What is the Industry Sector Plan?
Australia’s Industry Sector Plan is a government-led framework that sets directional targets for decarbonising manufacturing.
The plan focuses on four key areas to drive decarbonisation:
- Energy performance upgrades: Improving efficiency to reduce emissions and costs.
- Electrify processes: Transitioning from fossil fuels to electricity where feasible.
- Alternative fuels and inputs: Exploring options like hydrogen and biofuels where electrification is unfeasible.
- Developing new technologies: Innovating to address hard-to-abate emissions.
You can read the complete Industry Sector Plan published by the Department of Industry, Science and Resources, here.
Process heating emissions from the combustion of gas, coal and oil to create heat and energy for industrial activities. For example, alumina, steel and food and beverage manufacturing burn these fuels to generate heat for calciners, furnaces and boilers.
Industrial processes that produce greenhouse gases because of the feedstock and reactions needed for their production. Traditional cement, iron and ammonia production rely on chemical reactions that produce greenhouse gases.
Decomposing organic materials producing methane emissions that can escape into the atmosphere, such as from sewage, landfill and industrial wastewater.
Are Australia’s net zero targets realistic for the manufacturing sector?
Manufacturing has been given a hard task. The plan calls for “energy performance upgrades, increasing use of circular economy, switching from coal to gas, and electrification where commercial solutions exist” to occur by 2030.
According to Louis Quintal, National Manufacturing Leader, RSM Australia, “The plan is realistic in acknowledging that not all solutions exist today and that some manufacturing processes are inherently difficult to decarbonise.” Where the plan may falter is in the expected timeline and costs involved.
Catherine Bell, a Partner in RSM's ESG team, puts it bluntly, “Yes, they are [unrealistic], if they’re expected to do it alone.” Bell argues that large‑scale decarbonisation in manufacturing cannot occur without subsidies, collaboration and policy support.
Energy performance upgrades
The Industry Sector Plan outlines some quick wins for manufacturers to deploy in the near term. Reducing energy used in manufacturing offers clear operational and cost‑related opportunities.
Examples include:
- Heat recovery or thermal energy storage.
- Upgrading old equipment to be more energy efficient.
- Deploying smart technologies to optimise energy use.
However, “there’s going to be limits in ways they can be more energy efficient,” says Jacob Elkhishin, National & Global Lead - ESG, RSM, pointing to the structural constraints manufacturers face once incremental gains are exhausted. And although there may be long-term payoffs in efficiencies, these are benefits that accrue over time, while costs are incurred upfront.
Catherine Bell
“Many manufacturers work with me to conduct emissions benchmarking because they want to reduce energy costs, diesel reliance and waste."
Circular economy
The Industry Sector Plan outlines some quick wins for manufacturers to deploy in the near term. Reducing energy used in manufacturing offers clear operational and cost‑related opportunities.
Transitioning to a circular economy requires a fundamental redesign of Australia’s manufacturing systems. Manufacturing has historically operated on linear production models, with systems that are designed to extract resources, make products, sell them, and dispose of them at the end of their life. Because products aren’t designed with circularity in mind, meeting the plan’s target of doubling our circularity by 2035 will be challenging.
Florencia Ferreiro Ailan, Manager, ESG and Climate Services, points out that although policy work is underway, the circular economy network is not yet built out. She says, “Official statistics show Australian circularity rates are currently just around 5%. The supply chains are embryonic, geographically constrained, or commercially nascent, and will take years to stand up at volume.”
What may change the dial is the growing cost of waste disposal. As waste disposal becomes more expensive, reducing waste and designing products for reuse or recycling starts to make financial sense. Lower waste volumes translate directly into cost savings, while redesigned products can appeal to increasingly sustainability‑conscious customer
Catherine Bell believes that designing products to be taken apart, repaired or recycled may force manufacturers to rethink materials, processes and customer relationships. While this requires upfront investment and cultural change, it also opens the door to new business models such as product‑as‑a‑service, take‑back schemes, or refurbishment offerings that extend value beyond a single sale.
Bell connects circularity to new climate, modern slavery and nature‑related disclosures, arguing that manufacturing has historically externalised environmental and social costs down supply chains. Circular models, by contrast, bring those costs back into the system, making them visible and measurable. As she puts it, these reforms are about ensuring companies “actually account for the cost of a product and the consumer pays for that product,” rather than pushing impacts onto communities, ecosystems or future generations.
Bell warns that manufacturing ultimately depends on natural systems, noting that a significant share of global economic activity relies on nature. “When nature’s gone,” she says, “then we don’t have the ability to manufacture and manufacturing as we know it will start collapsing.” Circular economy principles are a way of easing that pressure on the natural systems manufacturing depends on.
Switching from coal to gas
The plan highlights abatement via alternative fuels as something manufacturers can do between now and 2030. However, it also lays out a clear case for why that isn’t generally feasible. Natural gas has limited applications and is expensive. Biofuels are variable in cost, access and sustainability. Hydrogen is positioned as a solution for hard‑to‑abate industrial emissions, but Australia isn’t producing hydrogen at commercial scale.
According to Catherine Bell, “Hydrogen’s role in manufacturing decarbonisation is conceptually sound but temporally misaligned.” It is a solution that is not yet ready to carry the weight that policy and strategy are placing on it.
Florencia Ferreiro Ailan agrees, saying, “Hydrogen projects take time.” A hydrogen project can take between four to seven years to go from concept to full production, and gigawatt hubs can be longer. She points to CQ-H2, one of the biggest hydrogen projects in Australia, as an example of these time constraints. “CQ-H2 publicly released its feasibility study in 2022 and it is estimated it still will not produce until 2029.” She also points out that even if hydrogen projects accelerate, end use conversions will still lag. “Heavy industries operate with low margin in Australia, and changing fuel sources requires new systems, pumps, grid connections, water supply, safety systems. All these will take time (between approvals and implementation) and a high investment”.
Jacob Elkhishin also considers hydrogen to be a long-term prospect – a solution that is technically promising but practically distant. He says, “Hydrogen’s viability depends not only on production, but on the infrastructure required to store, transport and safely deploy it across industrial sites.”
The challenge is not whether hydrogen will play a role in decarbonising manufacturing, but whether it can be developed, scaled and integrated quickly enough to meet these targets.
Electrification where commercial solutions exist
Electrification is most effective in processes that already rely heavily on electricity or can be readily adapted to it. Manufacturing facilities can electrify machinery, upgrade motors, improve process control systems and draw power from renewable sources. When combined with efficiency measures, this can materially reduce emissions from electricity consumption.
However, the plan specifically targets hard-to-abate emissions particularly where manufacturing relies on burning coal or oil or gases to generate extreme heat for industrial processes. In sectors such as steel, aluminium and chemicals, temperatures can reach close to 1000 degrees Celsius, making electrification either technically unfeasible or prohibitively expensive with today’s technology.
As Florencia Ferreiro Ailan points out, hard to abate industries lack ready, affordable substitutes for high temperature heat and process emissions. She says, “There is no commercially deployed technology today in Australia providing zero carbon high heat at the scale required for those sectors. The plan lists electrification and hydrogen options as future pathways, but acknowledges persistent technology gaps for ≥1,000–1,600 °C processes (alumina calcination, cement clinker, glass melting). International proof of concepts (e.g., HYBRIT in Sweden, the first and only current project to produce fossil-free steel in the word) remain limited and context specific, still in pilot phase without industrial-scale capabilities proven yet.”
The other aspect of electrifying our manufacturing processes to decarbonise is that it relies heavily on the successful transition of our national energy grid to renewables. Industrial energy demand is huge and would double the amount of renewable energy generation required to meet our net zero targets. Renewables supply around 40% of Australia’s electricity at present and scaling up requires a monumental increase in storage and transmission. Achieving any of this by 2050, let alone hitting the 2035 milestones is unrealistic.
Florencia Ferreiro Ailan explains: “Even assuming policy support and faster approvals, bridging from today’s 40% annual renewable share and pilot-scale hydrogen to a near fully decarbonised industrial base by 2050 requires flawless execution across generation, transmission, storage, fuels, standards, and workforce, each with long lead times and unresolved technology risks for the hardest sectors.”
Cost implications
Louis Quintal notes that there will be upfront capital costs associated with upgrading equipment, changing energy sources and investing in new infrastructure. This capital outlay is a concern, as many manufacturers are already operating on thin margins.
Louis Quintal
“Manufacturing cash flow tends to focus on energy costs and skilled labour just to keep operations running. Adding innovation investment and major capital expenditure on top of that creates a fundamental cash flow constraint.”
Most specialised industrial equipment is imported, often at great cost, and few manufacturers will wish to replace that equipment before it is approaching end-of-life.
According to Florencia Ferreiro Ailan, costs are particularly prohibitive for cement, steel and chemical industries where decarbonising means new furnaces, kilns/boilers, electrolysers, feedstocks, and logistics, with long paybacks and significant execution risk. She says, “Competing against low-cost producers like China heightens closure risk for Australian plants if support is inadequate.”
Ferreiro Alain also believes that stronger policy is needed to generate demand-side pull for green products. She notes, “Wagners has been producing Earth Friendly Concrete (ultra-low carbon concrete) for more than 10 years now, but customers do not want to risk their projects using a new technology as there is no policy forcing them to take the risk.”
It also isn’t easy or simple to change from existing technology and processes. It may require changing key inputs and suppliers and hiring, upskilling or retraining staff for new processes or machinery will add further financial strain.
Market readiness
Part of the challenge for manufacturers is that inaction may end up being more costly in the long term. Manufacturing that fails to transition faces the prospect of being “leapfrogged” by global competitors, particularly China, which already dominates global manufacturing supply chains. In that context, net zero targets are less a policy aspiration than a signal of future market access.
Catherine Bell points to the EU’s Carbon Border Adjustment Mechanism and new supply‑chain due diligence laws, which make environmental and social performance a legal and commercial issue for exporters. For Australian manufacturers, this creates a paradox: while targets may feel unrealistic domestically, failing to move could lock them out of premium international markets. Conversely, those that succeed in transitioning may gain access to the growing demand for low‑carbon, high‑integrity products.
Opportunities, finance and funding
The Net Zero Plan includes several major funding commitments that flow directly into industrial decarbonisation efforts.
These include:
- Additional capital for the Clean Energy Finance Corporation (CEFC) to expand low‑carbon industry financing.
- A new sub‑fund of the National Reconstruction Fund dedicated to industrial decarbonisation and clean‑technology manufacturing.
- Investment to build a low‑carbon liquid fuels industry, supporting sectors where electrification is difficult.
The plan also highlights key non‑financial supports that help industry secure or deploy funding:
- Grid infrastructure planning
- R&D and innovation system strengthening
- Workforce and skills development
- Regional transition coordination
What the plan does not do is guarantee protection from economic risk. Bell stresses the need to balance decarbonisation with the survival of domestic manufacturing, warning against policies that could “kneecap” an industry already under pressure.
For those able to adapt, net zero opens up significant commercial opportunities and long-term benefits. Rather than competing solely on price against lower‑cost manufacturing centres, Australian firms can differentiate on quality, integrity and transparency, supplying low carbon products into markets where demand is growing and buyers are willing to pay for assurance around emissions and ethical production.
Bell argues that early movers may pay more upfront but gain long‑term benefits through institutional knowledge, innovation capability and even exportable intellectual property. “If you stop innovating, you die.”
Innovation and technology
Until these fuels are commercially viable at scale, manufacturers face a narrow set of options: incremental efficiency gains, partial electrification, or offsets.
Energy efficiency, demand flexibility and optimisation technologies are the most immediate tools available to manufacturers. “With AI, things can be made more efficient and optimised,” says Mathavan Parameswaran, National Leader, Technology at RSM. He positions software and data‑driven solutions as some of the fastest‑moving parts of the transition.
Jacob Elkhishin
Hydrogen is often cited as a future solution for hard‑to‑abate manufacturing emissions, however it is inaccurate to call that an “available technology.” Manufacturing’s decarbonisation does depend on how quickly we scale up with hydrogen."
Policy and government
Manufacturing occupies a strategically sensitive position in Australia’s economy, particularly in an unstable global geopolitical environment where over-reliance on global supply chains is a significant risk. The government’s role must expand beyond signalling and into active partnership. Large‑scale manufacturing decarbonisation requires subsidies, collaboration and co‑investment, particularly where technologies are emerging and not yet commercially viable.
Bell characterises current sectoral targets as vulnerable to becoming “pie in the sky” because government has “very little sticks to drive it”. While mechanisms such as the safeguard mechanism exist, they apply to a relatively small number of large emitters and do little to support the long tail of smaller manufacturers. A carbon price, she argues, would provide clarity and economic discipline. However, Australia’s political reality makes that unlikely in the near term.
Bell frames the net zero transition as part of a broader shift in how economies account for value and cost. New climate and nature‑related disclosure standards, she argues, are about recognising the “real cost” of production, environmental, social and economic, and bringing those costs into formal decision‑making. In this sense, the government’s role is to correct long‑standing blind spots that have allowed costs to be externalised.
Practical steps for Australian manufacturers preparing for net zero emissions
Optimise -
From there focus on improving efficiency, planning for greater use of renewable electricity, and making sure long term investment decisions are aligned with a net zero future.
Collaborate -
Work with industry associations and cooperative research centres that allow businesses to share data, spread risk and learn collectively. Engaging in these industry‑led efforts is a practical next step, offering access to insights and innovation that would be difficult or expensive to generate independently.
Build capability -
Early planning and steady progress are critical linchpins to this transition. Our advice is to engage early with workers, suppliers and local communities. Manufacturers that delay workforce transition risk compounding future disruption, whereas those that build capability early are better placed to adapt as processes, machinery and reporting requirements evolve.
