What do the Australian Government’s 2035 Climate Targets Mean for Investors?

Last week marked a major moment for Australia’s climate policy. Alongside announcing a new 2035 emissions reduction target of 62–70% below 2005 levels, the government released more than a thousand pages of supporting documents: advice from the Climate Change Authority (CCA), a new Nationally Determined Contribution (NDC) to the UNFCCC, an overarching Net Zero Plan, Treasury’s economic modelling, and six sectoral decarbonisation plans.

IGCC’s policy team — Frankie Muskovic, Bethany Richards and Michael Bones — have worked through the details. Below are the key takeaways for members. 

Listen to our audio briefing.

Climate Change Authority Advice 

• The CCA recommended a 62–70% reduction by 2035, which translates to halving Australia’s current emissions over the next decade. 

• CCA identifies strategies using existing technologies that can achieve the target: accelerating the rollout of renewable energy, electrifying our buildings and vehicles, improving efficiency and emissions intensity of industry and mining through the Safeguard Mechanism, ceasing clearing of old growth forest and reducing native forest harvesting. 

• Areas of uncertainty flagged include pace of technology rollout, supply chain and workforce constraints, community support, geopolitical shifts and increased energy demand from new sectors like data centres. 

• IGCC will continue advocating for ambition at the top end of the range (70%), consistent with keeping 1.5°C in reach. 

Government Response & NDC 

• The Australian Government accepted the CCA’s advice and adopted a 2035 target of 62-70% below 2005 levels by 2035. 

• New funding announcements included: 

• a new $5 billion Net Zero Fund in the National Reconstruction Fund to help industrial facilities decarbonise and scale up renewables and low emissions manufacturing (this is not new money) 

• $2 billion extra for the Clean Energy Finance Corporation 

• $1.1. billion for production incentives to support Low Carbon Liquid Fuel manufacture in Australia 

• $85 million for building and appliance energy rating systems  

• $40 million for kerbside and fast EV charging infrastructure 

• $50 million for community sports clubs to decarbonise 

• The Nationally Determined Contribution (NDC) submitted to the UN notes the 2035 target will be delivered through a multi-year carbon budget (2031–35). 

• The NDC also includes Australia’s first response to the Global Stock Take, including efforts to triple renewable generation, double energy efficiency improvement, phase out fossil fuels and inefficient subsidies and reduce methane emissions. This disclosure highlights where domestic policy gaps are more pronounced, particularly methane abatement and energy efficiency. 

Net Zero Plan 

The Net Zero Plan is an overarching document that describes the government’s approach to meeting the 2035 and longer-term 2050 net zero target. The plan identifies five key strategies that are replicated across the six sectoral decarbonisation plans under the moniker “CLEAN”: –  

• Clean electricity across the economy 

• Lowering emissions by electrification and efficiency 

• Expanding clean fuel use 

• Accelerating new technologies 

• Net carbon removals scaled up 

The plan: 

• Emphasises the work already underway via key policies – the Safeguard Mechanism, ACCU Scheme and market reforms in the electricity and energy sector.  

• Identifies a near term focus on cross cutting measures like energy efficiency (setting a 25% improvement target) and electrification across energy, transport and buildings sectors but does not commit to new policies. 

• Highlights the importance of the Safeguard Mechanism review in 2026-2027, which will need to do much of the heavy lifting in industry. New baseline decline rates will be set from 2030, as well as decision to expand the policy’s coverage to other areas. This period will also be when a Carbon Border Adjustment Mechanism is considered.   

• Does not commit to reduction strategies for fossil fuels or fugitive emissions.  

• Reveals a significant reliance on carbon sinks in the land sector, with sizeable residual emissions of 160-180MtCO₂e remaining to be offset in 2050, primarily through reforestation. 

• Does not integrate adaptation meaningfully in any of the sector plans, highlighting the need to develop adaptation plans for key systems. 

Treasury Modelling 

Treasury modelled three long-term economic scenarios to inform Australia’s 2035 emissions reduction target and assess the macroeconomic implications of different transition pathways. The central scenario underpins further analysis in each of the six sectoral decarbonisation plans.  

1. Baseline Scenario — aligns with existing policy and the expected availability of current technologies.

• Delivers 65% emissions cuts by 2035 and net zero by 2050. 

• Economy is 81% or $2.2 trillion larger by 2050 compared to 2025, equivalent to $36,000 per capita. 

• Real wages projected to increase 10% to 2035 and 31% over the 25 years to 2050, and investment grows by 79% between now and 2050.  

• 168 MtCO₂e of residual emissions expected to remain with agriculture the largest proportion at 62 MtCO₂e. 

2. Renewable Exports Upside Scenario — assumes the same domestic decarbonisation pathway as the baseline scenario, as well as Australia capturing more of the green export opportunity.

• Australia’s green exports could be $68 billion higher in 2050 than in the Baseline Scenario.  

• The total value of Australia’s green exports – which includes green ammonia, green iron, alumina, aluminium and critical minerals – is projected to reach $80–93 billion in 2035 and $109–178 billion in 2050 under the Baseline and Renewable Exports Upside scenarios. This more than offsets declined fossil fuel exports. 

• Australian exports of green iron and green ammonia reach about 120 million tonnes (Mt) and 35 Mt respectively in 2050, supported by renewable hydrogen production of 15 Mt.  

• Australia’s economy is projected to be 84% larger by 2050, relative to 2025.  

• Wholesale electricity prices reduce by around 20% by 2050, relative to the Baseline Scenario. 
   

3. Disorderly Transition Scenario — assumes Australia does not set a credible 2035 emissions target, delays action until 2040, then a rapid catch-up to achieve net zero by 2050.

• Suppressed and delayed investment (modelled as a risk premium of 75 basis points) results in half a trillion dollars in lost investment by 2050. 

• Electricity prices rise 17 % on average in the 2030s, up to 54% in the 2040s, relative to the baseline. This is due to large use of fossil gas for energy generation with a delayed energy transition away from coal. 

• Economy is projected to be up to a cumulative $2 trillion smaller by 2050, compared to baseline and upside scenarios.  

• Real wages are projected to be 2.5 % lower in 2050, compared to the Baseline Scenario, and 4.0% lower relative to the Renewable Exports Upside Scenario.  

• Real GDP per capita in 2050 is projected to be 1.6% lower under the Disorderly Transition, compared to the Baseline Scenario, which equates to $2,100 less per person in 2050.  

Other key takeaways: 

• Across all scenarios, global action is assumed to be sufficient to ensure global temperatures are kept well below 2°C by the end of this century.  

• A scenario where Australia does not pursue net zero was not modelled, though Treasury notes the economic costs would far exceed the Disorderly Transition scenario.  

• Impacts due to physical climate risks, geopolitical risks, alternative global pathways or other significant sources of uncertainty were not considered under the three modelled scenarios.  

• Current policies, without any further action, indicate Australia is on track to achieve 43 % emissions reduction by 2030 and 51% by 2035, compared to 2005 levels.  

• Australia’s coal production is projected to decrease by at least 42% to 2035 and 71% to 2050 across all scenarios. Australian gas and LNG production is projected to decline by 66 to 68% by 2050, alongside changes in global demand.  

Sector Plans — Key Observations 

Electricity & Energy 

• A much stronger emphasis on energy efficiency and electrification with a new target for 25% improvement in energy efficiency by 2035 set. This will be supported by a regular Demand Statement of Opportunities from AEMO. 

• There is no new target for renewable energy by 2035, and no policy suggested to drive coal generation phaseout (e.g. Safeguard) — a band of “ten years” phaseout is noted. 

• A Disorderly Transition would create three times as much demand for generation from natural gas between 2040-2045. 

• The plan identifies the need to develop renewable gases while emphasising the need to maintain supply security of fossil gas in the meantime. Notable there is no renewable gas industry policy, a gap that needs to be filled. 

• There was little focus on supporting more long duration storage coming to market. 

• Notable new announcements were $1.1 billion in grants for low carbon liquid fuels, and $2 billion for the CEFC to invest specifically in renewables.   

Industry 

• Government appears to be prioritising fuel switching from coal to gas, rather than direct electrification, to 2035. This could lock in emissions intensive assets for two decades.   

• Major changes expected from the Safeguard Review 2026-2027, including a CBAM, which will be considered at the same time.  

• Industry will now be pressured to do more on-site abatement as their headroom has been removed from this year’s 4.9% reduction in baseline. Due to the target range, baseline reductions from 2030 onwards will be harder for industry to forecast until the Safeguard review is complete. Note: a 62% NDC is an indicative 4.82% decline rate, a 65% NDC is an indicative 5.5% decline rate and a 70% NDC is an indicative 6.85% decline rate.  

• Offsetting remains high, and government is considering becoming a direct purchaser of offsets. This could increase cost of ACCUs.   

Agriculture & Land 

• Agriculture emissions are projected to fall only modestly (87 Mt → 62 Mt by 2050), accounting for ~37% of gross national residual emissions left in 2050. 

• Priority actions to reduce agricultural emissions target enteric fermentation (responsible for 58 MtCO₂e of the total 87 MtCO₂e) with livestock additives and low-emissions genetics, with broader initiatives including improved emissions accounting, fertilizer efficiency and on-farm electrification. 

• Land sequestration is projected to grow substantially, drawing down 74 MtCO₂e per annum in 2025 to 167 MtCO₂e in 2050. 

• Strategies to increase drawdown include increased reforestation (over 60%), forest regeneration, blue carbon, soil carbon and savannah fire management. 

• The strong reliance on natural carbon sinks has some uncertainty attached to it, noting high variations between different estimates of Australia’s overall sequestration potential. Modelling also does not consider impacts of climate change to this potential.  

Transport 

• The sector plan covers light vehicles, heavy vehicles, rail, maritime, aviation and transport infrastructure emissions and is projected to reduce emissions from 100 MtCO₂e in 2025 to 36 MtCO₂e in 2050.  

• Light vehicles (passenger and light commercial) make up 59% of all transport emissions and are project to decrease 90% by 2050 due to uptake of EVs. 

• Strategies identified to reduce emissions include investing in low and zero emissions transport infrastructure like EV charging, electrify and switch to EVs, switch to LCLFs where electrification is not feasible (SAF for aircraft) and scale up efforts to reduce embodied emissions in transport infrastructure. 

• The plan identifies the right strategies but lacks any specific commitments to when certain policies or initiatives will be adopted, for example expansion of the New Vehicle Efficiency Standard to drive increased supply and uptake of EVs. 

• There is no current policy driving the decarbonisation of heavy vehicles, which remains a major gap. This could be considered for inclusion in the Safeguard Mechanism.  

Resources 

• The sector produces ~97 MtCO₂e annually, 22% of Australia’s total emissions. This is comprised of 55% fuel combustion (diesel vehicles, gas power) and 45% fugitive methane, especially from underground coal mines. 

• Emissions are projected to fall from 94 MtCO₂e in 2025 to 46 MtCO₂e in 2035 and 19 MtCO₂e in 2050, contributing ~12% of gross national residual emissions.  

• 87% of the sector’s emissions are already covered by the Safeguard Mechanism. 

• Key levers include replacing diesel and gas combustion with renewable gas, LCLFs or electrification, cutting methane leaks and flaring, and scaling up carbon management technologies such as CCS.  

• Exports are projected to shift away from coal, oil and gas toward a surge in critical minerals demand (600% increase in lithium, 200% increase in nickel and cobalt, 30% increase in copper) essential for global decarbonisation.  

• The plan highlights the need for Carbon Capture and Storage, with large-scale projects underway (Gorgon, Moomba, Bonaparte) and suggests Australia could export CO₂ storage as a service. Current CCS projects have had limited success to date. 

Built Environment 

• Buildings are responsible for 5% of direct (scope 1) emissions through gas used for heating, hot water and cooking and for over 48% of emissions from electricity generation in the energy sector. Emissions are projected to decrease from 24 MtCO₂e in 2025 to 9 MtCO₂e in 2050. 

• Strategies to decarbonise buildings include a strong focus on electrification of new and existing buildings, retrofitting existing buildings to improve thermal performance and efficiency of appliances, phasing down hydrofluorocarbons (HFCs) used in refrigeration and air conditioning, and increasing material efficiency and use of lower emissions materials to reduce embodied carbon (scope 3) emissions.  

• $85 million in new funding will be used to increase coverage and rollout of energy ratings for homes and different commercial buildings, as well as appliance standards. 

• The plan lacks stronger specific commitments to policies that will phase out gas use in buildings, as the ACT and Victoria have done in banning gas for new buildings. 

• More work is needed to focus on improved resilience of buildings to physical risks through building codes and planning frameworks. 

What This Means for Investors 

• The difference between meeting the “achievable” end of the target range at 62% and the “ambitious” top end of 70% is the extent of policy reform the government will commit to. New policies are needed to achieve high ambition.  

• Identified policy gaps remain in key areas — especially on methane reduction in agriculture and mining, electrification of buildings and transport, heavy vehicles, stronger signals on coal and gas phaseout and support for emerging clean exports beyond FMiA policies. 

• The Safeguard Mechanism will do the heavy lifting, with major reform due 2026–27. 

• Reliance on land-based carbon sinks creates uncertainty — innovation in carbon removal technologies will be critical. 

• Australia’s clean export potential is enormous but requires strong and consistent policy to capture. 

• A disorderly transition would be costly — reinforcing the case for ambitious, coordinated, early action. 

Next Steps for Investors 

We recommend that investors: 

• Absorb the relevant information in the Net Zero Plan and six sectoral pathways.  

• Ensure that investment teams are aware and factoring it into their investment cases and plans. 

• Incorporate the information into their engagements with companies in their portfolio. 

Next Steps for IGCC 

IGCC will strongly advocate for the government to set policies that will achieve the top of the target range (70%). Our near-term advocacy priorities are changes to the Climate Change Act to legislate regular review and updates to the NAP, NCRA and sector plans, an ambitious expansion of the Safeguard Mechanism in 2026-27, implementation of a carbon border adjustment and using COP31 as a platform to drive policy support and investment in Australia’s future clean exports. 

The policy team is also consulting on IGCC’s policy priorities for 2025-2030 and will use these documents to inform priority reform areas for our advocacy. 

Useful Links 

The Government’s media release – Setting Australia’s 20235 climate change target 

IGCC’s media release – Investors call for ambition beyond achievable 

Net Zero landing page – access the Net Zero Plan, Treasury modelling and sector plans 

Climate Change Authority – 2035 Targets Advice Report 

UNFCCC NDC Directory – Australia’s 2035 Nationally Determined Contribution 

Watch the Climate Change Authorities Chair Matt Kean and CEO Brad Archer member briefing here.