Lethal Heating: 12/08/25

Key Points

Net zero by 2050 is locked in by law, but the pathway across sectors remains contested.¹
Modelling shows multiple feasible transition pathways with very different infrastructure and land-use footprints.²
Reforms to the Safeguard Mechanism tighten emissions limits for big polluters yet lean heavily on carbon credits.³
Equity concerns are growing as households, regions and workers face overlapping climate and cost-of-living pressures.⁴
Carbon farming and land sector offsets are expanding, while experts warn on integrity, permanence and scale limits.⁵
The OECD and domestic advisers urge a clearer mix of carbon pricing, regulation and public investment to steer the transition.⁶

Australia has a legislated net-zero target and a suite of new climate policies, yet fundamental questions still hang over how the country will actually make the transition. ¹

Behind the headline goal, officials, analysts and communities are wrestling with the best economic pathway to cut emissions while protecting living standards and competitiveness. ⁴

Independent modelling reveals that different combinations of renewables, transmission, electrification and clean fuels can all deliver net zero, but they carry sharply different costs, land demands and regional impacts. ²

The federal government has retooled the Safeguard Mechanism to force down emissions from more than 200 of the nation’s heaviest industrial polluters, yet the reforms still permit extensive use of carbon credits in place of on-site cuts. ³

At the same time, community concern about fairness is mounting, as climate-driven disasters and rising energy and housing costs collide with uneven access to clean technologies. ⁴

Carbon farming and other land-based offset projects are promoted as a critical part of the solution, though expert reviews highlight unresolved questions about the integrity, permanence and appropriate scale of such schemes. ⁵

International bodies and domestic advisory agencies now argue that Australia needs a more coherent mix of carbon pricing, regulation and public investment to guide industry and households through the transition, rather than relying on piecemeal measures and opaque markets. ⁶

As Canberra prepares updated sector-by-sector plans, the hard choices over who pays, who benefits and how much can be left to markets are moving from modelling reports into live political terrain. ⁶

The pathway puzzle

Australia’s Climate Change Act now locks in an economy-wide target of cutting greenhouse gas emissions to 43 per cent below 2005 levels by 2030, and reaching net zero by 2050, but the law does not prescribe a single route for getting there. ¹

Large-scale modelling by the Net Zero Australia project, led by the University of Melbourne, the University of Queensland and Princeton University, finds that several distinct combinations of technologies can achieve net zero, ranging from a domestically focused transition to scenarios where Australia becomes a vast exporter of hydrogen and other clean energy products. ²

Those scenarios differ sharply in required investment, with the most export-intensive pathways demanding many trillions of dollars in new generation, transmission and processing infrastructure across remote regions. ²

The OECD’s 2024 economic survey of Australia warns that transforming an electricity system still dominated by coal while decarbonising emissions-intensive mining, industry and agriculture will be challenging, and stresses that clear long-term signals and credible sectoral plans are vital to mobilise private capital at scale. ⁶

The federal government has committed to update its Net Zero 2050 plan with detailed pathways for electricity, transport, industry, resources, agriculture, land and the built environment, but those sectoral blueprints are still under development. ⁶

Cutting fossil fuel use across sectors

The electricity sector is moving fastest, with state and territory commitments to retire government-owned coal plants and build out renewables and storage, yet coal and gas still supply a large share of generation and backup, leaving consumers exposed to volatile fossil fuel prices. ⁶

Transport emissions have risen over recent years, as growing vehicle use has offset efficiency gains, and Australia remains behind comparable economies on electric vehicle uptake despite new fuel efficiency standards and incentives starting to narrow the gap. ⁶

Industrial sites covered by the Safeguard Mechanism, including LNG facilities, steelworks, refineries and large mines, account for almost a third of national emissions, making their decarbonisation central to any credible net-zero strategy. ³

A reformed Safeguard scheme now sets declining emissions baselines for roughly 215 large facilities, with default reductions of 4.9 per cent per year to 2030, and allows firms to trade Safeguard Mechanism Credits if they cut emissions below their baseline. ³

While these changes are expected to drive material cuts, legal and policy experts note that there is no hard cap on the use of external offsets, raising concerns that some operators may delay investment in deep on-site abatement. ³

Equity and the cost of transition

As the net-zero agenda collides with a cost-of-living crunch, distributional questions are moving to the centre of the debate over how fast to phase out fossil fuels and who should bear the adjustment burden. ⁴

Research by the National Housing Supply and Affordability Council shows that many households are already trading off other essential spending, living further from jobs or putting up with substandard housing as rents and energy costs rise, with low-income and First Nations households facing the most acute pressures. ⁴

The council warns that failing to integrate climate resilience and energy performance into new and existing housing will impose higher long-run costs on vulnerable groups, who are more likely to live in dwellings with poor heating, cooling and weather protection. ⁴

The 2024 State of Australia’s Regions report highlights that regional economies built around coal, gas and emissions-intensive industries face layered risks from global decarbonisation, and stresses the need for coordinated federal, state and local investment in skills, infrastructure and services to support a just transition. ⁷

Surveys by think tanks such as The Australia Institute indicate that most Australians want stronger climate action, but also expect governments to ensure that large corporations, rather than households alone, shoulder a fair share of the costs. ⁸

Carbon farming’s contested role

Land-use change and agriculture together generate a significant slice of Australia’s emissions, yet the land sector also provides some of the country’s most prominent options for removing or offsetting carbon. ⁶

Over the past decade, the government has used the Emissions Reduction Fund and its successor, the Australian Carbon Credit Unit framework, to pay for projects such as reforestation, avoided deforestation, improved savanna fire management and changes to farming practices, often described under the broad banner of carbon farming. ⁵

An independent review of Australia’s carbon credit system, led by former chief scientist Ian Chubb, concluded in 2023 that the scheme was fundamentally sound but recommended tighter methods, more transparency and stronger governance to ensure credits reflect real and additional emissions reductions. ⁵

The OECD notes that achieving net zero will likely require a combination of steep cuts in fossil fuel use and significant “negative emissions” from land-based activities, but cautions that relying too heavily on offsets could delay necessary structural change in high-polluting sectors. ⁶

Critics from academia and civil society argue that carbon farming projects can clash with biodiversity goals, cultural values and local land rights if poorly designed, underscoring the need to embed integrity safeguards and community participation as the market expands. ⁵

Markets, mandates and the role of government

Australia’s current policy mix leans on a blend of market-based instruments, such as tradable carbon credits under the Safeguard Mechanism and the Australian Carbon Credit Unit scheme, combined with targeted regulation and public funding. ³

The government has established a national Net Zero Authority to coordinate support for workers and communities through the energy transition, recognising that market forces alone will not manage regional dislocation or deliver timely investment in enabling infrastructure. ⁷

International institutions including the OECD urge Australia to strengthen carbon price signals across the economy, for example through more consistent emissions pricing and fuel taxation, while using complementary standards and subsidies to accelerate low-carbon innovation and protect vulnerable groups. ⁶

Domestic advisory bodies such as the Climate Change Authority are developing sectoral pathways that combine regulatory standards, planning reforms, market tools and direct public investment, reflecting a shift away from the idea that markets alone can deliver an efficient and equitable transition. ⁹

The unresolved question is how far elected governments are willing to go in reshaping markets, setting hard limits on fossil fuel expansion and underwriting large-scale public works, as global competition for clean energy industries intensifies. ⁶

What remains unclear

Despite a clearer national target and an expanding policy toolkit, there is still no settled consensus on how quickly Australia should scale back its role as a major exporter of coal and gas, or how the risks of stranded assets and lost revenue should be shared. ⁶

Key design questions around the Safeguard Mechanism, including the future trajectory of baselines and the appropriate balance between on-site abatement and offsets, will determine whether the scheme locks in steady decarbonisation or delays it. ³

Similarly, while modelling shows that multiple net-zero pathways are technically feasible, choices about the scale of new export industries, the pace of electrification and the location of infrastructure will shape whether regional communities see opportunity or upheaval. ²

For households, the intersection of climate policy with housing, transport and energy markets will decide whether the transition eases or deepens existing inequalities, especially for renters, low-income families and First Nations communities. ⁴

With updated sector plans due and international partners tightening their own climate rules, Australia’s unresolved debates over policy design, equity and the role of carbon farming are set to define the next phase of its net-zero journey. ⁶

References

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08/12/2025

Australia’s Net-Zero Crossroads: Big Targets, Unanswered Questions - Lethal Heating Editor BDA