserting stricter national environment standards, fast-tracking projects deemed important to the clean-energy transition, and applying greater rigour to consideration of climate risks.
As the government faces an uphill task to achieve its target of 1.2 million new homes by mid-2029, the PC calls for governments to establish a publicly accessible database of climate hazards and an “outcomes-based resilience rating system for housing”.
While acknowledging that calculating broadbased national target-consistent carbon values (TCCVs) would involve “uncertainty” because they rely on “assumptions about the costs of reducing emissions many years into the future”, the PC said a carbon pricing model was still better “than no guide”.
The Australian last month revealed the commission had received submissions from the housing, cement, mining and other major sectors that were either neutral on, or supportive of, a carbon price model or carbon border adjustment mechanism. The change in messaging from some business leaders contrasts with the heated fight over a carbon tax during the Rudd-Gillard era.
Former Treasury secretary Ken Henry, who designed the Rudd government’s carbon tax, veteran economist Ross Garnaut and mining giant Rio Tinto are among those advocating for carbon pricing ahead of Dr Chalmers’s three-day tax, productivity and economic growth forum, hosted at Parliament House from August 19-21.
The PC said the government should task an independent agency to develop national carbon values, “develop a framework for extending emissions-reduction incentives to new sectors”, and ensure Australian carbon credit units used to offset emissions were “high-integrity” and integrated into climate policies.
“Because of how TCCVs are estimated, some policies will need to be more expensive than the benchmarks,” its report says.
“If a broadbased national carbon price were in place, emitters would be incentivised to seek out the lowest-cost emissions reduction options available.
“But without a broadbased price, gaps will likely remain … and thus some low-cost options will not be exploited. To achieve Australia’s emissions targets, governments will therefore need to deliver some reductions in emissions that are costlier than the estimated TCCVs.”
The PC recommends the threshold of the Safeguard Mechanism, currently capturing 233 emitting facilities, be lowered from “100,000 tonnes to 25,000 tonnes of carbon dioxide equivalent per year”. The heavy polluters scheme, which sets legislated limits or baselines on greenhouse gas emissions, impacts mining, oil and gas, manufacturing, transport and waste facilities.
“The Safeguard Mechanism review scheduled for 2026-27 should determine the new threshold but favour broadening the scheme as much as possible,” its report says. “The review should also consider whether the lower threshold would introduce inefficiencies such as uneven coverage in some sectors, and whether it would be appropriate to phase in the inclusion of new facilities. If the Australian government introduces a border carbon adjustment, it should phase out trade-exposed baseline-adjusted status for Safeguard Mechanism facilities that would otherwise be exposed to competition from imports from countries without domestic policies to reduce emissions.”
The Australian last week reported on Institute of Public Affairs data showing the Safeguard Mechanism incurred a carbon credit cost of $300m in 2023-24 and would accumulate between $7.1bn and $11.7bn by 2029-30 at an annual average of between $1.02bn and $1.67bn.
The PC report issued a stark warning about the rollout of renewables and transmission lines as coal-fired power is scheduled to exit the grid and new gas generation moves slowly.
“Achieving these (federal, state and territory renewables) targets will require significant investment in clean-energy infrastructure,” it says. “Expected retirements of coal plants adds to the urgency of this task. Australia will need to install thousands of wind turbines, millions of panels for solar farms, new transmission lines and substantial storage capacity.
“Clean-energy projects are not without risks and costs. They can affect local habitats and communities, cultural heritage sites, businesses and industries. They can impede views and cause noise. And these impacts are not confined to a few small areas. Although the need for laws to avoid or minimise these impacts is broadly recognised, planning and approvals processes to ensure compliance with those laws can be unnecessarily slow and complex.”
The commission said “faster approvals (of energy infrastructure) would reduce emissions, lower costs for developers, attract investment and make energy cheaper than otherwise – supporting productivity growth”, and called on the government to “reform environment laws to expedite approvals for clean-energy projects and better protect the environment”.
With the Capacity Investment Scheme and Renewable Energy Target not planned to provide incentives beyond 2030, the commission said: “Without any policy favouring renewables over fossil fuels, the electricity sector might not decarbonise fast or deeply enough to make a sufficiently large contribution to the national emissions targets.
“Coal generators may operate for longer than is consistent with the targets, due to policy intervention and economic factors. And while gas is needed to ‘firm’ electricity supply – meaning to ensure supply when renewables cannot generate enough power – gas use will need to be minimised over time to meet net zero.
“It will not be possible to induce the ‘right’ amount of gas firming without incentives in place.”
In the wake of the Albanese government introducing a New Vehicle Efficiency Standard to lift take-up of low-emissions cars, the commission said the commonwealth should roll out “a new emissions reduction incentive to cover heavy vehicles”. At the same time, federal, state and territory governments should phase out exemptions for electric vehicles from fringe benefits tax and vehicle stamp duty, and move away from EV registration discounts.
The push for a new housing climate hazards database and rating systems is linked with making the sector and homes more resilient over coming decades.
“People’s experience of climate change will depend on the resilience of their home. Resilient housing reduces exposure to the health and wellbeing impacts of climate change and the disruption and displacement caused by natural disasters,” the PC says.
“The Australian government should lead work to develop a publicly accessible database of all climate hazards and an outcome-based resilience rating system for housing. Planning and zoning systems need to consider climate risks as Australia’s population grows. Targeted measures will likely be needed to progressively lift the resilience of the existing housing stock.”
PC Commissioner Barry Sterland said achieving net zero at the “lowest possible cost is central to our productivity challenge”.
“With the right policy settings, we can limit the costs of decarbonising and speed up our approvals to unlock the opportunities of lower cost. We can also boost our resilience to the effects of climate change and minimise their human and economic costs,” Mr Sterland said.
On broadening the Safeguard Mechanism and providing incentives for the transition to low-emissions heavy vehicles, Mr Sterland said “enduring, broadbased market mechanisms are the best way to reduce carbon emissions”.
“More consistent and comprehensive incentives are key to reaching net zero at lowest cost,” he said. “As climate risks intensify, boosting our resilience can lower the costs of disaster recovery and create a healthier, safer and more productive Australia.”
On building clean-energy infrastructure to meet climate targets, PC Commissioner Martin Stokie said “our sluggish and uncertain approval processes are not up to the task”.
Mr Stokie said environment protection and biodiversity conservation laws must be overhauled to speed up approvals, and he endorsed an independent Clean Energy Coordinator-General and “specialist strike team” to fast-track critical projects.
“Getting to yes or no quicker on priority projects would meaningfully speed up the clean-energy transition,” he said.
ADDITIONAL REPORTING: Richard Ferguson
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