Decarbonising Infrastructure

This report sets out a high-level assessment of the policy action required to decarbonise Australia’s infrastructure sector, across its asset classes. It covers energy, transport, and asset management during construction, operation and waste.

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Australia needs to decarbonise, and infrastructure has a major role to play in driving us towards a zero-emissions future.

Executive Summary

Australia needs to decarbonise, and infrastructure has a major role to play in driving us towards a zero-emission future.

Energy contributes over half of Australia’s greenhouse gas emissions annually. Electricity generation accounts for a third of our emissions, and energy use from construction and other manufacturing industries make up another 20 per cent. Transport contributes a further 18 per cent, and even more emissions are generated through the construction and operation of community infrastructure like schools, hospitals, and waste facilities.[1]

Decarbonisation of infrastructure has progressed over the past decade, largely driven by the uptake of renewable energy. But in transport, emissions have been rising, with improvements in fuel efficiency and electrification of the vehicle fleet outweighed by rising demand. Similarly, progress in project-level construction and waste management methods have been lost in record levels of investment and growth.

Australia prides itself on being a global leader in many areas, but with other parts of the world pushing forward in their transition strategies, national leadership in our decarbonisation journey has slipped to laggard status. To date, individual state and territory governments have been driving the nation’s decarbonisation agenda with commitments focused on differing state-level priorities, leading to piecemeal outcomes at the national level. There have been pockets of great progress in our transition, but other areas where we trail significantly.

The sooner we fully commit to the challenge, the better.

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.

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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.

The most common readiness barriers in our decarbonisation challenge are in the technology, commercial, policy, and regulatory spaces. Technology, being where the technology needed for a zero-emission future needs further development before implementation; commercial, being where the private sector faces substantive challenges to take up the transition, such as uneconomic costs of production; policy, being when a challenge could be readily solvable with adequate policy direction; and regulatory, being where substantive gaps in regulatory frameworks exist.

The following chapters contain a series of tables that describe the changes needed to decarbonise infrastructure asset classes in Australia, and the types of barriers that each change faces, and actions required to tackle them.

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Australia needs a national decarbonisation plan for infrastructure

The need for Australia to decarbonise rapidly is clear. While there is considerable progress underway, change will come faster, cheaper and with less disruption if it is guided by a national plan that places infrastructure at its core. This should draw from the range of existing policies, strategies and regulations to provide a single, clear and actionable agenda for decarbonisation to accelerate innovation and investment.

A national plan is required to draw together the separate threads of decarbonisation across the infrastructure sector. Assets and networks across transport, energy, construction and other assets have converged over recent years, creating new opportunities for reducing emissions efficiently. Energy – comprising over half of our emissions in its own right and being a major input to all other forms of infrastructure – could act as an accelerator of change across the economy. But this will only happen if actions in each form of infrastructure, which have previously been governed and operated as almost wholly separate systems, are coordinated and guided by common objectives.

All Australian states and territories have committed to net zero by 2050, with the Federal Government making the plunge shortly before COP26. Committing to net zero is a start, but it is not an achievement in its own right, and is worth little if it is not backed by an actionable plan. The Federal Government’s Australia’s Long-Term Emissions Reduction Plan [2] provides no additional policy commitments to articulate a pathway to net zero.

city State and territory governments have been shouldering much of the burden, with a range of commitments and strategies. This has created a complex, overlapping patchwork of actions and reforms across nine separate jurisdictions. Many of these could bring about some positive change on their own, but rapid, efficient change is only possible if they are brought together under a cohesive national plan.

Corporates are signalling their own drive to decarbonise their assets and adopting net-zero targets themselves. Many are driving real change, supported by shareholders that are increasingly focused on decarbonisation and climate risk. But for much of the private sector, there remains a distance between intention and action, and governments can help to bridge this gap.

There is a mass of private capital looking for opportunities to drive decarbonisation in Australia, but it is being held back by regulatory and policy uncertainty. Without a clear national plan, Australia risks being left behind, with capital flowing to other nations with compelling, long-term mandates for green investment.

The benefits of decarbonisation clearly outweigh the costs and embracing this challenge could hold enormous opportunities for a major boost in Australia’s productivity and export potential, economic strength, and financial prosperity. But the window of opportunity is closing.

Infrastructure Partnerships Australia calls on the incoming Federal Government to commit to the development of a national plan to guide Australia’s decarbonisation. This paper provides a menu of options to drive change across each form of infrastructure, building on the existing array of commitments and strategies across the country. Bringing these together in a national plan can provide a platform for rapid decarbonisation.

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Our Infrastructure Carbon Footprint

In Australia’s National Greenhouse Gas Inventory, carbon emissions in construction are spread across several broader categories, including in stationary energy, with emissions occurring from the direct combustion of fuels to use energy to manufacture materials like steel, as well as industrial processes and product use, with emissions for material production like cement clinker and steel.

Fugitive emissions occur during the production, processing, transport, storage, transmission and distribution of fossil fuels. These include coal, crude oil and natural gas.

– Australian Department of Industry, Science, Energy and Resources, Quarterly Update of Australia’s National Greenhouse Gas Inventory: September 2021

Stationary energy excluding electricity includes emissions from direct combustion of fuels, predominantly from the manufacturing, mining, residential and commercial sub-sectors.

– Australian Department of Industry, Science, Energy and Resources, Quarterly Update of Australia’s National Greenhouse Gas Inventory: September 2021

Australia’s share of total emissions, by sector, for the year to September 2021

shore of total emissions by sector

Source: Australian Government Department of Industry, Science, Energy and Resources, 2022, Quarterly Update of Australia’s National Greenhouse Gas Inventory: September 2021


ENERGY

Coal’s share of total energy consumption declined from 42% in 2005 to 29% in 2021.

Oil’s share rose 1% from 35% in 2005 to 36% in 2021,

Gas’ share has increased from 18% in 2005 to 27% in 2021.

Renewable Energy’s share increased from 5% in 2005 to 8% in 2021. [3]

Investment in solar energy has been the top infrastructure investment priority for Australians for the past three years.[4]

The largest source of renewable generation in 2020 was solar (9.0%), followed by wind (8.5%) and hydro (5.6%).[5]


TRANSPORT

In 2019, emissions from transport modes were broken down as follows:[6]

In 2021, electric vehicles made up ~2% of new vehicle sales.[7]


ASSET LIFECYCLE

It is estimated that Australia’s construction industry generates 30 to 50 million tonnes of carbon emissions every year.[8]

27 million tonnes of construction and demolition waste was produced in the
FY2018-19.[9]

Masonry materials (81%) and metals (76%) are the two types of waste with the highest recovery rates in the country.[10]

The largest contributors to embedded emissions in construction are electricity, gas and water utilities, and the materials used to build assets.[11]

Percentage change in emissions, by sector, since year to September 2021 (excluding Agriculture and LULUCF)

Source: Australian Government Department of Industry, Science, Energy and Resources, 2022, Quarterly Update of Australia’s National Greenhouse Gas Inventory: September 2021

1. Energy is the first frontier of Australia’s decarbonisation

The path to decarbonising Australia’s energy system has been clear for many years: a renewables-dominated electricity system, backed by a diverse mix of storage technologies, and declining reliance on fossil fuels for energy in other parts of the economy. A low-carbon energy system is vital for a low-carbon Australia, and the sooner energy decarbonises, the easier Australia’s transition to net zero will be – but this must happen in an orderly fashion.

The good news is that we have the tools for the job and we know how to do it. Industry has been driving the transition at pace over recent years, and Australia has been installing wind and solar resources at a per capita rate ten times quicker than the world average. This has been driven by rapidly changing economics, with wind and solar having clearly surpassed fossil fuel-fired generators as the least cost sources of new supply. Energy projects have been added to the Australia New Zealand Infrastructure Pipeline (ANZIP) at record pace over recent years, with 100 renewable energy projects with an estimated total cost of $254 billion now under development or construction across Australia. The recent announcements of early coal plant closures for Liddell in 2023, Eraring in 2025, and Yallourn in 2028, are real-time examples of new low-cost renewables forcing out higher cost legacy fossil fuel generation.

The major challenge is completing this transition at least cost and with no disruption for energy consumers. This is where governments can do more. While state and territory governments are pushing forward with their own energy transition priorities and projects, and institutions, including the Energy Security Board and the Australian Energy Market Operator, are providing guidance, the absence of Federal coordination and leadership is the equivalent of boxing with one arm tied behind our back.

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2. Emissions from the movement of people and goods have been rising, but transformation is around the corner

Despite improvements in vehicle efficiency over recent decades, Australia’s transport emissions have risen by 48.8 per cent against 1990 levels. But change is on the horizon, with the commercialisation of technologies that will underpin decarbonisation of public transport and light vehicles – of which the latter is consumer-led. Freight decarbonisation is on a slower trajectory, but there are clear steps governments and industry can take now to accelerate the change required.

In contrast to the gains made in energy, pre-pandemic transport emissions rose steadily from 9.7 per cent in 1990 to 19 per cent of Australia’s national total in 2019. There was a brief dip during 2020, but transport emissions have bounced back to make up 18.1 per cent of the national total last year. Actual emissions are likely much higher as well, given emissions from international aviation and shipping are excluded from these totals.

This upward trend reflects some of the challenges we face as a nation – vast distances between cities, production regions and markets, as well as a growing population with changing needs. But emerging technologies will turn this trend on its head. This is particularly true for light vehicles, which are on the cusp of a major transformation. Uptake of hybrid- and battery-electric vehicles is growing rapidly as their prices fall relative to internal combustion engine vehicles. The trajectory towards a low- to zero-emission light vehicle fleet is now all but certain.

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3. Decarbonising assets through construction, operation and waste will require sustained innovation and reform

The final frontier of decarbonising the infrastructure sector requires a reduction in the emissions across asset stages – emissions embedded through construction, generated by asset operations, and left behind through waste. Compared to energy and transport, the technologies and methods required to overcome this challenge are the least developed. But with sustained commitment to innovation and reform, and by aligning incentives and investment opportunities with industry appetite for change, decarbonisation of the full infrastructure sector is possible.

The scope of emissions-related challenges in infrastructure has expanded rapidly over recent years, to a moment now where the carbon embedded within assets is in stark focus as an area for action. There has been some progress – largely industry-driven – through developments such as green concrete, recycled waste in construction materials, and pre-fabricated construction. But, up until now, embedded emissions across construction, operation, and waste have generally been a second order issue in dialogue on decarbonising the sector.

While Australia’s official carbon emission reporting does not account for construction emissions in its own standalone category, it is estimated that Australia’s construction industry generates 30 to 50 million tonnes of carbon every year.

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For more information
please contact

Mollie Matich
Director, Policy and Research
Infrastructure Partnerships Australia
[email protected]

Jon Frazer
Director, Policy and Research
Infrastructure Partnerships Australia
[email protected]

For media enquiries contact:

Michael Player
Director, Communications and Engagement
Infrastructure Partnerships Australia
[email protected]