Doubling down on net zero as emissions grow

Is the world cooling on net zero? If this is so, Australia’s extraordinarily high emissions reduction target of 62 to 70 per cent for 2035 looks like a classic case of economic self-harm.

In fact, interest in net zero has been flagging in many countries for some time.

Only 15 out of the 194 countries that are signatories to the Paris climate agreement managed to submit their nationally determined contributions for 2035 on time.

Of course, there are those who desperately cling to the belief that net zero climate action is on track, give or take a few laggards. Federal Climate Change and Energy Minister Chris Bowen has claimed “around 80 per cent of global GDP (is) covered by national net-zero commitments”.

Climate Change Authority chairman Matt Kean bumped this figure up to 84 per cent.

Both numbers are absurd. Leaving aside the technical issue of calculating global GDP – nominal exchange rates or purchasing power parity – the US is now out of Paris, and that’s around one-quarter. India and Russia are not being serious. Nor are most African or Asian countries.

Most poor countries signed up to the climate agreement to get their hands on the loot that was promised, although it must be said the contributions to the fund have been extremely disappointing.

China is the biggest emitter and its emissions have still not peaked.

Its pathetically low emissions reduction target of 7 to 10 per cent by 2035 was put there to ensure that the remaining gullible countries continued to buy made-in-China paraphernalia connected to the net-zero quest – turbines, solar panels, batteries, electric vehicles and the like.

What has been happening to global emissions growth? It has been inexorable, save a brief hiatus during Covid.

In 2024, global emissions rose by more than 1 per cent. Emissions from fossil fuels also reached a record peak.

So, when Treasury declares “the world is continuing to move towards net zero and countries are transforming their energy systems and economies”, it’s more a statement of hope than fact.

It is imperative that Treasury reworks its modelling using the assumption that the world is not moving to net zero.

As for Treasury’s assertion that “Australia is making substantial progress in reducing emissions”, the figures tell a completely different story.

If we exclude land use, land use change and forestry, there has been only a very marginal drop in our total emissions since 2005.

Across the past three years, Australia’s emissions have been essentially flat.

For all the taxpayer money spent, the new schemes dreamt up, regulations imposed and the rights of citizens trammelled, particularly those in rural and regional areas, the progress on cutting emissions has been minor, to say the least.

The withdrawal of the US from the Paris Agreement has thrown a spanner in the works.

But according to the good folk down at the Climate Change Authority, “Australia now has a strategic opportunity to attract displaced capital, capability and innovation to accelerate its own transition and secure a competitive edge”.

The naivety in the last sentence is breathtaking. The notion that the (supposed temporary) interruption in US climate action will release resources for Australia is based on a complete misunderstanding of how capital markets work.

The reality is that the stock prices of companies specialising in renewable energy have been tanking.

Recent capital raisings have been undertaken at deep discounts, with Denmark’s Orsted being one example. Oil and gas majors have been fleeing the renewable energy space to concentrate on their core business.

Several renewable energy projects in Australia are up for sale by their international owners, with deeply discounted prices.

Of course, if governments are prepared to subsidise projects by large and increasing amounts, there will be investors. But recent auctions in Britain point to the increasing margins that businesses require that inevitably feed into higher electricity prices. This is not a good outcome for consumers, businesses or the economy.

Even the International Energy Agency has switched its deeply biased approach to energy forecasting to make some more accurate assessments of future energy trends. Recall that this agency was set up after the first world oil shock in the 1970s. But more recently it has become part of the cheer squad for decarbonisation and openly hostile to fossil fuels.

In 2021, the IEA claimed “clean-energy technologies are slowly but surely going to replace the existing energy industry”, with peak oil occurring in 2029.

Fearing the US may cancel its membership (and funding), the IEA is now quickly rowing back. It has ditched the flawed STEPS methodology, using countries’ stated policies scenarios as the key assumption. The fact is that most countries are not close to meeting their stated targets.

A recent release of the IEA notes “renewables accounted for the largest share of the growth in total energy supply at 38 per cent in 2024. Yet higher demand for all energy sources means increases for oil, natural gas, coal and nuclear power as well. So total energy-related emissions grew again by 0.8 per cent last year, driven by increased consumption.”

It turns out that renewable energy and fossil fuels may be complements, rather than substitutes.

Canada has many similarities with Australia, including the structure of their economies.

For many years, the Canadian federal government under the Liberal Party – like our Labor Party – ran with highly ambitious climate plans. The new Prime Minister, Mark Carney, also has impeccable green credentials.

But Canada’s recently released emissions reduction target is only 40 to 45 per cent by 2035, following the figure of 40 per cent for 2030, which won’t be reached. Carney also abolished the consumer carbon tax when he assumed office. How Australia’s target could be so much higher than Canada is a perplexing question.

A final piece of evidence – and there is a lot – of the collapsing global support for net zero is the suspension of the Net-Zero Banking Alliance after several large US and European banks pulled out.

This follows the termination of the equivalent alliance covering insurance.

The hope of green activists was that banks could be persuaded to use their power to offer loans and other banking services to aid the decarbonisation process and prevent the funding of fossil fuel projects.

Even without this alliance, some Australian banks continue to spout this line, promising to eliminate any funding for fossil fuel projects in time. But again, the peak of this development may have been reached as profitable lines of business are always hard to pass up.

Sadly, neither Bowen nor Kean have bothered to read the truthful explanatory memo on this topic. The federal Treasurer, Jim Chalmers, continues with the costly and unjustified insistence on climate-related disclosures by companies, including the emissions of their customers and suppliers.

Common sense may prevail at some stage, but it’s not likely to be soon. In the meantime, the economic costs and the fiscal burden of the decarbonisation process for Australia will continue to pile up.