Low-cost pathways to industrial decarbonisation

22 September 2026 (IEEFA Australia): As fuel and energy costs escalate, significant savings are within easy reach of Australian industry to boost productivity and reduce emissions, according to a briefing note released today. 

The ongoing federal government review of the Safeguard Mechanism has brought industrial decarbonisation into focus. The note Not so hard to abate highlights Australia’s lack of progress in cost-effective decarbonisation options compared with other countries.

It outlines the achievable measures industry could adopt using available technologies in five areas:

• Energy efficiency
• Electrification (low-grade heat processes, underground mine equipment)
• Renewables in remote sites
• Methane capture and use in coal and gas operations
• Clinker substitution in cement 

“We have identified several opportunities — ‘low-hanging fruit’ — that could deliver immediate emissions reductions, cost savings and a range of other benefits, such as productivity improvements, better working conditions for workers, and improved energy security,” says co-author Amandine Denis-Ryan, CEO of IEEFA Australia.

“Shifting to battery electric vehicles (BEVs) in underground mining can cut costs due to reduced ventilation and cooling needs. A mine found its electricity consumption could be lower with an electrified fleet than with a diesel fleet. Despite this, while 15%-30% of haul trucks were already BEVs in Canada in 2024, Australian companies are delaying their plans to electrify.”

Several mines have already adopted renewables to cover 80%-100% of their electricity needs, with benefits including reduced diesel costs and improved energy security. But while mining companies in Chile, including BHP, Rio Tinto and South32, have adopted a 90% renewable electricity target in line with the government’s objective, renewables only make up 2% of the Pilbara’s electricity mix today.

Vast amounts of methane could also be captured instead of released in the atmosphere, at a cost-benefit or a lower cost than carbon offsets as the methane recovered can be sold or used onsite. Despite this, coal, oil and gas companies are using carbon credits instead of taking action on methane, representing more than two-thirds of units surrendered under the Safeguard Mechanism (see figure below).

Australian coal, oil and gas production are the largest, and fast growing, 
users of carbon credits under the Safeguard Mechanism (millions)

Source: IEEFA, The coal-fired carbon credit market

“Companies that implemented energy management best practices globally achieved 25% energy savings in seven to nine years, with many of the measures low or no cost,” Ms Denis-Ryan says. “But Australia has the lowest uptake of energy management certification in the world’s top 25 energy-consuming countries, with only 29 companies certified in 2023 compared with 24,000 in Germany.” 

Improving energy efficiency in industrial facilities can deliver other benefits such as reduced materials and maintenance costs and improved process stability and control. For every dollar saved on energy, these benefits can add up to more than one additional dollar in value for the business.

Many countries have implemented energy management regulations for high-consuming companies, including China, the European Union, Indonesia and Mexico, while others such as the US, Canada and Saudi Arabia rely on voluntary schemes. But Australia has had no policies supporting energy management practices since the end of the Energy Efficiency Opportunities program in 2014.

“Adoption of these cost-effective measures is limited by a range of barriers, including regulatory hurdles, lack of policy support and incentives, tight competition for capital, electricity supply challenges and low business priority,” says co-author James Bowen, IEEFA’s lead analyst, Australian industry.

IEEFA recommends reforming the Safeguard Mechanism to constrain the use of carbon offsets, especially when companies have access to emissions reduction opportunities at a lower cost, as an important first step to accelerate industrial decarbonisation.

Complementary policies would be required to overcome several of the barriers, as well as for facilities not covered by the Safeguard Mechanism. Examples of what has been implemented successfully by other countries include:

• Energy management policies
• Financial incentives for IHPs, mining BEVs and decarbonisation plans
• Cement standards update
• Mining renewable electricity targets
• Methane capture requirements

“Material reductions in industrial emissions could be achieved by 2035 and make Australia’s industry stronger and more competitive internationally,” Mr Bowen says. “But it requires stronger and broader policy intervention than the existing framework provides.”

Read the note: Not so hard to abate – Unlocking Australia’s cost-effective path to industrial decarbonisation

Media contact: Shane Brady, [email protected]

Author contacts: Amandine Denis-Ryan, [email protected]; James Bowen, [email protected] 

About IEEFA: The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends, and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy. (ieefa.org)