Blog | 06 Dec 2024
Setting a 2035 emissions target is hard, but achieving it will be much harder
Kristian Kolding
Head of Consulting, OE Australia
Setting a 2035 emissions target is hard, but achieving it will be much harder
The Australian government is currently developing the 2035 greenhouse gas emissions target as part of its Nationally Determined Contribution (NDC) submission required by the Paris Agreement. Countries who signed onto the Paris Agreement are expected to set a 2035 NDC target before COP30, which is slated to be held next year.
We expect that the 2035 target will be significantly more ambitious than what our current baseline forecast suggests for emissions reductions. Public advice from policy makers to date indicates that the target will need to be substantially higher than the 2030 target if Australia is to align with the Paris Agreement goal of limiting warming to 1.5 degrees. This also aligns with our research, which suggests that under current settings Australia will not be aligned to the 1.5-degree goal.
Achieving the 2035 target will be much harder than achieving the 2030 target. Australia will need to shift up the marginal abatement cost curve (MACC) and tackle harder to abate sectors, including transport and industry. What’s more, household and business decisions will play a much bigger role in decarbonising these sectors than what is needed to green the grid – meaning that the cost of decarbonising the economy will become much more apparent to the electorate.
What is the 2035 target likely to be?
The Climate Change Authority is currently developing evidence-based advice for government on an ambitious and achievable 2035 emissions reduction target. Initial advice indicated they were considering a target between 65% and 75%, with final advice expected sometime in 2025. Several countries have already announced their NDCs in November 2024 at COP29. The UK has already reduced emissions more than Australia, and has announced an ambitious target for 2035 that is slightly above the top of the range under consideration for Australia. Less ambitious targets have been set by Brazil and the UEA reflecting the transition challenges they face.
Emissions trajectory by region, 2005 to 2035
Source: DCCEEW, Oxford Economics Australia, Climate Action Tracker, World Economic Forum
Many of Australia’s states and territories have also set highly ambitious targets. NSW is targeting a 70% reduction in emissions, with higher targets in VIC (75% to 85%) and QLD (75%). While all three states have made significant progress on emissions reductions, the average annual rate of reductions will need to accelerate substantially if these 2035 targets are to be achieved.
Transport and industry will need to significantly accelerate their decarbonisation pathway
Our current baseline forecast suggests that under current policy settings, Australia’s emissions are likely to be 54% below 2005 levels in 2035—well short of the expected 2035 NDC target. The type of changes required to reduce emissions to 65-75% below 2005 levels are significant and will require changes to the behaviour of households, methods of production, and even the way that governments tax and redistribute income. In summary, to achieve a drop in emissions from 43% to 70% from 2030 to 2035, we will need to reduce our emissions at nearly three times the annual rate of what we’ve done to date.
Annual reduction in emissions
Source: DCCEEW, Oxford Economics Australia
There are three areas that need to improve for an emissions target to be achieved:
- Greening the grid—this is required to reduce emissions from the energy sector, but also reduce emissions more broadly as we electrify other sectors including road and industrial processes. Clear plans to achieve this goal is in place – but the practical reality of greening the grid while maintaining cheap and reliable energy supply will be challenging to achieve in practice over the coming decade.
- Electrifying road vehicles – Transitioning the passenger vehicle fleet to 100% EV will require not only an uplift in sales from current trends (77% by 2035), but also a reduction in the vehicle life of current combustion engines to convert the full stock of vehicles. We currently expect just 24% of the stock to be EVs by 2035.
- Reducing industrial emissions – While the Safeguard Mechanism provides a framework on this front, the coverage needs to be broader and the trajectory more ambitious if the sector is to reduce emissions in a meaningful way. This is likely to drive demand for carbon offsets in the near term until new methods of production are implemented across the sectors to reduce absolute emission levels.
These areas have already been in focus through policies such as the capacity investment scheme, new vehicle efficiency standards, and safeguard mechanism. But it is clear that these policies in their current form are unlikely to drive the transformation needed to reach an ambitious 2035 target that puts Australia on a path towards net zero.
Your Author
Kristian Kolding
Head of Consulting, OE Australia
+61 (4) 1040 9070
Kristian Kolding
Head of Consulting, OE Australia
Sydney, Australia
Kristian leads Oxford Economics Australia’s Consulting team, working with public and private sector leaders to help them prepare for the future by applying relevant economic theory and forecasts to inform effective policy and business strategy development.
Emily Dabbs
Head of Macroeconomics Consulting, Oxford Economics
+61 2 8458 4202
Emily Dabbs
Head of Macroeconomics Consulting, Oxford Economics
Sydney, Australia
Emily leads Oxford Economics Australia’s Macro Consulting team. She has over 10 years of economic analysis and consulting experience, focusing on macroeconomic forecast and analysis. Emily regularly provides strategy support and briefings, and presentations to clients and key stakeholders to support a broader understand of the economic environment and the impact on their business.
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