Australian businesses must go ‘further faster’ to get to Net Zero

• Australia one of a number of several high emitting countries to increase its Net Zero ambitions.
• EU introduces world first Carbon Border Adjustment Mechanism with phase in underway and Australia looks at whether to follow.
• Ramp up of clean energy investment in 2023 as International Energy Agency predicts that clean energy will receive US$1.7 trillion of investment globally in 2023.*
• Wind and solar generation up by 50% as European Commission says installation of wind and solar generation both rose by nearly 50 percent in 2022 compared with 2021.*

Businesses in Australia need to increase their actions to achieve Net Zero targets according to the KPMG Net Zero Readiness Report (NZRR) November 2023.

The report examines the progress in 24 countries – as well as by key economic sectors – in reducing the greenhouse gas emissions that cause climate change. It also discusses their preparedness and ability to achieve net zero emissions of these gases by 2050

Barry Sterland, KPMG Co-Lead Global Climate Policy Advisory said: “The report captures achievements during 2021 and 2022, a period which has seen many countries – including Australia – taking steps in the right direction towards net zero, even if globally there is a long way to go.”

The report also notes the 2050 target date proposed by a 2018 report of the United Nations (UN) Intergovernmental Panel on Climate Change (UN IPCC). It said that cutting net emissions by about 45 percent from 2010 to 2030 – then 100 percent by 2050 – could limit temperature rises to 1.5 degrees Celsius.

However, as the report also captures, humanity has already caused warming of approximately 1.1 degrees Celsius. A UN IPCC report published in March 2023, said that the “pace and scale of what has been done so far, and current plans, are insufficient to tackle climate change”.

“We are seeing positive action towards Net Zero in 2023 and the ultimate target of 2050 but as the report shows, there is an urgent need to build on this action,” said Barry Sterland.  “Some countries have announced significant new policies to support decarbonisation, including the Inflation Reduction Act in the US, REPowerEU in Europe, Australia, Brazil, and Canada.  Emissions trading schemes are expanding in several countries and the EU is phasing in its Carbon Border Adjustment Mechanism (CBAM) – an idea that other countries such as Australia and the UK are examining.”

These policy changes, and new reporting standards, are examples of how ‘net zero is weaving itself into the world’s economic systems’, as the report notes.

Barry Sterland said CBAM was an important step towards net zero globally and locally. It will require affected companies importing specified goods into the EU to buy certificates with prices based on the  EU ETS weekly auction price, adjusted for any recognized mandatory carbon price effectively paid in the country of origin.

“The intention is that importers will pay the same for the carbon emissions required to produce goods as producers within the EU, creating a level playing field and preventing carbon leakage,” he said. ‘Over time, border adjustments will reinforce the importance of low carbon production as a source of competitive advantage.”

Full implementation of the mechanism is linked to the phasing out of free allowances currently provided under EU ETS. This is planned to start on 1 January 2026.

The report draws attention to the importance of Australia enshrining its 2050 Net Zero target in law. Notably, Australia has also increased the country’s interim emissions reduction target for 2030 from 26-28 percent to 43 percent below 2005 levels – and introduced a range of supporting laws, targets, regulations and initiatives.

“It’s been a quantum leap for Australia’s legislative architecture,” says Barry Sterland. “This has involved a rapid acceleration in ambition and action with supply chains and regulators struggling to keep up. The biggest challenge is the speed of change required.”

Mr Sterland pointed to the Australian Government’s development of six sectoral emissions reduction plans as part of the process for developing new targets for 2035. He suggests: ‘These plans are likely to herald further targets and changes in the policy framework. Firms with strong decarbonisation plans are likely to fare better in this evolving framework’.

Adrian King, Partner in Charge, Climate Change & Sustainability Services, KPMG Australia highlighted the introduction of new standards is reinforcing the need for business to improve their net zero planning. Recently released (draft) Australian Sustainability Reporting Standards (ASRSs) are initially focused on climate reporting.

“As well as the standard setting developments, the Australian government is moving fast to implement mandatory climate reporting on a phased basis for all large organizations,” said Adrian King. “These new climate reporting rules are based on the standards released by the global International Sustainability Standards Board in June 2023.”

He said the AASB (Australian Accounting Standards Board) draft standards were fit for purpose for the Australian context – aligned wherever possible with the international standards for consistency, but with a number of variations to allow for the Australian regulatory context.   

“One of the most noteworthy variations is the inclusion of a reporting scenario for alignment to the Paris agreement goal of a 1.5C rise in temperature. This is not in the ISSB standard but it is consistent with the Australia Climate Change Act. In other words, companies will be supporting Australia’s national policy by reporting to the standard.  The variation is a sensible alignment to reflect Australian public policy goals.”

^{* Global EV Data Explorer’, International Energy Agency. https://www. iea.org/data-and-statistics/data-tools/global-ev-data-explorer}

Marjorie Johnston
KPMG Corporate Affairs
M + 61407 329 430
E:mjohnston4@kpmg.com.au