Australia’s National Science Agency Key findings from “Pathways to Net Zero Emissions – An Australian Perspective on Rapid Decarbonisation” Thomas S Brinsmead, George Verikios, Sally Cook, David Green, Taj Khandoker, Olivia Kember, Luke Reedman, Shelley Rodriguez and Stuart Whitten EP2023-5421 November 2023 Environment Business Unit Citation Brinsmead, T.S., Verikios, G., Cook, S., Green, D., Khandoker, T., Kember, O., Reedman, L., Rodriguez, S. and Whitten, S. (2023). Key Findings from “Pathways to Net Zero Emissions – An Australian Perspective on Rapid Decarbonisation”, CSIRO, Australia. Copyright © Commonwealth Scientific and Industrial Research Organisation 2023. To the extent permitted by law, all rights are reserved, and no part of this publication covered by copyright may be reproduced or copied in any form or by any means except with the written permission of CSIRO. 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Limiting global average warming to 1.5-degrees Celsius (1.5°C) by 2100 necessitates a rapid transformation of global economic and social systems that will leave no country unaffected For Australia, the need to become more resilient to the physical impacts of climate change is accompanied by the opportunity to grow new and existing industries to provide essential goods and services for decarbonising economies. This modelling work by CSIRO, Australia’s national science agency, illustrates how Australia’s economy will need to transform to reach net zero emissions by 2050. The results translate the International Energy Agency’s (IEA) widely referenced global scenarios to an Australian context: • CSIRO Rapid Decarbonisation (CRD), based on a rapid but plausible decarbonisation pathway to net zero for Australia aligned with the IEA’s NZE global 1.5°C carbon budget. • CSIRO Stated Policies (CSP), based on stated policies internationally and within Australia, which projects a 2.6°C temperature increase by 2100. This summary presents the key highlights from the CSIRO Rapid Decarbonisation (CRD) scenario. Existing technologies can be deployed faster to reduce emissions by 52% from 2020 levels by 2030 To be in line with the CRD trajectory, Australia will need to reduce emissions by 52%, from 512 Mt CO2-eq in 2020 to less than 246 Mt CO2-eq in 2030 (Figure 1). This is a faster reduction than the current federal government target of 43% below 2005 levels by 2030 (or a 32% reduction on 2020 emissions). Emissions fall most rapidly in the electricity sector, declining by 83% from 174 Mt CO2-eq in 2020 to 29 Mt CO2-eq in 2030, followed by the mining and transport sectors (Figure 1). Transition of the electricity sector to low emissions drives wider decarbonisation through electrification in the mining sector, and later across all sectors, enabling emission reductions even as production activity grows overall. The land and agriculture sector and new technologies will need to produce net negative emissions to support Australia’s decarbonisation path. By 2030 the Agriculture, Forestry and Other Land Use (AFOLU) sector moves from being a net emissions source to a net emissions sink, sequestering 76 Mt CO2-eq per year by 2030. By contrast manufacturing (including heavy industry) and agricultural emissions only decline gradually, with agricultural emissions intensity reductions of 54% complicated by 80% growth in output by 2050. Chart - Australian gross emissions by sector in the CRD scenario Figure 1 Australian gross emissions by sector in the CRD scenario Renewable energy grows to more than 90% of the power mix by 2030 The Australian electricity sector underpins the early phase of rapid decarbonisation by accelerating the transition from fossil to renewable fuels (Figure 2): • The share of the nation’s electricity needs that are met by renewable sources is projected to more than triple between 20201 and 2030. • Solar capacity is projected to grow four-fold and its share of electricity generation to triple to over 30% by 2030, with capacity growing twelve-fold and share of generation to over 40% by 2050 (compared to 2020). • Wind capacity is projected to grow more than five-fold and the share of electricity generation more than four-fold to 45% by 2030. 1 Based on 2020 reported renewables generation at Department of Climate Change Energy, the Environment and Water (2022), Australian Energy Update, September, Canberra. Source: https://www.energy.gov.au/publications/australian-energy-update-2022. To enable a shift to solar and wind as predominant electricity sources, a large investment in energy storage and electricity infrastructure is projected. Short duration low-capacity storage (such as batteries) increases to 8% of capacity (or 3 GW) and long duration high-capacity storage (such as pumped hydropower) doubles in the period 2020 to 2030. Together, long- and short- duration storage are projected to make up over 15% of available supply by 2050. Altogether with investment in transmission, distribution, and other electricity infrastructure, projections suggest investment will need to increase by more than $70 billion over the next 30 years compared to the current trajectory. Infographic - Summary if key transition milestones - Electricity Figure 2 Summary of key transition milestones - Electricity Residential and commercial buildings The emissions footprint of energy use in our residential and commercial buildings largely follows the decarbonisation pathway of the electricity sector. Rooftop solar (from residential and commercial buildings) is a significant contributor to the transition and is projected to grow to nearly half of all homes by 2030 and 17% of electricity. Improvements in energy efficiency and fuel switching from gas to electricity are important but relatively minor contributors to the overall shift. Decarbonisation of the electricity sector along with these efficiency improvements and switching fuels (e.g., water heating) are projected to reduce building emissions to well below 5% of 2020 levels by 2050 (Figure 3). Infographic - Summary of key transition milestones - Residential and commercial buildings Figure 3 Summary of key transition milestones - Residential and commercial buildings Decarbonisation of transport is vital but complex, and plays out differently across modes Transport contributed just under a fifth (19%) of Australia’s total emissions in 2021 with the majority coming from road transport where Australia lags behind our global peers (Figure 4). The CRD transition projects Australia rapidly electrifying light vehicles, with sales of electric vehicles growing to 55% of all new vehicles by 2030 (and nearly a quarter of vehicles on road). Furthermore, by 2035 all new sales of light vehicles are electric (and nearly three quarters of all light vehicles on road are electric by 2040). Decarbonisation of long distance and heavy transport is projected to be slower than light vehicles. Heavy road transport rapidly decarbonises in the 2030s using a mix of electric and hydrogen fuel cells; electric heavy road vehicles make up more than 50% of all heavy road vehicles by 2050. Rail and shipping, as key enablers of Australian exports in a low carbon economy, are also projected to decarbonise as relevant technologies become commercialised with the CRD scenario suggesting emissions per tonne falling to less than 10% levels of 2020 levels by 2050 (Figure 4). Air transport, although a hard to abate sector, is projected to adopt new technologies in the 2040s across a mix of electric, hydrogen and biofuel options (along with offsets) to reduce emissions by nearly two thirds. Infographic - Summary of key transition milestones - Transport Figure 4 Summary of key transition milestones - Transport There remain challenges to fully decarbonise the Australian economy and innovate to address hard to abate sources Australia’s population is projected to grow towards 33 million by 2050, Figure 5). Cement is a sector not projected to achieve net zero emissions by 2050, in part because of carbon dioxide emissions from clinker production, and is anticipated to draw on negative emissions to achieve net zero objectives. 2 driving continued growth in our infrastructure needs. Cement production is projected to increase by more than a quarter (27%) even while emissions fall by 82%. Emissions reductions draw on a mix of fuel switching, using biofuels and technologies that are currently in early demonstration or prototype phase (such as hydrogen and carbon capture, utilisation and storage (CCUS)), which will require significant investment ( 2 Australian Bureau of Statistics Australia’s iron ore and bauxite sectors are projected to continue to grow as key metals supporting transition (iron ore by nearly 70% and bauxite by nearly 50%). Mining activities are projected to decarbonise relatively rapidly through electrification with some use of hydrogen. The emissions reduction trajectories for steel and alumina refining and processing activities are projected to be more complex. New technologies in development and trial phases will need to be commercialised at scale (in order to drive projected reductions) complemented by fuel switching to hydrogen. Though modelled detail is lower for critical metals, similar transitions to low-emissions mining will be required in these sectors to ensure that overall emissions fall even as production is projected to grow substantially. Infographic - Summary of key transition milestones - Heavy industry Figure 5 Summary of key transition milestones - Heavy industry The land and agriculture sector can move from a net- positive emitting sector to net negative to support Australia’s decarbonisation path Agriculture is a complex sector where land use, land clearing, carbon plantings and other activities all impact on Australia’s emissions profile. The agriculture, forestry and other land use (AFOLU) sector, encompassing both agriculture and land use, land use change and forestry (LULUCF) moves from being a net emissions source to a net carbon sink by increasing sequestration in vegetation and soils. AFOLU as a contributor becomes a negative carbon emitter by 2030, though some of this sequestered carbon may be sold as Australian Carbon Credit Units (ACCUs) to buyers outside the AFOLU sector. Livestock emissions remain the largest and most difficult-to-abate agricultural source. Innovation will help to reduce emissions but will be insufficient for the agricultural sector to reach net zero. A combination of demand-side changes (to preferences and diets) and supply-side changes (for efficiency, waste and circularity) will be required. Future work will be required to refine the opportunities to reduce emissions across the agricultural sector along with the likely impacts of climate change on production. New forms of negative emissions will be required to support net zero emissions Negative emissions result from technologies that remove carbon dioxide from the atmosphere and either use or store it. Negative emissions from AFOLU including carbon offsets on agricultural land are already in use and are projected to contribute some 129 Mt CO2 of negative emissions by 2050. Other forms of negative emissions technologies still in development and yet to be commercialised are projected to deliver a further 66 Mt CO2. A further 18 Mt CO2 are projected to come from bioenergy with carbon capture and storage. Fossil fuel exports decline as the transition to alternative fuels builds Coal, oil and gas, have historically played a critical role in Australia’s economic prosperity. They currently make up more than 40% of our exports by value, generating over AUD$200 billion per annum. As the global economy decarbonises, the outlook for these industries is rapidly shifting. Renewable energy, storage, and the electrification of transport will contribute to the near-term displacement of fossil fuels in Australia and other developed nations (Figure 6). The Australian modelling results show a similar effect where fossil fuel use falls by three quarters by 2050 with renewable electricity production growing to around 600TWh to become the primary energy source, accompanied by substantial improvements in energy use efficiency. As coal rapidly declines in importance to the global energy sector, Australian exports of coal fall by 20% by 2030 and three quarters (75%) by 2050. Remaining exports are projected to be metallurgical coal for steel production, though that too is at risk with commercialisation of new low-emissions steel production technologies. The global transition away from gas occurs over a longer period. Gas production is projected to peak by 2030 before falling by two thirds by 2050. The modelled reduction in global demand for our fossil fuel exports will be challenging for Australia and some regions in particular; but is also offset to a substantial degree by projected growth in other mining exports including processed minerals, and a shift to services exports. Hydrogen production, primarily for domestic use is projected to reach scale in the 2030s, growing to around 200 PJ per annum by 2050. A shift to an export hydrogen industry could grow production much more rapidly. Similarly recent geopolitical events may support faster and larger growth in critical minerals to support net zero transitions. Bar chart - Australian exports by value Figure 6 Australian exports by value Economy-wide transitions The journey to net zero emissions for Australia will need nuanced policy support. The CRD scenario projects one potential transition path with both opportunities and challenges for the Australian economy. Opportunities exist across a more secure domestic energy future, new export markets (hydrogen and transition minerals) and innovations in energy efficiency and emissions reduction technologies. Challenges result from factors such as more expensive energy during the phase out of fossil fuels, vulnerable regions facing significant shifts in industry and potential skill shortages across newly emerging low-emissions industries. The modelling does not detail the risks facing companies in hard-to-abate sectors that will be relying on carbon capture and storage, hydrogen, or offsets to help the transition to new technologies as part of a low-carbon future. Significant ongoing investment will be required to replace our aging fossil fuel generators and position the electricity sector for a net zero transition. The modelling projects an additional $AU76 billion above the current trajectory will need to be spent on electricity capacity and associated transmission and distribution infrastructure over the period 2020 to 2050. The IEA suggests energy transition investment forms around half of all net zero transition costs worldwide. Irrespective of a net zero transition Australia would need to invest large sums to replace its aging energy infrastructure and support a growing population. Figure 7 Annual electricity investment in the CRD scenario CRD scenario investment projections (Figure 7) exclude developing complementary technologies, such as green hydrogen production, CCUS, and sustainable biofuels. De-risking the scale of investment required when other sectors beyond the electricity sector are included suggests government investment policy may need to include a focus on removing barriers to private sector investment and facilitating innovative finance models to reduce or spread risk. The CRD scenario projects these types of shifts will have a range of economy-wide impacts including: • Australia is projected to out-perform similar economies despite a challenging longer term GDP growth outlook irrespective of the net zero transition. • Disruptions to employment in emission-intensive sectors as they transition to new technologies emphasises the need to plan these transitions. • Reduced terms of trade for Australia (the ratio of export prices to import prices) from the global transition away from our fossil fuel exports, with a consequent flow-through to the wider economy. These challenges, together with higher population growth than comparable economies, illustrate the challenges of supporting households through the transition, including energy affordability. These projections may change if Australia were to enhance its competitive advantage in new export sectors such as transition metals and hydrogen or high value exports by leveraging decarbonised energy to process minerals onshore. Method and motivation This work draws on IEA energy and sectoral pathways at the global level by incorporating these into CSIRO’s Global Trade and Environment Model (GTEM). Two further models (KPMG’s Energy and Environment model (KPMG-EE) and CSIRO and ClimateWorks’ Australian TIMES (AusTIMES) model) were used to develop detailed technology pathways across energy, transport, buildings, steel, aluminium and cement. Australia’s emissions (CO2 plus non-CO2) budget for the period reflects (i) the response by Australian sectors to the global CO2 and non-CO2 carbon prices, and (ii) assumptions regarding land use, land-use change and forestry emissions and carbon removal technologies. Feedback on the detailed sector-by-sector pathways was obtained through consultation with a range of industry experts to assist in calibrating to the Australian context. A detailed agriculture sector pathway is planned for the future. Modelling has been completed by CSIRO as an independent subject matter expert and the primary authors of this report. This work has been funded by the Commonwealth Bank of Australia (CBA) to contribute to our collective understanding of potential decarbonisation pathways for Australia, consistent with limiting global warming to 1.5°C above pre-industrial levels. In addition to providing funding for this work, CBA facilitated stakeholder consultation and reviewed the utility of this information for private-sector target setting. We thank participants from the Electricity, Buildings, Transport, Iron and Steel, Aluminium and Cement sectors for their input. The views expressed in this report are those of the authors’ and do not necessarily represent the views of the CBA or other stakeholders consulted throughout this work. As Australia’s national science agency, CSIRO is solving the greatest challenges through innovative science and technology. CSIRO. Unlocking a better future for everyone. Contact us 1300 363 400 +61 3 9545 2176 csiro.au/contact csiro.au For further information Environment Dr Stuart Whitten +61 02 6246 4359 Stuart.whitten@csiro.au csiro.au/Environment