How will Australia’s emission reduction targets impact infrastructure sector participants?
Community pressure on Australian governments to reduce carbon emissions to alleviate climate change is growing.
In the Australian context, the focus of this pressure has been on fossil fuels and industries that are heavy emitters. The Australian construction sector has, so far, escaped attention.
Internationally, however, the building and construction sector has been an area of focus because it accounts for about 39% of global emissions – 28% from building operations and 11% from embodied carbon in building materials and construction.
Indeed, embodied emissions in building and construction materials (think, cement and steel) have been declared the ‘next frontier’ to significantly reduce Australia’s carbon emissions, by Australia’s Clean Energy and Finance Corporation and others.
This article considers the strategies that Australian government are likely to implement to reduce carbon emissions from the infrastructure sector, and what private sector participants in the sector should do to prepare.
Government emission reduction targets
Australian Governments at all levels (federal, state and local) have set themselves emissions reduction targets – generally in the form of a net zero target by no later than 2050, and an interim 2030 emissions reduction target.
Some Australian Governments have enshrined these targets in legislation. Most notably, the Albanese-led Federal Government enshrined the following targets in legislation that came into effect in last September:
reducing Australia’s net greenhouse gas emissions to 43% below 2005 levels by 2030;
reducing Australia’s net greenhouse gas emissions to zero by 2050.
The targets are currently economy-wide, and government policy interventions to date have largely been focused on the electricity and land sectors, with limited or no specific targets for specific sectors. The Federal Government has only recently extended these targets to Australia’s largest greenhouse gas emitters via its Safeguard Mechanism.
International trends suggest that every industry sector in Australia will ultimately be expected to contribute its ‘fair share’ towards Australia’s emissions reduction target. Specific targets for Australia’s infrastructure construction sector will soon be upon us.
Future governments are likely to revise current economy wide targets upwards as community pressure for action on climate change builds, and opposition parties see more ambitious targets as an election winning strategy.
How strategies to achieve targets will impact the construction sector
These government emission reduction targets don’t directly impact private sector participants in the infrastructure industry – even when they are enshrined in legislation.
But the strategies that governments put in place to achieve them will.
These strategies are still at an embryonic stage, but the experience in other countries suggests that government strategies for achieving emission reduction targets will increasingly affect private-sector industry participants.
Most strategies are currently aimed at government agencies
Strategies that Australian governments are implementing, or are likely to implement, include:
requiring all government agencies to contribute to the achievement of Australia’s greenhouse gas emissions reduction targets;
requiring all procuring agencies to have regard to their emissions reduction targets when formulating procurement strategy;
requiring government agencies to achieve net zero carbon across their portfolio of estates and/or infrastructure assets by 2050;
requiring government agencies to develop decarbonisation plans relating to construction and operational emissions, as part of the organisation’s Strategic Asset Management Plan.
This, in turn, is triggering policy and strategy development by individual government agencies.
Most of this policy development is currently aimed internally. For example, Infrastructure NSW will require NSW government agencies to use options analysis to consider non-build solutions, and to include carbon emissions and reduction plans in project business cases.
Similarly, Infrastructure Australia has published interim guidance on the greenhouse gas emission information that infrastructure proponents will need to provide as part of their submissions to Infrastructure Australia, including how emissions (embodied, operational and enabling) have been accounted for in the proposal’s cost-benefit analysis.
But government agencies will also outsource responsibility for achieving targets to the private sector
The consequential policy development by government agencies will also impact private sector contractors and suppliers to government.
For example, Infrastructure NSW hopes to develop an approach to measuring and managing infrastructure project emissions that will enable all NSW government agencies to evaluate tenders based on proposed reductions in embodied emissions against a BAU baseline, and make carbon reduction commitments contractually enforceable. Other states and territories will likely follow suit.
This will likely involve the development of new value-for-money frameworks that better support procuring agencies to objectively integrate proposed emission reductions and other non-price considerations (quality, performance, sustainability and social value) into their assessment of the relative value for money of tendered solutions.
Procuring agencies will increasing look to the level of accreditation that an organisation holds in respect of the management of whole-life carbon in infrastructure, as evidence of its ability to deliver desired carbon management outcomes, or may require minimum levels of accreditation to be eligible to tender.
Organisations may cease to be eligible to bid for major government contracts if they do not annually publish a Carbon Reduction Plan that reports:
their commitment to achieving net zero in respect of their Australian operations by 2050;
their current emissions, and
the environmental management measures they have in place.
Government procuring agencies will increasingly shift to delivery models and contracting strategies that facilitate continuous improvement in emissions reductions, via outcome specifications, KPIs, reporting obligations, performance incentives and supply chain collaboration. Longer-term multiparty collaborative contracts will become more common given their suitability to this task.
Recommendation
Industry participants that regularly tender for government infrastructure projects will want to gear up for these changes, so that they are not disadvantaged as government agencies begin to implement these new strategies.
