Climate and energy: What do the next three years hold?

With Labor being returned to Government for a second term, this time with an increased majority, the next three years will represent a litmus test for how Australia is tracking to meet its signature 2030 targets of 43 per cent emissions reduction and 82 per cent renewable generation, and not to mention, the looming 2035 target. 

We take a look at some of the key projections and checkpoints throughout the next term.

The road to 43 per cent emissions reductions

Each year the Department of Climate Change, Energy, Environment and Water (DCCEEW) publish their Emissions Projections, which looks at what is needed for Australia to meet its 2030 target. Under the Climate Change Act 2022 (Cth), this target is both point-in-time and part of a multi-year emissions budget from 2021 to 2030 (4,377 Mt CO₂-e).

The Emissions Projections 2024 report states Australia has currently achieved around 28 per cent emissions reductions on 2005 levels, which sets the baseline of 613Mt CO₂-e. The Department projects that emissions will decline 30Mt CO₂-e over the next three years, and then about 60Mt CO₂-e in 2029 and 2030 to reach 43 per cent.

Figure 1: Australia’s emissions projections, baseline scenario

Source: DCCEEW, Australia’s Emissions Projections 2024, baseline scenario data (AEC graph)

At face value, the previous year-on-year trend suggests the task ahead is reasonably achievable. But there is quite a major difference between historical versus future emissions reductions that needs calling out: historical emissions reductions have been driven overwhelmingly by Land Use, Land Use Change, and Forestry (LULUCF), which in simple terms, is carbon offset activity. Continued heavy reliance on carbon sequestration has limits due to concerns about integrity, permanence and overall scale. The expectation is then that most future decarbonisation requires direct emissions reductions resulting from changes in industry technology and customer purchasing behaviour.

To capture that difference, Figure 2 excludes LULUCF from the baseline scenario, which is useful for showing the magnitude of change needed in the next five years.

Figure 2: Australia’s emissions projections, baseline scenario (excluding LULUCF)

Source: DCCEEW, Australia’s Emissions Projections 2024, baseline scenario data (AEC graph)

Who is driving these reductions? A sector breakdown

A peculiar observation from the next three-year projections is that electricity sector emissions are expected to fall 33Mt CO₂-e, which is more than the overall economy-wide decline of 30Mt CO₂-e. How is this possible? Well, essentially because the Department is not projecting other sectors to reduce their emissions while carbon sinkage will be smaller.

Figure 3: Australia’s emissions projections, baseline scenario (sector by sector emissions)

Source: DCCEEW, Australia’s Emissions Projections 2024, baseline scenario data (AEC graph)

What may become a talking point during the next term is the effectiveness of two of the Government’s flagship emissions polices: the New Vehicle Efficiency Standard and Safeguard Mechanism. From now until the end of 2028, these two policies are projected to drive a collective reduction of 2Mt CO₂-e, which is about the equivalent of 1 per cent of renewable generation being added to the grid over three years.[i] If these projections do play out, the Government may need to contemplate whether to strengthen the existing policies or introduce other incentives.

The other interesting thing to watch is whether there will be any revisions to the LULUCF projections. While this sector is projected to offset less emissions over the next three years, LULUCF has historically been revised favourably to assume more emissions were offset than previously projected.

Figure 4: Land-use emissions revisions across DCCEEW quarterly emissions reports

Source: Renew Economy

The other high emitter, the agriculture sector, is generally considered a hard-to-abate sector due to the absence of commercial abatement technologies, so is not expected to make a major contribution to emissions reductions in the near term. Nonetheless, it will be interesting to see how the Government presents its net-zero strategy for agriculture when it presumably restarts its sector pathway work later in the year.

Electricity to do the heavy lifting – but how much is too much?

The Emissions Projections 2024 see electricity declining 33Mt CO₂-e across the next three years, and then 52Mt CO₂-e across 2029 and 2030.

Meeting these projections will require an extraordinary buildout of renewable generation in a very short space of time – about 40GW of new renewable and battery grid-scale capacity in the National Electricity Market (NEM), and over 60GW nationwide. The picture below illustrates what that might look like for the NEM.

Figure 5: Modelled year on year new capacity for the NEM (GW)

Source: Endgame Economics analysis, contained in AEC submission to NEM Wholesale Review

To give some insight into the construction timelines ahead, we can turn to the Federal Government’s National Renewable Energy Priority List. The Priority List identifies 56 projects nationally which are essential to delivering the 82 per cent target. These projects are broken up into 24 transmission projects and 32 generation and storage projects, with the latter expected to deliver a cumulative 16GW of generation and approximately 6GW of storage capacity nationwide.

The list of generation and storage projects is contained at the end of this article along with the expected operational dates for each project. In rough terms:

Priority List Generation and Storage Projects (sorted by operational date)

To state the obvious, the larger the project, the longer it takes to plan, receive approvals, construct and then come online, which makes it unsurprising that most of the mega projects are not scheduled for operation until 2030 or later. Not included in the Priority List but critical to the delivery of the government’s ambitions is Snowy Hydro 2.0 (2,200MW), which has faced well publicised delays.

The challenge facing the Federal Government is that these expected operational dates are the likely best-case scenarios. Even with priority assessment status, the circumstances for quicker than expected operation are limited, whereas the circumstances for delayed operation are multiple and already occurring. The AEC has drawn attention to these supply-side constraints in various submissions to governments and government bodies.

Of course, the reason for this renewable capacity buildout is to replace coal-fired power stations as they close. The timeline for coal closures does ramp up between now and the next election, with three coal plants expected to close: NSW’s Eraring (2,880MW) and Western  Australia’s Collie (340MW) in 2027, and then Victoria’s Yallourn (1,480MW) in 2028.

A fourth coal plant, Callide B, was also slated to close in 2028 but the new Queensland Government has indicated its intent to extend its life out to 2031.

This brings attention to the federal-state dynamics of the energy transition, with state governments having ultimate control over energy assets since electricity supply is not mentioned in the Constitution.

As much as nobody wants to hear it, these tensions are not going to go away over the next three years and there have already been rumblings over whether Yallourn (which entered an agreement with the State Government for an orderly closure) will be extended, although the Victorian Government has unequivocally said this is not the case.

And then there is 2035

In between all this, the Federal Government will soon announce Australia’s 2035 emissions reduction target, which is expected to tie in with Australia hosting COP 31.

The Climate Change Authority, which is tasked with independently advising the Government on the 2035 target, has already indicated the advised target is likely to be in the range of 65 to 75 per cent.

To take the upper bound, which is what the Authority and CSIRO have assumed in their sectoral pathway review modelling, would mean reducing economy-wide emissions from roughly 440Mt CO₂-e (where they are now) to 155Mt CO₂-e by 2035. The CSIRO’s modelling takes a linear progression to 75 per cent as illustrated below. Needless to say, there is a long road ahead.

Figure 6: Australia’s emissions pathway to 75 per cent by 2035

Source: CSIRO, Modelling Sectoral Pathways to Net Zero Emissions, p65.

National Renewable Energy Priority List (operational dates added)

* Operational dates as of May 2025.

[i] The Climate Change Authority has stated: Every percentage point we fall short of achieving 82% renewables equates to roughly 2 Mt CO2-e that needs to be reduced elsewhere in the economy, if the overall target of a 43% reduction in emissions is to be achieved.