News & Views: Labor’s emissions reduction plan

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  • 4 min read
24 February 2022

Achieving Net Zero carbon emissions is critical to long-term climate goals.

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After a prolonged period of policy vacuum, Australia’s Net Zero commitment has received bipartisan political support. However, the trajectory of emissions reduction and policies to achieve this outcome varies significantly depending on which side of politics is advancing the plan.

We previously examined the Liberal-National Coalition’s (the Coalition) long-term emissions reduction plan in our December 2021 Global Matters article (The Australian Way - roadmap to Net Zero emissions by 2050). With a federal election looming, the Australian Labor Party (ALP) recently released its 2030 carbon emissions reduction proposal – the ‘Powering Australia Plan’. In this article, 4D Infrastructure’s Senior Investment Analyst Christopher James outlines the ALP’s carbon reduction policies, contrasting it with the Coalition’s.

Coalition vs ALP emission reduction targets

The ALP first established its 2050 Net Zero emissions target back in 2015, ahead of the United Nations Conference on Climate Change in Paris. It acknowledged that Australia’s transition required a decarbonisation pathway. However, it wasn’t until October 2021 that the Coalition introduced its policy target of Net Zero by 2050.

Whilst both parties target Net Zero by 2050, the ALP’s ‘Powering Australia Plan’ has a faster trajectory, introducing a suite of policy measures aimed at delivering national emissions reductions of 43% below 2005 levels by 2030.

In comparison, the Coalition’s current target is a more modest 26-28% reduction by 2030, while projecting a 30-35%[1] actual reduction. To put both plans in perspective, Australia has already reduced emissions by ~20% on 2005 levels. The relative trend is depicted in the chart below.

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Proposed ALP policies

The ALP’s ‘Powering Australia Plan’ is underpinned by policy measures in three key sectors of the economy – electricity, industry & carbon farming, and transport. In 2021 these sectors collectively accounted for ~79% of national emissions. The key policies and initiatives are below.

Electricity

  • Rewiring the nation: Establishment of a dedicated public body to oversee the investment of A$20bn to modernise Australia’s electricity grid and facilitate new renewable energy development and connections
  • Community batteries & shared solar banks: A commitment of A$200m to build 400 community batteries across Australia, and A$100m for the development of shared solar banks
  • Public sector emissions: A commitment to reduce the Australian public service’s emissions to Net Zero by 2030 (excluding law enforcement and security agencies)

Industry & carbon farming

  • Safeguard Mechanism: Maintain the current eligibility threshold for the Safeguard Mechanism[2], but gradually reduce the emissions cap from 2023 by 75%. Doing so will expand coverage from 28% of national emissions in 2020-21 to 34% by 2030
  • National Reconstruction Fund (NRF): Establish a A$15bn financing vehicle to drive investment in projects that boost regional economic development. A$3bn (20%) of the NRF will be allocated to support the uptake of new clean energy and green technologies
  • Apprenticeships: An A$100m investment to support 10,000 new energy apprenticeships and A$10m for a ‘New Energy Skills Program’

Transport

  • National electric vehicle strategy: An A$251m investment for an electric car discount’ (exceptions/reductions for import tariffs and FBT), improvement of EV charging infrastructure, and A$14m to establish a real-world emissions testing program (empowering decision making by providing consumers and fleet buyers with accurate information on vehicle emissions, fuel consumption and cost of ownership)
     

The chart below depicts the percentage emissions reductions these policies are expected to deliver within the specified three key sector

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Projected economic impact of the ALP’s ‘Powering Australia Plan’

By 2030 the ALP projects the economic impact of its policies to include:

  • 63,994 direct and 604,000 indirect jobs;
  • Estimated required investment of at least A$76b (A$24b public sector / A$52b private sector);
  • Renewables to be 82% of the National Electricity Market (higher than the 68% forecast in the Coalition plan); and
  • Annual average electricity retail bills projected to decline by A$275 p.a. by 2025 (-18%) and A$378 p.a. by 2030 (-26%).

Policy comparison table

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Conclusion

Australia is well-placed to take advantage of the decarbonisation thematic and pivot towards Net Zero emissions. Despite alternate pathways and pace of emission cuts, both the Coalition and ALP reduction plans will require substantial infrastructure investment and deployment. This represents a significant opportunity for infrastructure investors such as 4D, who seek to be part of the climate solution.
 

[1] By way of comparison, The Business Council of Australia is calling for a 46-50% emissions reduction target by 2030, and the Australian Industry Group a 50% cut by 2030.

[2] The Coalition established the ‘Safeguard Mechanism’ in 2016. Its purpose is to impose limits on the country’s largest polluting facilities, keeping their net emissions below an emissions limit (a Baseline). If business go above the threshold, they must purchase carbon offsets, but if they fall below the threshold, they can sell their Carbon credits. 

[3] Australia’s emissions projections 2021 (www.industry.gov.au/sites/default/files/October%202021/document/australias_emissions_projections_2021_0.pdf)

The content contained in this article represents the opinions of the authors. The authors may hold either long or short positions in securities of various companies discussed in the article. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely as an avenue for the authors to express their personal views on investing and for the entertainment of the reader.

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