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Chapter 7 Australia’s progress to date in reducing emissions

Australia’s emissions were broadly the same in 2012 as in 1990, despite a doubling in the size of the economy over this period. This means that the emissions intensity of the economy (emissions per unit of GDP) has halved.

Falling emissions intensity is in part due to the changing composition of the economy. For example, the share of economic value generated by emissions-intensive manufacturing has decreased.

Policy initiatives have also played an important role. Regulation in the land sector has reduced emissions from land clearing. In the electricity sector, the Renewable Energy Target and state-based schemes (the New South Wales Greenhouse Gas Reduction Scheme and the Queensland Gas Scheme) have helped shift the fuel mix towards lower emissions alternatives, particularly since 2008.

Firms and households have installed energy-efficient appliances, lighting, motors and other technologies. But trends such as rising ownership of appliances and IT equipment have offset many of the gains.

These emissions reduction trends need to be sustained and accelerated if Australia is to meet its long term emissions reduction objectives.

Chapter 6 introduced Australia’s policy initiatives to reduce emissions. Chapter 7 assesses emission trends and what has been shaping them. It:

  • describes Australia’s emissions trends between 1990 and 2012; and
  • assesses the drivers of these trends, including the role of policy.

The level of emissions reductions required to meet future goals is discussed in Part C of this report.

7.1 Emissions trends between 1990 and 2012

In 2012, Australia’s emissions were 600 million tonnes of carbon dioxide equivalent (Mt CO2-e). The majority (72 per cent) of Australia’s CO2 emissions are energy-related (The Treasury and DIICCSRTE 2013). That is, they are produced in the combustion and production of fossil fuels for transport or stationary energy. The remainder of Australia’s emissions are produced in agriculture, waste, land use, land use change and forestry (LULUCF), and chemical reactions in the manufacturing sector.

Australia’s total greenhouse gas emissions in 2012 were 3.5 per cent higher than in 1990, and 2.5 per cent higher than in 2000 (Figure 7.1). There have been steady increases in emissions in most sectors, resulting in a 32 per cent increase in emissions excluding LULUCF in the period 1990 to 2012 (Figure 7.2). In contrast, LULUCF emission fell by 85 per cent in the period 1990 to 2012. The steep reductions in the LULUCF emissions offset the increase in emissions from the rest of the economy.

Australia’s commitment under the Kyoto Protocol required it to limit emissions in the period 2008 to 2012 to an average of 108 per cent of 1990 level emissions. Australia’s emissions were below this level, averaging 105 per cent of 1990 emissions over the period. This creates a ‘carryover’, currently estimated at 91 Mt CO2-e. The treatment of this carryover is discussed in Chapter 8.

Figure 7.1: Australia’s emissions by sector, 1990–2012

Figure 7.1 shows Australia’s historical emissions between 1990 and 2012 by sector. Figure 7.1 shows that emissions have stayed broadly flat, increasing only 2.5 per cent between 1990 and 2000, and 3.5 per cent between 1990 and 2012.

Source: The Treasury and DIICCSRTE 2013. For more detail see Box 7.1.

Figure 7.2: Growth in Australia’s emissions by sector, 1990–2012

Figure 7.2 shows growth in Australia’s historical emissions between 1990 and 2012 by sector. The figure shows that while national emissions have been broadly flat, there are varying trends across sectors. The figure shows that most sectors have been growing over time, apart from land use, land use change and forestry, and waste emissions which have fallen. The figure also shows that land use, land use change and forestry have been falling the most sharply since 1990 and that electricity emissions, direct combustion and transport have been growing the most strongly.

Source: The Treasury and DIICCSRTE 2013

Box 7.1:Data conventions in this Report

Emissions data varies across sources. In this report, historical and projected emissions for the period 1990 to 2030 are taken from The Treasury and DIICCSRTE modelling (2013).

  • Historical emissions data for the period 1990 to 2011 are based on the 2013 National Greenhouse Gas Inventory report 2010–11, converted to CO2-e using global warming potentials from the Fourth Assessment Report of the Intergovernmental Panel on Climate Change.
  • 2012 emissions are based on preliminary inventory data and modelled estimates.
  • Historical emissions for LULUCF for the period 1990 to 2012 have been adjusted to be consistent with the new accounting rules agreed for the second commitment period of the Kyoto Protocol. 
  • Emissions for the period 2013 to 2030 are modelled estimates.
  • All annual data in this report is for the financial year ending June 30 unless otherwise indicated. For example, data reported for 2013 is for the financial year 2012–13.
  • Australian dollars ($AUD) are reported in 2012 real terms (that is, adjusted for inflation) unless otherwise specified.

These specifications apply to all data in the report unless otherwise noted.

The main trends by sector between 1990 and 2012 are (Commonwealth of Australia 2013):

  • Electricity and direct combustion of fuels (for example, in buildings and industry) increased by 50 per cent (97 Mt CO2-e) driven in part by population growth, rising household incomes and increasing exports from the resources sector.
  • Transport emissions increased by 46 per cent (29 Mt CO2-e), due to continuing growth in household incomes and numbers of vehicles.
  • Fugitive emissions (greenhouse gases emitted during the extraction, production, processing, storage, transmission and distribution of fossil fuels) increased by 28 per cent (10 Mt CO2-e). Increased production from coal mines contributed to rising emissions.
  • Industrial process emissions increased by 27 per cent (7 Mt CO2-e). This was largely due to emissions associated with hydrofluorocarbons (mainly used in refrigeration and air conditioning equipment and in a range of industrial processes) and chemical industries.
  • Agricultural emissions rose by one per cent (1 Mt CO2-e). Reductions due to prolonged and widespread drought conditions from 2002 to 2010 were offset by more fertiliser use and savanna burning. Emissions have begun to increase since the drought broke.
  • Waste emissions decreased by 26 per cent (5 Mt CO2-e). Regulations and incentives to better manage methane emissions from landfills contributed to falling emissions.
  • LULUCF emissions decreased by 85 per cent (119 Mt CO2-e). Regulations and weaker economic conditions for farmers (reducing the incentive to clear land) played a significant role in reducing emissions.

There has been a departure from longer term trends in emissions since 2008. Between 1990 and 2008, total national emissions rose by about 4 per cent, but have fallen by about 1 per cent since 2008. This is due to changes in economic conditions (for example, the global financial crisis leading to slower economic growth; rising energy prices are also reducing growth in demand for energy) and emissions reduction activities in particular sectors. The departure from long-term growth trends after 2008 is most pronounced in the electricity sector.

Although Australia’s total emissions in 2012 are at broadly the same levels as in 1990, this has been achieved in a period of strong growth in Gross Domestic Product (GDP). The economy has doubled in size since 1990, from $0.7 to $1.5 trillion in real $2011 terms. This means the emissions intensity (emissions per dollar of GDP) of the economy has approximately halved between 1990 and 2012.

The next Section discusses the drivers behind these emissions trends, and whether these are likely to represent significant progress toward a low-emissions economy.

7.2 Major drivers of emissions trends

Australia’s falling emissions intensity indicates that underlying progress is already being made towards a lower emissions economy.

The Authority commissioned Vivid Economics1 (2013) to assess the main drivers behind Australia’s historical emissions trends (Figure 7.3). Vivid’s analysis suggests that changes in economic activity have been the strongest driver. Emissions growth due to economic growth has been largely offset by a shift in the structure of the economy towards lower emissions sectors (for example, from manufacturing to services), and emissions reductions activities (in particular, in the electricity and land sectors). These changes are detailed below.

7.2.1 Economy wide drivers – economic activity and structural shifts in the economy

Australia has experienced strong and sustained economic growth at an average annual rate of 3 per cent in real terms between 1990 and 2012 (ABS 2013). Increases in economic activity led to higher emissions (Figure 7.3).

Emissions growth due to economic growth weakened in some sectors after 2008, in part reflecting the global financial crisis. These changes were significant – manufacturing activity fell at an annualised rate of 1.4 per cent between 2008 and 2012, compared with 1.7 per cent growth in the period from 2000 to 2008 (ABS 2013). This is reflected in moderated emissions growth from economic activity after 2008 (Figure 7.4).

The sectoral pattern of growth is also changing over time. The share of emissions-intensive manufacturing fell by about 4 per cent between 1990 and 2011. High commodity prices and high exchange rates in recent years have accelerated the relative decline in the size of the manufacturing sector as a share of the economy (The Treasury and DIICCSRTE 2013). The share of less emissions-intensive sectors rose; for example, the services sector increased its share of the economy by 6 per cent (Table 7.1).

While Figure 7.4 shows little emission change due to structural changes after 2008, this masks two offsetting effects – structural change within manufacturing led to falling emissions, whereas structural change towards agriculture following the end of the drought increased emissions.

Figures 7.3 and 7.4 also highlight the role of emissions reduction activities, and show that these activities accelerated after 2008. This is discussed in detail in the next section.

Table 7.1: Change in share of economic value by sector, 1990–2011

Sector Change in contribution to overall economic value (GVA) from 1990 to 2011 Emissions intensity of sector in 2011 (kgCO2-e/$AUD)
Manufacturing (C) -4.3% 0.66
Commercial and Services (F–H, J–Q) 6.0% 0.04
Electricity, Gas and Water Supply (D) -0.9% 6.06
Construction (E) 1.1% 0.08
Mining (B) 0.4% 0.52
Transport, Postal and Warehousing (I) 0.4% 0.39
Agriculture, Forestry and Fishing (A) -0.2% 3.22

 

Source: The Treasury and DIICCSRTE 2013; ABS 2013
Note: GVA (Gross value added) in real $2011 terms. Bracketed letters are relevant ANZSIC codes. Emissions by ANZSIC code for 2012 were not available at the time of drafting.

Figure 7.3: Drivers of emissions trends, 2000–2011

Figure 7.3 shows the drivers of emission trends in the Australian economy between 2000 and 2011. The figure shows that economic activity has been the main driver of emissions in this period, offset to a degree by shifts in the structure of the economy and emissions reduction activities.

Source: Vivid Economics 2013; Climate Change Authority
Note: Emissions reduction activities include the implementation of new energy-efficient technologies, fuel switching and changes in operating practices in a way that makes sectors more efficient.

Figure 7.4: Drivers of emissions trends, showing change before and after 2008

Figure 7.4 shows the drivers of emission trends in the Australian economy and how these have changed before and after 2008. The figure shows that economic activity has less of an impact after 2008 than before 2008, although it was still a significant driver of emissions. Shifts in the structure of the economy did not have much of an impact after 2008, whereas before 2008 structural shifts served to reduce the emissions. The figure shows that emissions reductions activities accelerated after 2008, reducing emissions after 2008 more than they did before 2008.

Source: Vivid Economics 2013; Climate Change Authority

7.2.2 Emissions reduction activities and the role of policy

Emissions reduction activities are broadly defined to include the implementation of new energy-efficient technologies, fuel switching to lower emissions fuels, and changing operating practices in a way that makes sectors more efficient. These activities may be driven by policy, such as increases in renewable energy due to the Renewable Energy Target (RET), or market factors such as rising fuel prices and falling technology costs.

The analysis by Vivid Economics suggests that emissions reduction activities have played a key role in reducing Australia’s emissions, similar to the level of reductions due to structural change since 2000. Detailed sector-by-sector analysis, including by ClimateWorks (2013), shows that the emissions reduction activities are concentrated where there have been significant policy initiatives, particularly the land and electricity sectors.

The land sector

The vast majority of land clearing takes place in New South Wales and Queensland (Figure 7.5). Regulations to restrict land clearing have been implemented at a state level, in part in response to community concerns about biodiversity and climate change. The annual area deforested has halved since 2003, primarily due to these regulations (see Appendix D for more detail).

Between 1990 and 2012, emissions fell by around 119 Mt CO2-e in the land sector. Weakening economic conditions for farmers were an important driver of reductions between 1990 and 2000. About half of the reductions occurred between 2006 and 2012 due to the implementation of land clearing restrictions.

Figure 7.5: Location (in red) of land clearing events detected between 1990 and 2011

Figure 7.5 shows that the location of land clearing events between 1990 and 2011 was concentrated in QLD, and to a lesser extent NSW. The figure shows that there were also some land clearing events in WA and Tasmania, but these were much less pronounced than in NSW and Qld.

Source: DIICCSRTE 2013

In addition, plantation rates of new timber forests reached a peak in 2000. This was largely in response to Managed Investment Schemes, which provided tax incentives for new plantations. New plantations fell sharply after 2000 as investment regulations were tightened, and again in 2007 in response to economic factors and the collapse of investment companies during the global financial crisis. Since 2012, company reports suggest that there has some increase in planting due to companies seeking compliance offsets under the Carbon Farming Initiative.

The electricity sector

Between 2000 and 2012, there was a shift in the fuel mix toward lower emissions fuels and renewables, largely driven by policies such as the state-based schemes in New South Wales and Queensland and the RET.

The New South Wales Greenhouse Gas Reduction Scheme was introduced in 2003, and the Queensland Gas Scheme in 2005. These schemes contributed to the share of gas in electricity generation across Australia rising from 8 per cent to 19 per cent between 2000 and 2012.

The RET was introduced in 2001 and expanded in 2009. While installed capacity of renewables has approximately doubled, the share of renewables in electricity generation has been stable, at about 8 per cent over this period. The share of non-hydro renewable generation rose from 0.4 per cent in 2000 to 3.9 per cent in 2012 (BREE 2013a).

Emissions reductions in the electricity sector accelerated after 2008 due to a combination of falling emissions intensity of generation and flattening demand for electricity.

  • The emissions intensity of Australia’s electricity supply fell at an annualised rate of about 1.9 per cent over the period 2008 to 2012 due to increases in renewables and gas generation (BREE 2013a; The Treasury and DIICCSRTE 2013):
    • The annualised increase in renewable generation was 1.3 per cent per year from 2000 to 2008, and accelerated to 4.9 per cent between 2008 and 2012 (BREE 2013a).
    • Installation of solar photovoltaics has increased rapidly since 2008, from around 100 MW installed in that year to over 2 400 MW in 2012 (a 10-fold increase between 2010 and 2012 alone), linked to the RET and state-based incentive schemes (Australian PV association 2012; CEC 2012; ACIL Allen Consulting 2013).
    • Emissions intensity of electricity sourced from the National Electricity Market (NEM2) decreased at an annualised rate of about 1.5 per cent from 2008 to 2012, and fell a further 4.6 per cent in 2013 (AEMO 2013). Since 2012 the carbon pricing mechanism has been in place, increasing the relative costs of high-emissions generators compared to low-emissions sources such as wind and hydro. The reduction in output from the Yallourn brown coal generator after flooding in 2012 also played a significant role in reducing emissions intensity.
  • In the period from 1990 to 2008, Australia-wide demand for electricity grew by an annualised rate of 2.5 per cent. Between 2008 and 2012, demand growth softened to 1.1 per cent on an annualised basis3. Rising electricity prices, lower economic activity and an improvement in energy efficiency have contributed to this:
    • Retail electricity prices rose by about 60 per cent between 2008 and 2012. The analysis by Vivid Economics suggests that the manufacturing sector was the most responsive to these price increases, followed by the commercial and residential sector.
    • Economic activity slowed for some key sectors (as described in section 7.2.1). In manufacturing, Gross Value Added (GVA) fell by 1.4 per cent in annualised terms between 2008 and 2012, compared with annualised growth of 1.7 per cent between 2000 and 2008.
    • Uptake of efficient lights and appliances (described below) may have moderated consumption to some extent.

There were regional differences in the trends for electricity demand, in particular for Western Australia and the NEM jurisdictions:

  • Consumption in Western Australia grew at an annualised rate of 6 per cent between 2008 and 2012, faster than the average increase across Australia of 1.1 per cent, linked to economic growth.
  • Demand for remote and off-grid power sources is thought to be growing, particularly in Western Australia, although relatively little data is available (BREE 2013b). As noted above, deployment of solar PV is also growing Australia-wide.
  • Electricity supplied by the NEM (that is, not including demand met by off-grid or solar PV generation) remained flat over the period 2008 to 2012. However, between 2010 and 2013 demand fell at an annualised rate of 1.3 per cent (AEMO 2013).
Energy efficiency and fuel-switching

There is some evidence of energy efficiency and fuel-switching contributing to emission reductions in the building and industry sectors.

The most significant contributor to emissions reductions in the residential sector between 1990 and 2012 was gas heating replacing emissions-intensive electric heating, following expansion of the gas network (BREE 2012). The energy intensity of Australia’s buildings has decreased by 3 per cent between 2003 and 2011, led by improvements in the operation of buildings, improved energy efficiency standards, more efficient appliances and distributed energy (ClimateWorks 2013). However, these improvements have been offset by additional buildings and increased use of electronics in homes:

  • Building standards have improved energy efficiency in new buildings in particular. For example, new offices now use about 32 per cent less energy than offices built 10 years ago (ClimateWorks 2013). Due to the slow turnover of stock, this is yet to have a significant impact on overall building energy use, although this will increase over time.
  • While minimum standards on appliances have made an impact, gains have been offset by the increase in appliance ownership. For example, ownership of computer and IT equipment has increased from close to zero per household in 1990 to 1 per household by 2008 (BREE 2012).

In industry, higher energy prices combined with policy instruments like the Energy Efficiency Opportunities program (EEO) and minimum standards on some equipment are driving energy efficiency improvements. ClimateWorks 2013 reports that the falls in energy consumption for large industrial users over the last four years are equivalent to the energy use of about 800 000 households. Since 2008, industrial companies have been implementing about three times more energy efficiency improvements each year than they had previously. Process emissions have been substantially reduced and there has been more self-generation of electricity using gas. This has led to an estimated 10 per cent improvement in industrial emissions intensity, which has been offset by large increases in production. The factors that influence the uptake of energy efficiency were the subject of a recent report by ClimateWorks, detailed in Box 7.2.

7.3 The future role of policy–driven emissions reductions

The discussion above highlights that the emissions intensity of the economy has been falling consistently in the period 1990 to 2012 due to changes in the structure of the economy and to emissions reduction activities. There are a range of drivers for emissions reduction activities, such as minimising costs in a period of rapidly rising energy prices. However, policy has driven the majority of these activities in recent years; in particular, regulations in the land sector, the RET, gas schemes in the electricity sector and energy efficiency.

These policies, largely introduced in the years since 2000, have accelerated the rate of emissions intensity reductions (Table 7.2).

Table 7.2: Five-yearly average reductions in emissions intensity 1993–2012

Year 1993–1997 1998–2002 2003–2007 2008–2012 1993–2012
Average annual change in emissions intensity -3.9% -2.0% -2.4% -3.6% -3.0%

Note: A high rate of falling emissions intensity in 1993–1997 is due to rapid reductions in LULUCF in this period.

The current rate of reduction in emissions intensity from both policy and economic drivers is unlikely to substantially reduce overall emissions to 2020. This is explored further in Part D of this report. Economic growth is projected to increase at an annualised rate of about 3.1 per cent between 2013 and 2020, a similar level to the average rate of reductions of emissions intensity over two decades between 1992 and 2012.

Box 7.2:ClimateWorks Australia Special Report on factors influencing large industrial energy efficiency

In July 2013, ClimateWorks published a report on the factors that influence large industrial energy efficiency. This research involved in-depth interviews with 47 large industrial companies that account for 70 per cent of Australia’s industrial energy use.

The report identified the key drivers of energy efficiency as higher energy prices, the carbon price, the EEO program and organisational changes:

  • Higher energy prices – 87 per cent of respondents identified energy prices as an important driver of energy efficiency; companies with higher energy intensities reported that prices are a strong driver.
  • Carbon price – While 81 per cent of respondents reported the carbon price having an impact, its financial impact has been relatively small. Respondents reported it focused their attention on energy and carbon management, and influenced their strategic approach to energy management; for example, consideration of fuel-switching opportunities.
  • EEO – 80 per cent of respondents stated the EEO program was a key influence; in particular, that it provided a structure for energy management. Respondents mentioned that the program had catalysed energy efficiency and changed cultural attitudes to energy efficiency. The EEO had a greater influence on respondents from companies within sectors with higher profitability and growth profiles. This could mean that companies that are not under financial stress may respond more readily to compliance and reputational drivers.
  • Organisational factors – Respondents with better internal practices in certain key areas demonstrate higher implementation of energy efficiency activity. For example, companies with energy data management, staffing and processes realised more potential for energy savings (by up to 275 per cent) than those without.

The report also investigated barriers to further uptake of energy efficiency, and found that access to internal capital, the long payback periods of energy efficiency projects and opportunity cost of alternative investments were the most prominent barriers. These would need to be overcome for a higher rate of energy efficiency to be achieved.

To reduce Australia’s emissions in the future, policy efforts will have to be strengthened and accelerated. Research by ClimateWorks (2013) supports this finding, suggesting that the current rate of emissions reductions activities will result in about 80 Mt CO2-e emissions reductions in 2020, but total emissions would still rise by 80 Mt CO2-e (compared to 2011 levels).

There is also a risk that the rate of emissions intensity reductions will slow. The Treasury and DIICCSRTE (2013) suggest that growth in mining and LNG processing will lead to new sources of emissions. To maintain the level of reductions overall, these new sources would need to be offset by stronger reductions in other sectors.

The level of emissions reductions required to meet future goals is discussed in Part C. The opportunities for reducing emissions are explored further in Part D and Appendix D.

Draft Conclusion

C.6 Australia has made progress toward decarbonising its economy – the emissions intensity of the economy (emissions per unit of GDP) has fallen by around 50 per cent since 1990.

C.7 The falling emissions intensity is in part due to the changing composition of the economy, away from emissions-intensive manufacturing. Policy has also played an important role, particularly in the land and electricity sectors.

1 Vivid Economics’s analysis does not include LULUCF emissions. However, the broader assessment of emissions reduction activities includes this sector.

2 The NEM electricity grid covers New South Wales, Queensland, Victoria, South Australia, Tasmania and the Australian Capital Territory, and in 2012 accounted for 86 per cent of total electricity consumed in Australia.

3 Vivid Economics (2013) suggests that BREE data for the commercial and services sector appears inconsistent with data from the NEM. If a correction is applied to the BREE data, the annualised rate of growth falls from 1.1 to 0.2 per cent.