9 September 2022
Up to today, the vast majority of efforts to reduce greenhouse gas emissions have tended to focus on increasing the utilisation of renewables. Now, as corporates from a broadening set of sectors announce more ambitious decarbonisation goals, and Australia’s newly elected government announces more ambitious decarbonisation targets, attention is expanding to the emissions of sectors beyond energy, such as transport, industry and agriculture.
“Solving this part of the decarbonisation puzzle in these other sectors is likely to be even more complex – and often more expensive – than the former,” says Macquarie Capital’s Nick Entsch, a director in Macquarie Capital’s Energy Transition Team. “It will likely require more transitional solutions to accompany the significant long-term investment needed in new technologies and asset replacements.”
“However, with the right signals from government, we will see a new wave of opportunities for investors relating to decarbonisation in these new areas.”
Measured globally - emissions are still growing. However, and as with most mature economies, that is not the case in Australia. In 2021, the country’s emissions were 20.8 per cent lower than in 2005, which was the baseline year for the Paris Agreement.1
The vast majority of this reduction has come from just one factor: electricity generation. This has involved replacing coal power generation with less carbon intensive gas and zero-carbon renewables, including wind, solar and low-carbon energy storage, such as batteries and pumped hydroelectric power. Improvements to the sustainability of buildings has also started to make a more meaningful contribution to Australia’s emissions reductions to date.
But, while emissions from electricity have dropped markedly, in other areas they have remained stagnant - such as from industrial processes - or have even risen - in the case of transport. It is in tackling these factors that Entsch sees that most work needs to be done.
“The deployment of renewables, decarbonisation of the grid and electrification of sectors like cars have a lot of momentum and are easier to tackle, because it can be solved by implementing proven solutions that affect the way we generate electricity.”
Decarbonisation in sectors where clean electrification is not a solution will require industry-specific solutions, as well as removing fossil fuels from processes that release greenhouse gas emissions.”
Associate Director, Energy Transition, Australia and New Zealand
Entsch says waste management is one area in which Australia can make ‘quick wins’ when it comes to further reducing emissions. Although it currently only accounts for less than 3 per cent of the country’s emissions,2 Entsch notes that a disproportionate amount of methane emissions is the result of decomposing organic material in landfill.
“Methane is up to 30 times worse than carbon dioxide for global warming, and Australia’s methane emissions are actually growing,” Entsch notes.
“Australia has lagged many other well-regulated, developed countries when it comes to the circular economy and reducing emissions from waste. For example, with 20 years of consistent national policy, the Netherlands achieved a 13 per cent reduction in waste generated per person whilst also improving its rates of recycling and resource recovery and eliminating organic material to landfill. For household waste, 1 per cent is landfilled, 72 per cent recycled, 26 per cent to energy from waste.”
Entsch explains that while most Australians are now used to self-segregating waste to help prevent needless landfill, further reducing emissions will require more behavioural changes, as well as better harmonisation between states, councils and federally.”
He also says that, although there has been some advancement in recent years - such as the introduction of higher landfill levies in most jurisdictions - the right signals could ‘pull the levers’ of private capital and lead to rapid developments. Investment in waste infrastructure is encouraged by sustainable policy (e.g. landfill levies) applied consistently across states, ongoing education, improved source separation and waste processing technology that allows treatment of residual waste streams.
The Government’s National Waste Policy Action Plan3 has introduced targets and actions which complement state-based policies. This aim to deliver a greater level of central harmonisation across waste treatment standards, as well as more centralised data collection, planning and policy development on a national level and improved economic incentives to stimulate prevention and recycling, including a high level of activity in packaging and product stewardship.
In 2016, the construction industry accounted for as much as 18.1 per cent of Australia's carbon footprint. Embodied emissions - or those associated with the material and processes used in building - were responsible for around a third of these, and frequently come as a product of steel and cement production.4
The Australian Government’s Clean Energy Finance Corporation (CEFC) found that through better design, infrastructure projects can reduce embodied carbon emissions by up to 33 per cent.5 “Through measures such as low carbon cement, smart grids and more efficient heat pumps, we can really start to bring down construction-related emissions,” Entsch says. “Like waste, it’s also an area that really lends itself to recycling and multiple use.”
Corporates that have a significant part of their footprint in construction and the built environment are increasingly turning to these solutions to deliver on their goals. For example, Macquarie’s new headquarters in Sydney’s Martin Place have been designed to achieve the highest possible sustainability credentials – the Green Building Council of Australia’s Design and As Built 6 Star Green Star rating. Features will include the capture and re-use of rain water, landscaping and greening throughout the public spaces, implementing smart technology and maximising natural light throughout the journey from platform level.
Entsch concedes that the size and complexity of the task involved in permanently decarbonising these harder to abate sectors is something that will take time, development of new technologies as well as Australian government regulation. “Overcoming these challenges is not something any government can solve by itself, and it is likely to require enormous amounts of private capital from around the globe.”
Voluntary offsets enable corporates to deliver comprehensive and urgent action whilst more climate solutions mature as they bridge the gap between the emissions reductions that can be implemented now, and the longer lead time structural decarbonisation solutions that require more investment and/or innovation, and a longer implementation runway. This, he says, is relevant for many sectors – from aviation to heavy industry – where fossil fuels may still need to be used in the short to medium-term whilst technologies such as clean hydrogen and carbon capture and storage mature over the coming decade.
“We have reached a strong consensus around the solutions needed to decarbonise the energy sector and we’re starting to see the impact of moving away from fossil fuels,” Entsch concludes. “But if we’re serious about reducing global warming, we have to find solutions for these other major parts of the economy rapidly, and the reality is that this will actually be more challenging.”
“Ultimately, it requires that we lean onto sometimes imperfect interim solutions, whilst we work towards the longer-term deployment of new technologies backed by private capital and government.”