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Author
Tony Wood is the Energy and Climate Change Senior Fellow at Grattan Institute.He was previously the Program Director, from 2011 to 2025, and before then worked at Origin Energy in senior executive roles for 14 years. From 2009 to 2014 he was also Program Director of Clean Energy Projects at the Clinton Foundation, advising governments in the Asia-Pacific region on effective deployment of large-scale, low-emission energy technologies. Note
This article was published in
The Australian Financial Review,
22 October 2025
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The challenges of delivering Australia’s energy transition, and why we must, have never been clearer.
We understand the scope of the challenges, and we have most, but not all, of the solutions. The next few years may determine how well or how poorly we connect them.
For many decades, there has been a globally consistent positive relationship between per capita energy use and GDP.
Like other developed economies, Australia has partly decoupled that relationship as the structure of our economy has shifted. The core challenge of the energy transition is to decouple energy use from emissions.
The imperative to address climate change with a vision that is ambitious and achievable is reflected in Australia’s latest commitment, to reduce emissions by 62-70 per cent below 2005 levels by 2035.
But outside a couple of narrowly defined policies, we do not yet have the energy markets and systems that are fit for the purpose of delivering that result, let alone what must come next.
Energy is the source of about 80 per cent of Australia’s emissions. We have lots of energy sources and delivering that energy has contributed to our economy prosperity. Understanding the future challenges to maintaining that prosperity while addressing climate change requires a look at specific sub-sectors.
Electricity generation’s emissions contribute a third of the total and are projected to be 70 per cent below their 2005 level by 2030. Globally, our prices are in the middle of the pack, and we have had few major issues with reliability. To hit our emissions targets while maintaining affordability and reliability means:
- Building renewable infrastructure and storage at an unprecedented rate.
- Aligning that growth with the closure of increasingly unreliable coal generators.
- Accommodating demand growth from data centres and electrification of gas and transport.
- Integrating battery storage to deliver major improvements in system productivity.
- Working out how to deliver the last 5-to-10 per cent of electricity in a system dominated by solar and wind supply.
More than 20 per cent of Australia’s emissions come from natural gas supply and use. The challenges in reducing these emissions from a few big users and many small users include:
- Moving homes and small businesses to lower-cost electricity while maintaining the safety and reliability of the gas networks.
- Managing the long-ignored problem of failing gas supply in Australia’s south-east.
- Completing a successful review of supply and pricing of east-coast gas.
- Identifying and planning for the likely role of gas as the backup electricity generation source.
Transport fuel emissions contribute about 22 per cent of the total and have been rising. While there are several small sources of transport emissions, the critical challenges are:
- Ensuring that the New Vehicle Efficiency Standard delivers its predicted reductions through to and beyond 2035, supported by expanded charging infrastructure.
- Identifying and supporting actions to address heavy vehicle and aviation emissions, beginning with the $1.2 billion Cleaner Fuels Program.
The government has announced an Electricity and Energy Sector Plan alongside the National Net Zero Plan. The purpose is to support the 2035 target and to chart an ambitious and achievable course to support net zero by 2050.
The sector plan identifies most of the above challenges. It assumes 82 per cent renewables by 2030, partial electrification of gas and transport, and low-carbon liquid fuels for other transport.
It includes deep analysis of what’s producing emissions and describes the sort of changes and pathways that could reduce these emissions. Those changes include assumptions about the actions that will remove a projected residual 163 million tonnes per annum in 2050.
However, the plan lacks clear policies to deliver the changes and to follow the pathways. Beyond numerous assumptions, there is little quantitative analysis, including of the risks ahead, to connect actions with outcomes. The scale is daunting, there are multiple pathways and unknowns, 2035 is alarmingly close, and 2050 is on the horizon.
The challenges are already being used by some politicians and vested interests to argue that Australia should abandon or water down our climate change targets. They are wrong. Tragically, they are only fuelling the ongoing climate war.
Addressing climate change is not our choice. Our only choice is whether we achieve the energy transition well or badly. A clear and predictable action plan is the answer.
Links
- Support The Energy Transition - Step Towards Renewable Energy
- Race to the top: Australia's clean energy momentum
- Australia's energy strategies and frameworks
- How we're tackling Australia's energy transformation
- Renewable energy
- Clean Energy Council: Renewable energy in Australia
- The Global Energy Transition and Critical Minerals
- Jobs versus climate
- Federal Government’s $600m intervention in the energy market
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