Setting phase-out targets for Australian coal and gas production

Adam Gottschalk, Global Voices Fellow, Y20

Executive Summary

The main cause of climate change is the production and combustion of coal, oil and gas (fossil fuels) (IPCC, 2022). However, most climate policies to date have avoided directly reducing fossil fuel production in favour of targeting the greenhouse gas emissions they release. 

Australia is a major fossil fuel producer and the world’s third-largest fossil fuel exporter. To align its policies with the Paris Agreement, the Australian Government needs to phase-out fossil fuel production. 

This could be achieved by legislating and implementing phase-out targets for coal and gas production. The federal Climate Change Act 2022, which sets out Australia’s emissions reduction targets, could be amended to include fossil fuel production targets. Preliminary estimated targets involve phasing out 100% of gas and coal production by 2035.

Problem Identification

The Paris Agreement, the central global treaty for addressing climate change, does not mention fossil fuels. Instead, it directs countries to submit ‘Nationally Determined Contributions’ (NDCs) – five-year plans for reducing emissions. There is no obligation for countries to demonstrate that planned fossil fuel production is consistent with their NDCs. 

The Paris Agreement has succeeded in reducing emissions worldwide. However, by neglecting fossil fuel production, it has failed to sufficiently bring down emissions to align with 1.5˚C of warming. The world is currently set for 2.6˚C of warming by 2100 – a level of warming that would entail many of the catastrophic impacts described above (Climate Action Tracker, 2025).

Australia clearly illustrates the flaws with policies that focus on emissions at the expense of fossil fuel production. Despite the development of complex domestic climate policy regimes at federal and state levels, including emissions reduction targets, Australia continues to extract vast quantities of coal and gas. It is the world’s third-largest fossil fuel exporter and the second-largest exporter of fossil fuel emissions (due to the high proportion of coal in its export mix) (Grant and Hare, 2024). These exported (or ‘Scope 3’) emissions constitute Australia’s biggest impact on the climate, greater than domestic emissions each year since 1998 (Baxter, 2025). 

Australia is not responsible for these emissions under the Paris Agreement. This is partly because the United Nations Framework Convention on Climate Change (UNFCCC), the parent treaty to the Paris Agreement, attributes emissions to the country where they are emitted, not the country that produced the fossil fuels. However, emissions from Australia’s coal and gas exports contribute to climate change regardless of where they are released. As climate policy expert Tim Baxter (2025) notes: 

‘[n]ot one single word of the UNFCCC, the Paris Agreement, and the whole spectrum of COP decisions prohibits you from observing that a country that permits the extraction and sale of fossil fuels during a climate crisis is jointly responsible for the ensuing emissions.’

Indeed, the International Court of Justice’s 2025 advisory opinion on the ‘obligations of state in respect of climate change’ corroborates these ideas, noting that continued fossil fuel production, exploration, or subsidies could constitute internationally wrongful acts by causing climate harm, including through exported emissions (Sydney Environment Institute, 2025).

Policies restricting fossil fuel production

The global production gap, and Australia’s significant contribution to it, justify policies that directly restrict coal and gas supply. These are called ‘supply-side fossil fuel policies’ (SSP). SSP recognises that meeting global temperature targets requires us to stop producing new coal, oil, and gas, rather than only attempting to reduce their emissions after extracting them.

A limited number of countries have restricted fossil fuel production. Costa Rica was a first mover with its 2002 moratorium on oil exploration and extraction (Carter and McKenzie 2020). France, Belize, Denmark and Ireland have followed with oil and gas restrictions, and Spain and Germany with coal restrictions. As of May 2026, there are 225 moratoria, bans or limits on the extraction or production of specific fossil fuels introduced at various levels of government worldwide (Daley, 2026). However, few of these affect major fossil fuel producing regions or countries. 

International coalitions such as the Powering Past Coal Alliance (Jewell et al., 2019) and the Beyond Oil and Gas Alliance (2024) have also built momentum for SSP. The Fossil Fuel Non-Proliferation Treaty Initiative was established in 2019 to advocate a treaty modelled on nuclear non-proliferation (Newell and Simms, 2020). 

There has been very limited SSP in Australia. Exceptions include the Victorian Government’s constitutional ban on fracking in 2021 (Victorian Government, 2021) and the NSW Government’s ban on new coal mines in 2026 (although this does not affect coal mine expansions, which constitute all current coal mine proposals in NSW) (NSW Government, 2026). Federally, however, Australia continues to approve new and expanded fossil fuel projects. In December 2024, there were 91 new fossil fuel projects or expansions in the development pipeline (DISR, 2024). According to the International Energy Agency, Australia had the world’s largest pipeline of coal export projects in 2024 (62% of the global total) (IEA, 2024:98). This planned fossil fuel expansion justifies the implementation of SSP. 

Policy Options

There are numerous ways to implement SSP. The critical measure of success would be whether Australian fossil fuel production begins to decline in line with scientific pathways for 1.5˚C warming.

Option 1: Ban new or expanded coal and gas projects

Australia could legislate a federal ban on approvals for new coal, gas and oil projects. This could take the form of a standalone bill nullifying existing applications under the Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act), and prohibiting any future applications. The EPBC Act is Australia’s federal environmental law, under which the Australian Government currently approves fuel projects. The bill could also cancel open leases for fossil fuel extraction on federal land and water.

Administrative costs would be minor, as it would involve decreasing the workload of the agency currently responsible for implementing the EPBC Act. The macroeconomic costs of not opening new fossil fuel projects have been assessed to be minimal (Denniss et al, 2016). Any costs would be greatly outweighed by the economic benefits of mitigating climate change. Investment in other, non-fossil fuel sectors would also compensate for these costs: for instance, planned new coal and gas projects redirect skilled labour from other sectors, such as housing construction (Jericho, 2024).

Option 2: Limit fossil fuel production tax credits

Australian state and federal governments collectively subsidise fossil fuels to the tune of over $16 billion every year (Grudnoff & Campbell, 2026). The largest fossil fuel subsidy in Australia is the Fuel Tax Credits Scheme, costing the Australian Government just over $10 billion in 2024–25 (Grudnoff & Campbell, 2026; Treasury 2026). This scheme operates by refunding the fuel excise to large diesel users, thereby subsidising both the consumption and production of fossil fuels – the latter, because over $1 billion of credits go to coal mining companies. 

Australia could amend the Fuel Tax Act 2006 to remove fuel tax credits for large mining companies by capping the scheme at $50 million of annual credits per entity. This cap would affect 18 large companies involved in the mining sector which receive credits in excess of $50 million, while allowing farmers and small businesses to continue receiving credits below the cap (Pollard & Buckley, 2025; Chaney, 2025). Insofar as the reform affects coal mining companies, it would remove production subsidies and therefore decrease incentives to extract fossil fuels.

These changes could be administered by the Australian Taxation Office and would add over $3 billion to the budget per year. A cap is more politically feasible than removing the scheme entirely, as it avoids costs to smaller businesses more reliant on the credits. It would, however, generate significant industry opposition.

Option 3: Set phase-out targets for fossil fuel production 

Just as Australia sets emissions reduction targets, it could set targets for phasing out fossil fuel production. This would involve legislated federal phase-down targets for coal, oil and gas production, aligned with 1.5˚C pathways. They would be established by amending the Climate Change Act 2022 and could be included in Australia’s NDC. The policy would also involve facility-specific fossil fuel production quotas  to ensure companies reduce production in line with aggregate targets. These targets would not replace the existing policy framework around emissions reduction, but complement and substantiate it.

The targets would be devised based on advice from the Climate Change Authority (CCA) and administered by the Net Zero Economy Authority (NZEA). Administrative costs could be met with relatively small additions to existing budgetary allocations for these agencies. The advantages of this policy option include sending clear signals to businesses regarding the future of the fossil fuel sector in Australia, and creating binding obligations to reduce fossil fuels. Disadvantages include potential difficulties regarding policy coordination, as state governments have jurisdiction over resource extraction and their support would be required to ensure these targets are effective. 

Policy Recommendation

Set targets for phasing out fossil fuel production 

The three SSP options would be most effective if implemented in tandem. The third policy – setting targets for phasing out fossil fuel production – is explored in further detail below.

Legislated Federal Phase-Down Targets

The targets would be aligned with IPCC pathways for 1.5˚C, determined based on advice from the CCA – as occurs with emissions reduction targets. The CCA would translate global scenarios into an equitable Australian fossil fuel share and then provide transparent, evidence-based advice to the Australian Government on appropriate production decline rates and phase-out timelines.

Targets would be different for coal and gas based on existing and projected production levels. Coal production targets would be stricter, because coal must decrease faster than gas and oil to align with 1.5˚C pathways (Carbon Brief, 2020). Moreover, Australia currently exports approximately three times more coal than gas (Baxter, 2025).

The target would also reflect international equity principles: that high-income countries should phase out fossil fuels earlier and faster than low-income countries. As a wealthy, major fossil fuel producer, Australia would be responsible for phasing out fossil fuels earlier than most other countries.

Based on these factors, preliminary estimated targets for Australia could be: 

• Coal production: 90% phased out by 2030 and 100% by 2035.

• Gas production: 75% phased out by 2030 and 100% by 2035. 

  
  

These targets are indicative only, and more conservative than some targets suggested in the literature. For reference, the Civil Society Equity Review (2023) finds that wealthy nations including Australia must phase out fossil-fuel extraction by 2031 at the latest to align with 1.5˚C pathways. The Tyndall Centre for Climate Change Research estimates that maintaining a 50% chance of not exceeding 1.5°C of warming requires wealthy, high-emitting countries to phase out oil and gas production by 2034, while the poorest nations have until 2050 to end production (Calverley and Anderson, 2022).

These targets would be subject to the same accountability mechanisms as emissions reduction targets under the Climate Change Act 2022, such as an annual ministerial report to Parliament. The targets would be updated every two years, based on progress and updated scientific assessments. They could be included in Australia’s five-yearly NDCs. 

National policy coordination to implement complementary state and territory targets

The Australian Government would leverage national policy coordination processes, such as the Energy and Climate Change Ministerial Council, to secure state and territory support for federal targets. The federal Net Zero Economy Authority (NZEA), which already has a mandate for climate policy coordination, would also be involved in determining states’ fair-share contribution to the overall target. NZEA’s existing mandate to coordinate the energy transition, such as supporting workers after mine closures, could be extended by amending the Net Zero Economy Authority Act 2024 to include coordinating fossil fuel phase-out (Denniss et al, 2024).

Quotas for individual producers

Based on the overall target, individual fossil fuel-producing companies would be given phase-out schedules. Each facility could be assigned a percentage annual reduction and a closure date. This would ensure individual facilities reduce production in line with the overall target. The amended Climate Change Act 2022 would obligate companies to comply with these quotas. These quotas could operate analogously to emissions ‘baselines’ under the Safeguard Mechanism. Baselines are emissions caps set in consideration of factors including historical emissions, emissions intensity and facility type. Similar factors could also be used to determine production quotas. 

The NZEA would set quotas in conjunction with relevant state authorities. The sum total of quotas would not exceed the federal fossil fuel production target. The NZEA would consider factors such as facility production volumes, emissions intensity and workforce size, as well as energy security considerations (for instance, priority could be given to companies supplying the domestic market over exports).

Costs

Implementing this policy would not require significant additional government funding. The CCA is already funded to provide evidence-based policy advice. NZEA is receiving substantial funding of $399.1 million over five years from 2023–24 to support its establishment, with $209 million allocated towards operational costs (NZEA 2024). With potentially minor additions, this could feasibly cover one to two new teams responsible for administering the targets. These teams could likely rely on existing inhouse climate policy expertise and therefore not require substantial new hiring. 

Indirect costs (i.e. of phasing out fossil fuel exports) would be significant, for instance reduced export revenue. However, these would be vastly outweighed by the benefits of tackling climate change (Alberti 2024) and the potential for boosting clean energy industries to replace fossil fuel exports.

Barriers and Risks

Barriers

Regional Political Economies

Nationally, total employment in fossil fuel production is approximately 0.4% (as of February 2026) (ABS, 2026), but these jobs are concentrated in specific areas, such as NSW’s Hunter Valley region. This creates localised, vocal constituencies antagonistic to fossil fuel phase-out and incentivises political representatives of these communities to oppose change. Local economic impacts can be mitigated through government provision of financial support or retraining packages. Many affected workers would be skilled with significant reemployment potential. Adequate government support for regional economic adjustment could be expected to reduce local opposition to fossil fuel phase-out.

Trade Impacts

Phasing out fossil fuel exports would significantly impact Australia’s trade balance. Fossil fuel exports are large and phasing them out would reduce Australian export revenue, with macroeconomic implications including a potentially weaker Australian dollar and decreased government revenue. For instance, coal exports in 2024–2025 were worth over $30 billion (DISR 2025). However, most of this money goes to private corporations due to permissive tax and royalty regimes (Saunders & Gottschalk, 2024). Replacing fossil exports with cleaner ones such as green iron would mitigate this problem by providing a substitute, and potentially far larger, source of export revenue – although the design of taxation regimes would determine whether these clean exports generate greater public revenue than fossil exports (Finighan, 2024).

Risks

Energy Security

A phase-out target risks undermining domestic energy security if producers redirect remaining output to export markets instead of meeting local demand. As Australian fossil fuel production declines, domestic shortfalls might place upward pressure on energy prices and expose households and industry to supply disruptions. This risk could be managed by ensuring production quotas are more lenient for facilities supplying the domestic market. This would ensure that remaining production is largely directed to domestic consumers.

Stranded Asset Liability

Legislating a production phase-out could trigger compensation claims from fossil fuel companies and their investors (Orta-Martinez et al., 2022). Superannuation funds, which hold significant stakes in resource sector equities on behalf of millions of Australian workers and retirees, could also seek redress for losses to member balances. The design of any phase-out framework would therefore need to carefully consider timelines and the potential fiscal cost of settled or litigated claims.

Diplomatic and Trade Risks

Relationships with major importers of Australian fossil fuels, such as Japan and South Korea, could become strained due to unilateral production phase-out targets. There is the potential for retaliatory trade measures or damage to diplomatic ties. These tensions could be substantially mitigated by respecting many long-term export contracts and assisting trading partners with developing alternative, clean energy supply arrangements.

References

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Australian Government. 2025. National Climate Risk Assessment. Available at: https://www.acs.gov.au/pages/national-climate-risk-assessment. 

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The views and opinions expressed by Global Voices Fellows do not necessarily reflect those of the organisation or its staff.