Creating a path towards Net Zero 2050 boils down to one simple idea: a laser focus on investing in the infrastructure that will get us there. Infrastructure that is not only climate resilient but that offers the best prospects for long-term economic growth and job creation.
Here’s how we do it.
- Decarbonisation is a clear global megatrend with deep implications for post-COVID stimulus packages and policy considerations.
- Private capital and public companies are poised to invest in future-focussed industries, but need clear signals from policymakers.
- Fast-tracking the transformation of Australia’s energy system will underpin Net Zero 2050 efforts, including the electrification of transport, the manufacture, use and exporting of green hydrogen, and ongoing investment in grid-scale renewables.
- Aligning government procurement policies with Net Zero 2050 outcomes gives the market long-term certainty to invest in more resilient supply chains.
- Modelling the costs of the most efficient path to Net Zero 2050 is crucial to achieving the target
COVID-19 has given governments and industry a chance to chart a different future. A future that not only drives economic growth but is environmentally and socially positive. As we aim globally for net zero carbon emissions by 2050, these measures will deliver the most efficient and growth-oriented use of public and private investment. But plans for decarbonising the Australian economy is one thing. Action is another thing entirely.
We know governments have a critical role to play in working with the private sector to capture this opportunity. We also know that large amounts of private capital are poised and ready to be spent on future-focussed decarbonisation projects. Increasingly, the market is demanding and executing on shifts in investment strategies. Nonetheless, policy choices are the key to unlocking this investment and positioning our industries for success in the changing global economy. Government also needs to do the work on how we chart our path to Net Zero 2050 without imposing huge costs on the economy.
Getting this wrong could have three main impacts: setting us on an unsustainable trajectory; allowing international competitors to gain a ‘leg up’ in the zero carbon future; and investing scarce public funds in less economically efficient low-carbon measures.
With this chance to remould and reimagine our future, government and organisations need to move past the false choice between being good for the economy or good for the environment.
We believe the following are the most pressing and impactful ways for governments across Australia to use their stimulus packages in order to secure the greatest long-term growth prospects and align with net zero targets:
- Fast-track the transformation of energy, both on the demand and supply side, including the use of hydrogen and renewable energy as export markets, fully develop grid technologies from virtual power plants and microgrids to large-scale batteries, and build a more integrated transmission network; and
- Pivot government spending on infrastructure and development to create future skills, drive demand for more sustainable products and materials, and fast-track emissions reduction efforts.
These efforts could lead to stronger long-term economic recovery, open up new opportunities across manufacturing, construction and infrastructure, and reinvigorate and develope trade and export markets – all areas that in Australia at least were under significant pressures and ripe for a rethink, even before COVID hit. That the changes are expected to also keep warming below 1.5 degrees only makes the economic recovery case all the stronger.
Table 1: The detailed opportunities for economic stimulus in Australia’s economic rebuild. Source: EY
However, it warned that the policy choices of governments will determine whether stimulus packages will be effective not just for economic recovery but to drive “a long-term downward trend in greenhouse gas emissions.” Distribution of the European Commission’s EUR750 billion recovery fund, for example, has been tied to decarbonisation outcomes, with a quarter directed at climate action specifically.
Locally, calls for meeting the target of dramatic and continuous emissions reductions are increasing. Ninety finance sector organisations including the big four banks have joined together as the Australian Sustainable Finance Initiative and want a recovery plan focussed on “immediate economic goals while addressing our climate and social goals”.
The Business Council of Australia has called for transitioning to net zero emissions by 2050, as has the National Farmers Federation. Internationally, the Net-Zero Asset Owner Alliance represents nearly USD5 trillion in assets under management that are aligning with a Net Zero 2050 scenario, while the UN accredited Net Zero Asset Managers initiative has 73 signatories representing USD32 trillion in assets under management, 36 per cent of the global total.
Individual companies are also shifting their business strategies, including BP setting aside USD5 billion for additional renewable energy assets and committing to hydrocarbon production reductions of 40 per cent by 2030 through active portfolio management. If such rapidly shifting investment strategies can be coupled with government policy and clear paths for investable net-zero infrastructure, mitigating the worst effects of climate change can be achieved.
As the Oxford Paper argues: “Given the scale of [COVID] recovery packages, a sustainable recovery could also be nearly sufficient to address climate change. Once the macroeconomy has recovered and the costs of clean technologies are low enough, the private sector would need limited further encouragement” (italics in original).
Net Zero 2050 has become a policy mantra – some aspirational, some legislated – for every Australian state and territory, as well as the New Zealand government. The UK enshrined the target in law a year ago. The Biden Administration has committed to the US reaching net zero no later than 2050 and has also said it will “lead efforts to get every major country to ramp up the ambition of their domestic climate targets.”
China, currently responsible for around 28% of the world’s carbon emissions, is also on path to net zero emissions, albeit by 2060. As noted by the EY Global Power and Utilities leaders, the two superpowers recently announced that they are committed to working together, and with other countries and regions, to tackle climate change.
With Net Zero 2050 a target also backed by business groups, investors and individual companies, it is clear that net zero developments are now part of global market developments. “Accelerated policy in the EU and potentially under a Biden administration will also create something of a green arms race,” says Mathew Nelson, EY Global Leader for Climate Change and Sustainability Services. “Creating the environment to transition our own infrastructure will create opportunities for Australian businesses overseas as well as here.”
The most recent edition of the EY Renewable Energy Country Attractiveness Index (RECAI), highlights how governments must deliver on spending promises for the energy transition. With Australia slipping from being ranked the third most attractive country in the world to sixth, we need to ensure that we remain a competitive environment for global investment. Especially if we are to gain the economic and infrastructure uplift from the approximately USD4 trillion in annual clean energy investment worldwide, a tripling by 2030, that the IEA estimates will be needed to reach Net Zero 2050 targets.
John Connor, CEO of the Carbon Market Institute, believes that “like everything in the climate sector, the core infrastructure is a policy structure.” As the independent industry association for businesses looking to capitalise on the new opportunities from decarbonisation, Connor says its members are frustrated by not being able to change faster or more comprehensively. “We need the policy frameworks to have a long-term driver for investment in natural and physical infrastructure.”
The 8th Australasian Emissions Reduction Summit is supported by EY. Hear more from EY at the Summit, Australia’s premier business and climate action event for 2021.