Unlocking

the pathway:
Why electrification is the
key to net zero buildings
Australian Sustainable Built Environment Council

December 2022
 Around one quarter of
Australia’s greenhouse
gas emissions come
from the built environment.
Australia will not achieve
its legislated emissions
reduction targets unless
the built environment
decarbonises its building
operations.

Unlocking the pathway 2

 The challenge

Figure 1: Total energy consumption of Australia’s commercial and residential buildings by petajoules (FY19/20)

Australia has set a national emissions 453

abatement target of 43% below 2005

levels by 2030, has pledged to support
231
a 30% global reduction in methane
emissions by 2030 and is moving
66
towards net zero emissions by 2050. 45

Gas Oil Electricity Renewables

Source: Department of Industry, Science, Energy and Resources, Australian Energy Statistics, Table H, September 2021.

The built environment represents a sizeable portion

of these emissions targets and must be a substantive
part of the solution.
Figure 2: Total emissions from Australia’s commercial and residential buildings by kt of CO 2 -e equivalent (FY19/20)
Australia’s buildings must be on a net zero trajectory
102,000
today to meet our international emissions reductions
commitments. According to the Green Building Council of
Australia’s Climate Positive Roadmap (2021), maintaining this
trajectory means all new buildings must use 100% renewable
electricity by 2026. All existing buildings and fitouts must
meet the same requirements by 2030.

Renewable energy accounted for 32.5% of Australia’s total

11,900
electricity generation in 2021. Under the Australian Energy
3,300 0
Market Operator’s 2022 Integrated System Plan, renewable
energy generation will rise to 83% in 2030-31. As our Gas Oil Electricity Renewables
electricity grid decarbonises, the remaining source of
Source: DeltaQ 2022
emissions – fossil gas burned for heating, hot water and
cooking – comes into sharper focus. Note: For oil emissions, fuel oil was used as the primary fuel combusted. Emissions were calculated using the Australian National Greenhouse
Accounts August 2021.

Unlocking the pathway 3

The opportunity
The built environment can drive down
emissions faster than most other sectors.
ASBEC’s Low carbon, high performance report found
buildings represent one of the “largest and most attractive
opportunities to reduce emissions”. Even without
technological breakthroughs, energy efficiency measures,
greater use of solar photovoltaic panels and fuel switching
could more than halve building emissions by 2050.
Australia’s property sector is already moving rapidly
to decarbonise building operations. An informal survey
of the nation’s largest developers and property companies
conducted by the Property Council of Australia in 2022
found that more than 90% have targets of net zero by
2030 or earlier.
The built environment has the technology to decarbonise
now – but we must do this at speed and scale to smooth
the way for other hard-to-abate sectors. The task ahead
is to transition the Australian economy at the least cost.
The project
ASBEC commenced the Rapid and Least Cost Decarbonisation
of the Built Environment project in November 2021.
Phase 1 A discussion paper released in February 2022,
gathered stakeholder insights into various
scenarios that could offer the least cost,
highest impact route to decarbonisation.
Phase Involved a building-level technical report
by DeltaQ and modelling of least-cost
2 decarbonisation options by SPR .
Unlocking the pathway
Three ‘plausible but Scenario 1
divergent’ decarbonisation
scenarios were modelled This scenario modelled 100% electrification. This scenario
to understand the costs, requires no significant technology breakthroughs but
assumes the cost of renewable electricity continues
benefits and risks.
to fall with continued technological improvements.
Scenario 2
This scenario assessed a combination of electrification and
the use of renewable gas in the form of green hydrogen. This
scenario assumes significant technology breakthroughs that
reduce the cost of green hydrogen production. How quickly
these breakthroughs occur, and how soon 100% green
hydrogen can be supplied to commercial businesses and
households is unclear. For scenario modelling purposes,
it was assumed that the rollout of 100% green hydrogen
(not blended gases) might commence by 2030 and be
complete by 2050.
Scenario 3
This scenario examined a combination of electrification, fossil
gas, green hydrogen and carbon offsets. This is based on the
‘progressive change’ scenario outlined in AEMO's Integrated
System Plan. This strategy pursues “an economy-wide net
zero emissions 2050 target, progressively ratcheting up
emissions reduction goals over time”. This scenario represents
a modest ambition or ‘business as usual’.
Emissions modelling was undertaken for VIC, NSW
and QLD – the three largest states that also offer a
wide range of fuel mixes – and for dwellings (houses,
townhouses and apartments) and hotels, offices and
retail, the three major commercial building classes.
Emissions are modelled from FY2024 to FY2050.
4
 The findings

100% electrification with renewable
electricity was found to be the lowest
cost, fastest emissions reduction pathway
for Australia's built environment.
However, this was not a zero-cost option.
Table 1: Scenarios for decarbonisation of Australia’s built environment
Scenario 1: 100% electrification
Off-the-shelf technology is available now. New generation and grid investment is
required, to a large extent already incorporated into AEMO’s Step Change scenario.

Cumulative emissions Will it get Net present value

before offsets FY2024-2050 us there? savings over base case Least cost rank

506 Mt CO2 -e Yes $49 billion1 1

Scenario 1 represents a saving

of almost $50 billion relative Scenario 2: Electrification + green hydrogen
to Scenario 3, which is business Technology breakthroughs and significant studies into materials compatibility
as usual. In comparison, are required; there are significant uncertainties in green hydrogen availability
and gas grid transformation.
Scenario 2 represents a
saving of under $22 billion
Cumulative emissions Will it get Net present value
relative to Scenario 3 (or BAU). before offsets FY2024-2050 us there? savings over base case Least cost rank

685 Mt CO2-e Only with significant $22 billion over base case,2 but 2
Scenario 1 – 100% electrification – is the technology upgrades minor changes in assumptions
lowest cost. However, lowest cost does not could result in higher costs

mean no cost. A detailed analysis by building

type, geography and lifecycle (see DeltaQ’s
technical report) shows that, while some
electrification options present a positive net Scenario 3: Electrification + gas blend + offsets
present value, many options do not. We must Off-the-shelf technologies are available, but the use of offsets is inherently unsustainable
recognise that these costs exist and that, if and their environmental integrity problematic.
not addressed, they will significantly impede
the transition to net zero building operations.
Cumulative emissions Will it get Net present value
before offsets FY2024-2050 us there? savings over base case Least cost rank

750 Mt CO2-e No Base case for NPV analysis 3

1. These savings are across the full residential and commercial real estate sector analysed. Not every building will realise sav ings.

2.For green hydrogen to compete economically with renewable electricity significant technological advances in hydrogen
production, storage and distribution will be required.

Unlocking the pathway 5

Other key insights from the DeltaQ
and SPR analysis are outlined below.
Energy efficiency
Energy efficiency matters to the
electrification agenda. A wealth of
literature supports a “fabric first”
approach to energy efficiency, in which
the building does the hard work rather
than bolt-on energy devices. DeltaQ’s
analysis found that a new office building
with Code-compliant building fabric
(or better) could reduce heating plant
capacity by around 75% when compared
to a retrofit scenario.
Improvements to energy efficiency
can decrease the space requirements
and size of equipment, minimise the
need for purchased energy, and enable
a higher share of operational costs to
be covered by rooftop photovoltaics.
Therefore, energy efficiency should be
the first priority for every asset owner,
regardless of a building’s age or
archetype.
Energy efficiency also has the benefit
of lowering system-wide distribution
costs of the electricity grid by reducing
the additional demand load which
would otherwise be required in the
future. This is likely to represent a
significant investment saving but
currently typically receives little
focus among policy makers.
Unlocking the pathway
Green hydrogen Carbon offsets
Scenario 2 is dependent on technology Relying on a business-as-usual The built environment, alongside other
change which is not yet proven. The approach to decarbonisation will sectors of the economy, is ramping up
modelling assumes green hydrogen is require investment in offsets. A strategy the ambition of voluntary commitments
not available in commercial quantities until based on offsets is the most expensive to reduce emissions through certification
2030, delaying decarbonisation efforts. and uncertain option for the economy schemes like Climate Active. When
and the worst outcome for emissions regulatory drivers (such as the Safeguard
ASBEC’s project assessed the current
reduction. Furthermore, the building Mechanism) are considered alongside
evidence for fuel switching to hydrogen.
sector cannot rely on offsets in the increasing voluntary action, the global
One recent literature review of 32 studies,
future, as these will need to be allocated demand for quality offsets can be
for example, found the widespread use
to sectors that are harder to abate – expected to increase while supply
of hydrogen for heating is “less economic,
in other words, those industries that remains limited. This will have significant
less efficient, more resource intensive, implications for the expected costs of
don’t have the decarbonisation
and associated with larger environmental
solutions readily available. offsets over the next decade and beyond,
impacts” than alternatives such as heat
and are widely expected to increase
pumps.
significantly in cost.
The future of cheap green hydrogen
is also dependent on having cheap green
electricity to run electrolysers that produce
the hydrogen from water. Given the
Figure 3: Projected future costs of nature-based offsets in Australia
current generation of highly efficient
electric appliances available today,
$450
FY2022 real AUD/t CO2 -e
it is unclear how green hydrogen will
compete from both efficiency and $400
cost perspectives in the coming years.
$350
Waiting a decade for green hydrogen
$300
to drive transformation is a missed
$250
opportunity for emissions reduction
now and is likely to come at a higher $200
cost to the economy. By electrifying
$150
buildings now, hydrogen can be reserved
for parts of the economy that will need to $100
rely on high intensity energy requirements,
$50
such as industrial and transport.
$0
2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050
Source: EY 2022
6
 Geographical variations Figure 4: Residential energy consumption by fuel and jurisdiction, FY2020

Our research highlights the unique

200

Energy PJ
challenges within each state and territory.
The use of fossil gas in homes is not
evenly spread across the country. 160

Addressing these challenges will require Electricity

nuanced and balanced policy responses. 120

Solar energy
For example:
80 Natural Gas
• Over 80% of fossil gas use, for both
commercial and residential sectors, LPG
is centred in Victoria and NSW. 40
Wood,
woodwaste
• Commercial asset classes of offices,
0
retail and wholesale trade, short-term
NSW VIC QLD WA SA TAS NT
accommodation (hotels), and
entertainment and recreation Source: Australian Energy Statistics 2021 Table F
consume 71% of the national
non-residential building gas usage.

Figure 5: Under business as usual scenario, gas connections are expected to increase
Cost considerations
60

Million sqm GFA

The detailed analysis by building type,
QLD Retail
geography and lifecycle shows that,
QLD Office
while many electrification options QLD Hotel
are cost-beneficial, some are not.
VIC Retail
For example, electrification of gas space 40
heating in large existing commercial
VIC Office
buildings can be constrained by physical
plant room size and incur additional
VIC Hotel
capital costs that are poorly 20
NSW
compensated, in terms of avoided Retail
energy consumption or emissions. NSW
Office
Therefore, policy responses will be
NSW Hotel
required to overcome this obstacle. 0

2039
2036
2031

2035
2021

2050
2025

2033

2037
2023

2027

2030

2032

2034

2038
2028
2020

2022

2026

2029
2024

2046

2049
2043

2047
2041

2044
2045

2048
2040

2042
Source: SPR 2022

Unlocking the pathway 7

Policy
recommendations
ASBEC has identified
the least-cost
abatement option.
This is not a “no cost” option – but we
must pursue this least-cost abatement
opportunity now because of the lead
times involved in making the
electrification transition.
Electrification of Australia’s built
environment will not be achieved
at speed and scale without
government action.
These actions include:
Unlocking the pathway
1 Upgrade the National
Construction Code
The Code is the most powerful lever
to encourage electrification of all new
buildings. A review of the Code could
examine the phase out of fossil gas
in new buildings. A review of energy
performance objectives, stringency,
metrics and requirements, and the
consistent treatment of photovoltaics,
would also be welcome.
2
Develop a national plan
for fossil gas phase out
Fossil gas presents business risks in
future, in terms of both price volatility
and climate. There is no national plan
for decarbonising fossil gas in Australia’s
buildings – and we need one.
Importantly, AEMO’s ‘step change’
scenario assumes significant reductions
in fossil gas consumption by 2040
(notably that the residential sector
has reduced its fossil gas consumption
by 85% by 2040). This is not reflected
in current building policy.
Policies to encourage electrification
should be developed and introduced as
a priority now, and then ramped up over
time to support the transition. This should
include clear pathways to prompt change
in the market, such as reducing tariffs on
heat pumps and rapidly scaling up their
supply chains, and working with appliance
suppliers to substitute electric for gas
stoves, heaters and hot water systems.
3 Introduce incentives to address
capital cost constraints
There can be significant capital costs,
as well as disruption, associated with
electrification. The transition to 100%
electrification requires recognition
that these costs exist.
The challenge of split incentives –
where the building owner bears the
cost but the tenant gains the financial
benefit – is a well-known handbrake
on energy efficiency upgrades in the
built environment. Incentives are
needed to encourage owners of
residential and commercial buildings
to adopt least-cost (but not necessarily
cost-beneficial) solutions.
4
Demonstrate
government leadership
Genuine government leadership
can elevate the electrification agenda
by sending a strong signal to the
market. Mechanisms to do this include
electrifying government assets, such
as commercial offices and community
housing, as well as embedding
electrification in procurement standards
and mandates. Other mechanisms
include support for the new NABERS
renewable energy indicator.
Government leadership sets the agenda
and creates markets in this important
space – which ultimately leads to job
creation and skill development.
5 Address
market inequities
There are demographic groups and
sectors of the economy that are less
resourced or empowered to adapt
their buildings than others. Obvious
segments include renters and
occupants of social housing.
A groundswell of customers are
developing strategies to leave the
fossil gas network. This could leave
more vulnerable members of the
community exposed to higher
prices to maintain an ageing
network, and a more costly
transition away from fossil gas.
Addressing this market equity
challenge requires a thoughtful
sequencing of actions and strategies
to support the transition of the entire
ecosystem.
6 Build capacity
Training to develop and enhance skills
will be critical to a smooth, least cost,
transition. From training salespeople
in appliance stores to building the
massive capacity required for
electricians to rewire homes and
install appliances, the availability
of skills will be central to the move
to efficient, electric buildings.
8
 ‘Unlocking the pathway’
shows that electrification
of Australia’s buildings is
the least cost option for
the economy and the fastest
way to eliminate emissions.
While some electrification
strategies are cost negative
for some building types
and climates, many are not.
Therefore, governments must
step in to overcome the costs,
or face the consequences
of missed emissions targets
and a more costly transition
in the decades to come.

Unlocking the pathway 9

Acknowledgement
The Australian Government, through the Department of
Climate Change, Energy, the Environment and Water, and
the NSW Government, through the NSW Office of Energy
and Climate Change, provided financial support for ASBEC’s
Rapid and Least Cost Decarbonisation of the Built
Environment project. ASBEC expresses appreciation
for this support and notes this report does not represent
the policy position of either government.

About ASBEC
The Australian Sustainable Built Environment Council
(ASBEC) is a body of peak organisations involved in
the planning, design, delivery and operation of our built
environment. ASBEC provides a collaborative forum for
organisations which champion a vision of sustainable,
productive and resilient buildings, communities and cities
in Australia. Collectively, ASBEC’s membership reaches more
than 350,000 professionals in the built environment and
represents an industry worth more than $700 billion.

Partners: