Australia’s leading CEOs step up with a ‘Roadmap to 2030’

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from the Climate Leaders Coalition (CLC)

https://www.climateleaders.org.au/documents/CLC_Roadmap_to_2030_PUBLISHED.pdf

Summary:

Massive climate-related transitions will occur in the 2020s and organisations need to act now.

Companies need to build the culture and foundations for long term transition.

Australia has an abundance of natural resources that presents enormous opportunities for companies and the country.

Leadership and capability building are critical to enable the change to happen.

It is critical to ensure that a responsible and equitable transition is delivered.

In driving change now, organisations can build resilience and ensure a thriving future.

1. The Challenge and Context

The United Nation Framework convention on Climate Change’s (UNFCCC) Paris Climate Agreement is key to how many companies and governments are changing. The December 2015 agreement aims to keep global temperature rise this century well below 2 degrees Celsius (2)above pre-industrial levels . The average Australian temperature in 2020 was 1.15 degrees Celsius (3) above the long-term average. Many large corporations are already taking action: committing to ‘net zero’, renewable energy or to joining groups such as the CLC.

In addition, investor pressure is increasing. The 2017 Taskforce on Climate-related Financial Disclosures (TCFD) framework recommends large companies disclose their climate transition risk (market demand, carbon pricing, stranded assets) and physical risk from increasing severe weather events(4).

The IPCC AR6 Physical Science Basis5 report released in August 2021 has further increased awareness and pressure on organisations to both decarbonise and build their climate resilience. This report explained how climate change and

its impacts are accelerating: heatwaves, ocean warming, bush fires, storms, heavy rainfall and droughts are all increasing in many parts of the world including in Australia. It is now likely that the average global temperature will breach the 1.5oC target earlier in the 2030s without new commitments and actions. It also made it clear that the worsening impacts are ‘baked in’ to the climate system for the next two decades at least and that our economies and societies are going to have to adapt to these changes.

The economic paradox that has gripped Australia for the past decade endures: the economic fundamentals that make Australia strong today, are both what expose the economy to future disruption and create the basis for a successful transition. The members of the CLC are at the heart of this challenge.

How can members meet and exceed sustainability objectives, whilst being resilient and profitable as a business? How can they capture the wave of capital looking to assist in the transition?

In addition to the pressure mounting on climate, there is acceleration in the trends of the ‘Future of Work’, skills and education, cloud transition, the internet-of-things, and the sharing-economy.

Governments across the world have flagged
their intention to drive more standardised and comprehensive climate risk disclosures and
many of Australia’s key trading partners are beginning to implement carbon taxes which could negatively impact on the Australian export market if businesses here fall behind. Global operations in Australia are going to need to satisfy their regulatory obligations in other jurisdictions.

This creates a challenging environment for business.

Deloitte Access Economics (DAE) analysis (6) shows that the Australian industries hardest hit by the pandemic are also the most vulnerable
to the effects of a warming world and climate change. Australia’s agriculture, construction, manufacturing, tourism and mining sectors all feature consistently in the top industries exposed to both the risks of COVID-19 and transition to a low carbon economy.

DAE estimates that, by 2070, the economic cost of climate damages will shrink Australia’s GDP by 6 per cent (AU$ 3.4 trillion in present value terms) compared to current business-as-usual projections. This would also result in 880,000 fewer jobs. Under this scenario, Australia will experience economic losses on par with the COVID-19 crisis every single year by 2055, and then getting bigger thereafter.

Compared to this new base case, the analysis estimates a new ‘green growth recovery’ could grow Australia’s economy by AU$ 680 billion and increase GDP by 2.6 per cent in 2070 – adding back over 250,000 jobs to the Australian economy by 2070.

Climate impacts are directly related to cumulative, as opposed to annual, emissions. According to the IPCC latest report(7), to have a 50% chance of limiting warming to 1.5°C, the world can emit a further 500 gigatonnes of carbon dioxide (GtCO2). To have a likely chance (67%),
the remaining budget drops to 400 GtCO2. With current annual global emissions of approximately 39 GtCO2(8) and taking into account current forecast growth and the existing country-level abatement commitments, this carbon budget will be expended by 2030. It should be noted, however, that country commitments are increasing and there are abatement pathway options still available to make the carbon budget last longer. There is however no time to waste in increasing the level of action. This supports the view that pressure is going to build exponentially through the decade.

Globally, we have seen massive intervention to the COVID-19 pandemic. In total, it is estimated that the G20 countries have spent US$ 6.3
trillion in fiscal support, representing 9.3 percent of their total 2019 GDP(9). Delivering global decarbonisation and energy transition will require an even greater level of total investment. An OECD analysis10 estimated that the transition will require an investment of around US$ 6.3 trillion per year until 2030 – the equivalent of the COVID-19 stimulus every year. For instance, in the US, the Biden Administration is pushing ahead with its US$1.2 trillion Infrastructure Bill (see box), that is just the start of what will be needed.

This level of investment presents huge opportunities for companies that are forward thinking. The energy transition represents an opportunity for Australia to become a clean energy superpower (see box).

A major challenge and one that sits outside the control of CLC Members is how the costs of this transition are distributed. This could be borne by consumers through the pricing of externalities or directly by taxpayers. Either way, the costs have been shown to be less than the losses that will be incurred as a result of inaction.

Business Stepping up

Recognising the economic imperative, many businesses are already working to decarbonize their products, supply chains and strategies.
They are publicly committing to science-based emissions-reduction targets in line with the Paris Agreement and developing implementation plans to meet them. A growing number of organisations are committing to renewables and net-zero emissions by 2050 or sooner. Of the world’s 2,000 largest publicly traded companies, at least 21% have net-zero commitments, representing nearly US$14 trillion11 in sales.

In Australia, there is also a growing number of organisations committing to renewables and net zero emissions, including many of the CLC members. These actions are not altruistic but rather an indication of the benefits of leadership and in being proactive in designing the future of the economy.

Businesses are largely seeking to remain strong and resilient as the world changes. Investors
are increasingly seeking companies with lower climate risk; customers and communities are starting to demand lower-carbon products; and governments are introducing regulatory regimes to accelerate the transition. The cost of finance, which can be seen as a proxy for investor risk, has increased for carbon-intensive industries at a greater rate than for low-carbon sectors.

2. CLC Member Snapshot

The members of the Climate Leaders Coalition are many of Australia’s largest resources and industrial companies, along with leading companies from the property, consumer goods, finance, technology, research, civil society and advisory sectors. Combining this scale with collaboration is enabling the sharing of best practice and developing solutions beyond their operational boundaries.

Collectively the members have 669,000 employees and millions of customers, consumers, suppliers and shareholders, whom they want to work with to reach a low carbon future.

3. CEO Guide to Decarbonisation

The case for businesses to act on climate change is compelling.
Those that hesitate put at risk the commercial viability and valuation of their business.

Those that act can unlock new market and business growth opportunities, whilst attracting employees, investors and customers that are increasingly demanding action on climate.

The decarbonisation lifecycle stretches across every aspect of an organisation’s operations and value chain.

Climate change not only impacts large companies, it is impacting businesses, organisations communities of all sizes and across all sectors. This Impacts the consequent actions of investors, communities, customers, consumers and employees. Changes to products and services, expectations on supply chains, loss of asset values, and market dislocation are already caused by more frequent and severe climate related events. The opportunities inherent in a low carbon future are already clear and businesses (both in Australia and globally) are investing strongly to secure them.

Where are you on the pathway to decarbonisation?
The decarbonisation lifecycle stretches across every aspect of an organisation’s operations and value chain. It requires deep tactical and transformational change to the heart of the organisation’s business models, structure, operations, relationships and culture. Only then can a business evolve to become economically sustainable in the very different business landscape driven by climate change.

To understand the process that every organisation needs to undertake and assess where you currently stand, the Decarbonisation Maturity Analysis provides a roadmap of activity that must be considered. Against this framework, you can assess how far progressed you are towards a comprehensive decarbonisation strategy and to plan out the next steps and future activities required.

The climate strategy development framework is not intended to be a linear series of activities and multiple feedback loops and iterations must be achieved on the pathway to net zero.

Having developed, agreed and communicated the strategy, the deployment of projects needs to be enabled. This requires internal communications and capability building across all aspects of the organisation.

The organisational model needs to be aligned with the strategy so that capital, operating and governance processes, systems and decisions are focused on delivering on the agreed climate change strategy. It also requires enhancing the organisational capability to enable strategy execution and transformation(12 )(13).

Your leadership will need to be confident and accountable, with the ability to clearly communicate your climate change aspiration, and with incentives aligned with its realisation. Organisational culture should be supportive of your aspiration and be regularly reinforced by leaders. Targeted education will be critical to ensure that all your people have the capacity to make the many decisions that will be needed to deliver your climate change targets.

Using scenario analysis and building flexible pathways will enable organisations to adapt by 2030 in a no-regrets and economically viable manner as the changes to the market, technology and the speed of action are settled. Organisations need to take action across three spheres of activity:

  • Short-term tactical projects – actions that are clear today and can be deployed and scaled immediately.
  • Development and preparation for material medium-term projects – solutions that appear likely to be ready for deployment in the 2025-30 window but require extensive preparation of infrastructure, systems or markets and it will be critical to start working on this preparation work immediately to ready the foundations.
  • Research and partnering for longer-term hard-to-abate solutions – solutions that are unlikely to be commercially deployable at scale until after 2030. For these, it will be critical to collaborate with researchers, peers, suppliers and on pilots projects to progress development.Only by starting today on delivering all of these activities will solutions deployed as they become ready, enabling organisations to successfully transition.

4. Roadmap to 2030

The Roadmap to 2030 sets out the activities that our members are already taking, and will take before 2030 to lay the foundations for a prosperous and decarbonised Australia.

The Roadmap presents a positive picture of how the decade will unfold and how being proactive and engaged is going to provide the greatest benefits for business and the whole community.

The Roadmap shares key elements of the transition paths of CLC members to 2030 and what they need to do by 2025 to enable this future. It is not a detailed plan mapping all the actions needed, but rather guides a process for all business. It identifies common themes and cross-sectoral issues for all organisations, highlights case studies to demonstrate ways to accelerate decarbonisation, and provides a template of action for other businesses.

The sections are each presented as a summary of the goals and extensive activities under
way, examples of specific areas of interest and member case studies. The key questions that every CEO should be asking are also highlighted.

“There are many challenges that are already apparent and will emerge and the CLC Members are under no illusion that the transition will be easy or straightforward. ”

There are many challenges that are already apparent and will emerge and the CLC Members are under no illusion that the transition will be easy or straightforward. There are trade-offs that will need to be made on balancing the current and changing needs of all stakeholders. The end point is clear and flexibility in the pathway to get there is paramount.

The Roadmap has been developed with input from and consultation with all CLC members.
It provides a clear and realistic pathway for business in Australia to adapt to the changing world of the 2020s and, in so doing, help to deliver a prosperous future for themselves, their communities and for the country as a whole.

4a. Energy Transition

The energy sector is undergoing an unprecedented transformation, requiring innovation and collaboration to ensure the best outcomes for people and planet.

Current Status

y The economics of renewable energy have rapidly changed – within just one decade, solar has gone from being one of the most expensive ways to generate a unit of electricity to now the cheapest.

y Australia is installing renewable energy faster than any other country in the world, on a per capita basis.

y The emissions intensity of our grid remains high compared to other developed countries due to the high portion of coal power.

y Many of our market rules and design are outdated and are undergoing modernisation to ensure that the decarbonisation of our electricity system is not impeded.

y Natural gas, heating and transport fuels have not yet made significant changes to their emissions intensities.

What needs to be happening by 2025 to reach these goals?

y Clear market enabling strategies in place to enable orderly transition by members.

y Demonstration projects operating, supplying low emissions fuels such as carbon-neutral hydrogen and scaling up of mature technologies such as biofuels.

y Refuelling and recharging infrastructure in operation to enable scale up of low emissions mobility.

y More effective integration of demand response and energy storage into operations.

y New product development to transition consumers and supply changes.

y Regulatory changes to enable innovation across electricity, gas and transport energy solutions.

Where do we need to be in 2030?

y Fit for purpose electricity, gas and transport market rules and design.

y Successful retirement of coal power stations is well advanced.

y Significantly increased deployment of existing low-cost, low- carbon generation technologies, such as wind and solar, supported by enabling technologies such as wind, solar, short and long term storage, microgrids, pumped hydro, gas, demand response and interconnectors.

y Many end-uses that currently rely on fossil-fuels (e.g. gas heating), will either need to electrify or transition to low-carbon fuels such as bioenergy and carbon-neutral hydrogen.

y Gas network decarbonising through hydrogen and biomethane injection.

y Transport sector rapidly transforming through electrification, hydrogen, biofuel and other renewable fuels.

y Repurposing of assets and infrastructure for low-carbon technologies. What are members already doing?

y Taking a leadership position in their procurement of renewable energy through targets such as RE100 and renewable Power Purchase Agreements (PPA).

y Providing the software and hardware solutions to enable the energy transition.

y Advising government, rule makers and industry on the strategies to transition the energy sector in an optimal manner.

y Developing green and blue hydrogen projects to enable industrial transition.

y Roll out of enabling infrastructure e.g. EV charging stations.
y Partnerships between technology providers, energy suppliers and customers to pilot low emissions energy technologies.

Five Key Questions for CEOs:

  1. How is all your energy sourced, stored, managed and used?
  2. What is the emissions intensity of each source?
  3. What are the current and forecast costs of low emissions alternatives?
  4. What are the contractual mechanisms that can avoid the capital costs of changeover?
  5. What decisions will lock you into assets or contracts that may limit your options going forward? When are those decisions likely to happen?

100% instantaneous penetration of renewable energy by 2025

In July 2021, the incoming CEO of the Australian Energy Market Operator (AEMO), Daniel Westerman, in his first public speech, announced the target for Australia’s main grids to be able to handle periods of 100% renewable energy by 2025. This is a significant target as it puts Australia up there with the world leaders on decarbonisation of electricity – the UK, for example, has a similar commitment with its National Grid.

Australia has already proven that it can work on parts of Australia’s grids. In October 2020, South Australia served all of its electricity demand with renewables for more than an hour. The next step is to have that capability across our grids. To achieve this target, there will be significant coordination and collaboration across rule makers, governments, industry and communities. There are lots of newer technologies to be integrated across our grids, from integrating our home energy and storage into the grid all the way through to new digital systems to manage and control the grid in real-time.

The role of bioenergy in hard-to-abate sectors

Australia’s National Bioenergy Roadmap, highlights the enabling role that bioenergy has to play in three hard-to-abate sectors.

Bioenergy pathways for industrial renewable heat generation are both technically mature and cost- effective compared to incumbent fuels and other renewable energy sources.

Decarbonisation of aviation is more challenging with biojet fuels offering the only medium-term solution for all but small planes. Momentum is growing globally, with the recent announcements of biojet fuels blending mandates, such as in Norway and the Sustainable Aviation Buyers Alliance (which includes CLC Member Deloitte).

Biomethane, unlike hydrogen, has a chemical composition very close to natural gas meaning that it can be injected directly into the gas grid without requiring upgrades infrastructure or appliances.

National Hydrogen Strategy

Australia’s National Hydrogen Strategy was launched in 2019 and sets a vision for a clean, innovative, safe and competitive hydrogen industry that benefits all Australians. It aims to position our industry as a major global player by 2030.

The hydrogen strategy:
y explores Australia’s clean hydrogen potential
y considers future scenarios with wide ranging growth possibilities
y outlines an adaptive approach that equips Australia to scale up quickly
y includes showcases from each state and territory
y details nationally coordinated actions involving governments, industry and communities.

The report’s development was supported by a range of analysis including Deloitte’s demand scenario modelling.

Since the launch, ARENA has run funding rounds to support demonstration projects and a range of other regulatory and infrastructure assessment and development work is underway.

Procurement of renewable energy

Renewable energy procurement is increasingly becoming an essential part of a corporate’s energy strategy.
For energy users pursuing carbon abatement and net zero targets, it entails a comprehensive analysis of their current and future energy demand, evaluating long-term renewable energy procurement options to mitigate their exposure to wholesale market prices through retail contracts and unlocking value from renewable solutions.

The energy procurement models that are increasingly being utilised across numerous industries, universities and government entities in relation to the key criteria are shown in the chart below.

4b. Supply Chains

As the transition to a low carbon economy accelerates, there will be an increasing focus on the emissions intensity of supply chains. Solutions that may be implemented could include onshoring/near-shoring, changing the provenance of materials or products
and minimising waste. All of these will require transparent reporting of emissions throughout supply chains to be able to verify the claims of final products.

Current Status

y Supply chain emissions are starting to be effectively measured by larger companies.

y Methodologies are being developed to allow verification by external parties.

y Limited knowledge of Scope 3 boundaries and emissions factors are often conservative.

y Limited emissions data transparency protocols specifically for supply chains.

y End products in Australia claiming full carbon neutrality still limited.

y Trading partners starting to indicate potential border tariffs or similar regulatory mechanisms.

What needs to be happening by 2025 to reach these goals?

y Demonstrated emissions accounting systems enabling automated transfer of data along supply chains with financial information.

y Companies aligning along supply chains with others that have similar emissions reduction targets.

y Public benchmarking of product emissions intensity being trialled.

Where do we need to be in 2030?

y Members will all be part of supply chains that lead to many carbon-neutral end products or services.

y Transparent reporting of emissions intensity along supply chains and implemented systems to allow automated collation of data.

y Public reporting of Scope 3 emissions and 2030 targets met.

y Product labelling of emissions intensity fully operational.

y Emissions reduction progress across each supply chain.

y Partnering on emissions reductions has developed stronger and more resilient supply chains.

What are members already doing?

y Members have identified primary sources of Scope 3 emissions in their supply chain and have developed calculation methodologies.

y Members have announced Scope 3 emissions reduction targets.
y Members already offsetting some or all of their Scope 3 emissions.

Five Key Questions for CEOs:

  1. Do you know the full supply chains for all your products and services?
  2. What is the likely timing of end products having to be carbon-neutral?
  3. Can you partner with your whole supply chain with regards to emissions targets?
  4. How will you secure verifiable emissions data for all of your suppliers?
  5. How will you provide your emissions data to your customers and their customers?

CLC Member Supply Chain Mapping

In a survey of CLC Members, it was established that all members were in the supply chain of at least one of the other members with many having multiple business relationships. This presents a unique opportunity for the CLC to catalyse the Australian norms for reporting emissions along value chains. One of the CLC Deep-dive Projects is specifically focused at how to securely access, transfer and verify emissions data between members and this may serve as the foundation of how business is conducted in Australia by 2030.

4c. Regions in Transition

Regional Australia faces both opportunities and threats from climate change and the global transition to net zero.
As an export-intensive economy with some of the most variable agricultural growing conditions in the world and a reliance on inbound investment for development, regional Australia has much to gain by aligning to global net zero commitments and a lot to lose if we do not.

Current Status

y Regional Australia is home to over 8 million people, contributes 30 per cent of GDP and 60 per cent of export earnings through agriculture, resources, tourism, retail, services, and manufacturing.

y Australian regions such as the Pilbara, Hunter, Gladstone, La Trobe Valley and Spencer Gulf are among the most vulnerable to the impacts of climate change – both physical risk and changing markets.

y Communities and local councils are already taking action in many areas. There are also some transition strategies, agencies and advisory bodies established to support some regions.

Where do we need to be in 2030?

y Other initiatives underway to map transition pathways 14

y y y y

y y

Australia’s industrial regions are thriving in the new low carbon economy.

High-emitting industries are transforming their business models and operations to have clear pathways forward.

Significant capital investment into industries building long term productive assets.

Inclusive economic opportunities for the whole community with workers having transitioned to, or having a clear pathway to, jobs in the low carbon economy.

Increasing focus on higher value-add industrial and service sector activities creating more high-skilled jobs.

Measurement of holistic value to the community from the transition in place and monitored.

for regions including the Million Jobs Plan , the Australian

15
Industry Energy Transitions Initiative , and the Net Zero

16 Australia project .

What needs to be happening by 2025 to reach these goals?

y Establishment of collaborative groups including government, business, research organisations and the community to chart regional futures and enable significant investment in transition.

y Full, broad and honest engagement with all stakeholders underway. Engagement should be participatory, allowing communities to co-design their future and include the concept of redefining value for the whole community.

y Shared infrastructure investment underway to enable transition for existing industries and growth of new industries.

y Long-term funding strategies established to facilitate full regional transformation.

What are members already doing?

y CSIRO will soon launch a national Towards Net Zero mission which is working together with partners across Australia to support Net Zero goals of our regions and the business value chains that define them.

• Worley worked with Andlinger Centre at Princeton University on the report From Ambition to Reality17 on the practicalities of transition and the scale of investment and infrastructure build that is going to be required.

• Orica has set an ambition to achieve net zero emissions by 2050, covering scope 1 and 2 greenhouse gas (GHG) emissions and its most material scope 3 GHG emission sources1.
The ambition builds on Orica’s previously announced medium- term target to reduce scope 1 and 2 operational emissions by at least 40% by 2030, from 2019 levels.

y CLC Members are currently researching other joint projects that can be developed and delivered in one or more regions.

Five Key Questions for CEOs:

  1. Which regions of Australia are you or your supply chains exposed to?
  2. What climate risks exist in those regions and will that impact your current operations?
  3. What growth opportunities are available to you in regional areas that will need to transition?
  4. How can you access those opportunities by approaching value creation more holistically?
  5. How can you collaborate with stakeholders to accelerate regional transition?`

Community Transition Principles

In relation to community transition, principles should include:
y Upskilling workforces towards the ‘jobs of the future’
y Improving the sustainability of privately owned buildings and homes
y Promoting ‘greener’ business and consumption choices, including the use of electric vehicles
y Circular economy and resource efficiency principles
y Supporting community application of the waste hierarchy – reduce, reuse, repair, recycle, recover y Sponsoring community energy and carbon farming initiatives.

Stakeholder Engagement

Full and honest engagement with all stakeholders is critical for successful regional transition. Engagement should be participatory, allowing communities to co-design their region’s future. Positive community engagement would be enhanced through the delivery of coordinated communications by industry and government, as well as complementary public consultation approaches.

Coordinated planning is required to reduce potential negative social impacts of clustered renewable developments and of transitioning regions, including:

y New workers moving into the area, impacting housing affordability and availability
y New workers and their families overloading existing social services, such as childcare, healthcare, and

education
y Reduced amenity, increased noise, traffic congestion and road degradation
y New developments draining local workers from existing industries with a flow-on impact to the diversity

and sustainability of local businesses and community services
y Clustered development impacting local landscapes and or seascapes, with subsequent impacts to

community identity.
y Traditional Owners connection to Country, and the protection of Country
y Increased demands on Traditional Owners to engage with various project proponents.

The opportunity is now for industry, the government and research organisations to work together to facilitate an inclusive and positive transition to net zero and a better future for our communities

Building Thriving Resilient Regions

Industry and government could apply a suite of management measures to address potential cumulative impacts and contribute to thriving resilient communities, including, but not limited to:

y Government master planning, such as industrial zones and coordinated infrastructure corridors
y Government policy, including to address potential workforce and social infrastructure impacts
y Education and capacity building to pivot work skills and workforces
y Participation in industry information exchanges, forums, networking groups to enhance collaborative efforts and coordinated advocacy on common issues
y Pooling of resources to support specific initiatives and programs. For example – joint social investment initiatives could be established, similar to the Gladstone Foundation, which manages the voluntary contributions made by infrastructure project proponents in Gladstone towards social infrastructure in the region.

y Proactive coordinated management of project logistics, such as the timing of workforce rosters, and location of workforce accommodation

y Multi-stakeholder environmental and social impact management monitoring programs.

4d. Offsets

The carbon offset market both in Australia and globally is set to grow substantially over the next decade to meet the increasing demand from governments and corporates. As the market grows, new methodologies will be required and increased longer term planning will enable regional Australia to reap the benefits.

Current Status

y High-integrity Australian Carbon Credit Units (ACCUs) are used to meet voluntary targets, comply with the Safeguard Mechanism, as voluntary offsets under
the Climate Active program or can be sold under the Emissions Reduction Fund (ERF).

y The price of ACCUs at ERF auctions currently sits at A$16-18/tCO2-e but is forecast to rise.

y The cheapest international certified offsets cost around US$2/tCO2-e but this is also increasing.

y Companies are using offsets to meet their short-term emissions outcomes while they develop emissions reduction projects.

y Incorporating co-benefits from nature-based solutions is supported by the Land Restoration Fund in Queensland and the Western Australian carbon farming and land restoration program.

What needs to be happening by 2025 to reach these goals?

y Growth in voluntary markets encouraging increasing project development funding availability.

y Development of new nature-based methodologies to allow a wider range of production options.

y Introduction of verifiable technology-based solutions.

y Co-benefit valuation methodologies established to consider biodiversity, natural capital, resilience and social and community outcomes.

y Annual estimate published of the planned contribution the ERF is projected to make to emissions reductions to 2030 to provide certainty for project developers.

Where do we need to be in 2030?

y Australian carbon farming providing over 100 Mt CO2-e of annual abatement through nature-based solutions while generating material regional revenue and creating thousands of regional jobs.

y Technology-based carbon withdrawal technologies well established and strongly financed, and storage or utilisation methodologies established and financeable.

y Verification and monitoring standards established for near real- time reporting of sequestration.

y Co-benefit value understood and quantified

What are members already doing?

y Microsoft has invested primarily in nature-based solutions through their first tranche of carbon removal projects but have also set a goal of growing investment in engineered solutions in parallel with decarbonisation efforts.

y Deloitte has globally purchased high integrity offsets from Natural Capital Partners to offset all of its operation and business travel emissions.

y Ampol is piloting a carbon neutral fuel option for its business customers. While continuing to explore lower emissions transport solutions, this option provides an interim solution for customers to offset emissions from their consumption of fuel.

y Viva Energy conducted its first fully carbon offset flight in July 2021 – conducting a flight from Cairns to Weipa. This is part of Viva Energy’s wider program to provide offset fuel to commercial customers.

Five Key Questions for CEOs:

  1. Based on your announced targets and the economics of abatement, what is going to be your likely demand for offsets over thenext 5, 10 and 20 years?
  2. Have you developed reliable forecasts of the future offset costs and the likely limitations on long-term usage?
  3. Are there ways you can access offsets through investment, partnership or long-term contracting?
  4. Are you optimising your need for offsets through internal carbon pricing or involvement in a carbon investment scheme?
  5. How can you also create co-benefits from the offsets to drive social and environmental outcomes and create value for the company and the communities in which you operate?

Appropriate use of offsets

Offsets are an important part of most current climate change strategies for both business and governments. Reaching net zero emissions will, by definition, require some level of drawdown of greenhouse gases from the atmosphere through either:
y “nature-based solutions” which use natural processes such as growing plants or enhancing soil carbon, or
y “technology-based solutions” which make use of industrial chemical processes such as amines and carbonates.
Net zero implies a zero emissions system whereby residual hard-to-abate emissions are balanced out by negative GHG emissions processes, in much the same way as the natural environment includes both sources and sinks of carbon in a balanced cycle.
Given the importance of cutting emissions in this decade and the time it will take for organisations to cut some of their operational emissions through investment and new technology development, carbon offsets are an important tool to help achieve the maximum near-term rate of abatement.

Historical offset challenges

Historically, many low-cost international offsets have had numerous issues. These issues are summarised by the Taskforce on Scaling Voluntary Carbon Markets (TSVCM):

1. Inconsistency across carbon credits, particularly with respect to co-benefits
2.Lack of reliable daily price signals due to small volumes
3.Lack of reliable trading infrastructure and associated data on carbon projects (most carbon trading

remains in OTC trades)
4.Lack of accepted principles for the use of carbon credits
5.Issues related to double-counting, fraud, monitoring, measurement and verification (MMV), project

failure, genuine abatement and additionality
In response to these issues the TSVCM is pursuing a range of initiatives to build a reliable global carbon trading environment that will efficiently allocate resources to the most effective short- and long-term carbon abatement activities.

Growing the Australian carbon market

The 2017 Carbon Market Institute’s Australian Carbon Farming Roadmap estimates that Australia can provide 360-480 Mt CO -e of abatement through nature-based solutions by 2030 while generating $10b-$24b in revenue and creating 10,500-21,000 direct and indirect jobs.

A 2020 review of the Emissions Reduction Fund by the Climate Change Authority included 23 recommendations. Addressing these issues will be critical for the domestic carbon market to meet its 2030 potential:

y Signalling demand for emissions reductions and boosting supply y Maintaining integrity
y Optimising governance
y Method and tool variation risk sharing

y Risks of under-delivery and physical risks to contracted abatement
A key recommendation for strengthening the demand signal for ACCUs is for the government to publish an annually-updated estimate of the total contribution the ERF is projected to make to emissions reductions to 2030 to provide certainty for project developers and financiers.

Co-Benefits

The investment in nature-based solutions can also drive broader co-benefits and CLC members highlighted the demand among corporate Australia for high-quality offsets that represent broader value for society.

Many organisations are willing to spend more on offsets that deliver biodiversity, natural capital, social and community benefits beyond the carbon abatement potential.

Incorporating co-benefits from nature-based solutions is an emerging trend globally, and in Australia is supported by State-based initiatives such as the Land Restoration Fund in Queensland and the Western Australian carbon farming and land restoration program.

New methods and platforms can deliver value to landscapes, riparian zones, nearshore marine environments including the Great Barrier Reef, indigenous communities and farming systems. Such co- benefits often involve a balance between the overall carbon sequestration potential and additional benefit.

There is a need to develop new methods, monitoring and trading platforms and reliable validation and verification protocols.

4e. Climate Resilience & Capability

Guidance from the Taskforce of Climate-related Financial Disclosure (TCFD) describes the critical concept of climate resilience as being “organisations developing adaptive capacity to respond to climate change to better manage the associated risks and seize opportunities, including the ability to respond to transition risks and physical risks.”

Current Status

y Many companies are presently focused on their transition risks in terms of markets, regulations and finance.

y Physical risk from the changing climate, whether event- driven (acute) or longer-term (chronic), can also be significant.

y If climate change goes unchecked, then Australia’s economy will be 6% or $3.4 trillion smaller and have

18 880,000 fewer jobs by 2070 .

y Effective action to build resilience into the economy and its companies could avoid losses of $680 billion and save 250,000 jobs.

Where do we need to be in 2030?

y All companies have current and integrated climate resilience plans as part of strategy.

y Resilience planning seeks to identify opportunities as well as risks from physical and transition risks.

y Capabilities across all functions of the business understand the connections with resilience and make decisions knowing the impacts on climate outcomes.

y Resilience data for both internal metrics across the business and from suppliers enables complete resilience monitoring.

y Enhanced data literacy to enable effective understanding of and monitoring of resiliency.

y Organisations have more collaborative partnerships with regions and along value chains to ensure resilience in their full operating environment.

What are members already doing?

y Many CLC members have undertaken climate scenario analysis to better understand the risks and opportunities associated with climate change, and have reported publicly on this in accordance with TCFD requirements.

y Deloitte has launched a global climate training program for its 330,000 employees to increase knowledge of what they can do individually, at work and with clients.

y Brisbane Airport fully integrated potential future climatic conditions into the design of its new runway. This work included consideration of sea level rise, temperature impacts and storm surges.

y The World Economic Forum reports climate action failure 19

as the greatest risk for companies .

What needs to be happening by 2025 to reach these goals?

y Organisational culture established to look at capability and resiliency through transition.

y Transition and physical risks fully understood and regularly updated.

y Capability gaps for full implementation identified and training plans commenced.

y New beneficial partnerships across regions, sectors and value chains identified and being developed.

y Stakeholder trends monitored and trigger points for accelerated action identified.

Five Key Questions for CEOs:

  1. How might your current business models, structure and processes constrain your organisation from adapting to manage risks orseize opportunities?
  2. What capability gaps do you have across procurement, finance, operations, assets etc that will mean transition is not delivered in an optimal manner?
  3. What partnerships across regions, sectors or value chains will increase the resilience of your organisation to climate-related physical or transition risks?
  4. What new ways of working will be needed going forward and how do you secure the skills to enable you to deliver?
  5. What additional skills will you personally require to be the most effective leader through this change?

 

5. Enablers

The Roadmap themes discussed above are just some of many that will need to be addressed for CLC Members to successfully transition and thrive in a low carbon world. These are, however, the issues that are the most complex and challenging for the organisations and ones that have had the greatest focus in the meetings and work groups of the CLC since its official launch in August 2020.

There are also some cross-cutting themes that have received significant attention. These underpin the success of all the individual areas discussed so far. In this section, a more detailed analysis is provided for finance and deep-decarbonisation technologies and how they enable the achievement of all the other roadmap themes. There are also other cross cutting themes that are enablers and accelerators of action and these include:

  • Communications – How to build the narrative to help our communities, our businesses and our political leaders understand that change is going to happen and we will benefit significantly if we are proactive and design our future rather than having it imposed on us from overseas.
  • Working with others – Working with communities to understand the barriers to uptake of lower emissions solutions and work with them to design effective initiatives and incentives that overcome these barriers.
  • Addressing societal issues – Given the scale of the required change across society, make sure that solutions encompass a broader view to help to ameliorate other societal issues and make cities, industries and communities more functional for all stakeholders. Look for mutual opportunities which benefit all involved.
  • Climate governance – Ensure that governance structures in all organisations are structured to effectively assess climate risks and opportunities in a timely manner.
  • Regulatory frameworks – Whilst beyond the control of CLC Members, the speed of economic transitions will be determined by the ambition and structure of regulatory frameworks and the certainty they can provide to enable accelerating investment and innovation.
  • Standardisation and interoperability – To enable the fastest dissemination of technology solutions will require industry to establish standardised sustainability and industry data models. This will allow for the open data solutions and interoperability that allow innovations to be developed and rapidly deployed.The CLC Members recognise that it will only be by taking an holistic approach and ensuring all of the enabling factors are in place to enable them to transition in the most effective way.

5a. Finance

The finance sector is transforming quickly and will have most of the needed global frameworks in place in 2021. This will then allow financiers to set targets and start to reduce the emissions profile of portfolios through optimising cost of capital and encouraging lower emissions investments.

Current Status

y APRA has set expectations for banks in its Climate Vulnerability Assessments20 information paper of September 2021.

y The UNEP Finance Initiative21 is seeking commitment, setting standards and convening global alliances of asset owners, asset managers, insurers and the banks.

y The Partnership for Carbon Accounting Financials (PCAF)22 has established the global standard for measuring and reporting of Financed Emissions across six assets classes.

y Investors Group on Climate Change (IGCC) called on companies to disclose a net zero transition plan.

What needs to be happening by 2025 to reach these goals?

y Clear guidelines established for how companies report their climate risk consistently to financiers, shareholders and community.

y APRA frameworks for financed emissions and asset stress testing fully implemented.

y Members have positioned themselves effectively to access increasing pools of capital available for decarbonisation and resilience.

y Natural capital valuation methodologies agreed.
y All major financiers issued and implementing interim and

long-term net zero targets.

y Emissions intensity benchmarks established across peers and products to enable differentiated financing.

Where do we need to be in 2030?

y Cost of capital implications on climate and ESG will be fully transparent and reported.

y Major financial institutions will have reached 2030 emissions reduction targets for their portfolios.

y Alignment across the financial markets with bond, debt, insurance and equity participants aligned on financing measures and priorities.

y Non-financial reporting metrics fully integrated with financial systems to provide overall company ratings with respect to impacts on all stakeholders,

y Natural capital used as bankable assets, and aligned with regulatory stress tests.

What are members already doing?

y Citi is offering corporate groups globally products such as sustainability-linked loans to secure an efficient cost of capital from the bond markets.

y CBA is offering Green Loans to homeowners to install clean energy technology at rates as low as 0.99% p.a. secured fixed rate loan.

y Worley established the first sustainability-linked bond for an Australian company with its €500million Eurobond, accessing reduced cost of capital for meeting its greenhouse gas reduction targets.

y Deloitte has worked with the World Economic Forum on standards for Stakeholder Capitalism Metrics, and will continue this work with the International Sustainability Standards Board (ISSB).

y Wesfarmers has accessed a sustainability linked loan that has reduced its cost of capital for meeting its sustainability targets.

Five Key Questions for CEOs:

  1. Have you modelled how climate impacts will affect your costs and revenue under different scenarios ofphysical and transition risk?
  2. How will the valuation of your assets and operations change as a result?
  3. Have you looked at the cost of capital implications for your business under different emissions intensity pathways?
  4. Have you explored ways to fund your organisation’s transition with financiers?
  5. Have you explored the opportunities emerging from the transition enabling you to benefit all of your stakeholders?

 

5b. Deep Decarbonisation

Technologies

To complete the task of decarbonising requires massive transformation across the economy. Some of the technology solutions needed are already mature and are becoming increasingly commercial, such as wind, solar and batteries. There are other technologies that are either still very expensive or are not yet sufficiently developed technologically or commercially. These deep decarbonisation technologies must be brought to market to enable transition to progress.

A rational path to decarbonisation for industry follows the same basic logic as that for decarbonising regions and households – parallel efforts in the following four technology types:

y Priority 1: Energy and emissions efficiency – the most cost-effective and immediate gains can be made by improving efficiency across all operations.

y Priority 2: Low emissions generation – attracted by the falling costs, businesses are switching to renewable energy often through Power Purchase Agreements (PPAs).

y Priority 3: Fuel switching – where technically feasible, emissions can be further reduced by electrifying as many processes as possible in parallel with Priority 2.

y Priority 4: Non-energy emissions and offsetting – hard-to-abate processes using fossil fuel feedstocks cannot yet be eliminated by the above. The development of additional technologies is also required and offsets provide viable options until these solutions become available.

Decarbonisation technologies can also be categorised in terms of their stage of development (Technical Readiness Level or TRL) and their commercial viability (Commercial Readiness Index or CRI). Technologies at all stages continue to be improved and there is immediate, if differentiated, activity that business needs to take across all categories. The CLC Members have developed a framework to assess technologies at all stages.

y Maturing technologies are technically proven and commercial today. They are demonstrated, risk assessed, bankable and come with an emerging supply and service ecosystem.

y Importing technologies are those that are technically proven and in widespread commercial use internationally but their adoption in Australia has been slow. This category of technologies offers a relatively quick path to decarbonisation because the technology is well-known, risks are well understood, there are mature suppliers and service providers and they can access finance readily.

y Emerging technologies are technically proven at lab-scale and are entering full-scale pilots and demonstrations with early adopters. These are proven technologies with significant potential but are not commercially mature. For mainstream Australian businesses to invest, they require further development, rigorous demonstration and investment in underpinning infrastructure.

y Developing technologies are still to be technically proven and still require investment in research and development before they can be demonstrated effectively. This category of technology will be critical for meeting net zero commitments beyond 2030.

As discussed in the Guide to Decarbonisation section, when considering technology solutions, companies need to consider their deployment across three time horizons. These flexible pathways will enable organisations to adapt by 2030 in a no-regrets manner as the dynamic technology changes become clear.

y Short-term tactical projects – actions that are clear today and can deployed and scaled immediately.

y Development and preparation for material medium-term projects – solutions that appear likely to be ready for deployment in the 2025-30 window but require extensive preparation of infrastructure, systems or markets and it will be critical to start working on this preparation work immediately to ready the foundations.

y Research and partnering for longer-term hard-to-abate solutions – solutions that are unlikely to be commercially deployable at scale until after 2030. For these, it will be critical to collaborate with researchers, peers, suppliers and on pilots for deployment post-2030.

Only by starting today on delivering all of these activities, will solutions be deployed as they become ready, enabling organisations to successfully transition.

For businesses there is an additional critical backdrop – transitioning to low emissions operation cannot come at the cost of competitiveness. Businesses must remain commercially viable and the rate of decarbonisation will depend greatly on the cost trajectories of low emissions technologies as they mature.

Australian industry also has some major opportunities in a global low carbon environment; notably as a hydrogen or renewable energy superpower and primary producer of low emissions minerals to support the global transition and agricultural products.

Once technically proven, technologies must also then become fit for purpose, cost-effective and demonstrated at scale to enable adoption by Australian businesses. In addition, supply chain ecosystems must be established – from research to producers, installers, sales and post-sales service, and support to enable successful adoption. To drive all of this requires attention to the multi-sectoral system of use and incentives to support a whole-of-economy response.

To seize these opportunities, partnerships with public bodies, researchers and private entities across all stages of development and sectors are critical. These will help drive the development of technology from early stage through to commercial deployment. The CLC Members are willing and highly motivated partners in this journey.

6. Collaborating to Lead

The Climate Leaders Coalition was founded in August 2020 with the aim to help Australia’s largest companies to accelerate their decarbonisation work. This has been done through a range of activities all built on the principle that by working together and forming linkages across sectors, along value chains and internationally, the task at hand for all members may become a bit easier.

To date, the CLC has facilitated five CEO forums for the member CEOs.At these meetings, we have heard from leading international speakers to provide the global context. At each meeting one or more of the CEOs also shares their strategies, challenges and solutions to implementing a successful transition.

In addition, there have been a range of specific projects managed and delivered by the members and sponsored by one or more of the CEOs. Projects have looked at renewable energy, deep-decarbonisation technologies, cross-sector partnerships, Scope 3 reporting, finance and internal carbon pricing schemes.

All of these inputs and work have informed this roadmap to ensure that the content and direction is based on the latest thinking and information and can be used by members to underpin their own work decarbonising their operations and value chains.

What has become clear to the members is that to build a less emissions-intensive system of production and to create the behavioural and cultural changes around consumption is going to be a challenge that requires change at all levels.

This is not just a technology challenge. To enable the technology solutions to be deployed will require complete systems to evolve. If we do not take a broader approach, the inevitable and necessary transition of our economy will be disorderly and untimely – dragging on economic growth, efficiency, employment, and income in the meantime.

CLC CEO Meeting Guest Speakers

• Paul Polman, ex-CEO of Unilever

• Jesper Brodin global CEO of IKEA

• Jean-Pascal Tricoire, global CEO of Schneider Electric

• Secretary of the International Trade Union Congress

• Vicki Hollub, CEO of Occidental Petroleum

• Nigel Topping, the UK’s High- Level Climate Action Champion for COP26

CLC Deep-dive Projects

With a holistic approach that considers communities, businesses and
governments and how each can facilitate benefits for the others, we have a
chance to create a thriving future for our country. More than that, Australia could build the model delivered and establish the country as a powerful voice in a decarbonised world.

To deliver on this promise requires a new culture of working and collaborating across public, private and civil society. It also requires an acceptance that the exact pathway is unknown but that the end point is agreed.

With a view that the perfect is the enemy of the good, waiting for the exact pathway to be mapped will cause value-destroying delays. Change is inevitable. If we are proactive and collaborative, then we can ensure that our fragile continent is economically resilient and that our communities will thrive.

The CLC is enabling collaboration between Australia’s leading and most proactive organisations and this will be of benefit to both the members themselves and their employees and communities. This roadmap is designed to share these learnings and to enable other businesses to also accelerate their decarbonisation journey.

The Climate Leaders Coalition is providing leadership and demonstrating the way towards creating a thriving low carbon Australia.

End notes

 

1 CarrilloPineda,A.andFaria,P.(2019).Towardsascience-basedapproachtoclimateneutralityinthecorporatesectordiscussionpaper. [online] Available at: https://sciencebasedtargets.org/resources/legacy/2019/10/Towards-a-science-based-approach-to-climate-neutrality-in-the- corporate-sector-Draft-for-comments.pdf

2 UnitedNationsFrameworkConventiononClimateChange(2016).TheParisAgreement.[online]UNFCCC.Availableat:https://unfccc.int/ process-and-meetings/the-paris-agreement/the-paris-agreement.

3 BureauofMeteorology(2021).Annualclimatestatement2020.[online]Bom.gov.au.Availableat:http://www.bom.gov.au/climate/current/ annual/aus/2020/ [Accessed 27 Sep. 2021].

4 ImplementingtheRecommendationsoftheTaskForceonClimate-relatedFinancialDisclosures.(2017).[online]Availableat:https://assets. bbhub.io/company/sites/60/2020/10/FINAL-TCFD-Annex-Amended-121517.pdf.

5 SixthAssessmentReport,ClimateChange2021:ThePhysicalScienceBasis,https://www.ipcc.ch/report/sixth-assessment-report-working- group-i/.

6 DeloitteAustralia.(n.d.).Anewchoice:Australia’sclimateforgrowth.DeloitteAccessEconomics.[online]Availableat:https://www2.deloitte. com/au/en/pages/economics/articles/new-choice-climate-growth.html.

7 IntergovernmentalPanelonClimateChange,SpecialReportGlobalWarmingof1.5oC,(2018).https://www.ipcc.ch/sr15/

8 GlobalCarbonProject,CarbonBudget2020,11December2020https://www.globalcarbonproject.org/carbonbudget/19/events-prm.htm.

9 Csis.org.(2020).BreakingdowntheG20Covid-19FiscalResponse.[online]Availableat:https://www.csis.org/analysis/breaking-down-g20- covid-19-fiscal-response.

10 www.oecd.org. (n.d.). Investing in Climate, Investing in Growth. OECD. [online] Available at: https://www.oecd.org/environment/investing-in- climate-investing-in-growth-9789264273528-en.htm

11 Black, R., Cullen, K., Fay, B., Hale, T., Lang, J., Mahmood, S., Smith, S.M. (2021). Taking Stock: A global assessment of net zero targets, Energy & Climate Intelligence Unit and Oxford Net Zero, https://ca1-eci.edcdn.com/reports/ECIU-Oxford_Taking_Stock.pdf.

12 O’Brien, J., (2021). Decarbonisation: A strategic and financial imperative. pp 87-91, Australian Governance Summit 2021 proceedings, Australian Institute of Company Directors. [online] Available at: https://aicd.companydirectors.com.au/-/media/cd2/resources/events/ags/2021/ pdf/ags2021-reader-a4-164pp.ashx

13 O’Brien, J., Wood, M., Curry, J. (2021). Low Carbon Technologies and Strategies for Oil & Gas – Addressing the Challenge of Decarbonisation, Proceedings of the 23rd World Petroleum Congress. [online] Available at https://www.23wpchouston.com/program/technical-program/.

  1. 14  Beyond Zero Emissions. (n.d.). The Million Jobs Plan. [online] Available at: https://bze.org.au/research_release/million-jobs-plan/.
  2. 15  Australian Industry Energy Transitions Initiative (n.d.). Supporting Australian Industry in working towards net-zero carbon supply chains.

[online] Available at: https://energytransitionsinitiative.org/.
16 Andlinger Center for Energy and the Environment. (n.d.). Rapid Switch Australia Project: Net-Zero Australia Study. [online] Available at: https://

acee.princeton.edu/rapidswitch/projects/net-zero-australia/.

  1. 17  www.worley.com. (n.d.). From ambition to reality. [online] Available at: https://www.worley.com/our-thinking/from-ambition-to-reality.
  2. 18  Deloitte Australia. (n.d.). A new choice: Australia’s climate for growth. Deloitte Access Economics. [online] Available at: https://www2.deloitte.

com/au/en/pages/economics/articles/new-choice-climate-growth.html.

19 World Economic Forum (2021). The Global Risks Report 2021 16th Edition. [online] Available at: http://www3.weforum.org/docs/WEF_The_ Global_Risks_Report_2021.pdf.

20 www.apra.gov.au. (n.d.). APRA publishes new details on Climate Vulnerability Assessment | APRA. [online] Available at: https://www.apra.gov. au/news-and-publications/apra-publishes-new-details-on-climate-vulnerability-assessment.

21 Unepfi.org. (2019). Climate Change – United Nations Environment – Finance Initiative. [online] Available at: https://www.unepfi.org/climate- change/climate-change/.

22 PCAF. (n.d.). PCAF: Enabling financial institutions to assess greenhouse gas emissions. [online] Available at: https:// carbonaccountingfinancials.com/.

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