Decarbonising Infrastructure

The environmental risks of inaction are immense. The risks of climate change, mounting for decades, were laid bare during the Black Summer bushfires in the summer of 2019-2020, and again in this year’s floods in South-East Queensland and New South Wales, with the health, safety and livelihoods of millions of Australians seriously exposed. Severe weather events are becoming more intense and frequent, while Australia’s ecosystems – from the Great Barrier Reef to the Murray-Darling Basin – are rapidly deteriorating in the changing climate.

So too are the risks to Australia’s economy. Reduced access to – or higher cost of – increasingly competitive, climate (or carbon) risk-averse global capital, the potential for carbon border levies and weaker demand for our exports would cost Australian jobs and filter through to increased costs of living. Failing to act decisively will shift an ever-greater burden to future generations, and increase the costs of action.

But these risks and costs should not be our focus, as they have been over many years of futile political debate in Australia. Instead, our focus should be on the rewards and opportunities from this change, which are enormous. The time for political debate is behind us. It is time to get on with the job.

No country in the world has more sun and wind than Australia, while our technology, finance and professional services expertise is globally sought after. In the energy hungry, rapidly growing region of the Asia-Pacific, Australia can transform this comparative advantage into an engine for growth, domestically and abroad. We have the chance to become the literal powerhouse of the Asia-Pacific. But this window of opportunity is closing. For the benefit of current and future generations of Australians, we need to act now to ensure this opportunity to build a lasting comparative advantage in energy does not pass us by.

Of course, change is already underway in the sector. Infrastructure operators and owners have been taking steps to address climate risk and decarbonise their assets. The rise of Environmental, Social and Governance (ESG) factors has seen Australian infrastructure investors seek out opportunities for accelerating change across asset classes. Transport operators and constructors have been making incremental changes to reduce emissions and prepare for a low-carbon future. Electricity providers and grid operators have been seeking to support a rapid transition to renewables. Many companies have committed to reach net zero emissions in their own right by 2050 or earlier.

However, change is piecemeal, and there remains a gap between intent and action. This owes in a large part to a lack of national leadership, with no clear vision of a low-emissions future, including the role infrastructure will play in achieving this – or the actions, incentives and regulations required to accelerate positive change. Australia’s leaders need to stop tinkering with the past and set about transforming the economy – and infrastructure’s place within it – in line with a vision of the future we want to create.

Adequately responding to this challenge requires deeper levels of government involvement to set the terms for decarbonising each asset class, then step away to allow the market to respond to those settings.

This paper considers a range of different policy mechanisms to transition the infrastructure sector to a zero-emission future rapidly, efficiently and affordably, laying out potential actions by the public and private sectors against some of the biggest emitting forms of infrastructure. However, with the increasingly convergent and dynamic relationships between historically separate infrastructure asset classes, overcoming challenges and unlocking progress towards decarbonisation will require collaboration across the sector.

Energy and Electricity

• Successfully transitioning Australia’s energy is fundamental to our decarbonisation transition, not only because of its predominant role in our annual emissions, but it is also a pre-requisite for the majority of decarbonisation efforts in other infrastructure industries.
• This transition is two-fold, where first, Australia’s electricity production needs to shift to clean, renewable energy sources, and second, Australia’s remaining energy demand need to be electrified.
• Solar and wind energy-based production will be the backbone of our future energy mix, with a diverse firming base to aid the transition, and fast-paced roll out of large-scale transmission upgrades across the country.
• The Federal Government must lead in this space through creating a clear, national energy transition plan in consultation with state and territory governments, relevant agencies and key industry stakeholders. It should set the rules of the game, not take to the field itself.

Transport

• Transport emissions continue to increase in Australia, which is a fraught challenge to tackle given that the industry’s performance is often tied to economic activity.
• The technology required to drive zero-emission transport either already exists or is under development across the transport of both people and goods, albeit at starkly different rates of change. Decarbonising these asset classes efficiently and rapidly will require close collaboration between the transport and energy industries.
• Better planning of transport networks to incentivise people and goods to move in the most efficient way, and remove points of friction, is the other major policy lever state and territory governments should be prioritised.
• As transport electrifies, decarbonising the movement of goods and people becomes an energy industry challenge.

Construction

• Construction is complex and requires the integration of many disparate components and techniques, so no single breakthrough is likely to unlock major benefits. Sustained effort over a multitude of fronts is required.
• Procuring agencies must look beyond lowest price for best value and set ambitious lower-carbon outcome requirements for contractors to respond to.
• Continued innovation will be required through construction and design methods, as well as production of construction materials and waste management.
• Data on carbon emissions from infrastructure assets lacks granularity, regularity, and reliability – especially given that Scope Three emissions are missing from some industry reporting standards. Urgent reform on calculating and reporting emissions from infrastructure construction, operation and waste activities is needed to improve visibility of the sector’s embedded emissions.

Many other forms of infrastructure generate emissions through construction, and then through electricity use, so are dependent on progress in those parts of the sector. Governments, regulators and operators of these assets should focus on levers to incentivise innovation and accelerate decarbonisation up their respective supply chains. Other forms of infrastructure like waste would benefit from utilising the circular economy model as an organising principle to help re-prioritise government agendas on how to best decarbonise these asset classes.

The changes needed to the sector will not be delivered overnight and will be easier in some asset classes than others. The energy transformation will play a foundational role during this decade to support the transition of transport, construction, and other carbon-embedded industries. While land use-based carbon offsets may provide an interim measure in getting the sector to zero, they will become scarce and expensive over the coming decades as competition for credits heats up, particularly for hard-to-abate industries. As such, they cannot be seen as a lasting solution to decarbonise infrastructure when we can do better long-term.

It is important to note that a market-based mechanism for pricing carbon could provide a highly effective and efficient way to drive rapid decarbonisation in Australia, including for the infrastructure sector. There is clear evidence to support this from Australia’s own experience of carbon pricing, as well as from similar, more comprehensive mechanisms internationally. While Infrastructure Partnerships Australia would support the development of a new carbon pricing mechanism in Australia, change can equally be driven by a myriad of policy, regulatory, commercial and technology solutions across the economy – and these are the focus of this paper.

Of course, there is no shortage of words published on Australia’s decarbonisation challenge and how to address it. However, there are few sources of succinct, direct and actionable advice on the role infrastructure needs to play, and the steps required to transform our nation from laggard to leader in the global green economy.

This paper aims to lay out advice in a simple, pragmatic way. While many of the changes required will be complex, the policy direction and vision required to make them happen are not, and they can build on commitments and actions already taken by industry and governments. With a change in mindset, a little imagination and a lot of leadership, Australia will be well on its way to a zero-emission future, propelled by action in the infrastructure sector. The case studies in this paper are illustrative of the types of innovation that can be actioned to decarbonise infrastructure but are not policy recommendations in themselves.

Infrastructure Partnerships Australia will drive change through making decarbonisation of the sector a major priority, galvanising industry efforts, and pushing on many reforms outlined in this paper.