Australia's greenhouse gas emissions drop to lowest since COVID pandemic

Australia's greenhouse gas emissions have dropped, showing signs of a turning point in the country's most polluting sectors.

Emissions are at their lowest point since the COVID pandemic shut down the economy, dropping 2.1 per cent over the year to December 2025, according to the latest national greenhouse gas inventory update.

The significant drop is largely driven by clean energy replacing fossil fuels in electricity generation, but transport emissions also continued to fall, year-on-year, for the second quarter in a row since the pandemic.

That drop doesn't yet account for the surging demand for electric vehicles (EVs) since the start of the year.

The Federal Chamber of Automotive Industries reported EV sales have doubled in the last year, hitting a record high of 20 per cent of new car sales in May.

That figure more than doubles again if you include hybrid and plug-in hybrid electric vehicles, with the share of all electrified vehicle sales hitting 46 per cent.

"Our transport activity is going up; however, emissions have started to fall," said Anna Malos, a climate policy expert at the Climateworks Centre, an independent research body at Monash University.

In the first quarter, transport sector emissions declined by 0.6 per cent, a small but telling figure according to Malos.

"It's a shift in particular from petrol vehicles to electric vehicles, and if that continues, then that is really the first time outside of COVID that we've had that fall in transport," she said.

"There are really hopeful signs in that latest report that Australia is making progress towards its emissions reduction targets."

Under the Paris Climate Agreement, Australia has committed to cutting emissions by 43 per cent below 2005 levels and by 62-70 per cent by 2035.

But the latest data highlights the scale of the challenge, particularly when it comes to decarbonising heavy industry.

Despite the overall drop in emissions, Australia has already used 58 per cent of its Paris emissions budget, being only 55 per cent of the way through the period.

Electricity on downward trend

Electricity remains the largest source of emissions, accounting for 31.8 per cent. But emissions from the sector peaked in 2009 and have continued to fall since, down 3.8 per cent to December 2025 and 25.8 per cent since 2005.

"Good progress over the year, in particular in decarbonisation of electricity supply," was how Dr Frank Jotzo described it, a professor of climate change economics at the Australian National University's Crawford School of Public Policy.

"That's where the largest amount of the overall national emissions reductions come from."

Despite the Clean Energy Council reporting that investment in large-scale renewable projects had fallen 46 per cent, the sector continues to displace coal and gas.

"The largest increase was in wind generation, which increased by a record 22.6 per cent over the year to December," the report said,

Batteries, both domestic and grid scale, have seen "rapid growth" according to the report, with the rate of battery discharge in the National Electricity Market having grown 200 per cent in the year to December 2025.

That's driven a 30 per cent reduction in gas generation during evening peaks.

"More excitingly, we've also started to see that renewable energy is starting to reduce our energy bills," Malos said.

"From July, households and businesses are expected to see cheaper electricity whilst it gets cleaner."

Last month, Australia's energy market operator (AEMO) announced wholesale electricity prices would fall up to 10 per cent for consumers and more for small businesses.

And in the last quarter of 2025, for the first time, renewable energy supplied more than 51 per cent of energy in the national electricity grid.

One of the key factors was an unexpected surge in home battery installations.

CEO of the Clean Energy Regulator, Carl Binning said in the last 12 months 11 gigawatts (GWh) of home battery energy has been installed, and it was forecast to reach up to 40 GWh, eight times more than what was forecast.

"If we take stock of this, we can start to see the finish line, and a couple of ways to get there. That is super exciting," Binning told the recent Smart Energy conference.

Smart Energy Council CEO David McElrea said households and consumers were doing a lot of "heavy lifting" when it came to helping cut emissions.

"It's actually a bottom-up renewable energy revolution being led by punters," he said,

"No one had a home battery…pretty soon it'll be like a fridge or a washing machine. Everyone will have one in their home," he said.

Gas exports decline, while industrial emissions climb

Stationary energy emissions, such as fuel burned for industrial processes, mining or commercial activities, declined by 1.6 per cent, accounting for 21.1 per cent of the national inventory.

A key driver of these emissions has been gas production, which ramped up in 2015 but has since peaked.

"Exports reached their peak in the year to June 2022 and have since stabilised, declining by 3.7 per cent over the year to December 2025."

Fugitive emissions like the invisible methane gas that leaks from open-cut coal mines are notoriously hard to measure.

They declined by 5.2 per cent, accounting for 10 per cent of the inventory.

"That's all going in the right direction, but again, at a fairly slow-moving pace," Dr Jotzo said.

The report noted factors such as an increase in carbon capture and storage and a decrease in LNG exports.

"Importantly, there is momentum in key sectors," Malos said.

"Overall, that 2030 target of 43 per cent reduction on 2005 levels, that does remain in reach, but there definitely needs to be more effort, and not all the signs are positive."

Meanwhile, increased use of hydrofluorocarbons (HFCs) in products such as commercial air conditioning and refrigeration has contributed to a 3 per cent rise in industrial process emissions.

Agriculture and land use

Agriculture emissions declined slightly by 0.1 per cent, and accounted for 16.6 per cent of emissions in total.

Land Use, Land-Use Change and Forestry (LULUCF) remains one of the most significant factors in how Australia calculates its emissions. LULUCF reflects carbon removed from the atmosphere through plant growth and land management, and in this latest inventory, it was a net carbon sink, accounting for –11.3 per cent of emissions.

But experts warn of its variability, and Anna Malos likens it to a bathtub.

"The tap's on, but also the plugs are out," she said,

"So there's water flowing out, and there's water flowing in."

Under favourable climatic conditions, more carbon is pulled from the atmosphere by growing trees and vegetation, and the "bath" fills up.

"So you get negative emissions," Malos said,

"If you've got a drier kind of few years, then actually carbon storage declines in the land even without people doing different things."

Are we on track?

Kind of, but there is a lot more work to do.

"It's really good to see that momentum is building in the electricity sector," Malos said.

"However, compared to the kinds of analysis that Climateworks has carried out about what opportunities are available, Australia is still not making the most of those opportunities."

Climate economist Dr Jotzo said Australia needed to accelerate the construction of large-scale wind and solar energy generation, as well as new transmission.

"We need to act decisively to shift to clean energy… not only to achieve those emission reduction targets, but also in order to position our economy favourably in a world that will unavoidably shift to cleaner economy settings."