Is a 2050 net zero target inevitable or essential for Australia?
Australia has been gradually nudging towards a net zero target over the last few months. To me it seems inevitable that we will have one soon, given the momentum in our key trading countries and the extraordinary pace of change driven by investors and business.
Australia’s Prime Minister described Australia’s position early in 2021 as “our goal is to reach net zero emissions as soon as possible, and preferably by 2050”.
Whilst there are many views on what Australia should be doing, Australia’s current position of ‘preferably by 2050’ is likely to come under increasing pressure during 2021 due to international government regulatory changes as well as rapid changes in the private sector.
COP26, although delayed due to COVID-19, marks the 5-year milestone since the Paris Agreement. It is a critical event with the resubmission of updated national targets (Nationally Determined Contributions or NDCs) to reflect a ratcheting up of climate ambition.
To ensure success in reducing the effects of climate change we need all countries to commit to reaching net zero emissions as soon as possible and to significant further cuts by 2030. (COP26 mandate)
International Regulatory Changes
Recently China, Japan and the European Union set clear target dates for net zero goals and the US is set to announce a new target in April. If Australia is not aligned with our international trading partners, there are likely to be further impacts for Australia. It is a pertinent question, then, to consider how other countries’ legislative agendas to decarbonise may impact Australia.
An example of how policies that seek to drive decarbonisation could develop across countries is the proposed EU Carbon Boarder Adjustment Mechanism (CBAM), which would require exporters to the EU, including Australia, to pay a levy based on the amount of carbon used to make and ship the exported products. This is expected to be tabled to the EU parliament in the second quarter of 2021.
The notion of cross border carbon taxes are not unknown. They already exist in practice in, for example, the Californian energy cross state tax.
As a strong advocate for carbon pricing, the policies proposed by the EU are a clear example of how countries can integrate policies that drive decarbonisation and mitigate the impacts of “carbon leakage” from imports.
Private Sector Changes
The momentum to achieve net zero by 2050 has been adopted by many companies. Some particularly clear signals include:
- More than 1,000 businesses worldwide are now working with the Science Based Targets initiative (SBTi) to reduce their emissions in line with the Paris targets.
- The 2020 TCFD status report shows that over 1,500 organisations, with a combined market capitalisation of US$12.6 trillion, now support the TCFD framework as well as supporting financial firms responsible for assets totalling nearly US$150 trillion.
- The UN-convened Net-Zero Asset Owner Alliance, a group of 34 institutional investors with US$5.5 trillion of assets under management, have made a bold commitment to transition their investment portfolios to meet net-zero GHG emissions by 2050 and align to the 1.5°C Paris target.
What benefit can a target bring?
The setting of a net-zero target is the first step in building the foundations of a decarbonised economy.
The United Kingdom, which will host COP26, have already demonstrated it is possible to decouple economic growth from carbon emissions. Over the past 30 year they have grown their GDP by 75 percent and reduced their emissions by 43 percent. In 2019, they went a step further by creating a legally binding obligation for the UK to reach net zero by 2050. This ‘north star’ provided a reference for the subsequent 10-point plan of a ‘green industrial’ revolution, and the industrial decarbonisation strategy on how they will achieve this. It is clear the UK is aligning its strategic and policy decisions with the 2050 net zero target.
The decarbonisation of global economies is underway and a clear policy framework that works towards a clear 2050 target can only help. There are also growing risks for Australia if we fail to set one; reputational, financial and trading risks among them.
A net zero target for Australia seems inevitable. While it is currently only a preference to achieve net zero by 2050, it seems likely that Australia will be forced to commit by 2050.
Will this happen by Christmas 2021?