Australia’s economy is transitioning towards a low carbon future. As Australia’s largest scope 1 (direct⁵) greenhouse gas emitting business, and given that emissions from Australia’s electricity generation sector comprise around one-third of Australia’s total emissions inventory, we recognise that we have a key role to play in this transition, while providing secure and affordable energy for Australian households and businesses. The importance of this transition to the long-term success of our business is reflected in one of our two strategic imperatives: to prosper in a carbon-constrained future.

Our approach to climate change

We are committed to structuring our activities and operating our generation portfolio in a manner broadly consistent with the Commonwealth Government’s commitment to a global agreement to limit global warming to less than 2°C above pre-industrial levels. Achieving the ‘2 degree’ outcome will require transition to a decarbonised electricity generation sector. This is likely to take several decades given the sheer scale of replacing the existing generation fleet with low-emissions substitute technology. Furthermore, it will require further evolution of climate change policy, to encourage investment to achieve the significant cuts in emissions required by mid-century. Further discussion of these challenges is provided in the Energy market evolution section of this report.

Our approach to transitioning to a low-carbon future is set out within the AGL Greenhouse Gas Policy. Our Greenhouse Gas Policy acknowledges that Australia is moving to a carbon-constrained future, and provides a framework within which we will structure our greenhouse gas reduction activities. It also presents a pathway for the gradual decarbonisation of our generation portfolio by 2050.

The policy states that we will:

• continue to provide the market with safe, reliable, affordable and sustainable energy options
• not build, finance or acquire new conventional⁶ coal-fired power stations in Australia (i.e. without carbon capture and storage)
• not extend the operating life of any of our existing coal-fired power stations
• close, by 2050, all existing coal-fired power stations in our portfolio
• improve the greenhouse gas efficiency of our operations, and those over which we have influence
• continue to invest in new renewable and near-zero emission technologies
• make available innovative and cost-effective solutions for our customers, such as distributed renewable generation, battery storage, and demand management solutions
• incorporate a forecast of future carbon pricing into all generation capital expenditure decisions, and
• continue to be an advocate for effective long-term government policy to reduce Australia’s emissions in a manner that is consistent with the long-term interests of consumers and investors.

FY18 Initiatives

In FY18 we produced our first report in accordance with the principles set out by the Financial Stability Board’s (FSB) Task-force of Climate-related Financial Disclosures (TCFD). Our report, entitled Powering a climate resilient economy, identifies the financial risks and opportunities that climate change presents to AGL, and our strategic approach to managing these risks and capitalising on these opportunities. The report also summarises the scenario analysis modelling we undertook in 2016 to understand the risks and opportunities associated with decarbonisation of our generation fleet.

Achieving significant cuts in emissions will require substantial new investment in renewable energy capacity and the gradual cessation of operations by existing thermal generators. See the Renewable energy section for information about the investments we are making, and the Power station transition and closure section for information on how we are working with affected communities as we transition away from coal.

While the greatest reductions in emissions will come from replacing relatively carbon-intensive generation sources with lower-emitting generation, we continue to pursue opportunities to reduce the carbon intensity of our thermal power stations.

In FY18, we undertook four major energy efficiency projects with an annual total emissions reduction of 68,000 tCO₂e and a cost saving of $2.2 million.

We have also committed to an $11 million lighting upgrade of our Bayswater, Torrens Island B, and Loy Yang A power stations, and the Loy Yang mine. Commencing in FY19, the project involves replacing around 45,000 existing lights with more energy efficient LEDs. The project is expected to deliver a reduction in internal energy consumption of around 33 GWh per year, which is the equivalent of a reduction in greenhouse gas emissions of 35,000 tCO₂e per year. The reduction in our internal energy usage from this project will increase the net capacity of our generation assets by 3.5 MW.

We are also continuing to actively invest in other smarter and lower-emissions products and services to provide to our customers. For more information, see the Product innovation section.

Over FY18 we continued our work in line with the three specific commitments that we signed up to under the We Mean Business Coalition, a joint initiative of the Carbon Disclosure Project, the UN Global Compact and other global organisations. These public commitments comprise using an internal carbon price, reporting comprehensive climate change information in mainstream reports, and ensuring responsible corporate engagement regarding climate change policy. Read more about our approach to climate policy engagement in the Powering a climate resilient economy report and the Public policy engagement section.

Influenced by our two strategic imperatives – prospering in a carbon constrained future, and building customer advocacy – we developed our Future Forest program, which allows customers to offset the greenhouse gas emissions association with their electricity consumption through diverse Australian forestry. For further details, including our 2018 Future Forest Annual Report, refer to our website.

Greenhouse gas emissions

We use three approaches (or ‘footprints’) to measure and communicate our greenhouse gas emissions. These greenhouse footprints are available in our data centre, and provide a complete account of the annual greenhouse gas impacts from our business:

• The operational greenhouse gas footprint covers the emissions from activities and assets that we operate.
• The equity greenhouse gas footprint sets out our share (by percentage of investment level) of the emissions from fully or partly owned assets, regardless of who operates the asset. The equity footprint indicates to our shareholders the greenhouse gas impacts associated with their investment.
• The energy supply greenhouse gas footprint estimates the supply chain emissions associated with the energy which we sell to our customers, covering emissions resulting from the production, transportation, distribution and consumption of electricity and gas.

We emitted 44 MtCO₂e of greenhouse gas emissions from our operated facilities in FY18.

The greenhouse intensity of our operated generation portfolio in FY18 was slightly lower than in FY17 due to an increase in electricity generation from our renewable assets. Visit our data centre to view information about the carbon intensity of operated generation assets, the amount of electricity generated by our operations, as well as details of the energy consumed in our operations.

Related information

• AGL Greenhouse gas policy
• Supplementary report (FY18): Powering a carbon resilient economy