Powering Australia: How Labor’s energy policies will shape the next decade

As Australia emerges from the 2025 federal election, the energy policy landscape continues to reflect a stark contrast between the two major parties in Australian politics, the Australian Labor Party and the (now dissolved) Liberal-National Coalition.

With Labor now returned to government – with a significant majority that, no doubt, will be seen as a mandate to deliver on its energy policy and other election promises – this article provides a snapshot of key energy policies and commitments that will shape Australia's energy future. The key takeaways are:

• Labor doubles down on a renewables-led transition: The re-elected Government reaffirms its 82% renewable energy target by 2030 and boosts investment in clean energy infrastructure, with over $30 billion committed through CEFC and Rewiring the Nation.

• Execution risk remains elevated: Unlocking the energy transition depends on urgent reform in planning approvals, market design, and a clear, coordinated pathway for phasing out coal generation.

• Gas remains a critical but unresolved challenge: Despite recognition of gas’s transitional role, major supply risks remain post-2028. Existing interventions have yet to secure long-term supply certainty or market stability.

• New incentives to drive decarbonisation: Strategic tax incentives and funding targeting green metals, critical minerals, hydrogen, home batteries and efficient vehicles aim to catalyse private investment and emissions reduction at scale.

Climate policy: from ambition to implementation

Labor’s policy direction has remained largely consistent, anchored in its Powering Australia plan.

The Government has reconfirmed its target of achieving 82% renewable electricity in the National Electricity Market (NEM) by 2030. The Government will continue to pursue legislated emissions reduction targets of 43% by 2030 and net zero by 2050, aligned with the optimal development path identified in the Australian Energy Market Operator's (AEMO) 2024 Integrated System Plan (ISP). While Australia's 2035 emissions reduction target under the Paris Agreement has not been submitted, Australia is facing expectations from the international community and the United Nations to set a 2035 target in the range of a 60-75% reduction on 2005 levels by 2035. The likely increase in Australia's commitment under the Paris Agreement will make electrification and investment in large-scale energy storage systems even more critical and require the current renewables bottlenecks to be addressed.

Key initiatives include:

• Capacity Investment Scheme expansion: A centrepiece of Labor’s approach is the expanded Capacity Investment Scheme (CIS), now targeting 32 GW of new generation. The scheme is designed to de-risk investment and drive private capital into firming capacity as coal exits the grid.

• Rewiring the Nation: The $20 billion Rewiring the Nation Fund, managed by the Clean Energy Finance Corporation (CEFC), which aims to strengthen the security, reliability and affordability of the grid and accelerate the buildout of electricity transmission and distribution infrastructure to connect renewable energy zones with demand centres and to enable energy sharing across state borders.

• Additional CEFC funding: To further unlock clean energy finance, the Government has injected an additional $2 billion into the Clean Energy Finance Corporation (announced February 2025), lifting its total capital pool to $32.5 billion.

Together, these measures signal a shift from policy design to delivery, with an emphasis on execution over new headline commitments.

But the system remains at risk: Project delivery timelines are tight, planning reform lags, and investor confidence is contingent on regulatory clarity and interjurisdictional co-ordination. There remain inconsistencies between Federal and State Governments' implementation of key initiatives and policy settings, notably efforts by the Coalition-aligned Government of Queensland to delay or constrain development approvals for renewable energy projects, and cancel what was to be the world's largest pumped hydro project, the Pioneer-Burdekin Pumped Hydro Energy Storage system, after being elected to power in November 2024.

We expect National Electricity Market wholesale market settings review (announced in November 2024 and expected to report later this year) will also be critical to ensuring long-term investment flows.

Decarbonising industry

The Government announced a suite of targeted incentives to accelerate industrial decarbonisation and expand domestic critical minerals processing, positioning Australia to compete in global clean energy supply chains:

• Green Aluminium Production Credit: A Green Aluminium Production Credit, effective from 2028-29, will provide a 10-year incentive per tonne of aluminium produced using renewable energy, aimed at supporting smelters through the energy transition.

• Green Iron Investment Fund: The $1 billion Green Iron Investment Fund was launched in February 2025 to back early-stage green iron projects and crowd in private capital to scale domestic manufacturing capacity.

• Critical Minerals and Hydrogen Production Tax Incentives: From 1 July 2027, the Critical Minerals Production Tax Incentive will offer a 10% refundable tax offset on eligible processing costs, with access through to 2040. A parallel Hydrogen Production Tax Incentive will provide $2/kg for renewable hydrogen, available for 10 years to projects reaching final investment decision by 2030.

Gas markets

AEMO forecasts gas shortfalls during peak demand from 2028, with deeper structural supply gaps expected from 2029 posing ongoing risks to affordability and grid reliability. Despite a suite of federal interventions, firm supply remains uncertain.

The 2022 Gas Market Code introduced a $12/GJ price cap aimed at curbing costs but has complicated long-term contracting. Its first formal review is due by July 2025. Meanwhile, the 2023 expansion of the Australian Domestic Gas Security Mechanism gave the government greater power to manage LNG exports during shortfalls, though the mechanism remains unused.

With domestic demand pressures rising and coal capacity retiring, a more coherent and accelerated gas supply strategy is needed. State-level support for new gas and LNG projects is growing, but national coordination remains critical.

Critical minerals security

As part of its strategy to strengthen supply chains and resource security, the Government is also advancing plans to establish a Critical Minerals Strategic Reserve, an initiative announced only a few days before the federal election against the geopolitical backdrop of the US government's tariff regime.

The initiative involves the Australian Government purchasing and stockpiling materials such as lithium, cobalt and rare earths that are vital to Australia's role in the global energy transition. Modelled partly on petroleum reserve frameworks, the initiative aims to buffer against global disruptions and price volatility while supporting domestic processing, and to safeguard supplies of critical minerals for Australia and that of its allies.

Although details remain limited, the move signals a more active federal role in resource security, especially security of supply of raw materials that underpin the energy transition.

Consumer-facing energy reform

Labor’s re-election platform reinforces its focus on household electrification and transport decarbonisation, with targeted measures aimed at cost-of-living relief and emissions reduction.

From July 2025, the $2.3 billion Cheaper Home Batteries Initiative will offer subsidies covering up to 30 per cent of installation costs, with a goal of deploying one million battery systems by 2030 to boost energy resilience and demand-side flexibility, while the $1.8 billion extension of the Energy Bill Relief Fund will provide up to $150 in rebates for eligible households and small businesses through to the end of 2025, cushioning power bills during the energy transition.

Meanwhile, the New Vehicle Efficiency Standard, which commenced in January 2025, sets declining emissions caps on manufacturers, incentivising the supply of lower-emission vehicles to the Australian market and aligning domestic standards more closely with global peers.