Australia’s energy sector must accelerate its pace of decarbonisation if Australia is to reach net zero emissions, in line with the global climate goals.

This report analyses the 20 highest emitting electricity generators and energy (electricity and gas) retailers in Australia. These companies account for almost one-third of the country’s total emissions.

This assessment considers specific requirements and opportunities associated with the critical role the energy sector plays in enabling decarbonisation across all sectors of Australia’s economy.

It focuses on Australia’s electricity generators and significant ‘gen-tailers’ – companies that both generate electricity and retail energy to consumers. Collectively, the 20 companies assessed are responsible for 71 per cent of total national electricity generation and account for 89 per cent of Australia’s electricity sector scope 1 and 2 emissions. For these companies, fossil fuels purchased or burnt for the power they generate are a material source of emissions (scope 1 and 2). Where companies also retail gas, we have included this as part of our analysis, as gas retail can be a significant source of indirect (scope 3) emissions when gas is used by their customers.

Each company’s decarbonisation commitments have been assessed against Climateworks’ Decarbonisation Futures scenarios (Climateworks 2020). These scenarios map least-cost sector decarbonisation trajectories for Australia. This modelling indicates that for scenarios in line with Australia’s share in limiting global emissions, the electricity sector should achieve at least 64 per cent in emissions reductions by 2030 (from a 2017 base year), reach near zero emissions by 2040 and zero emissions by 2050.

Overall, energy sector commitments are insufficient for Australia to achieve a Paris-aligned transition to net zero.

This report finds none of the companies assessed are fully aligned with the Paris climate goals, and most fall well short of these. Of the energy companies featured in this report, our assessment finds:

• One – ENGIE – is ‘partially aligned’ based on its 2030 target covering a small proportion of its total emissions.
• Fourteen companies – AGL, APT Pipelines, ATCO, C S Energy, CK William, Delta, EnergyAustralia, Origin, Pioneer Sail, Snowy Hydro, Stanwell, Synergy, Territory Generation and TransAlta – are ‘not aligned’ but are taking some steps to reduce their emissions.
• Five companies – Arrow Energy, Bluewaters Power 1&2, NewGen Kwinana, NRG Gladstone Operating Services and OzGen – have not disclosed any emissions
  reduction activities.

Progress on emissions reduction has been made in recent years. Reported emissions from this sector have decreased and investment in renewable energy has risen over the past decade. The transition to date has been driven by falling renewable energy costs, along with state and territory government policies, federal renewable energy targets, consumer demand and pressure from investor groups.

Some of Australia’s largest energy companies have adopted decarbonisation commitments. Australia’s biggest electricity sector emitters are AGL, EnergyAustralia, Stanwell and Origin which are collectively responsible for 54 per cent of the country’s electricity emissions. Of these, AGL, EnergyAustralia and Origin have decarbonisation commitments. Origin has an aspiration to achieve net zero emissions by 2050 and has set interim reduction targets for its scope 1, 2 and 3 emissions. AGL and EnergyAustralia have committed to achieve net zero operational (scope 1 and 2) emissions by 2050, but have no interim emissions reduction commitments. Stanwell, which operates two of Queensland’s largest coal-fired generators, has no emissions reduction targets.

Of the remaining 16 companies, three – APT Pipelines, ENGIE and TransAlta – have decarbonisation commitments. ENGIE has an aligned 2030 target which covers its scope 3 emissions from use of sold gas. APT Pipelines has a net zero by 2050 operational target but no interim reduction commitments. TransAlta has a global target to reduce operational emissions by 60 per cent by 2030 (2015 baseline) and reach net zero emissions by 2050, but it has no current plans to transition the gas-fired plants it operates in Australia in line with these goals.

Strategies reported by companies to address their operational (scope 1 and 2) emissions include increasing renewable generation, improving power plant efficiency and retiring coal-fired power plants early. Efforts to disclose and reduce scope 3 emissions are limited among energy companies.

This is a critical decade for climate action, during which global emissions must fall by at least 45 per cent from 2010 levels to limit global temperature rise to 1.5 degrees Celsius (United Nations 2021). The IEA says the energy sector, as the major source of emissions, holds the key to responding to the world’s climate challenge (International Energy Agency 2021).

The energy sector plays a crucial role in Australia achieving the Paris climate goals. Zero emissions electricity is fundamental to achieving zero emissions in sectors such as transport and buildings, and net zero emissions in industry.
This includes the production of renewable ‘green’ hydrogen, which can be used to decarbonise some hard-to-abate sectors, such as freight and heavy industry. Replacing gas use in buildings and industry through electrification or use of low-emissions fuel is also key for Australia to align with global climate goals. Therefore, early decarbonisation of the energy sector is fundamental. 

Recent analysis shows shifting from fossil fuel generation to renewables would lower average system costs (e.g. AEMO 2020). This shift is feasible for Australian energy companies using existing technologies. Indeed, some energy companies are already adopting business models that rely on renewable energy. Companies have started to move, but they can and must set a faster transition pace. A strong national energy transition strategy with emission reduction targets would drive greater ambition among power companies. This ambition would be bolstered if other levels of government match the strong state and territory policies, which are already driving change in many areas. These government policies would enable electricity market operators and investors to plan an orderly transition aligned with the Paris climate goals.

Context

This section presents the context in which the featured companies have been assessed, including their current emissions sources, why the energy sector is so important and the factors influencing why this sector’s transition is not currently aligned with what is needed for Australia to support the Paris climate goals.

Australia’s electricity generation is dominated by fossil fuels.

The energy generation and retail sector (hereafter referred to as the ‘energy sector’ or ‘sector’) is a key component of Australia’s economy, powering homes, businesses and industries.

The sector is dominated by fossil fuels. In 2020, fossil fuels were used to generate 72 per cent of Australia’s electricity and provided over 90 per cent of the energy consumed (Australian Government 2020a, Clean Energy Council 2021). The sector is in transition, with the share of electricity from renewable sources increasing from seven per cent in 2008 to 28 per cent in 2020 (made up of six per cent hydropower, two per cent bioenergy and 10 per cent each from wind and solar power). A fifth of this increase occurred between 2019 and 2020, with both small and utility scale solar making a significant contribution (Atholia, Flannigan & Lai 2020; Clean Energy Council 2021).

This transition is reflected in a 19 per cent decrease in emissions since the peak in 2007 (Australian Government 2020b) driven largely by an increase in renewable energy in Australia’s electricity supply. However, electricity generation remains Australia’s largest source of greenhouse gas emissions, contributing to 33 per cent of the country’s emissions in the year to June 2020. Coal-fired generation is responsible for more than 80 per cent of this proportion, or approximately one quarter of all Australian emissions (Clean Energy Regulator 2021; Australian
Government 2020b).

The most material source of emissions for companies that generate and retail electricity are direct (scope 1) and indirect (scope 2) emissions from fossil fuels combusted to produce the energy they generate or purchase. In comparison, indirect value chain emissions (scope 3) – such as those from upstream activities including extraction, production and transportation of fuel – are minimal. For companies also involved in gas retailing, however, scope 3 emissions – including those from downstream activities such as distribution of gas to customers and its subsequent combustion – can make up a significant proportion of their total emissions. A summary of scope 1, 2 and 3 emissions boundaries and sources for the energy sector is illustrated in Figure 1.

Figure 1: Emissions throughout the energy supply system (Adapted from: Ranganathan and Bahtia, 2004)

Rapid decarbonisation of Australia’s energy sector is critical – and possible.

The energy sector’s pace of decarbonisation is critical for Australia to decrease its emissions in line with the Paris climate goal of limiting global temperature rise to well below 2 degrees Celsius, aiming for 1.5 degrees. The decarbonisation of the energy sector facilitates emissions reductions across other economic sectors in Australia, including the hard-to-abate transport and industry sectors, which must satisfy energy demand through a transition to zero carbon electricity where feasible (Climateworks 2020).

A recent report by the International Energy Agency (2021) reinforces that ‘the energy sector […] holds the key to averting the worst effects of climate change.’ Their report details a global net zero pathway and finds there should be no new investments in fossil fuel supply beyond projects committed in 2021.

Climateworks’ Decarbonisation Futures analysis shows that the electricity sector can reach 64 per cent emissions reductions by 2030 from a 2017 base year, near zero emissions by 2040 and zero by 2050. In all the Decarbonisation Futures scenarios aligned with the Paris Agreement, renewables reach over 70 per cent of electricity generation by 2030 and are at or near to 100 per cent by 2040. This analysis also indicates that coal and gas could be phased out of Australia’s energy mix as soon as 2035 through deployment of existing technologies such as batteries, solar thermal storage and pumped hydro.

The contested role of gas in the energy sector transition.

In 2019, gas represented 26 per cent of the energy consumed in Australia (Australian Government 2020a). Decarbonising the sector requires Australia to transition away from gas use for electricity generation and for heat and power in buildings and industry. In a recent study of the National Electricity Market (NEM), the Australian Energy Market Operator (AEMO) has indicated that industrial demand for gas is not expected to increase in the next two decades and could be significantly reduced as industries decarbonise (AEMO 2021).

To achieve the global climate goals, Australia must move away from gas usage through electrification or by switching to low-emissions fuels, such as biofuels or hydrogen (Wood & Dundas 2020). Transitioning to a green hydrogen economy could achieve a 20 per cent reduction in gas consumption for direct use by 2040 relative to 2021, with an even faster decline then projected to 2050 (AEMO 2021).

Green technologies are key to the energy transition, and have economic benefits.

Australia is well placed to become a global renewable energy superpower (Garnaut 2019). The country is endowed with an abundance of renewable energy resources and is currently deploying new renewables 10 times faster per capita than the global average (Blakers & Stocks 2020). Relative to current penetration, large-scale wind and solar generation in the NEM is expected to almost double to 9.4GW by 2023 (Leitch 2021).

A significant factor in this shift towards clean energy is the comparative cost of renewables relative to fossil-fuelled electricity generation. A recent joint study of current and future generation costs by CSIRO and AEMO confirmed that wind, solar and storage technologies are now cheaper than fossil-fuelled alternatives in Australia (Graham et al. 2020). Shifting from fossil fuel generation to renewables would lower average system costs, especially if complemented with green hydrogen, and associated necessary transmission network enhancements would deliver market benefits for customers (AEMO 2018; AEMO 2020; Ueckerdt et al. 2019).

In the international context, a transition to clean energy also has economic benefits. Several of Australia’s biggest trading partners have committed to achieving net zero emissions, with the US, Japan, South Korea and the EU aiming to achieve this by 2050 and China aiming for 2060. Other countries are expected to follow (Hare 2020). In 2020, two of Australia’s largest renewable energy export projects, the Australia-ASEAN Power Link and Asia Renewable Energy Hub, reported a growing demand for zero emissions energy across Asia (Mazengarb 2020c). Analysis conducted by Climate Action Tracker (2020) also noted that new opportunities are likely to arise for Australia to export green electricity and green hydrogen (produced through renewable energy powered electrolysis of water). If Australia transitions its energy sector well, the nation could be well placed to become a top exporter of renewable energy and renewable-based energy-intensive goods, supporting policy-driven clean energy demand and the global transition to a net zero economy (Ueckerdt et al. 2019).

In Australia, investors are already advocating the financial importance of transitioning away from fossil fuels. Companies operating Australia’s ageing coal-and gas-fired power plants face the risk of asset write downs and increasing cost of capital as investors seek to decarbonise their portfolios. Australia’s biggest four banks – ANZ, Commonwealth, NAB and Westpac – have all stated that they are taking steps to limit financing for coal-fired power generation and have all committed to exit thermal coal by 2030 (IEEFA 2020a; Thornhill 2020). In 2020, several Australian asset owners, including AustralianSuper, Australia’s largest superfund by members and total assets, committed to achieve net zero by 2050 across their investment portfolios, signalling that this would be achieved through a transition away from high carbon investments and towards renewables (IEEFA 2020b). Several energy utilities operating in Australia, including AGL and Origin, two of Australia’s largest energy retailers, are also being targeted by Climate Action 100+, a coalition of over 500 global investors targeting 167 of the world’s largest greenhouse gas emitting companies to ensure they have sufficiently ambitious net zero business strategies (Climate Action 100+ 2020).

State and territory policies are driving progress, but a strong federal policy is also needed.

Despite recent growth in renewable energy generation capacity, investment in large-scale renewable energy projects in Australia slumped in 2020 to its lowest level since 2017 (Clean Energy Council 2020b). The Clean Energy Council suggests that this is due to uncertainty over long-term federal policy, federal government interventions in the energy sector – including strong advocacy for new gas generation – and underinvestment in the energy network resulting in grid connection delays for new renewable infrastructure (Readfearn 2020).

BloombergNEF’s G20 Zero Carbon Policy scorecard, which grades the climate policies of the world’s 20 biggest economies, has put Australia in 10th position, with the weakest climate policies of the largest developed economies in the world, behind Germany, France, the UK, Canada, Italy and the US (BloombergNEF 2021). By comparison, countries such as Spain, South Korea, Uruguay and Kenya, which are among the regional frontrunners, are setting carbon-neutral targets and pushing ahead with major green energy funding to cut emissions and reduce energy prices (Watts 2020).

The federal government’s Renewable Energy Target (RET) of 33,000GWh by 2020 was met and has not been increased (Australian Government 2020c). New investment in renewable energy is therefore being driven primarily by state and territory policies, along with demand from residential and commercial energy markets (Atholia, Flannigan & Lai 2020). Since 2017, it is estimated that corporate power purchase agreements have supported 8,200MW of renewable energy capacity (Energetics 2020).

All of Australia’s states and territories have committed to net zero by 2050, and all but one (Western Australia) have renewable energy targets to support this goal (Table 7). This includes the Australian Capital Territory and South Australia, who have committed to a 100 per cent renewable energy target by 2020 and 2030 respectively, and Tasmania which has a 200 per cent by 2040 target. In addition, Victoria and Queensland’s post-pandemic recovery plans, New South Wales’s Electricity Infrastructure Investment Act 2020 and the City of Melbourne’s Renewable Energy Projects (MREP1 and MREP2) have all encouraged renewable generation investment, often via reverse auctions where renewable energy developers bid for power supply contracts with state governments (NSW Government 2020; City of Melbourne n.d.). South Australia’s most recent climate plan indicates that the state’s transformation to a net zero emissions economy and a national and international exporter of clean energy could require a renewable energy generation level five times greater by 2050 than current local demand (Government of South Australia 2020). To limit global temperature rise to 1.5 degrees Celsius above pre-industrial levels, emissions must fall by at least 45 per cent by 2030 relative to 2010 levels (United Nations 2021). The decade prior to 2030 has been flagged as a critical window for climate action, during which a ‘fivefold increase in existing nation climate commitments is required’ to achieve this goal (UNEP 2019). Despite this, Australia’s national commitment remains at a 26–28 per cent cut by 2030 relative to 2005. By contrast, at April’s US convened Leaders Summit on Climate, several countries including the UK, US, Japan and Canada, bolstered their interim decarbonisation goals. The US has committed to reduce greenhouse gas emissions by between 50 and 52 per cent by 2030, based on 2005 levels, and the UK committed to a 78 per cent cut in greenhouse gas emissions by 2035 relative to 1990 (Milman 2021; UK Government 2021).

Analysis

Assessing the top 20 emitting energy companies in Australia.

This analysis focuses on the 20 biggest emitters within the Australian energy sector, which collectively account for 31 per cent of Australia’s total scope 1 and 2 emissions. These are companies with primary activities that include electricity generation, electricity retailing or gas retailing, which reported the highest total scope 1 and 2 emissions in 2018–19 under Australia’s National Greenhouse and Energy Reporting (NGER) scheme (Figure 2) (Clean Energy Regulator 2020). Other activities in the energy sector’s value chain, including extraction and processing of oil, gas and coal, are covered in the Net Zero Momentum Tracker Resource sector report.

Collectively, these 20 companies are responsible for 71 per cent of total national electricity generation and account for 89 per cent of Australia’s electricity sector scope 1 and 2 emissions (Australian Government 2020b, Australian Government 2020a). The companies assessed predominantly operate within Australia’s National Electricity Market (NEM), a wholesale electricity market that delivers around 80 per cent of Australia’s electricity consumption. The exceptions are Synergy, NewGen Kwinana, Bluewaters Power 1&2 and Territory Generation, which mainly operate in Western Australia and the Northern Territory and are not connected to the NEM.

Some energy supply companies have very low emissions because their business model already relies on the supply of renewable electricity. These companies play an important part in how the overall sector is transitioning. However, because they are not high-emitting companies, they fall outside the scope of this report and are not included in the analysis.

Out of the 20 companies analysed, 12 – ATCO, APT Pipelines, Bluewaters Power 1&2, C S Energy, CK William, Delta, NewGen Kwinana, NRG Gladstone Operating Services^[1], OzGen, Stanwell, Territory Generation and TransAlta – are primarily involved in electricity generation and retailing.

The remaining eight companies – AGL, Arrow Energy, EnergyAustralia, ENGIE, Origin, Pioneer Sail, Snowy Hydro and Synergy – are also gas retailers. As such, scope 3 emissions – primarily from combustion of gas by customers – can represent a significant proportion of their total emissions. Only two companies report their scope 3 emissions, which account for 40 per cent of AGL’s total emissions and 70 per cent of Origin’s.

Evaluating each company’s commitments against an Australian energy sector decarbonisation pathway.

This energy sector report analyses the emission reduction pledges, commitments and activities of the top 20 emitting energy generators and retailers to evaluate their alignment with the goal of net zero emissions by 2050. Due to the criticality of the sector’s transition pace for Australia to align with the Paris Agreement, this analysis included an evaluation of each company’s decarbonisation trajectory relative to Australian energy sector decarbonisation pathways. Each company’s decarbonisation targets were assessed using Climateworks’ Decarbonisation Futures scenarios. These scenarios indicate that for Australia to achieve emissions reductions in line with the Paris Agreement – limiting global temperature rise to well below 2 degrees Celsius and aiming for 1.5 degrees – by 2030 the electricity sector has reduced emissions by at least 64 per cent (2017 baseline), has achieved near zero emissions by 2040 and zero emissions by 2050. Across the scenarios, electricity generation from renewable sources increases from 21 per cent in 2020 to 70–77 per cent by 2030, leading to an emissions reduction of 64–74 per cent this decade. Emissions associated with gas use in buildings and industry in Australia decrease by 17–34 per cent by 2035 and by 50–71 per cent by 2050 relative to 2017 levels.

Figure 2: Australian scope 1 & 2 emissions reported by energy utilities for 2018-19
(Source: Climateworks Australia; Data source: Clean Energy Regulator 2020)

Table 1 summarises the assessment of each company’s overall net zero by 2050 ambition based on analysis of commitments and activities that address direct and indirect (scope 1, 2 and 3) emissions from across their value chains.

Table 2 illustrates findings from an assessment of each company’s scope 1 and 2 emissions reduction commitments and activities for six categories: energy conservation, fossil fuel retirement, renewable electricity generation, renewable electricity integration, electrification and fuel switching, and non-energy/offsets.

Table 3 provides a similar assessment with a focus on activities and initiatives that address scope 3 emissions under four categories: energy conservation, renewable electricity, electrification and fuel switching, and non-energy/offsets. Supporting details for Tables 1, 2 and 3 are provided in the appendix (found in the PDF version of the report).

Some energy companies have net zero targets, but none are planning a sufficiently rapid decarbonisation in the short to medium term.

Overall, assessment of the 20 companies’ emissions reduction activities and commitments against the proposed decarbonisation trajectory (Figure 3) finds that:

• None of the 20 companies considered have fully committed to net zero by 2050 for all of their scope 1, 2 and 3 emissions.
• One company – ENGIE, accounting for approximately one per cent of the Australian electricity sector’s emissions and 1.5 per cent of electricity production – has an aligned interim target for a small proportion of its total emissions and is thus partially aligned.
• Fourteen companies – AGL, APT Pipelines, ATCO, C S Energy, CK William, Delta, EnergyAustralia, Origin, Pioneer Sail, Snowy Hydro, Stanwell, Synergy, Territory Generation and TransAlta, accounting for 79 per cent of the electricity sector’s emissions and
  60 per cent of electricity production – are conducting activities or have some commitments to reduce their emissions,
  but these are not aligned.
• The remaining five companies – Arrow Energy, Bluewaters Power 1&2, NewGen Kwinana, NRG Gladstone Operating Services and OzGen, accounting for 13 per cent of the electricity sector’s emissions and 10 per cent of the electricity production – have no disclosed emissions reduction targets or activities for their scope 1, 2 or 3 emissions.

The assessment uses a detailed evaluation of decarbonisation targets against the Decarbonisation Futures trajectory. For the six companies with decarbonisation targets:

• One – ENGIE – has a group target to reduce its global scope 3 emissions from use of sold gas by 34 per cent by 2030 from a 2017 base year. These emissions account for 48 per cent of the group’s total scope 3 emissions and
  33 per cent of its total scope 1, 2 and 3 emissions. This target aligns with a modelled decarbonisation trajectory for Australia, hence this company was rated as partially aligned. ENGIE has also committed to reduce power generation scope 1 and 3 emissions by
  52 per cent per kWh by 2030 from a 2017 base year. This target is not sufficient relative to the 67–77 per cent emissions intensity reduction achieved in modelled trajectories between 2017 and 2030 and is therefore not aligned with Paris climate goals.
• One company – TransAlta, a multinational power company operating gas fired plants in Western Australia – has a global target to reduce operational emissions by 60 per cent by 2030 relative to a 2015 baseline, and achieve net zero emissions by 2050.
  The company has not disclosed any plans to transition their Australian generation assets. Since the company do not have clear commitments for all their emissions, they have been rated as not aligned.
• Three companies – AGL, APT Pipelines^[2] and EnergyAustralia, accounting for 36 per cent of Australia’s electricity sector emissions and approximately 26 per cent of electricity production – aim to achieve net zero operational (scope 1 and 2) emissions by 2050, but none have set supporting interim targets. Their alignment with a pace of transition that supports a national Paris-aligned pathway is therefore unclear, hence these companies have been rated as not aligned. EnergyAustralia has committed to close its Yallourn coal-fired power station by 2028 which could reduce its operational emissions by 60 per cent. If no new emissions’ sources are introduced, this reduction will be in line with a decarbonisation trajectory that supports a national Paris-aligned pathway.
• One company – Origin, accounting for nine per cent of the electricity sector emissions – has set interim emissions reduction targets for its scope 1, 2 and 3 emissions. In Climateworks’ view, these are not enough for Australia to decarbonise in line with the Paris climate goals. Origin’s 50 per cent emissions reduction target for scope 1 and 2 emissions is less than the 65 per cent emissions reduction achieved in modelled trajectories between 2017 and 2032. The company’s 25 per cent scope 3 emissions reduction target is less than the 32 per cent emissions reduction achieved in modelled trajectories by 2030, from a 2017 base year. Origin has also indicated an aspiration to align its targets with a 1.5 degrees pathway with an aim to achieve net zero emissions by 2050.

This means three of the top five energy emitting companies – AGL, EnergyAustralia, Stanwell, Origin and C S Energy, accounting for 62 per cent of Australia’s electricity generation emissions – have emissions reduction commitments, but none are on Paris-aligned pathways.

Two of the organisations assessed – Delta and OzGen’s parent company, InterGen – objected to the Australian Energy Council’s recent endorsement of an economy-wide net zero emissions by 2050 target for Australia indicating their reluctance to commit to this target (Mazengarb 2020b).

Initiatives to reduce scope 1 and 2 emissions are underway across the sector but more ambitious activities are needed.

Fifteen of the 20 companies analysed – AGL, ATCO, EnergyAustralia, Stanwell, Origin, C S Energy, CK William, Pioneer Sail, Delta, Synergy, CK Williams, ENGIE, TransAlta, APT Pipelines and Snowy Hydro – are undertaking activities to reduce scope 1 and 2 emissions. Actions include initiatives to increase electricity generation from renewables, enhance renewable energy integration, improve energy efficiency in power stations and retire coal-fired plants.

All 15 of these companies have implemented renewable energy generation to varying extents, with a number of large and medium wind and solar energy projects in operation or at proposal stages. Some examples include:

• Snowy Hydro has committed to buying over 1,000MW in long-term offtake contracts for wind and solar (Snowy Hydro 2020b).
• AGL has developed a 53MW and 102MW solar plant, has entered into a solar offtake agreement to procure up to 300MW of solar energy and operates wind generation assets with a total capacity of 1,562MW (AGL 2020b).
• EnergyAustralia has rights to over 800MW of solar and wind energy through power purchase agreements, along with part ownership of the 66MW Cathedral Rocks Wind Farm (EnergyAustralia 2020).
• ENGIE and Pioneer Sail have specific renewable capacity goals, with Pioneer Sail aiming to have 1,500MW of renewable energy capacity by 2025 and ENGIE group targeting 9,000MW of renewable capacity by 2021 (Alinta Energy 2020; ENGIE 2020a).

Seven companies – AGL, ENGIE, EnergyAustralia, Origin, Pioneer Sail, Snowy Hydro and Synergy – are undertaking activities to improve renewable energy integration. Integration of renewable sources into the energy mix can be supported by implementing pumped hydro, battery storage and virtual power plants (VPP). A VPP is a cloud-based central control system that aggregates large-scale and distributed generation, including consumer-level generation and storage, and relieves load on the grid during peak demand by optimising distribution of power from these sources based on supply and demand data. Examples include:

• Origin is planning to install a 700MW battery on the site of its Eraring coal-fired power station in New South Wales, promoted as Australia’s largest battery project to date (Terzon & Hutchens 2021).
• Snowy Hydro aims to provide over 350,000MWh of storage to the NEM through its Snowy 2.0 project (Snowy Hydro 2020a).
• AGL has a goal to install 1,200MW of new battery storage and demand response capacity by 2024 (Mazengarb 2020a). Through its VPP program, AGL is encouraging renewables integration and electrification measures among its customers by providing behind-the-meter storage (Winter 2020). In collaboration with the NSW State Government, AEMO and ARENA, AGL is pioneering new financial incentives for customers to reduce energy use during peak demand (AGL 2020b).
• EnergyAustralia and Pioneer Sail also operate battery storage assets while, through its Simply Energy VPP project, ENGIE plans to virtually aggregate storage capacity from batteries installed in up to 1,200 households and 10 commercial businesses (ENGIE 2019).
• Synergy is also conducting a VPP trial with 10 schools, is collaborating in trials of community-scale battery storage and is testing peer-to-peer trading, which will enable owners of rooftop solar panels to sell energy to local consumers (Synergy 2020).

Plans for early closure of coal-fired power plants are emerging among those that operate these assets. Eleven of the 20 companies examined still operate coal-fired power stations in Australia, since ENGIE has closed or divested all Australian coal-fired plants (ENGIE 2020d). Their plans to exit coal vary:

• AGL – the top emitting energy company in Australia accounting for 25 per cent of the country’s electricity sector emissions – has committed to exit coal by 2050, noting it is ‘not able to make unilateral commitments to closing power stations in advance of government policy’. AGL plans to retire its coal-fired Liddell plant in 2022–2023 (AGL 2021) despite federal government pressure to extend its life further.
• Origin has committed to exit coal by 2032.
• EnergyAustralia – accounting for 10 per cent of the electricity sector emissions – has recently committed to bring forward retirement of Yallourn, one of its coal-fired power plants, from 2032 to 2028.
• Accounting for 43 per cent of Australia’s electricity sector’s emissions, the remaining eight companies – Bluewaters Power 1&2, C S Energy, Delta, NRG Gladstone Operating Services, OzGen, Pioneer Sail, Stanwell and Synergy – have made no commitments to divest from their coal assets.

Companies assessed are planning to retain gas-powered generation as a component of future power generation, either as a transition fuel or to supply dispatchable power to manage supply intermittency or demand peaks. This is despite increasing consensus that increased gas usage in the Australian power sector is incompatible with Paris-aligned scenarios, and that gas can be phased out of Australia’s electricity sector between 2040 and 2050 through deployment of renewables and storage (Climateworks 2020; Murphy & Karp 2021). In the context of likely coal-fired generation retirements in Australia, studies suggest that new gas powered generation would be less economical compared to wind and solar, with batteries to complement renewables being the more cost-effective option over the next decade (AEMO 2020; Wood & Dundas 2020).

• AGL’s proposed 250MW gas-fired power station in Tomago, NSW, is framed by the company as ‘consistent with [their] move to a renewable energy mix’ (AGL 2020a, Macdonald-Smith 2020).
• None of the 14 companies assessed that use gas for electricity production – AGL, APT Pipelines, ATCO, CK William, EnergyAustralia, ENGIE, NewGen Kwinana, Origin, Pioneer Sail, Snowy Hydro, Stanwell, Synergy, TransAlta and Territory Generation – have committed to curtail this gas usage.

Other efforts to reduce scope 1 and 2 emissions include power station upgrades, with five companies – AGL, EnergyAustralia, ENGIE, Origin and Pioneer Sail – implementing initiatives to improve power plant efficiency. Origin’s Real Time Optimisation project, a digital tool to optimise power plant performance, aims to avoid a total of 1 million tonnes of CO2-e by 2025 (Origin 2020).

AGL, EnergyAustralia and Origin also offer carbon neutral products by purchasing carbon offsets on behalf of their customers at either some or no cost (AGL 2020b; EnergyAustralia 2020; Origin 2020).

Efforts to address scope 3 are minimal among energy companies.

Relative to efforts to reduce scope 1 and 2 emissions, our analysis finds disclosure of and action to reduce scope 3 emissions to be limited. Of the companies assessed, two – Origin and ENGIE – have interim targets endorsed by the Science Based Targets initiative for their scope 3 emissions. As described previously, Origin’s current scope 3 target is not aligned with a modelled trajectory that would support a national Paris-aligned pathway, but the company has an overarching aspiration to reach net zero by 2050 and plans to implement more ambitious interim targets (Science Based Targets initiative 2020; Origin 2020). While ENGIE’s emissions intensity target for scope 1 and 3 emissions is not in line with the trajectory required for Australia to be Paris-aligned, its emissions reduction target for its use of sold products (including natural gas use by customers) is aligned with this pathway.

Although scope 3 emissions can represent a significant proportion of gas retailers’ total emissions, only AGL and Origin, two of the top five emitters in the sector, report scope 3 emissions in Australia. Indirect scope 3 emissions represent 40 per cent of AGL’s total emissions and 70 per cent of Origin’s.

There is little indication among the gas retailers that they plan to transition away from this activity. The supply and use of gas sold to residential and commercial customers is a major source of scope 3 emissions for the energy sector. For the two companies reporting scope 3 emissions, domestic gas supply to and usage by customers account for approximately 25 per cent of AGL’s total scope 3 emissions and 37 per cent of Origin’s.

Of the eight companies assessed that include gas retailing in their operations, four – AGL, EnergyAustralia, Origin and ENGIE – are implementing initiatives that address scope 3 emissions including investing in hydrogen and biofuels, and providing carbon neutral products for customers to reduce their carbon footprint. The ENGIE group has committed to producing 100 per cent green gas (including biogas and green hydrogen) by 2050 as a substitute for its imported natural gas (ENGIE 2020a). Three companies – AGL, EnergyAustralia and Origin – are offsetting emissions from gas usage through their carbon neutral schemes (AGL 2020b; EnergyAustralia 2020; Origin 2020). The remaining four gas retailers assessed – Arrow Energy, Pioneer Sail, Synergy and Snowy Hydro – have no initiatives to reduce scope 3 emissions.

In Paris-aligned modelled trajectories, domestic gas consumption reduces substantially, with gas replaced by renewable electricity or other zero emissions fuels where possible (Climate Action Tracker 2020). Given that most gas retailers assessed are also electricity retailers[3], this presents an untapped opportunity for a smooth transition. An early shift away from gas retail offers these companies – including the sector’s biggest emitters AGL, EnergyAustralia and Origin – an opportunity to sell more renewable electricity. While scope 1 and 2 emissions can represent a significant proportion of electricity generators and retailers’ total emissions, scope 3 emissions can still be material. None of the 12 companies analysed primarily involved in electricity generation and retailing – ATCO, APT Pipelines, Bluewaters Power 1&2, C S Energy, CK William, Delta, NewGen Kwinana, NRG Gladstone Operating Services[4], OzGen, Stanwell, Territory Generation and TransAlta – report or are undertaking initiatives to reduce these emissions.

^[1] NRG Gladstone Operating Services operates Gladstone Power Station, which is a joint venture between Rio Tinto Ltd (42%), NRG Energy Inc (37.5%), SLMA GPS Pty Ltd (8.5%), Ryowa II GPS Pty Ltd (7.1%) and YKK GPS (Queensland) Pty Ltd (4.75%).

^[2]This assessment is based on APT Pipelines’ energy generation operations and does not consider gas transmission and distribution activities.

[3] AGL has announced an intention to split its generation and retail interests into two separate businesses – subject to consultation with relevant stakeholders. Further details on the separation are expected by the end of June.

[4] NRG Gladstone Operating Services operates Gladstone Power Station, which is a joint venture between Rio Tinto Ltd (42%), NRG Energy Inc (37.5%), SLMA GPS Pty Ltd (8.5%), Ryowa II GPS Pty Ltd (7.1%) and YKK GPS (Queensland) Pty Ltd (4.75%).

Figure 3: Distribution of energy companies assessed by net zero ambition – where the bubble size is proportional to their total scope 1 and 2 emissions reported under Australia’s National Greenhouse and Energy Reporting (NGER) scheme in 2019-20.

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Next steps

Energy companies must align their commitments with a pathway that supports Paris-aligned decarbonisation
in Australia.

Australia’s transition to net zero emissions must be underpinned by rapid decarbonisation of its energy sector – access to zero emissions energy is essential for decarbonisation of other sectors, including heavy industry, manufacturing and transport. The pace of the energy sector’s transition is therefore critical for Australia to decrease its emissions in line with the Paris climate goals (Climateworks 2020). Climateworks’ research indicates that Australia’s electricity sector can achieve an emissions reduction of at least 64 per cent by 2030 (relative to 2017 levels), near zero emissions by 2040 and, through deployment of renewable generation supported by new storage capabilities and demand management measures, can fully decarbonise by 2050. However, this is far from being achieved through current policies and actions.

Although progress is being made among Australia’s energy generation and retail companies to reduce their emissions, the current level of ambition and pace of action is insufficient. None of those assessed have comprehensive commitments to achieve net zero by 2050 or earlier that cover the full scope of their emissions. Fourteen of the 20 companies evaluated, responsible for 79 per cent of Australia’s electricity sector’s emissions, are implementing emissions reductions activities and commitments but these do not align with a trajectory that supports Australia’s ability to achieve the Paris climate goals. More ambitious commitments and actions, supporting a
faster transition to renewables are
therefore required.

Australian companies can shift from fossil fuels to renewable sources with proven green technologies.

There is a pressing need to retire coal-fired power plants, which are responsible for more than 80 per cent of electricity sector emissions reported under Australia’s National Greenhouse and Energy Reporting (NGER) scheme (Clean Energy Regulator 2021; Australian Government 2020b).

An efficient transition to zero carbon electricity will enable Australia to capitalise on growing demand for clean energy and green commodities among its global trading partners, an increasing number of which are adopting net zero by 2050 targets and raising the ambition of their interim decarbonisation goals. Australia’s abundant renewable energy and raw material resources, infrastructure and expertise mean it is well positioned to capitalise on these opportunities. The alternative could set Australia on an economically unsustainable trajectory, left behind in the wake of its international competitors.

Also key to this transition is a shift from gas to electricity, or zero emissions alternatives, where feasible. The role of gas in Australia’s energy transition is contentious and efforts to shift away from this fuel are currently minimal.

Ongoing advances in renewable energy generation and storage technologies mean that a renewable electricity grid is increasingly perceived as a reliable and economically viable option, particularly in Australia where renewable resources are abundant (AEMO 2020; Graham et al. 2020).

Federal climate and energy policy and growing investor pressure could boost Australia’s energy transition.

A national long-term energy transition strategy with emission reduction targets will be crucial to this transition. Such a strategy would enable power companies and electricity market operators to plan new renewable capacity and integration requirements, along with clear milestones for fossil-fuelled asset retirement. Private capital and public companies poised to invest in this transition also require these clear signals from policy makers.

Financial institutions are transitioning away from brown to green investments. Acknowledging the critical role of the sector’s decarbonisation pace and assessing companies against this benchmark can further support the sector’s transition. In this transformative decade for addressing climate change, decarbonising energy generation and supply is a priority. By accelerating decarbonisation of Australia’s energy sector, the country will be better positioned to manage climate risks and capitalise on the global transition to net zero emissions.