Australia: New Legislation Shaping Australia's Emissions Reduction Policy

In Short

The Situation: Significant climate law reforms came into force in Australia on 15 September 2022, with the commencement of the Climate Change Act 2022 (Cth) ("Climate Change Act") and the Climate Change (Consequential Amendments) Act 2022 (Cth) ("Consequential Amendments Act") (together, the "Acts").

The Result: The new legislation enshrines emissions reduction targets of 43% on 2005 levels by 2030 and net-zero by 2050 (together, the "Targets"), which may be increased in line with the Paris Agreement. This is a significant increase compared to the targets that were put in place by the previous Coalition government of 26-28% by 2030. The new laws also require the Minister for Climate Change and Energy (the "Minister") to table in Parliament an annual climate change statement (the "Annual Statement") reporting on Australia's progress toward meeting the Targets. Express obligations are also imposed upon government agencies to take the Targets into account when exercising certain powers and functions.

Looking Ahead: The new laws are an important component of the new Australian government's emissions reduction and renewable energy transition plan. They do not, however, prescribe measures to achieve the Targets. These matters will be covered by future legislative and policy initiatives, including proposed reforms to steadily reduce permitted baseline emissions by Australia's largest emitters known as the 'Safeguard Mechanism' that were announced recently.

The Climate Change Act

The Climate Change Act delivers:

• A legislative commitment by the Australian government to reduce Australia's greenhouse gas ("GHG") emissions to 43% on 2005 levels by 2030 and net-zero by 2050;
• A legislative mechanism which is in line with the Paris Agreement to review Australia's emissions reductions targets every five years; and
• Greater transparency and accountability by government around the achievement of the Targets. Specifically, the Climate Change Act provides that the Minister table an Annual Statement in Parliament addressing, amongst other things, Australia's progress toward the Targets and relevant international developments. Similarly, the Climate Change Authority has an express obligation to publish advice to the Minister for the purpose of the Annual Statement.

It is notable that the Climate Change Act does not otherwise address the issue of how the Targets are to be met. Rather, it is anticipated that this will be addressed by future policy and legislation.

The Consequential Amendments Act

The Consequential Amendments Act gives practical effect to the Climate Change Act by embedding considerations that are relevant to emissions reduction targets and Australia's obligations under the Paris Agreement into the objectives and certain functions of relevant Commonwealth government agencies and departments.

The consequential amendments include:

• Amendments to the Climate Change Authority Act 2011 (Cth) expanding the role of the Authority to advise the Minister under the Climate Change Act;
• Amendments to the Clean Energy Regulator Act 2011 (Cth) allowing for regulations to be made that expand the functions of the Clean Energy Regulator in ways which contribute to the achievement of the Targets;
• Amendments to the Export Finance and Insurance Corporation Act 1991 (Cth) requiring the Export Finance and Insurance Corporation to take the Targets into account when performing its functions;
• Amendments to the Infrastructure Australia Act 2008 (Cth) requiring Infrastructure Australia to take the Targets into account when conducting audits of nationally significant infrastructure, developing plans, and when exercising its advisory functions;
• Amendments to the Northern Australia Infrastructure Facility Act 2016 (Cth) to allow for consideration of the Targets when determining the terms and conditions for the provision of financial assistance under the Act; and
• Amendments to the Offshore Electricity Infrastructure Act 2021 (Cth) to require the relevant Minister to have regard to the Targets when making various decisions, including whether to declare that an area is suitable for offshore renewable energy infrastructure.

The Explanatory Memorandum to the Consequential Amendments Act expressly states that the amendments "are not intended to limit or constrain the exercise of powers or performance of the existing functions of the relevant entities and scheme". Nonetheless, these amendments may be further grist to the mill of climate-related litigation by paving the way for future merits review or judicial review actions by interest groups or stakeholders that are dissatisfied by the manner or extent to which relevant decision-makers take the Targets into account. This may, as a consequence, create greater uncertainty and delays for companies seeking approvals for energy and natural resources projects in both the conventional and renewable energy sectors and in mining and resources.

Looking Ahead

This is but one, albeit very significant, step along the path toward Australia's reduction of emissions and renewable energy transition. The new Australian government has flagged a number of future plans and initiatives, including reforms to the Safeguard Mechanism which were released for consultation in August 2022.

Australian state governments are also ushering in new measures that are intended to reduce GHG emissions. For example, in September 2022, the New South Wales Environment Protection Agency released a new Climate Change Policy and Action Plan which is intended to deliver emissions reductions of 50% by 2030 and net-zero by 2050. Likewise, the Queensland government announced new climate-focused targets last month of 70% renewable energy by 2032, increasing to 80% by 2035 to drive emissions reductions.

These developments will create important opportunities for industries and investors looking to invest in Australia's renewable energy transition. At the same time, they also give rise to the prospect of greater uncertainty for businesses that require approvals and operating licenses for infrastructure and other projects.

Three Key Takeaways

1. With the commencement of the Climate Change Act and the Consequential Amendments Act in September 2022, Australia's emissions reduction targets of 43% on 2005 levels by 2030 and net-zero by 2050 are now enshrined in legislation. Further, the government and Commonwealth agencies have express obligations to take the Targets into account when exercising certain functions.
2. The new legislation sets Australia on a course for rapid and far-reaching policy and legislative reforms across all sectors to meet the Targets. The regulatory environment is dynamic and companies operating in Australia should consider whether their own emissions reduction targets and action plans align with those set by the government. It would also be prudent for corporates to consider the sufficiency of sustainability and risk resources to ensure they are well-equipped to keep abreast of further reforms in this space and well-positioned to respond accordingly. Governance models, including reporting lines, should also be reviewed to ensure that all facets of the business are coordinated and that the board is kept informed of important developments.
3. The reforms highlight the commercial opportunities presented by Australia's renewable energy transition, but may also present future challenges for corporates operating in emissions intensive industries in Australia.