Australian corporates talk net zero, but are still gun-shy about 1.5°C climate target

Despite declaring an increasing long-term ambition for a net-zero economy, Australian businesses are still  gun-shy and conservative when it comes to the medium-term, failing to recognise the need for targets that align with the 1.5°C Paris climate goal.

These are the conclusions reached by the Carbon Market Institute (CMI) after assessing responses to its latest Australian Business Climate Survey.

With a total of 301 respondents “working for entities engaged in climate policy and carbon markets across the full spectrum of the supply chain” – 61% of which were senior executives, C-Suite, or board members – the survey is an important insight into the climate thinking of Australia’s business leaders.

The latest survey found that 71% of respondents want a managed phase-out of fossil fuels by no later than 2040, involving “careful management to support affected workers and ensure continuity in Australia’s trading relationships”. This number jumps to a total of 89% when the phase-out is pushed back to 2050.

More than two-thirds (68%) of respondents also said that they supported Australia’s net-zero target being brought forward to no later than 2045, while 47% supported a net-zero economy no later than 2040.

However, despite this long-term ambition, CMI determined that “there was still some conservativeness about setting a science aligned 2035 target in the medium-term”.

Specifically, 57% of respondents wanted an emissions reduction target of over 61% by 2035, a 5% increase on responses in 2022. However, only 35% of respondents were calling for a target of above 70% which remains the advice recommended by many in the scientific and investor community.

This means that 56% of respondents were unwilling to follow the advice of experts, threatening any longer-term ambition they might harbour.

“Businesses clearly recognise the importance of reaching net-zero quickly, but the results suggest they lack confidence that the existing policy suite is robust enough – or applied widely enough across the economy – to support a stronger 2035 target,” said John Connor, the CEO of the CMI.

“The government’s review of sectoral transitional plans, and consultation on 2035 targets due in 2025, will provide an important opportunity to build business confidence on this.”

The survey also queried respondents about the role of carbon credits in Australia’s transition to net zero and net negative emissions, with nearly half (45%) of respondents saying that there remains insufficient policy and regulatory guidance on their role in corporate decarbonisation.

Moreover, an overwhelming majority (92%) called for the government to develop a national carbon market strategy to provide more effective guidance on the role of carbon credits.

Looking out further, 87% of respondents believed that the Australian government should develop a policy framework to facilitate investment in carbon removals to support the transition to a negative emissions economy – a 27% increase from what responses made in 2022.

“The findings show most businesses recognise that Australia must transform its economy, but they want the right policy settings in place to ensure it’s achieved smoothly and in a fair way,” said Connor.

“Although there are significant challenges that must be navigated and the abatement potential of carbon capture and storage is still to be determined, it’s clear that a fossil-free future forms part of this, and business want help and guidance to manage this over time.

“The newly appointed Net Zero Economy Agency, chaired by Greg Combet, is an important step in this regard, just as the enhanced Safeguard Mechanism will be in addressing industrial emissions.”

This year’s Australian Business Climate Survey also explored the impact of the enhanced Safeguard Mechanism for heavy-emitting facilities which commenced on July 1.

It found 81% of respondents covered by the Safeguard Mechanism said that it had already impacted their organisation in some capacity, including bringing forward on-site decarbonisation investment and options for covered facilities.

Beyond the industrial sector, however, 81% of respondents supported transitioning the Safeguard Mechanism to an economy-wide scheme over time, while 79% of respondents agreed that the government should set sectoral carbon budgets as part of a broader transition strategy.