Electrification, Efficiency: Property’s Climate Target Challenge

The Federal Government’s 2035 emissions targets have been released in the Net Zero Plan, targeting a reduction of between 62 per cent and 70 per cent below 2005 levels. The targets, which were widely expected to fall somewhere between 65 per cent and 75 per cent, come days after the release of the first National Climate Risk Assessment, and with a 2050 goal of net zero emissions. Among new funding released in support of the targets is a $5-billion Net Zero Fund within the National Reconstruction Fund, aimed at decarbonising industrial facilities, and scaling renewables and low-emissions manufacturing. Another $2 billion will be assigned to the Clean Energy Finance Corporation and $1.1 billion towards on-shore production of clean fuels. Climate change minister Chris Bowen said “the IPCC [Intergovernmental Panel on Climate Change] in their report about what was necessary said 68 per cent around the world emissions reduction”. “That is within our range. So we have taken into account all of these factors, this is ambitious and achievable, sensible and serious.” Property focus on electrification, efficiency The built environment, one of the six priority industries that the government has nominated to lead decarbonisation, will be encouraged to drive electrification, and energy and thermal efficiency as priorities for reducing emissions. Energy performance frameworks and tools, for businesses and households, will receive $85 million in additional funding. The built environment’s scope 1 emissions, generated directly by a building’s activities, will benefit from a phase-out of hydrofluorocarbons in HVAC and refrigeration systems, according to the report. The sector’s scope 1 emissions are currently at 22Mt CO2-e [metric tonnes of carbon dioxide equivalent], but “are projected to fall to 9Mt CO2-e in 2050”. “Much of this reduction in direct emissions is driven by electrification of the residential sector,” the report said. ▲ Greening the grid will help the building sector decarbonise. The property sector’s 73Mt CO2-e scope 2 emissions, derived from electricity use, account for 48 per cent of national scope 2. However, electrification will do much of the heavy lifting for the sector as the energy mix decarbonises. Scope 3 emissions, or indirect supply chain emissions, range from 37-64Mt CO2-e per year in the sector, and will mostly be addressed by designing for lower-carbon materials, and better construction and demolition practices. The Built Environment Sector Plan also suggests that, with most of Australia’s current building stock expected to still be in use by 2050, retrofits will also be important, particularly in the residential sector. The success of the National Australian Building Energy Rating System (NABERS) program, which has achieved an average of 30 per cent to 40 per cent less energy use over a 10-year period, will lead to an extension across a broader range of asset types. Sector reactions largely positive Industry stakeholders, including some green business groups, have welcomed the new 2035 emissions reduction target, and the measures included in support. Lendlease was among a small number of property companies that joined the Business for 75 group, calling for a 75 per cent target. Lendlease chief operating officer Dale Connor told The Urban Developer that “the upper end of the 62 to 70 per cent target range will support the transformation of our sector by giving businesses the certainty needed to accelerate the pace and scale of decarbonisation”. “It will also help catalyse the investment and partnerships essential for delivering more sustainable, climate-resilient real estate in Australia.” Energy Efficiency Council chief executive Luke Menzel said that while the announcements were welcome, “this isn’t a job done”. “The Energy Efficiency Council and Climateworks Centre analysis found that energy efficiency and electrification alone could deliver an average of 44Mt CO2-e a year between 2026-2035,” he said That reduction would push Australia 20 per cent of the way towards a 75 per cent reduction target, according to the EEC. Speaking to The Urban Develope r, EEC senior policy advisor Rob McLeod said that “it’s not so much the what, it’s the how much. We have to deploy, deploy, deploy, the technologies and solutions we have now”. “It’s just so important that it happens as fast as we can. We don’t have any time to waste if we want to hit that 70 per cent,” he said McLeod said that energy efficiency was “the trillion-dollar question”. He said tools like NaTHERS, NABERS and the Commercial Building Disclosure program were helping investors, developers and users of buildings to realise and unlock value. ▲ Electrification and energy efficiency have a significant role to play, EEC senior policy advisor Rob McLeod said. GBCA chief executive Davina Rooney said that every fridge comes with an energy label, “but until now, your home—your biggest investment—has come with no energy information at all”. “Expanding NatHERS will change that, giving families a simple way to see how their homes perform and how they can save.” Smart Energy Council chief executive John Grimes said that in the government’s own words, it must be a floor, and not a ceiling. “We continue to believe Australia is well placed to achieve reductions in excess of 70 per cent through investment already under way in renewable energy.” Costs of a lower target threaten market The targets come off the back of a National Climate Risk Assessment Report, released earlier in the week, and an accompanying National Adaptation Plan. Delivered by the Australian Climate Service, a collaboration of science agencies, the report found that 2°C of warming would lead to $611 billion of value destruction in property by 2050. That figure represents loss of market value alone, before including damage. The report also cites Treasury modelling that limiting global temperature to 2°C would protect up to $155 billion in Australian gross domestic product, compared with a 3°C scenario. Beyond 2°C, the risk of abrupt, irreversible changes (or “tipping points”) will escalate, according to the report. Meanwhile, Business for 75 modelling by Deloitte found that a 75 per cent target would improve Australian GDP by $370 billion within the next decade, and almost half-a-trillion dollars by 2050, compared to a weaker target. The Net Zero Plan cites the Insurance Council of Australia as estimating that natural disasters are currently a $4 billion annual cost to homeowners. ▲ The annual property costs of natural disasters have grown by billions in the past six years. Since 2019, the NSW government has spent an average of $1.6 billion on disasters each year, compared to an average of just $154 million in the six years prior. The 2022 NSW floods alone caused $6.4 billion in insured losses. Meanwhile, a 2022 ICA report calculated that every $1 invested in climate resilience initiatives would result in a $9.60 return. CEDA senior economist Liam Dillon told The Urban Developer that “the issue, particularly with flood cover, is that because they affect such a wide geographical range, it’s quite difficult for insurers to adequately diversify that risk”. Recent CEDA research has shown that inadequate insurance coverage is relatively equal across income groups, and that first-hand experience of disasters is a better predictor of insurance than the value of the asset. “The prerequisite for understanding what level of insurance and financial steps you need to take to protect yourself is having a good understanding of the risk that you face,” Dillon said. “Australians, at the moment, probably don’t have enough information, and access to information, to be able to make those assessments.”

Electrification, Efficiency: Property’s Climate Target Challenge

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