Reducing emissions from greenhouse gases is an important national priority. Minimising the cost of meeting Australia’s emissions targets will free resources for other uses. And speeding up approvals for new energy infrastructure will support decarbonisation across the economy. Even if emissions decline, we face significant climate-related risks – addressing barriers to private investment in adaptation will mitigate them. 

In this final inquiry report, the Productivity Commission presents recommendations focused on three key policy reform areas.

1. Reducing the cost of meeting emissions targets.
2. Speeding up approvals for new energy infrastructure.
3. Addressing barriers to private investment in adaptation.

The report argues, to achieve net zero at least cost, governments should support and expand market mechanisms, addressing policy gaps and remove overlaps. They should also ensure emissions-reduction incentives are jurisdiction and technology neutral: this could reduce the cost of building and operating generation and storage infrastructure in the National Electricity Market by 8% from now to 2040 for the same emissions outcomes. 

Priorities for action

• Introducing a national, market-based policy to drive electricity sector decarbonisation after 2030.
• Expanding the Safeguard Mechanism: assuming a constant emissions-reduction target, this could reduce the annual average costs of abatement measures by nearly 10% over the period from 2031 to 2035.
• Phase out fuel tax credits for on-road heavy vehicle operators, reducing barriers to adopting low-emissions technology for heavy vehicles and phasing out the fringe benefits tax exemption for electric vehicles.