Post: Market-driven clean energy incentives needed post-2030

Market-driven clean energy incentives needed post-2030

Australia’s Productivity Commission (PC) has urged the government to wind back its clean energy subsidies by 2030 and replace them with broad, market-based mechanisms to deliver lower-cost emissions reductions.

In its interim report Investing in Cheaper, Cleaner Energy and the Net Zero Transformation, published on 3 August, the PC notes that while subsidies such as the Renewable Energy Target (RET) and Capacity Investment Scheme (CIS) have been critical in scaling up renewable generation, neither will drive sufficient new investment beyond 2030. Instead it said that to achieve net zero at least cost, Australia needs “consistent and comprehensive incentives” to reduce emissions.

It called on the governments to fill policy gaps, remove overlaps and ensure incentives are neutral towards which technologies can achieve reductions, and in which states and territories. According to the report, Australia should enhance incentives in the electricity, heavy industry, and transport sectors to facilitate an efficient transition to net zero emissions. Together, these sectors represent 79% of Australia’s total gross emissions.

For electricity, it proposes a long-term, economy-wide policy to replace state and federal schemes. For heavy industry, it recommends lowering the Safeguard Mechanism’s coverage threshold from 100,000 tonnes to 25,000 tonnes CO₂e per year to capture more facilities, while phasing out trade-exposed concessions if a border carbon adjustment is introduced. In transport, the Commission identifies a major policy gap for heavy vehicles and calls for a technology-neutral incentive to reduce emissions from freight and buses. It also advises phasing out Fringe Benefits Tax, stamp duty, and registration discounts for light electric vehicles now that the New Vehicle Efficiency Standard is in place.

To ensure emissions targets are met at the lowest possible cost, the PC recommends developing “national carbon values” to benchmark and evaluate all climate policies, integrating Australian Carbon Credit Units (ACCUs) into every national emissions-reduction policy, and regularly publishing cost-effectiveness analyses.

The report also stresses that lengthy approval processes are a major bottleneck. To address delays in energy infrastructure development, the report proposes the creation of an independent Clean Energy Coordinator-General that would oversee priority renewable energy projects, ensuring they are assessed and approved more efficiently. The Coordinator-General would be supported by a specialist “strike team” tasked with breaking through regulatory and logistical roadblocks. This initiative could significantly reduce project timelines, benefiting developers and investors in the renewable energy sector.