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Australia’s new Net Zero Plan and what this means for business
Australia’s Net Zero Plan and pathway to the new 2035 emissions reduction target
  • 25 minute read
  • 03 Nov 2025

The Government has recently released its Net Zero Plan, which sets out a clear path to a 2035 emissions reduction target of 62–70% compared to 2005 levels.

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In brief

In September 2025, the Australian Government released its Net Zero Plan (the NZP). The NZP sets out the Australian Government’s intended pathway to achieve the new 2035 emissions reduction target of 62–70% emissions reduction, relative to 2005 levels. The NZP broadly outlines:

  • additional financial support for industry to decarbonise and undertake a commercially viable energy transition;
  • an acceleration of emission reduction through sector focused decarbonisation plans, and
  • a strengthening of Australia’s regulated carbon market.

The NZP was accompanied by Department of Treasury scenario analysis to model the likely environmental and financial outcomes under three different transition pathways, referred to as the ‘Baseline Scenario’, the ‘Renewable Exports Scenario’ and the ‘Disorderly Transition Scenario’. These model scenarios illustrate the expected positive GDP impact of proactively responding to the Net Zero challenge under the Baseline Scenario and Renewable Exports Scenario.

In this alert, we summarise the key messages from the Government’s Net Zero Plan and what this may mean for each of the six focus sectors, being Electricity and Energy, Resources, Transport, Industry, Built Environment and Agriculture and Land. We will also summarise the three Treasury modelled climate scenarios and discuss the key outcomes of each.

What’s next?

The NZP outlined the Government’s intended policy actions in response to climate change over the next decade. These actions, as well as the risks presented by adverse climate conditions, present both opportunities and risks to enterprise value. Business leaders should have regard to the Government’s decarbonisation agenda when setting business strategy over the next decade. Failure to consider and if needed, adapt to these regulatory settings may result in missed opportunities for enterprise value creation or preservation.

For tax functions, stronger regulated carbon markets and expanded decarbonisation funding will impact tax modelling, compliance and cashflow management. Relevant considerations may include:

  1. The NZP sets a clear intention for the Safeguard Mechanism review in 2026–27. If consistent with the upper range of the NZP, the 2026–27 review may lead to accelerated baseline reductions, increased carbon pricing obligations and potentially an expanded scope, all raising considerations on the tax treatment and management of Australian Carbon Credit Units (ACCUs) and Safeguard Mechanism Credit Units (SMCs).  
  2. The NZP outlines new and expanded grant funding and tax incentives to support electrification and abatement assets. Australian business should include an assessment of these grants and incentives when considering investment into decarbonisation and energy transition initiatives.   
  3. With the focus on electrification to achieve decarbonisation across the transport, resources and manufacturing industries, impacts on indirect taxes such as the fuel excise tax and fringe benefits tax should be monitored.  
  4. With the introduction of Australia’s mandatory sustainability reporting requirements, additional information (both quantitative and qualitative) will be disclosed publicly in relation to the value chain, functions, assets and risks of your organisation. Heads of Tax should work closely with the sustainability reporting teams to ensure the information published in their public sustainability report is consistent with their regulatory tax filings and if applicable, Public Country-by-country reporting (CBCR).

In detail

What is Australia’s Net Zero Plan?

Australia’s Net Zero Plan (NZP) is the Australian Government’s policy pathway to achieve a national emissions reduction of 62–70% below 2005 levels by 2035, with the legislated goal to reach Net Zero by 2050. This pathway must be balanced with supporting economic growth and maintaining energy grid stability. Guided by the five following priorities, the NZP outlines six sector-based decarbonisation plans. The NZP outlines the five priorities to achieve broad economy wide decarbonisation as follows:  

  1. Clean electricity across the economy 
  2. Lowering emissions by electrification and efficiency 
  3. Expanding clean fuel use 
  4. Accelerating new technologies 
  5. Net carbon removals scaled up. 

Each of these five priorities is applied to each sector decarbonisation plan in varying degrees. The NZP lays out the Government’s intention to reform and streamline regulatory approvals, strengthen mandatory carbon pricing via reforms to the ACCU Scheme and Australian Safeguard Mechanism (SGM) and provide a stable policy platform to finance and mobilise capital in support of decarbonisation and the energy transition.  

Source: Figure 1. Reproduced from Australia’s Net Zero Plan
Source: Figure 1. Reproduced from Australia’s Net Zero Plan

What did Australia’s emission profile look like in 2024?

Source: Figure 3.1. Reproduced from Australia’s Net Zero Plan
Source: Figure 3.1. Reproduced from Australia’s Net Zero Plan
Summary of each Sector Decarbonisation Plan

Energy performance and the supply of electricity, liquid fuels, and gas. 2024 net emissions of 150Mt CO2-eq, representing 34% of national total net emissions. 

Energy performance and the supply of electricity, liquid fuels, and gas 

As the sector with the largest emissions, the NZP sets a pathway to decarbonise and expand Australia’s electricity grid as the foundation for economy‑wide emissions reduction. Under the NZP, renewable generation, hydro and gas replace retiring coal power stations, targeting 82% renewable electricity generation on‑grid by 2030. Over time, fossil fuels will continue to play a smaller more targeted role in our national grid, with renewable gases and low carbon fuels emerging to serve uses that cannot electrify through renewables. 

Government action in this sector focuses on de‑risking and accelerating investment in renewable generation and electricity infrastructure. Key measures (some already announced) include the $20bn Rewiring the Nation program for improving network infrastructure and transmission, the expanded Capacity Investment Scheme underwriting up to 26 GW of new renewable capacity and supporting offshore wind projects with six declared priority zones. 

Next steps for the sector 

The decarbonisation of Australia’s electricity grid is the cornerstone of the Government’s response to climate change. Generation and grid operators should undertake a re-assessment of their planned operations, considering the announcements made, to determine what financial support could be obtained to strengthen the commercial viability of large-scale renewable projects. This is especially relevant when considering the need to rapidly scale renewable technology to achieve baseload replacement.  

Oil and gas extraction, processing, liquefaction, coal mining and processing, mining and processing of metallic and non-metallic minerals, resource exploration and support services. 2024 net emissions of 100Mt CO2-eq, representing 22% of national total net emissions.

The NZP sets out intended emissions reduction for the resources sector through three main levers:

  1. cutting fuel combustion via electrification and on‑site renewables
  2. reducing fugitive methane emissions across coal and oil and gas operations; and 
  3. scaling up carbon management technologies.

To support electrification, several funding sources have been made available (some of which have been already announced). These include the Future Made in Australia Innovation Fund, Powering the Regions Fund, grants through the Clean Energy Finance Corporation and the $1.1bn Cleaner Fuels Program. In its pathway to 2030, the resources sector decarbonisation plan also specially notes the ‘demonstration and commercialisation of electrified haulage and equipment’ as being a central focus. In addition to these funding measures, the NZP indicates the Safeguard Mechanism will continue to be a key source of mandatory emissions pricing, driving decarbonisation for this sector.

With respect to the removal of fugitive emissions, the Government has drawn attention to the need for greater ventilation air methane (VAM) abatement, leak detection and repair, pre-drainage of coal methane and reduced routine venting and flaring. Lastly, the resources sector decarbonisation plan refers to rapidly scaling up carbon management technologies, with the funding allocated to the National Reconstruction Fund expected to support this. 

Next steps for the sector 

The continued extraction of natural resources is essential to developing decarbonisation and energy transition technologies. The NZP outlines the Government’s intended regulatory pathway for this critical sector to decarbonise its operations and take dual climate and value positive actions. 

Large emitters in the sector should take note of the Government’s continued reliance on the Safeguard Mechanism as part of the sectoral decarbonisation plan. This reliance may indicate that the 2026-27 Safeguard Mechanism review could lead to a strengthened mechanism and stronger price signal. In-scope facilities (broadly being Australian facilities which emit more than 100,000 tonnes of CO2-eq per annum) can conduct a value impact assessment today, using the known baseline reduction pathways to better understand how a strengthened carbon signal would impact their operations. 

Light and heavy road transport, rail, maritime, aviation, including transport infrastructure’s embodied emissions. 2024 net emissions of 100Mt CO2-eq, representing 22% of national total net emissions.

Covers light and heavy road transport, rail, maritime, aviation and the construction of transport infrastructure

The NZP for the transport sector focuses on accelerating light‑vehicle electrification, while preparing solutions for heavier and longer‑range modes of transport (such as rail). By 2030 electric vehicles (EVs) are expected to be more affordable, with charging networks expanded to alleviate range anxiety. By 2050, the NZP forecasts EVs to dominate light transport, with EV battery and hydrogen technology widespread and embedded in rail and shipping logistics.

Government action to support this sector includes the New Vehicle Efficiency Standard (with a review scheduled for 2026), the National EV Strategy and a $40m program to speed up the deployment of kerbside fast charging. 

The $475m Driving the Nation Fund supports cleaner transport and charging infrastructure, while the $1.1bn Cleaner Fuels Program is intended to help develop domestic low carbon liquid fuel suppliers, supported by the Guarantee of Origin scheme and renewable diesel fuel quality standards. The Safeguard Mechanism is again expected to play a role in pricing excess carbon emissions and further incentivising decarbonisation efforts for the sector.

Next steps for the sector

Per the NZP, the electrification of road, rail and maritime logistics, as well as household light vehicles, is the Government’s primary mechanism of decarbonising the transport sector. The sector should expect to see targeted funding and regulatory relief for advancements in technology supporting this goal. Knowing this, participants in the sector should be conducting impact assessments to determine what funding can be obtained to support innovation and for those who operate transport fleets, how a regulated carbon price could apply and affect operations in the future.   

Alumina and aluminium, cement and concrete, chemicals and plastics, food and beverages, iron and steel, manufacturing and additional industries, other metals refining and smelting, pulp, paper and paperboard, waste and resource recovery. 2024 net emissions of 62Mt CO2-eq, representing 14% of national net emissions.

Covers manufacturing and processing of goods, refining and waste processes across nine sub-sectors

The industry decarbonisation plan first focuses on improving energy processes and enhancing electrification to reduce existing combustion-based processes. This will include the establishment (or continued investment) in several key financing streams, such as the: 

  • $1.5bn Future Made in Australia innovation fund
  • National Reconstruction Fund including a new $5bnn Net Zero Fund
  • $1bn Green iron investment fund 
  • $2bn Green aluminium production credit
  • $1bn Solar Sunshot
  • $500m Battery Breakthrough Initiative, delivered by ARENA.

The Australian Safeguard Mechanism will continue to play a key role in pricing emissions and hence incentivising the switch to alternative fuels and inputs.

Next steps for the sector

The Government’s plan for Industry is heavily dependent on the electrification of combustion-based processes. Emitters in this sector should be considering the specific commentary in the NZP and undertaking an assessment to determine how to obtain access to any applicable funding announced, as well as how a strengthened Safeguard Mechanism may impact the economics of their current industrial processes.

Residential, commercial and public buildings, urban open spaces and water infrastructure. 2024 net emissions of 22 Mt CO2-eq, representing 5% of net national emissions. 

The Built Environment decarbonisation plan outlines decarbonisation and reduced direct building emissions through electrification and improved energy performance, while also tackling the embodied emissions in materials and construction. 

Government measures to support decarbonisation include the $1bn Household Energy Upgrades Fund, the $1.1bn Social Housing Energy Performance Initiative and the Cheaper Home Batteries program. Shorter‑term actions also include a regulated phasing down of hydrofluorocarbons and other high potential global warming refrigerants. By 2035, it is expected that higher performance standards and wider retrofit activity will have shifted most users to efficient electric solutions, and by 2050 ‘all who can’ will have electrified, with minimal embodied carbon in new builds and renovations. 

The plan also indicates targeting ARENA funding to support material efficiency and low carbon options for concrete, cement and steel. 

Next steps for the sector 

The Built Environment has a relatively low direct impact on Australia’s net carbon emissions, however the NZP acknowledges that indirectly, the built environment sector is responsible for almost half of the emissions from electricity use. This sector is therefore perhaps one of the greatest indirect beneficiaries of the electrification targets set for the electricity and energy sector. The sector should expect to see a strengthening of construction and manufacturing standards, with a focus on more sustainable materials and reducing the embedded carbon footprint of construction processes. 

Livestock, cropping, on-farm energy use, fisheries, forestry and land use. 2024 net emissions of the Agriculture sector was 87 Mt CO2-eq, representing 19% of national net emissions. 2024 net emissions of Land was -74 Mt CO2-eq, representing a reduction equivalent to 16% of national net emissions. 

Covers emissions and carbon storage from agricultural activities, land management and on-farm energy use

The NZP acknowledges both the difficulty in decarbonising the agriculture sector and the net emissions sink created by proactive land management. 

The immediate action under this plan is to ‘understand emissions at the enterprise and national level’. This would indicate that the Government perceives a current deficiency in emissions reporting from this sector. As Australia’s first ‘Group 1’ reporters are preparing to provide the first mandatory Sustainability report, this comment could serve as an indication of the Government’s intention to expand the reporting scope to include smaller producers in this hard-to-abate sector.

The plan also acknowledges the need to further develop commercially viable carbon abatement alternatives. For this, the NZP outlines support for the further development of reforestation, regeneration, savanna fire management and soil carbon methods, while emphasising integration with agricultural productivity, biodiversity outcomes and First Nations leadership. It is expected that reforms in this spare would include strengthening the ACCU Scheme and the Nature Repair Market. 

Financing tools include an additional $1bn to the Regional Investment Corporation to boost climate resilience, productivity and participation in the net zero transition on farm. The plan also commits to improving data on land‑use change and co‑benefits to guide sustainable scaling of removals.

Next steps for the sector

Large emitters in the agriculture sector should expect an increased focus on reporting their emissions and in response, taking balanced land and herd management activities to reduce direct emissions. Operators in the land management sector should anticipate increased opportunities for ACCU scheme development as the Government strengthens Australia’s carbon market schemes. 

Strengthening Australia’s regulated carbon markets 

The NZP highlights that regulated carbon markets, principally the ACCU Scheme and the Safeguard Mechanism, are central to achieving cost-effective abatement and will be continuously reviewed and improved to ensure integrity, effectiveness and broad participation.  

For the ACCU Scheme, the Government will strengthen governance and transparency, building on the recent 2023 legislative reforms. The development and approval of additional ACCU methodologies will also be streamlined, with additional landfill abatement, savanna burning and agricultural land management methodologies under development. The new ‘proponent‑led’ method of development is expected to enable businesses, industry groups and researchers to propose new ACCU generation methods, with public registers to enhance visibility and encourage innovation. The Government will also seek to increase the amount of project information published and require up‑front consent from Native Title holders at project registration, to support scheme integrity and social licence. 

On the Safeguard Mechanism, the NZP reaffirms to commitment to a comprehensive review in 2026–27. This review will consider the baseline decline rate beyond 2030, coverage arrangements, scope of participation, the potential role of international units, the ability to use SMCs and offsets, the treatment of emissions‑intensive trade‑exposed activities and other matters. Consideration of the above is intended to keep the scheme calibrated to Australia’s new 2035 target and Net Zero by 2050, while sustaining incentives for on‑site abatement.  

Relevantly, the current baseline decline rate would likely need to be accelerated to reach the upper range of the 2035 target emission reduction, and as such, the Safeguard Mechanism will continue to be a central pillar in Australia’s response to climate change. 

A summary of the ‘Baseline Scenario’, the ‘Renewable Exports Scenario’ and the ‘Disorderly Transition Scenario’ based on Department of Treasury scenario analysis.

The Department of Treasury released the Modelling and Analysis Report concurrently with the Government’s Net Zero Plan. The report was completed to analyse three different net zero scenarios, and to provide insight into the scale and size of the economic opportunity under the different pathways to Net Zero.

Source: Chart 3.15. Reproduced from Australia’s Net Zero Transformation: Treasury Modelling and Analysis September 2025
Source: Chart 3.15. Reproduced from Australia’s Net Zero Transformation: Treasury Modelling and Analysis September 2025
Baseline scenario

In the Baseline Scenario, Australia builds on existing climate and energy policies to reach an emissions reduction of 65% in 2035 and Net Zero by 2050. This scenario requires a strong and consistent economic and regulatory framework, including: 

  • continued operation of the Safeguard Mechanism; 
  • achieving an 82% on grid renewable electricity target, and  
  • The efficient utilisation of the Capacity Investment Scheme, Future Made in Australia agenda, and the New Vehicle Efficiency Standard. 

As a result of the above, there Treasury modelling predicts cost-efficient emissions reduction across the economy, with the Australian economy projected to be 28% larger by 2035 and 81% larger by 2050 relative to current levels. Under this scenario, real GDP per capita is $12,000 higher in 2035 and $36,000 higher in 2050. The Treasury modelling also predicts wholesale electricity prices will fall by around 10%, compared to the 10-year real historical average, by 2050.

Renewable exports scenario

In the Renewables Export Scenario, Australia follows the same domestic transition path as the Baseline Scenario but leverages its comparative advantages in renewable energy to capture more global demand for clean energy embedded products. The Treasury modelling indicates Australia achieves this scenario by expanding domestic hydrogen production and supporting the export of low carbon ammonia and green metals.  

This scenario generates an additional $85bn in growth for the Australian economy by 2050 compared to the Baseline scenario, resulting in a real GDP per capita rise of $38,000 over the 25 years to 2050. The scenario also results in wholesale electricity prices reducing by an additional 20% in 2050, relative to the Baseline scenario.  

Disorderly transition scenario 

The Disorderly Transition Scenario models a weakened and delayed regulatory response to climate change. Under this scenario, Australia retains existing policies but fails to set a credible 2035 target and postpones genuine policy action until the 2040s, resulting in heightened policy uncertainty and reduce business investment.

The Treasury modelling shows a short-term capital misallocation as businesses invest without clear regulatory direction and are forced to rapidly abate emissions in the 2040s. The lower investment in renewable energy also constrains activity in clean energy exports and related industries. 

As a result, the Disorderly Transition Scenario is projected to result in average annual GDP growth being 0.1 percentage points lower between 2025 and 2050, leading to a cumulative real GDP reduction of $1.2tn relative to the Baseline Scenario and $2tn relative to the Renewable Exports Scenario. Wholesale electricity prices by 17% (on average) during the 2030s and by up to 54% in the 2040s, relative to the Baseline Scenario. 

The takeaway

The Australian Net Zero Plan provides a clear indication of the Albanese Government’s Net Zero policy agenda. To reach the upper limits of the target range of 62–70% emission reduction by 2035, the rate of electrification and decarbonisation will need to accelerate. Australian industries should review the commentary provided in their sector decarbonisation plan and undertake an assessment of what financial and non-financial considerations can be expected. 

Business leaders need continued clear and consistent policy direction to inform the requisite long term capital investments. 

Contact us

Craig Fenton

Partner, Energy Transition, PwC Australia

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Jonathan Banks

Senior Manager, Tax, PwC Australia

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Caroline Mara

Partner, Sustainability Reporting and Assurance Leader, PwC Australia

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Paul Cornick

Partner, Global Trade, PwC Australia

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Ryan Jones

Australian Energy Tax Leader, PwC Australia

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James O'Reilly

Partner, Brisbane Tax Leader & Global Energy, Utilities and Mining Tax Leader, PwC Australia

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