2035 emissions target to cost $22bn per year in abatement costs, BDO estimates

Joint analysis from BDO and carbon accounting platform Avarni has estimated that Australia’s 2035 emissions reduction target will cost the private sector $22 billion annually in abatement expenses.

The analysis predicted that small firms would see “cascading” effects from climate targets and the incoming mandatory climate disclosure requirements as large corporate groups work to reduce scope 3 emissions present in their supply chains.

“Large corporates can only secure green capital if their suppliers are taxonomy-aligned,” Avarni co-founder and chief executive Misha Cajic said.

“That means small and mid-sized enterprises that can’t demonstrate low emissions will begin to lose contracts and, ultimately, access to finance. The effect will cascade through thousands of unlisted companies.”

Cajic said that the government’s Australian Sustainable Finance Taxonomy had created a de facto ‘shadow mandate’ to reduce emissions throughout supply chains.

With mandatory climate disclosure requirements taking effect this year, Pitcher Partners reminded small businesses that their climate credentials could impact their competitive edge in procuring suppliers and customers as large firms seek to minimise their scope 3 emissions.

Using government emissions data and parameters of the taxonomy, BDO and Avarni’s analysis found that achieving a 62 per cent emissions reduction would require businesses to abate 298 million tonnes of CO2 equivalent per year.

Based on a carbon cost of $75 per tonne, consistent with Safeguard Mechanism pricing, the analysis found that emissions reductions of this scale would cost $22 billion per annum. The greatest costs would be borne by high-emissions sectors, including energy, manufacturing, transport, construction and agriculture.

Physical climate risks also continued to impose growing costs on Australian individuals and businesses. The Insurance Council of Australia found that climate risks were accelerating and cost Australians approximately $4.5 billion annually in the 2020s.

The Centre for Policy Development (CPD) found that the government spends an average of $1.6 billion a year on disaster recovery, but only budgets for $215 million, causing funding gaps.

BDO national sustainability reporting leader, Aletta Boshoff, said that the government’s 2035 target marked the start of a “rapid and unavoidable” shift in how Australian companies managed climate and financial risks.

“The 2035 goal isn’t a distant policy ambition – it’s an immediate boardroom issue,” she said.

“Businesses now face a dual imperative: decarbonise fast enough to maintain capital access while also building resilience to escalating physical climate risks.”