State of Play Report - Energy

Reducing our emissions

Tasmania recorded net zero greenhouse gas emissions for the first time in 2014, and we have maintained our net zero status each year to 2022 since. However, our emissions profile is not guaranteed into the future, and we know we must do more to maintain our net zero status by reducing emissions in all our sectors, while also increasing the carbon stored in our managed forested state.

Tasmania’s legislated economy-wide target of net zero emissions, or lower, from 2030, provides a flexible approach to emissions reduction and acknowledges that different sectors have different opportunities to reduce their emissions. For some sectors, more time, support and technology will be needed to transition to a low emissions future. To ensure a practical and balanced approach is taken to reducing emissions from our key sectors and building resilience to climate change, Tasmania’s climate change legislation includes a requirement to develop sector-based Emissions Reduction and Resilience Plans (Plans).

Under the Climate Change (State Action) Act 2008, the energy Plan is to be prepared by November 2024.

This State of Play Report is the first step to prepare a Plan for the energy sector. It provides an overview of the energy sector in Tasmania to identify gaps and future opportunities for the draft Plan, which will be released for public consultation.

Tasmania’s energy sector

Tasmania’s energy sector (excluding transport) currently accounts for over one-fifth of Tasmania’s greenhouse gas emissions, excluding the land use, land use change and forestry (LULUCF) sector. Tasmania’s energy sector comprises electricity generation, direct combustion, transport (accounted for in a separate Plan due to the significance of the transport sub-sector) and fugitive emissions.

Tasmania is already 100 per cent self-sufficient in renewable electricity generation capacity in a typical year, due to our hydro-electric and wind resources. The primary source of emissions for the energy sector is direct combustion of a range of emissions-intensive fuels such as coal, gas, agricultural waste, and liquid fuels, which continue to be used in the state. To achieve a substantial reduction in emissions across the energy sector, these businesses will need to transition their energy use away from fossil fuels to renewable alternatives. Options are likely to involve electrification, bioenergy, including the combustion of biomass, renewable gases, renewable liquid fuels, peak demand management, and energy efficiency.

As regulations and global markets change, support from governments to transition to a low emissions future will be required. It is also important that we ensure the sector is prepared for the physical impacts of climate change, such as an increased frequency of extreme weather events, which can damage electricity networks and disrupt supply chains.

There are already many emissions reduction initiatives underway in Tasmania and at an international, national and state government level. It will be important to explore and support new opportunities to build on this work, that will best assist the energy sector in the transition to a low emissions economy.

Tasmania’s Climate Change (State Action) Act 2008 (the Act) sets out the government’s agenda for action on climate change. Under the Act, Tasmania’s emissions reduction target is to achieve net zero greenhouse gas emissions, or lower, from 30 June 2030. To help us achieve this goal, the Act requires the government to develop five-yearly sector-based Plans in consultation with business and industry. The Plans will support a practical and balanced approach for our key sectors to reduce greenhouse gas emissions and build resilience to climate change.

The Plans must support greenhouse gas emissions reduction, the transition to a low emissions economy, and resilience to climate‑related risks. The legislation also requires that the objects of the Act are taken into account during the development of the Plans. The objects of the Act include supporting emissions reduction, adaptation, and a consultative, partnership approach to action on climate change.

Plans must be developed for the following sectors:

• energy
• transport
• industrial processes and product use (IPPU)
• agriculture
• land use, land use change and forestry (LULUCF)
• waste
• any other sector or sub-sector determined by the Minister (government has committed to develop a Plan for government operations).

A whole-of-economy roadmap outlining the links and cross-cutting issues between all sectoral plans and Tasmania’s first statewide climate change risk assessment will also be developed.

Delivery and timeframes

Under the Act, this Plan must be prepared by November 2024. The Minister for Energy and Renewables, as minister responsible for climate change, is to consult with each relevant portfolio Minister, and with business and industry representatives, to develop the Plans. The Minister is also required to publicly consult on each draft Plan.

The Plans are to be tabled in Parliament and updated at least every five years. This work is being led by the Climate Change Office in Renewables, Climate and Future Industries Tasmania (ReCFIT) in collaboration with relevant portfolio agencies.

Why sector-based emissions reduction and resilience planning?

The latest data[1] show that Tasmania recorded net zero greenhouse gas emissions for the first time in 2014 and has maintained its net zero status in the nine reported years since. Our emissions profile is largely due to the carbon sink in our managed forest estate and our longstanding investment in renewable electricity generation.

However, our emissions profile is not guaranteed into the future. Emissions are influenced by a range of factors such as population growth, major bushfire events, changes in consumer demand, market forces and technological advancements. We know we must do more to maintain our net zero status by reducing emissions in all sectors.[2]

The AR6 Synthesis Report: Climate Change 2023 by the Intergovernmental Panel on Climate Change (IPCC)[3] confirms that humans are causing global warming and makes it clear that we need to act now. Global temperatures are now over 1.1˚C above pre-industrial levels and are likely to reach 1.5˚C above pre‑industrial levels in the early 2030s. In Tasmania, the environmental, economic and social impacts of climate change are already affecting our businesses, industries, built environment and our natural values. It is important that we adapt effectively to a changing climate and build strong, resilient communities, while continuing to reduce our emissions.

A consistent theme from consultation on the government’s action on climate change is that a partnership approach between government and industry is preferred, to support emissions reduction, transition to a low emissions economy and build resilience in Tasmanian businesses and industries.

Purpose of this State of Play Report

This State of Play Report (Report) has been developed to support the requirement to prepare a Plan for the energy sector and to guide consultation. The Report provides a high-level summary of Tasmania’s energy sector, its emissions and the impacts of climate change on the sector. It also outlines emissions reduction and resilience opportunities and barriers, and relevant policies and actions at the local, national and international level. The Report identifies gaps and future opportunities for the draft Plan, which will be released for public consultation in mid-2024.

Notes:

[1] Tasmania’s latest reported greenhouse gas emissions were released in April 2024 as part of the Australian Government’s National Greenhouse Accounts 2022 and State and Territory Greenhouse Gas Inventories 2022. The Australian Government reporting framework is consistent with UNFCCC and Paris Agreement reporting rules. National inventory reporting runs two years behind the current date and represents the most recent official data in Australia on annual emissions.

[2] Point Advisory and Indufor (2021) ‘2021 Update of Tasmania’s Emissions Pathway Review – technical report’ (prepared for the Tasmanian Climate Change Office) www.recfit.tas.gov.au/__data/assets/pdf_file/0009/492093/Tasmanian_Emissions_Pathway_Review_-_Technical_Report.pdf

[3] IPCC (2023) ‘Climate Change 2023: Synthesis Report - Summary for Policymakers’ www.ipcc.ch/report/ar6/syr/

The sectors identified for the development of Plans are based on the sectors identified in the United Nations Framework Convention on Climate Change (UNFCCC) greenhouse gas reporting framework.

The energy Plan will consider the emissions directly accounted for in the energy sector under the UNFCCC framework and will also consider other energy-related emissions where relevant. These will also be considered as part of the relevant Plans, for example for transport, IPPU and agriculture.

Due to the nature of the energy sector and the UNFCCC reporting framework, there is significant overlap between the energy and IPPU sectors. Emissions associated with the stationary energy and combustion of fossil fuels used in industrial production processes are accounted for in the energy sector, while the emissions from the processes themselves are accounted for in the IPPU sector.

For example, the emissions from the combustion of coal for heat during the manufacture of cement are reported as energy emissions, and the emissions from the calcination of cement clinker are reported in the IPPU sector.

There may be initiatives or programs identified in the Plans that lead to reduced emissions from both stationary energy uses and industrial processes. In these instances, the initiatives will be reflected in both the energy and IPPU Plans.

Preparation of the next climate change action plan will consider how priorities are managed that are not addressed through the development of the sector-based Plans.

Carbon offsets

Carbon offsets or carbon credits, such as Australian Carbon Credit Units (ACCUs), are tradable financial products used by organisations to compensate for their emissions. Carbon offsets are generated by projects outside the organisation that reduce, remove or capture emissions from the atmosphere.

The use of carbon offsets will not be considered in the Plan for Tasmania’s energy sector. The Plan will focus on practical actions businesses and industry can take to reduce emissions within their organisation and contribute to lower emissions from Tasmania’s energy sector. The choice to use offsets or not will rest with organisations and be set by the type of environmental commitments they choose to make.

We recognise that for some organisations in the sector, carbon offsets or credits may play a role in meeting organisation-level emissions targets, or emissions requirements imposed by the Australian Government under the Safeguard Mechanism.

Scope 1, 2 and 3 emissions for the energy sector

Tasmania’s emissions data, according to the UNFCCC reporting framework and as reported by the Australian Government, relate to the state’s scope 1 emissions. These are emissions that are released as a direct result of an activity occurring in Tasmania (such as burning natural gas, coal or diesel).

Tasmania’s legislated emissions reduction target of net zero, or lower, by 2030 refers to these scope 1 emissions.

While they do not contribute to Tasmania’s reported emissions or our target, scope 2 emissions are an important consideration in emissions reduction and resilience planning for the energy sector. Tasmania’s electricity grid is connected to the National Electricity Market (NEM) via the Basslink interconnector. Depending on power prices and demand, Tasmania imports and exports electricity to and from Victoria. The emissions associated with this electricity are classified as scope 2 emissions for Tasmania, and scope 1 emissions in the jurisdiction in which the electricity is generated.

The emissions intensity of electricity imported from Victoria is included in the scope 2 emission factor for Tasmanian businesses that are required to report their electricity consumption and associated emissions through the National Greenhouse and Energy Reporting (NGER) Scheme. The low emissions intensity of renewable electricity exported from Tasmania into the NEM are not included in the methodology used in the NGER Scheme, meaning the scope 2 emissions for reporting Tasmanian businesses are potentially overestimated. This can negatively impact their global competitiveness and ability to access premium markets.

Initiatives that reduce scope 2 emissions, for example by increasing energy efficiency and reducing demand, can benefit businesses, households and Tasmania’s energy system as a whole. These benefits can include reduced energy costs and peak electricity demand, improved competitiveness and business productivity, reduced need for alternative fuels and improved health outcomes.

Both the state’s scope 1 and scope 2 (indirect) emissions will be considered in the Plan for the energy sector.

For Tasmania as a state, scope 3 emissions are emissions that occur along supply chains outside Tasmania. For example, for the energy sector this could include the emissions from energy used to manufacture products in other jurisdictions that are used in Tasmania. These are sometimes referred to as part of the “embodied carbon” of materials, particularly in building and construction. These emissions will be considered as part of the energy Plan, as well as Plans for other sectors, where relevant. For example, increasing the use of products made locally with renewable electricity, rather than imported products, may reduce these scope 3 energy emissions.

The energy sector is essential to Tasmania’s continuing prosperity, sustainability and resilience. It keeps our homes warm during the winter months, enables the operations of local businesses, drives forward our industries, and provides countless other essential services.

Tasmania’s stationary energy sector is relatively diverse and is made up of both on-island generation and the combustion of on-island and imported fuels.

The roles and responsibilities of key groups in the energy sector, from the Australian Government down to business and industry, are outlined in the Appendix.

Electricity generation

Tasmanian electricity generation comprises a mix of hydro-electric, wind, gas-fired generation, diesel generation (on the Bass Strait islands) and embedded generators (primarily residential solar generation connected to distribution networks). Hydro-electric generation provides the majority of the state’s electricity generation. Wind is the next largest generation source.

Tasmania is connected to the National Electricity Market (NEM) by Basslink, an undersea interconnector. While we have sufficient on-island generation capacity to meet our electricity demand on average, the state exports and imports electricity to and from the mainland based on a range of factors, including price.

Direct combustion

Tasmania’s direct combustion sub-sector is made up of predominantly imported fuels, except coal (which is both mined on-island and imported), locally-sourced wood used for domestic heating, and agricultural and other waste streams used to produce bioenergy. Tasmania does not produce any fossil gas. Instead, gas is supplied via an underwater transmission pipeline or transported to the state by gas carrier ships. Similarly, Tasmania is solely reliant on imports of liquid fuels.

Fugitive emissions

Fugitive emissions are greenhouse gases that are released during the extraction, processing and delivery of fossil fuels to the point of final use.

Tasmania has two operating coal mines, in Fingal and St Marys.

Tasmania is the only Australian jurisdiction to have achieved net zero emissions. This achievement is due in part to our unique electricity system.

Tasmania’s stationary energy sub-sectors of direct combustion and electricity generation accounted for 22 per cent of Tasmania’s emissions, excluding LULUCF, in 2022.[1]

Figure 1: Breakdown of Tasmania's emissions by energy sub-sector (excluding LULUCF) - 2022

Carbon dioxide makes up the majority of greenhouse gas emissions released during the combustion of fossil fuels (coal, oil and natural gas). However, the energy sector also emits a variety of other greenhouse gases, including methane and nitrous oxide. As each type of greenhouse gas traps a different amount of heat in the atmosphere, known as its global warming potential (GWP), emissions for all greenhouse gases are reported as carbon dioxide equivalent to allow for comparison between gases.

Changes in the emissions for the stationary energy sector are driven by a range of factors, including population and economic growth, efficiencies in manufacturing processes, and changes to the electricity generation mix, including a reduction of gas-fired electricity.

Sources of greenhouse gas emissions for the energy sector

Electricity generation - Tasmania’s 100 per cent renewable electricity generation capacity

Since the commissioning of the Granville Harbour wind farm in 2020, Tasmania has the capacity to be 100 per cent self-sufficient in renewable electricity generation.

Due to Tasmania’s renewable electricity capacity, the state has very low emissions from electricity generation compared to other jurisdictions. Emissions from electricity generation accounted for 1.4 per cent of Tasmania’s total emissions in 2022, whereas in Victoria it accounted for 40 per cent of their total emissions, 43 per cent in New South Wales, and 45 per cent in Queensland.[2]

However, Tasmania’s 100 per cent renewable electricity generation capacity does not mean that all the electricity used in Tasmania is from renewable resources. Instead, it means that Tasmania has enough installed renewable generation capacity to meet our average annual electricity needs.

There are several non-renewable electricity sources that are used in Tasmania. Their use depends on a range of factors such as the availability of hydro and wind generation, relative power prices and demand in Tasmania and Victoria, rainfall, and the availability of Basslink.

Tasmania’s non-renewable electricity sources are:

• The Tamar Valley Power Station (TVPS), which is owned by Hydro Tasmania. The TVPS generates electricity primarily from gas combustion. This is the primary source of emissions from electricity generation in Tasmania.[3]
• Nine diesel generators operate to supply electricity on the Bass Strait Islands. Generators are also used across Tasmania where electricity is not accessible from the network or where a back-up electricity supply is needed. Diesel and petrol generators are another source of Tasmania’s electricity generation emissions, however are not connected to the electricity network.

Figure 2: Tasmanian electricity generation by source 2022-23

Source: Office of the Tasmanian Economic Regulator Energy in Tasmania Report 2022-23 and ReCFIT calculations.[4]

Trends in emissions from electricity generation

Gas‑fired electricity generation through the TVPS is highly variable and depends on the factors outlined above. While the use of gas fired electricity generation has been decreasing, particularly since the commissioning of the Granville Harbour and Cattle Hill wind farms, the TVPS continues to be available and is still considered an important component of Tasmania’s energy security, particularly in the event of low storages in hydro dams.

Figure 3: Tasmania’s emissions from electricity generation – 1990 to 2022

Direct Combustion

Tasmania’s direct combustion sub-sector is far more diverse in emissions sources than the electricity generation sub-sector. Below is an outline of the emissions sources for Tasmania’s direct combustion sub-sector.

Sources of direct combustion emissions in Tasmania (2021-22)

Trends in emissions from direct combustion

The emissions from direct combustion accounted for 20.9 per cent of total emissions (excluding LULUCF) in 2022. They increased by 140 kt CO₂-e (approximately 9 per cent) between 1990 and 2022.

Figure 4: Tasmania’s emissions from direct combustion - 1990 to 2022

Fugitive emissions

As noted above, Tasmania’s fugitive emissions are not disclosed by the Australian Government. However, Tasmania’s coal seams typically have relatively low gas content. This means that the fugitive emissions from Tasmanian coal mining operations are relatively insignificant and not considered material to Tasmania’s emissions inventory.

Factors influencing Tasmania’s energy emissions

Market forces

Tasmanian companies recognise the market risk in continuing to use fossil fuels and are actively exploring opportunities to decarbonise their energy use. Reforms to the Safeguard Mechanism commenced on 1 July 2023, and include setting emissions baselines for facilities covered by the scheme that will reduce by 4.9 per cent each year.

There are increasing opportunities for domestic production of high value products with low emissions equivalents, such as green ammonia, green steel and green aluminium.

Availability of low emissions technologies

Increasing the commercialisation and use of low emissions technologies will impact on energy emissions. For example, increasing electric arc furnace and scrap-based production share in steel making will contribute to a fall in steel emissions intensity. The rate of technological development in renewable alternatives will be important, given the challenges for fossil fuel users to immediately adopt renewable alternatives, particularly for commercial and industrial users. As an example, renewable gases are not currently economically or technically viable for many users.

Electricity supply

The commissioning of new renewables generation, such as wind farms, will be important to meet current and growing energy demand in Tasmania and to allow for electrification of processes that are emissions intensive. There are a significant number of new generation projects at various stages of development in Tasmania but there are challenges, which include cost escalation, environmental approvals, and social license. These issues are not unique to the state but are an example of the ongoing challenges in the transition to a low emissions economy.

[1] DCCEEW (2024) ‘State and Territory emissions’ www.greenhouseaccounts.climatechange.gov.au/

[2] Australia’s National Greenhouse Accounts, Paris Agreement Inventory 2022 and ReCFIT calculations.

[3] There are some methane emissions associated with Hydro Tasmania’s dams. These emissions are accounted for as part of the LULUCF sector.

[4] Diesel generation excluded from chart (less than 0.01%).

[5] Department of Climate Change, Energy, the Environment and Water, ‘Australian Petroleum Statistics’ www.energy.gov.au/government-priorities/energy-data/australian-petroleum-statistics

[6] Department of Climate Change, Energy, the Environment and Water, Australian Energy Update 2023, Table F and ReCFIT calculations.

Under a changing climate, we are expected to experience increased storm events and changes in rainfall patterns, which are likely to result in increased flooding, coastal inundation and erosion. We are also expected to experience increased temperatures, more hot days and heatwaves, and longer fire seasons in Tasmania, with more frequent and intense bushfire events. We are expected to experience marine heatwaves, rising sea levels and increased windspeed. Extreme weather events are projected to increase in frequency and intensity over time. In Tasmania, the environmental, economic and social impacts of climate change are already affecting our businesses, industries, communities, built environment and our natural values.

These impacts will affect Tasmania’s energy sector. Projections indicate that inflows to hydro dam storages will decline through the 21^st century. Tasmania’s electricity networks are likely to face increased disruptions as a result of more frequent and severe weather events. In the future, as our transport systems, businesses and households electrify, the impacts of any disruptions to electricity networks will be greater, requiring thorough planning and preparation.

Business and household stationary energy use may also face increased challenges from extreme weather events. Climate volatility on mainland Australia and internationally may disrupt the supply and affordability of gas, electricity and liquid fuels imported to Tasmania, and on-island fuel supply chains are also likely to face increased disruptions. Tasmania, as part of the east coast gas market, may also face a threat to its gas supply.

The Australian Energy Market Operator (AEMO) forecasts gas supply shortfalls for southeastern Australia as soon as 2027. This is primarily due to a lack of investment in new gas fields and infrastructure in southern Australia, driven by the transition to net zero guided by the Australian Government’s Future Gas Strategy.[1] These potential shortfalls create uncertainty for investors around future demand as the industry transitions.

Risks for the sector in the transition to a low emissions economy

Transition risks are the risks and challenges associated with the transition to a low emissions economy. They can arise from changes in policy, shifts in market preferences, and technological advancements. They may include financial risks such as difficulties accessing finance or insurance, reputational damage and impacts on an organisation’s social licence, legal risks such as liability related to climate change impacts, and challenges for workforce and labour markets.

Transition risks for the energy sector include:

• Decreased demand for emissions-intensive products, due to changes in consumer preferences.
• Increased costs of compliance with regulations, including the requirements for large emitting facilities to reduce emissions in line with reforms to the Safeguard Mechanism.
• The need to comply with climate-related financial disclosure requirements, which are proposed to commence in Australia for large businesses from 1 January 25.[2]
• Reputational risks for companies that do not take genuine steps to reduce their emissions.

Risks to international trade for industries that are slow to decarbonise, including through the adoption of carbon border adjustment mechanisms by international trading partners.

[1] Future Gas Strategy, 2024, available at: www.industry.gov.au/sites/default/files/2024-05/future-gas-strategy.pdf

[2] For more information see Australian Treasury’s Climate-related financial disclosure: exposure draft legislation released in January 2024, available at treasury.gov.au/consultation/c2024-466491

Emissions reduction opportunities

The 2021 Tasmanian Emissions Pathway Review identified 16 “best-fit” opportunities for emissions reduction in Tasmania, five of which relate to the stationary energy sector.

1. Energy demand reduction measures for manufacturing

Improving energy efficiency permanently reduces energy use, lowering emissions, increasing business productivity and reducing energy costs.

In a manufacturing context, identifying energy efficiency measures requires a detailed assessment of a business’s energy use. This assessment will provide an understanding of how energy is used and identify opportunities to improve energy performance.

The Emissions Pathway Review estimated that a 25 per cent reduction in energy use across 80 per cent of businesses in Tasmania’s manufacturing sector would result in emissions reduction of around 230 kt CO₂-e per year by 2050.

2. Fuel switching: electrification of boilers for low-medium temperature process heat for manufacturing

The manufacturing industry is the major user of natural gas in the state, through its use of gas boilers.

Tasmania’s abundant, competitively priced, reliable and renewable energy means that electrification is a strong option in many contexts. Electrification of boilers currently used in manufacturing to provide low‑medium temperature process heat can provide significant emissions reductions. Electrification may also provide lower energy costs over the life of the asset.

The Emissions Pathway Review estimated that a 60 per cent adoption rate of electric boilers for low‑medium process heat manufacturers would result in emissions reductions of 125 kt CO₂-e per year by 2050.

The supply of new renewable generation in Tasmania will be important to meet growing energy demand and electrification needs.

Bioenergy will also be a strong option and is used in a range of Tasmanian operations as a replacement for fossil fuels in processes requiring low to medium temperatures.[1]

3. Fuel switching and co-firing: use of biomass resources for high‑temperature process heat in manufacturing

Electrification of boilers will not be a viable option for all manufacturing processes or facilities. Electrification may not be suitable, or may be cost prohibitive, for a range of industrial heating purposes, especially where flash heating, high temperatures, and precise control is required.

The use of biomass and bioenergy for high-temperature process heat is a viable alternative in many cases. This option is particularly relevant for Tasmania’s cement, iron ore pellet manufacturing, and aluminium smelting businesses.

The Emissions Pathway Review estimated that a 60 per cent adoption rate of fuel switching to bioenergy for medium-high temperature process heat manufacturers would result in emissions reductions of 370 kt CO₂-e per year by 2050.

4. Fuel switching: renewable hydrogen, biogas and synthetic gas substitutes for other stationary uses of natural gas and LPG

The Emissions Pathway Review estimated that substituting 80 per cent of the remaining natural gas and LPG use (following the implementation of opportunities 1, 2 and 3 above) across all stationary energy sectors would result in emissions reductions of 145 kt CO₂-e per year by 2050.

There are a number of options for replacing natural gas and LPG with less emission-intensive alternatives. It is likely that a mix of alternative fuels will enable gas users to tailor solutions to their needs.

Many industrial processes require medium or high-grade heat which cannot be as easily electrified. Renewable gases will be an important replacement for fossil gas in these more challenging processes. Electrification will also be an important option in some contexts.

Reduction of stationary diesel consumption in the agriculture sector through precision agriculture and improved irrigation processes

Precision agriculture refers to farming practices that use GPS technologies for precise spatial management. These technologies can include variable rate seeding and fertiliser application, yield mapping, and animal location and analysis. Precision agriculture allows for more targeted farming activities, meaning stationary diesel can be used more efficiently. On-farm diesel combustion can also be reduced through increased uptake of electric pumps and greater pump efficiency.

The Emissions Pathway Review estimates that, if rolled out to approximately 90 per cent of Tasmania’s farms by 2050, the use of precision agriculture and improved irrigation processes could result in emissions reductions of around 55 kt CO₂-e per year. Precision agriculture is also estimated to reduce agricultural soil emissions by up to 16 per cent.

The livestock and crop productivity gains from precision agriculture could deliver additional revenue for farmers, operational cost savings and water savings. Based on studies of dairy and vegetable farms, the Emissions Pathway Review suggests that using both precision agriculture and improved irrigation processes can increase overall farm productivity by 10 per cent.

The government is supporting the uptake of precision agriculture as part of the Competitiveness of Tasmanian Agriculture for 2050 White Paper. This will also be considered in more detail as part of the Agriculture Sector Emissions Reduction and Resilience Plan.

Resilience opportunities

Resilience to the physical impacts of climate change

The energy sector is essential to the Tasmanian economy and the wellbeing of all Tasmanians. It is therefore crucial that Tasmania’s energy sector is robust and resilient to climate change risks.

The opportunities to increase the resilience of the Tasmania’s energy sector to the physical impacts of climate change will depend on the risks for each organisation. Tasmania’s first statewide climate change risk assessment is currently being developed, and a project is also underway to update the fine-scale climate projections for Tasmania. These projects will improve our understanding of the risks to Tasmania to help identify priority adaptation measures.

Business Tasmania has also developed an Emergency Preparation Toolkit to improve business resilience to extreme weather events. The Toolkit and advice are available at www.business.tas.gov.au/manage_a_business/natural_disasters

In the direct combustion sub-sector, Tasmania is a relatively small market and heavily reliant on imported fuels. Tasmanian households and businesses are therefore vulnerable to supply disruptions on mainland Australia and internationally. Vulnerability to supply means Tasmanians are also susceptible to price volatility of imports like gas and liquid fuels.

It will be important to ensure that actions to reduce emissions do not disrupt the supply of affordable and reliable energy to Tasmanian households and business.

The increased use of locally-produced fuels such as hydrogen, biomass or biogas, and electricity, will increase the resilience of Tasmania’s energy sector from external supply and price risks. A diverse mix of locally-produced fuels is also likely to improve the resilience of Tasmania’s on-island energy supply chains to extreme weather events.

The growth of Tasmania’s renewable electricity generation capacity will also support the resilience of Tasmania’s energy sector. As the state moves toward 200 per cent generation capacity, Tasmania’s electricity supply will become more resilient to physical risks and market changes. Increased electricity supply will support resilience to changing inflows to Hydro Tasmania’s dam storages. Additional interconnection with the NEM via Marinus Link will further support secure and affordable electricity supply.

Resilience to transition risks

The energy sector is undergoing a transition, both locally and globally, from fossil fuel generation to renewable energy sources which is creating both risks and opportunities for Tasmania’s businesses.

Transition risks can arise from changes in policy, shifts in market preferences and technological advancements. Businesses and industry will need to consider the impacts and how they will respond.

Companies that take genuine steps to reduce and report on their emissions and improve their sustainability credentials more broadly will be well placed to adapt to the changes in markets. Transitioning early will also minimise the risk of stranded assets, particularly for Tasmania’s manufacturing sector, as international demand for low-emission products and services increases.

Tasmania’s high levels of renewable electricity generation are a valuable state resource which has the potential to support the manufacture of low emissions products. This can provide Tasmania with a competitive advantage into the future as global trends place an increased value on low-emissions products.

Businesses that implement measures to decarbonise may also be able to register for the Emissions Reduction Fund, presenting an opportunity to generate additional income through the sale of Australian Carbon Credit Units (ACCUs) or Safeguard Mechanism Credit (SMC) units.

Other opportunities include:

• Investment in new technologies, creating new jobs and skills in Tasmania, especially in regional areas where many major industrials are located.
• Improvements in energy efficiency and productivity, leading to reduced costs for energy users and a relative ‘insulation’ from fluctuations in commodity prices.
• New industries that create additional investment opportunities for Tasmania, including the relocation of Australia’s data centres to Tasmania, due to its affordable low-carbon electricity and milder climate, requiring less cooling.

The transition to net zero also offers wider benefits for Tasmania’s brand and its goods, services and tourism exports.

Challenges and barriers

There are a number of potential barriers to reducing emissions and building the resilience of Tasmania’s energy sector. For Tasmania’s commercial and industrial facilities, the cost and availability of low emissions alternative technologies remains a significant barrier to emissions reduction. Although alternative renewable and low emissions technologies exist for many direct combustion uses, these are often not yet price competitive with existing fuel sources, or they are not being employed at the necessary scale.

While some forms of bioenergy can be produced relatively cheaply, the higher capital costs, more complex equipment, and challenges with feedstock supply chains for bioenergy are all barriers to adoption.

There are often significant costs associated with converting energy use and implementing energy efficiency measures, particularly when it requires the replacement of appliances and equipment. For households, many Tasmanians are on low incomes, including various forms of government assistance, and have limited funds to invest in capital improvements to housing. Residents in rented accommodation have little ability to influence the energy efficiency of their homes. They have limited options to switch large energy-using appliances, because capital improvements for heating and hot water systems are the responsibility of the landlord.

Businesses often have a low appetite for the risks associated with implementing innovative technologies, as they often require substantial capital investment. It can take some time before this investment is offset by benefits such as improved efficiency or reduced energy costs.

Users can also be hesitant to change technologies from what they are familiar with and new technologies may have different operating and servicing requirements which can cause added uncertainty.

Additional challenges include the skills and capabilities of the local workforce and the low level of industrial experience with emerging low emissions technologies. The international momentum to decarbonise is creating significant competition for labour and skills. Implementing low emissions technology will require a workforce with new skills, and significant resourcing to retrain existing employees and attract workers with expertise in green technologies.

Other barriers include escalating costs, regulatory barriers, social licence concerns for renewable energy development, and the significant reform needed to properly regulate emerging technologies.

Adhering to evolving emissions standards and regulatory requirements will demand ongoing adjustments in business processes to achieve compliance.

[1] Bioenergy Vision for Tasmania, March 2023 at www.stategrowth.tas.gov.au/recfit/future_industries/bioenergy

To identify the best emissions reduction and resilience options for Tasmania’s energy sector, it is important to understand current state and national energy policies, emissions reduction goals (from both government and businesses) and the initiatives already in place to support emissions reduction and resilience in the energy sector.

International

In the international transition to net zero, the governments of many developing countries are redirecting investment away from fossil fuels and emissions-intensive industries, and instead investing in emerging clean industries. For example, the United States Inflation Reduction Act allocates more than US$369 billion to accelerate the clean energy transition in the US, including subsidies and tax credits for the decarbonisation of emissions-intensive industries, and procurement policies that require the purchase of low-carbon materials for government projects.[1]

Carbon pricing is becoming an increasingly common way to reduce greenhouse gas emissions of large emitters. Over 70 countries around the world, which together account for more than 80 per cent of the world’s greenhouse gas emissions, have introduced carbon prices to encourage large emitters to reduce their emissions.[2]

To prevent ‘carbon leakage’ in countries with strong emissions reduction measures such as carbon prices, many countries are implementing, or investigating options to implement, carbon border adjustment mechanisms (CBAMs). A CBAM places a tariff on imported products that is broadly equivalent to the carbon costs faced by domestic producers. This tariff is generally aimed at discouraging emissions‑intensive industries such as cement, iron, steel and aluminium from relocating to countries with less ambitious climate policies in order to reduce costs ('carbon leakage’). At the same time, a CBAM is intended to encourage international producers to reduce their emissions.

The significant global commitment to decarbonisation is expected to support emissions reduction in Tasmania’s energy sector by driving both demand and supply of clean energy technologies. However, the global shift in energy markets may also create challenges for Tasmania’s energy sector, including supply chain challenges and competition for resources.

Australian Government

The Australian Government has legislated an emissions reduction target of 43 per cent by 2030 and net zero emissions by 2050. The Australian Government has introduced programs to support emissions reduction in the energy sector.

Capacity Investment Scheme

The Capacity Investment Scheme (CIS) has been designed (and recently expanded) to support new renewable generation investment and clean dispatchable capacity projects that can fill expected reliability gaps. CIS includes revenue support for projects selected under a competitive tender process in the form of long-term underwriting agreements for an agreed revenue ‘floor’ and ‘ceiling’.

Australian Carbon Credit Unit Scheme

The Australian Carbon Credit Unit (ACCU) Scheme supports projects that avoid the release of greenhouse gas emissions, or remove and sequester carbon from the atmosphere by:

• providing businesses with the opportunity to earn ACCUs for every tonne of carbon dioxide equivalent stored or avoided through the adoption of eligible practices and technologies
• allowing organisations to purchase ACCUs to meet their emissions reduction goals.

Safeguard Mechanism

Reforms to the Safeguard Mechanism commenced on 1 July 2023. Under the reforms, baselines for facilities will decline over time, meaning Australia’s largest emitters will be required to reduce their emissions. Carbon credits can also be purchased to support these requirements.

The Safeguard Mechanism applies to facilities with scope 1 emissions of more than 100,000 t CO₂-e per year. There are six Tasmanian facilities that currently meet this threshold and are covered by the Safeguard Mechanism, as outlined in the Appendix.

Support for industries to reduce emissions in line with reforms to the Safeguard Mechanism

The Australian Government has announced a large amount of funding and policy measures to support industries to decarbonise as part of the reforms to the Safeguard Mechanism. This includes several streams of dedicated funding through the Powering the Regions Fund:

• the Safeguard Transformation Stream ($600 million), to assist trade-exposed facilities to reduce emissions
• the Industrial Transformation Stream ($400 million), to support regional industrial facilities, including rail and aviation, and new clean energy industries
• critical Inputs to Clean Energy Industries Stream ($400 million), supporting primary steel, cement, lime, aluminium and alumina industries
• investment in Australian heavy industry future ($330 million) supporting nine clean energy and emissions reduction projects at heavy industrial sites around the country including:
  • $15 million to Grange Resources Iron Ore mine in Savage River mine to reduce diesel use by electrifying operations and transition from an open cut to an underground mine
  • $5 million to Grange Resources Iron Pellet plant at Port Latta to modify four vertical shaft furnaces from burning anthracite (coking coal) to consuming natural gas
  • $52,874,500 to Cement Australia Railton cement works to upgrade its kiln to allow greater use of waste-derived feedstock and reduce coal consumption.

Sectoral Decarbonisation Plans

The Australian Government is preparing six sectoral emissions reduction plans, including a plan for the electricity and energy sector. These sectoral plans are aimed at providing granular analysis of Australia’s emissions reduction pathways, and the role of each sector in supporting Australia’s transition to net zero. These sectoral plans will also consider any cross-cutting issues that are relevant to multiple sectors, and key enabling technologies.

The Australian Government will be working closely with all state and territory governments to develop the sectoral plans, including looking for opportunities for jurisdictions to work together where collaboration will support emissions reduction.

Other policies and programs to support industrial emissions reduction

Additional policies and measures include:

• funding of $2 billion for the new Hydrogen Headstart program, providing revenue support for large-scale renewable hydrogen projects through competitive hydrogen production contracts
• establishing the national Net Zero Authority to promote orderly and positive economic transformation associated with decarbonisation and energy system change in regional areas, including support for impacted workers
• providing $2.1 million to support a feasibility study to replace the coal-fired boiler at Norske Skog’s Boyer Mill, to enable Norske Skog to transition to a cleaner production line.

Tasmanian Government

Increasing Tasmania’s renewable electricity generation

The Tasmanian Government has a range of policies and targets to increase on-island renewable electricity generation.

• Tasmania has a legislated target to reach 150 per cent renewable electricity generation by 2030, and 200 per cent by 2040. This means that by 2040 Tasmania will produce 21,000 GWh of electricity, twice as much as its 2020 baseline.
• The Tasmanian Renewable Energy Coordination Framework (RECF) sets out actions to prepare for growth in renewable energy required to achieve the Tasmanian Renewable Energy Target. In January 2024 the government announced the introduction of the Renewable Energy Action Plan, completed under the RECF, which is a suite of actions that will support renewable energy and transmission infrastructure projects.
• The establishment of Renewable Energy Zones (REZ) will coordinate access for new generation and transmission in areas with excellent renewable energy resources and the least conflict with social and environmental values. The north west region is being explored to host Tasmania’s first REZ.
• The government is currently investigating the case for market mechanisms to support and accelerate renewable energy developments in Tasmania.
• The Marinus Link project will support new generation in Tasmania by allowing increased interconnection between Tasmania and the NEM.

Development of renewable energy alternatives

The Tasmanian Government is also supporting the development and adoption of other renewable alternatives for fossil fuel use.

• The Tasmanian Future Gas Strategy sets out a range of government actions to support the transition away from fossil gas and reduce emissions including:
  • exploring the introduction of a target for the transition away from fossil gas to renewable alternatives
  • continuing to support the development of renewable alternatives by supporting on-island production of renewable hydrogen and bioenergy
  • supporting businesses and households to invest in energy efficiency options
  • helping low-income and vulnerable consumers to purchase more efficient appliances and transition to lower emissions fuel
  • adoption of renewable gases by government for use in its operations
  • working with industry to ensure the decarbonisation transition is as orderly as possible and that solutions are developed that meet the needs of individual gas consumers.
• The Bioenergy Vision for Tasmania includes government commitments to support the development of bioenergy in Tasmania, exploring options to use bioenergy to displace fossil fuels used in heat generation and the production of transport fuels including:
  • ensuring the policy and regulatory framework supports long-term investment in the bioenergy sector.
• Establishing a Renewable Hydrogen Industry in Tasmania
  • Hydrogen has the potential to replace fossil fuels, particularly in activities that are especially emissions‑intensive, such as industrial heating processes and burning liquid fossil fuels.
  • The government is supporting the development of a renewable hydrogen industry in Tasmania through the actions in the Tasmanian Renewable Hydrogen Action Plan. There are a range of government actions to explore the opportunities for locally-produced hydrogen in Tasmania. The government will deliver a $50 million package to support the measures in this action plan over 10 years.
  • As part of the Tasmanian Renewable Hydrogen Industry Development Fund, the Green Hydrogen Price Reduction Scheme will allocate up to $8 million in financial support to businesses intending to produce, sell and use green hydrogen within Tasmania. The program aims to cover the difference between the cost of production and a competitive sale price for green hydrogen to encourage broad use and industry uptake.
  • The $300 million Tasmanian Green Hydrogen Hub project at Bell Bay has recently commenced, with funding from both the Tasmanian and Australian governments. In January 2024, the Australian Government announced $70 million for the project. The project will investigate providing carbon-neutral feedstock for a range of Tasmanian industries including ammonia production and metals manufacturing.

Energy efficiency

The government has a range of measures in place to improve residential and commercial energy efficiency in Tasmania.

• The $50 million Energy Saver Loan Scheme provides interest-free loans of up to $10,000 for Tasmanians to invest in energy efficient products, including solar panels, battery systems, reverse cycle air conditioning (heat pumps), insulation, and efficient electric hot water systems.
• The Business Energy Efficiency Scheme offers interest subsidies on loans to eligible businesses, providing total funding of up to $50 million in value of loans over the life of the scheme.
• Funding of $2 million for the No Interest Loan Scheme. This scheme assists concession-holders with subsidies of up to 50 per cent toward the cost of energy efficient appliances, and a no‑interest loan for the balance.

Nyrstar zinc smelter modernisation

The Tasmanian Government has committed $20 million in funding, with an additional $50 million provided by the Australian Government, to upgrade Nystar’s Hobart zinc smelter with a new electrolysis plant to produce low carbon zinc. This upgrade is currently on hold as global economic conditions change and costs rise.

Recent government policy commitments

Key policies were announced by the government during the 2024 Election Campaign:

• Sky’s the Limit for Hydro
  • Remove the competition impediments by amending the Electricity Supply Industry Act to remove constraints on Hydro Tasmania investing in new generation projects.
  • Amend the Hydro-Electric Corporation Act that prevents Hydro Tasmania from building projects greater than 40MW in capacity.
  • Direct Hydro to partner with energy generators to build and deliver energy products to market that benefit Tasmania.
• Invest $4 million into developing a state-of-the-art industry training facility on the north west coast in partnership with industry, with a dedicated focus on Renewable Energy skills.
• Deliver a streamlined investment and approvals pathway for major renewable energy projects, ensuring Tasmania is one of the easiest places to invest in new renewable energy projects.
• Introduce legislation into Parliament to create Renewable Energy Zones (REZ). The first zone in the north west will support multiple proponents to connect new generation and load into the grid.
• Designate Bell Bay as a Renewable Energy Service Hub.
• Support farmers through the renewable energy transition:
  • In conjunction with TasFarmers and individual landholders, develop a fair and contemporary compensation framework that recognises the impact of renewable energy projects on landowners.
  • This transition will include the development of a Strategic Benefits Payment.
• Return Hydro Tasmania to its Foundational Principles:
  • Re-write Hydro Tasmania’s existing Ministerial Charter and issue a new directive that requires that Tasmanian prices and Tasmanian jobs must come first. This has now been completed in July 2024.

Resilience

The Tasmanian Government has committed to updating the fine-scale climate projections for Tasmania to provide new information for a range of stakeholders, and developing of Tasmania’s first statewide climate change risk assessment, due to be completed by November 2024. Once this risk assessment is complete, this data will assist in planning for future resilience of the sector and support ongoing investment.

Business Tasmania has also developed an Emergency Preparation Toolkit to improve business resilience to extreme weather events. This toolkit is aimed at small to medium-sized businesses, and includes considerations such as reviewing insurance policies, ensuring data is backed up and considering planning for alternative trading methods and business dependencies.

Other Australian jurisdictions

All Australian jurisdictions have committed to a target of net zero emissions by 2050 or sooner. The national movement to decarbonise may affect the reliability and affordability of fossil fuel supply to Tasmania.

Importantly for Tasmania, given its reliance on imported gas, the Victorian Government has released its Gas Substitution Roadmap which has a strong emphasis on reducing gas consumption through electrification. The Roadmap also includes several initiatives to assist households and small businesses to replace gas appliances with electric alternatives.

Local government

Across local government there are a range of initiatives to reduce emissions and improve energy efficiency in council operations and buildings, and identify and manage climate risks to improve resilience.

Tasmania’s energy businesses

TasNetworks, the owner and operator of the electricity transmission and distribution systems in Tasmania, has a range of policies and initiatives in place to manage the impacts of climate change on assets and to ensure climate impacts are adequately accounted for in decision making including:

• trialling non-burnable power poles at selected high-value pole locations
• trialling fire-resistant paint for selected power poles in high fire danger locations
• updating the overhead distribution powerline design and construction manual
• monitoring for any increase in weather extremes
• monitoring for any increase in occurrence of asset overloading failure rates.
• Hydro Tasmania is investing $1.6 billion over the next ten years to modernise its hydropower network. This will help to extend the operational life of the power stations, improve capacity, reliability and improve responsiveness to fluctuations in demand.

Hydro Tasmania is also undertaking a range of activities to manage the impacts of climate change, including:

• managing the variability of inflows within agreed frameworks (prudent storage levels)
• investing in improving the use of climate and weather information in its decision making support tools
• investing in increased capacity through the Tarraleah and Cethana pumped hydro projects, as well as ongoing investment in maintaining and upgrading existing assets
• adopting the Towards Net Zero emissions reduction target to reduce and offset emissions from direct sources and from the consumption of electricity from the grid.

Business and industry

There are significant industry decarbonisation commitments that will help to reduce emissions in Tasmania’s energy sector, including through partnering with the Heavy Industry Low-Carbon Transition Cooperative Research Centre (HILT CRC).

The HILT CRC is investing over $200 million for collaboration between industry, research and government to deliver three industry-led research programs to de-risk technology pathways for the decarbonisation of heavy industry. Each research stream includes a range of outputs. The research programs are:

1. process technologies
2. cross-cutting technologies
3. facilitating transformation.

Targets and initiatives of some of Tasmania’s larger energy users:

• Grange Resources, the owner of the Port Latta iron ore pellet plant and Savage River iron ore mine, has targets to reduce emissions by 50 per cent by 2030 and net zero scope 1 and 2 emissions by 2035. Achieving these targets will require the reduction in energy used per tonne of product, upgrades to furnaces, recovery of heat in the pellet plant, application of technology and electric vehicles in the mining operation and alternative fuel sources.
• Norske Skog has committed to achieve net zero greenhouse gas emission by 2050, and a 55 per cent reduction in CO2 emissions per tonne of paper by 2030 from a 2015 baseline.
• Cement Australia is committed to achieving a carbon reduction of 40 per cent by 2030 and net zero emissions by 2050.
• Saputo, one of Tasmania’s largest dairy processors, has committed to reducing the carbon intensity of their operations by 20 per cent and reducing the energy intensity of their operations by 10 per cent (by 2025), and are committed to pursuing opportunities to increase their renewable electricity use.
• Rio Tinto, the owner of Bell Bay Aluminium, is committed to a 15 per cent reduction in emissions by 2025, 50 per cent by 2030 and net zero by 2050. Achieving these targets will require short-term changes in processes, medium-term actions such as transitioning to renewable fuels and electric vehicles, and long-term transitioning to new technologies as they become commercially available for the sector.
• GFG Alliance, the owner of Liberty Bell Bay ferromanganese plant, has a goal to become carbon neutral by 2030.

Natural gas

In September 2020, Australia’s peak gas industry body, in partnership with Energy Networks Australia, released Gas Vision 2050. The Vision represents the gas industry’s commitment to lowering carbon emissions in line with the aims of the Paris Agreement on climate change. The 2022 update to the Vision sets out industry-led targets for the future decarbonisation of gas in Australia. In addition to these whole‑of‑industry targets, many individual gas pipeline and distribution businesses have adopted their own net zero emissions targets.

Coal

Tasmania’s coal mines are owned and operated by a subsidiary of Cement Australia.

Cement Australia is owned by two shareholders - Holcim (50 per cent) and Heidelberg Materials’ subsidiary Hanson (50 per cent). Both Holcim and Heidelberg Materials have committed to achieving net zero emissions by 2050.

Liquid fuels

Both Shell Australia and BP have set net zero targets by 2050, and Ampol (formerly Caltex Australia) has set a target of net zero emissions by 2040.

Abel Energy (through Bell Bay Powerfuels) is developing a green methanol production facility located in Bell Bay. The project aims to produce 300,000 tonnes of green methanol to be used as an alternative fuel for hard-to-abate sectors such as shipping or aviation.

HIF Tasmania is developing a commercial scale eFuels facility. The facility aims to produce green hydrogen and combine (via synthesis) with CO₂ captured from Tasmanian plantation biomass to produce a range of carbon neutral eFuels that can be used in existing infrastructure

Notes:

[1] Climate Council (2023) ‘Australia’s clean industry future: making things here in a net zero world’ www.climatecouncil.org.au/wp-content/uploads/2023/03/CC_MVSA0350-CC-Report-Industrial-Decarbonisation_V8-FA-Screen-Single.pdf

[2] Climate Council (2023) ‘Australia’s clean industry future: making things here in a net zero world’.

Roles and responsibilities in Tasmania’s energy sector

Safeguard Mechanism

Business and industry emissions and energy production or consumption data are reported on a commercial-in-confidence basis to Australia’s Clean Energy Regulator. To avoid identifying individual businesses, the Clean Energy Regulator controls the public release of this data through strict non‑disclosure requirements. The Tasmanian Government is unable to publicly identify the largest greenhouse gas emitting businesses in Tasmania that report under the NGER Scheme.[1]

However, the Clean Energy Regulator is required to publish certain information each reporting year for each facility covered by the Safeguard Mechanism. The Safeguard Mechanism applies to all designated large facilities with scope 1 emissions over 100,000 t CO₂-e per year. Only direct or scope 1 emissions are included in this threshold: that is, greenhouse gas emissions released into the atmosphere as a direct result of an activity undertaken at that facility. This includes, for example, direct emissions from fuel combustion, waste disposal and industrial process such as cement.

2022-23 reported emissions for Tasmanian facilities covered by the Safeguard Mechanism

Source: Clean Energy Regulator, 2024, Safeguard Facility Reported Emissions 2022-23

[1] The majority of Norske Skog Boyer paper mill emissions fall under the energy sector plan as stationary energy.