With Australia’s infrastructure boom far from over, our Infrastructure Market Capacity research will be more important than ever in supporting governments and the infrastructure industry to navigate supply and demand as they deliver our nation’s pipeline.  

For years, demand has been far outweighing supply leading to cost increases and project timelines being delayed.  

While this year we find demand to be easing, it’s clear there is more work to do, with skills shortages and cost escalations persisting. 

These challenges are not unique to Australia. You only need to look at the skills shortages Europe is grappling with in delivering its renewable energy transition, or the challenges Canada is facing to deliver more housing as proof points that we are not alone.

Now in its fourth year, our Infrastructure Market Capacity research has grown into a trusted and reliable source of information that captures the $1.08 trillion of construction activity happening right across the country. The report also continues to detail and explore the plant, labour, equipment and materials needed to deliver on the nation’s five-year Major Public Infrastructure Pipeline, which now stands at $213 billion.  

The strength of this research lies in the collaborative relationships Infrastructure Australia has formed across industry and government. We acknowledge and thank all participants for the part they played in developing this year’s report, through data sharing and close collaboration. 

Infrastructure underpins the growth of our economy – it supports the productivity and liveability of our nation. 

The successful planning and delivery of infrastructure is critical in supporting our nation’s growing cities and regions, particularly as we navigate the growth in investment across renewable energy and social infrastructure projects, while continuing to deliver record levels of investment in major transport projects. 

As governments grapple with these critical decisions, Infrastructure Australia is committed to supporting the Australian Government with the independent advice it needs to drive a thriving, efficient and productive construction sector for the economic and social prosperity of all Australians. 

Tim Reardon  

Infrastructure Australia  
Chief Commissioner 

Australia’s Major Public Infrastructure Pipeline is $213 billion across the 5 years from financial years 2023–24 to 2027–28 (‘five-year outlook’), down 8% compared with the projection of 12 months earlier for the corresponding outlook period 2022–23 to 2026–27. This outcome represents a significant management of demand by governments across Australia to reduce the gap between supply and demand, however demand continues to outstrip supply overall.

Transport continues to dominate demand with growth in buildings and utilities, while investment gradually shifts north across all three sectors

Infrastructure Australia has updated its Market Capacity database with relevant major public infrastructure project pipeline information provided by state and territory governments. A comparative analysis of the national Major Public Infrastructure Pipeline outlook versus the previous outlook period from 12 months earlier reveals:

• There is a significant geographical shift in investment to the north, with Queensland and Northern Territory major public infrastructure pipelines growing by $16 billion, while New South Wales and Victoria have reduced by $39 billion versus the previous outlook period.
• The projected increase in demand for these northern areas would intensify local supply constraints, especially in regional areas where attracting skilled workers is challenging. It is also difficult to source construction materials, plant and equipment due to their geographical distance, adding risk to on-time, on-budget project delivery. 
• A jump in labour demand from the private infrastructure sector is observed over the next five years. This is driven by the renewable energy transition. Workforce preparedness is needed to deliver private-funded infrastructure demand.

Key changes in the Major Public Infrastructure Pipeline across the past 12 months include:

• Transport infrastructure investment is projected at $126 billion and remains the largest expenditure category, accounting for 59% of the Major Public Infrastructure Pipeline. This is a $32 billion reduction on the previous year’s outlook, driven by:
  • Completions of megaprojects in 2023–24.
  • Fewer new projects to commence in coming years versus the previous outlook period.
  • Cost and schedule changes in the total investment estimates for some megaprojects due to commence construction in the outlook period.
• Buildings infrastructure investment is projected at $71 billion, which accounts for 34% of the Major Public Infrastructure Pipeline and is expected to peak in late 2026. This is up $8 billion on the previous year’s outlook. Buildings infrastructure is driven by health ($24 billion) and residential buildings ($17 billion), followed by other building types ($12 billion), such as convention centres, offices, art facilities and laboratories. 
• Utilities infrastructure investment is projected at $16 billion, which accounts for 7% of the Major Public Infrastructure Pipeline and is made up predominantly of renewable energy and transmission line projects. This is up $6 billion on the previous year’s outlook. 

Growth of the building and utilities sectors reflect governments’ ambitions to boost housing stock and transition our energy sources towards a net zero future.  

The workforce shortfall has reduced, however shortages persist 

Projected shortages for infrastructure workers have decreased (-32,000 compared to the 2023 forecast) as demand softens and supply grows, reflecting the impact of governments actively managing ambitious pipelines to align demand more closely with market capacity. Accounting for the impact of cost escalations, and coupled with the softening of demand, the volume of workers required on the Major Public Infrastructure Pipeline alone has reduced by 20% across 2023–24 to 2027–28 compared to the previous five-year outlook period, helping to close the gap between supply and demand.

However, shortages continue across each of the three occupational groupings (Engineers, Scientists and Architects; Trades and Labour; and Project Management Professionals). 

This year, demand has shifted across certain occupation groups compared with the previous year’s forecasts, due to the natural progression of projects and adjustment of forward pipelines. For example, peak demand for engineers has now passed, as more projects move out of planning and design and into the construction phase. Notwithstanding, engineers remain in shortage. 

Nationally, shortages appear to have peaked in capital cities but are expected to rise in regional areas, due to significant new renewable energy projects announced in the regions alongside modest projected increases in supply.

The majority (64%) of new entrant workers will come from Vocational Education and Training, with a quarter from higher education and the rest from migration (10%).   

Changes to the size of the infrastructure workforce appear to be largely attributable to workers moving in and out of the construction industry, rather than shifting within construction sectors (examples include movements from infrastructure to housing, housing to infrastructure, or commercial/industrial construction to infrastructure). 

Project cost escalations have largely been driven by rising materials cost pressures

We have seen extraordinary escalation in costs trends over the past three years since the establishment of the Market Capacity Intelligence System in 2021, especially in non-labour resources. Recent data has indicated that the volatility of the past three years has, however, reached a point of relative stability, with average price growth for construction materials easing from 11% in 2021–22 and 12% in 2022–23 to 4.3% in 2023–24 (see Section 2: Non-labour Supply for details). It, therefore, was the right time for Infrastructure Australia to revisit the cost assumptions that underpin the Market Capacity database. This involved an analysis of cost escalations in the past three years compared with trends over the previous decade.

Key findings from Infrastructure Australia’s analysis include: 

• Cost increases: the costs of land transport infrastructure construction have increased by 51–53% since 2010–11, with as much growth in the past 3 years as there was in the preceding 10 years. Heavy civil-engineering construction costs, including road and rail, have seen significant increases, particularly in 2020–21. 
• Labour sensitivity: labour accounts for roughly two-thirds of costs in land-transport infrastructure construction, making this sector more sensitive to labour cost changes than others, such as housing, where labour costs constitute less than 40% of the average house construction expenses. 
• Materials cost pressures: the extraordinary rise in output costs over the past three years has been driven by pressures on material costs.

The cost of construction materials continues to remain high, with most materials experiencing year-on-year growth for three straight years. However, the rate of growth appears to have eased over the past twelve months, driven largely by drops in the price for some steel products. Industry sentiment suggests a reported price escalation of non-labour inputs over the last 12 months of about 10–20%, and that prices are yet to peak.

Concrete and steel, the construction materials most in demand, are vulnerable to cross-sector competition in the event of supply shortages. An analysis of Australia’s steel fabrication capacity shows that over two-thirds of domestic capacity is located across New South Wales, Queensland and Victoria. The Northern Territory has least access to local supply despite having the largest demand growth rate of the jurisdictions for steel fabrication products within the Major Public Infrastructure Pipeline.

Construction industry productivity growth remains elusive, more detailed investigation on the supply chain is needed

Construction industry insolvencies are disproportionately high compared to other sectors, accounting for almost 27% of total insolvencies in 2023–24. Small business insolvencies account for 82% of total insolvencies in construction and their profits are in decline. Within the sector, residential construction businesses account for a significant share of total construction insolvencies (24%), compared to non-residential construction businesses (5%) and heavy and civil engineering businesses (3%). 

Tier-1 construction companies (that have delivered projects or been awarded contracts valued at over $1 billion) are taking a greater share of public infrastructure contracts, with the top 5 companies estimated to be holding over 40% of the infrastructure market’s current contract value in 2024. 

While construction productivity growth remains stagnant, economic and financial indicators for the industry are up, with earnings up by 11.6% and contribution to national gross domestic product (Industry Value Added) up by 14.8% in 2022–23.

At an industry level, construction productivity is driven by sustainable construction output growth supported by growth in labour and capital productivity. Almost 47 cents in every dollar spent by a construction company goes to outsourcing services, such as labour hire for skilled trades workers, design and engineering consultants, and capital rentals such as hiring a crane (defined by the Australian Bureau of Statistics as ‘intermediate services inputs’). This has gradually grown from 40 cents in every dollar in 1995–96.

The high reliance on outsourced services reflects a structural characteristic of the construction industry, where work is delivered by larger businesses subcontracting further down the chain to smaller or specialist businesses. Further work to understand the impact of contracting arrangements between stakeholders (client, constructor, subcontractor, supplier) and outsourced services on construction supply-chain resilience would enable governments and industry to better identify project performance drivers that could drive sectoral productivity growth.

Despite stagnant levels of industry multifactor productivity growth, individual companies surveyed as part of Infrastructure Australia’s 2024 Industry Confidence Survey rate their current productivity levels as ‘good’. However, industry continues to call for a more balanced approach to risk allocation in contracts, citing issues such as overly complex and litigious contract models, governments’ low tolerance for risk and the threat of extreme weather events on project delivery. Parties need to continue working together to find the best balance of risk to minimise unnecessary costs and deliver best value for money.

Progress to mitigate market capacity constraints over the past 12 months  

59% of the Major Public Infrastructure Pipeline is made up of land transport infrastructure projects, and since the previous Infrastructure Market Capacity Report, there have been significant enhancements to the Australian Government’s approach to priority setting, risk management, and the planning and delivery of land transport projects. This includes enhancements achieved through the new Federation Funding Agreement Schedule on Land Transport Infrastructure Projects (2024–2029), developed in partnership with the states and territories. The new Federation Funding Agreement Schedule replaces the preceding 5-year National Partnership on the Land Transport Infrastructure Projects (2019–2024).

Active demand management

Impactful reforms include:

• Articulation of the Australian Government’s key policy objectives, its role, and expectations for its investment via the Infrastructure Policy Statement (the ‘Statement’), which includes the preference to fund nationally significant land transport infrastructure projects on a 50:50 basis with state and territory delivery partners (with the possibility of a greater contribution in jurisdictions on a case-by-case basis).
• Changes to the investment profile for several projects as a result of the 2023 Independent Strategic Review of the Infrastructure Investment Program. 
• Negotiation of the new Federation Funding Agreement Schedule, which defines the partnership between the Australian Government and state and territory governments through which land transport infrastructure will be delivered. It sets out investment objectives, outcomes and outputs; the roles and responsibilities of each of the parties; performance monitoring and reporting obligations; as well as financial and governance arrangements. 
• Through the Federation Funding Agreement Schedule, the Australian Government and state and territory governments have committed to achieving their shared objectives, including:
  • Introduction of a 2-pass process for investment, enabling more rigorous planning processes and alignment between governments.
  • Introduction of a risk framework that is linked to the development of adequate due diligence for a project, using a confidence index throughout the project lifecycle that is central to the risk framework, and positive obligation reporting.
  • Provision of Annual Infrastructure Plans by states and territories, which will inform the Australian Government’s investment funding decisions and ensure their alignment with a more strategic, long-term view (10 years).
  • A commitment by governments to optimise their procurement practices to enable a range of agreed socio-economic outcomes that correspond with key recommendations provided in the 2023 Infrastructure Market Capacity Report, including: 
    • a reduction in embodied carbon in transport infrastructure in line with Australia’s Net Zero commitments
    • an increase in women’s participation at all levels of the construction industry
    • optimising recycled content in transport infrastructure to support Australia’s transition to a circular economy by 2030
    • supporting opportunities for Australian and local businesses and industry
    • optimising opportunities for trainees and apprentices, including Australian Skills Guarantee targets, to ensure a pipeline of skilled workers
    • optimising opportunities to enhance construction sector culture and participation, including flexibility, wellbeing and diversity.
• Establishment of performance indicators and reporting arrangements to measure performance.

These reforms demonstrate governments’ intentions to actively manage their transport infrastructure pipelines and reduce the gap between the supply and demand for resources in infrastructure delivery. We are starting to see the impacts this year, with a more manageable public infrastructure pipeline coming off the exponential growth trajectory of the past few years. However, demand still significantly outweighs supply, and construction productivity growth remains stagnant compared to other industries (such as transport or telecommunications).

Adherence to the renegotiated Federation Funding Agreement Schedule processes will support active demand management of the transport infrastructure pipeline. Governments will need to remain vigilant and discerning in their infrastructure spend, including closely managing cross-sector demand in the face of budget and inflationary pressures over the short-to-medium term. 

Long-term approaches to boosting supply 

The Australian Government 2024–25 Budget aimed at helping built environment organisations acquire a larger share of the available workforce and boost workforce productivity. Under the Australian Universities Accord (released February 2024) and the National Skills Agreement (commenced January 2024), funding was committed in the 2024–25 Budget that would boost construction workforce supply. BuildSkills Australia, the Jobs and Skills Council for the building, construction, property and water sectors (launched in February 2024), has also released its 2024 Workforce Plan that aims to identify the most important strategic challenges facing the construction, property and water industries, and provides a framework for tackling these challenges in collaboration with industry, unions and government.¹ Key challenges identified in the Workforce Plan include attracting and retaining highly skilled workers and improving productivity in the construction sectors.

The Australian Government 2024–25 Budget invests $22.7 billion over the next decade to secure Australia’s place in the net-zero global economy, through the Future Made in Australia plan. A key component of the Future Made in Australia plan is the National Interest Framework, designed to guide the Australian Government’s decision-making process for identifying and supporting priority industries.² The Framework identifies green metals as a priority industry under the net-zero transformation stream, along with renewable hydrogen and low carbon liquid fuels. Two other priority industries, critical metals processing and clean energy manufacturing, are also included under a second economic resilience and security stream.

Steel is a key material used in construction and conventional means of steel production are carbon intensive. Australia can develop a long-term comparative advantage in green metals by drawing on our abundant metal and renewable energy resources. The Future Made in Australia plan may relieve pressure on supply chains and boost local workforce capability.

Create measures and take actions to enable an uplift in construction industry productivity 

Another key area of progress is the development of a National Construction Strategy to improve construction productivity. Through the Infrastructure and Transport Senior Officials’ Committee (ITSOC), governments are working with industry on national approaches across four areas: 

• Data collection and benchmarking: to establish measures to assess and track productivity performance.
• Workforce: to increase retention and attraction of diverse workers (including women’s participation).
• Procurement and contracting: for the use of procurement methods to deliver project outcomes.
• New technology and modern methods of construction: to explore ways to increase uptake of digital methods and modern methods of construction.

Looking ahead 

In keeping with the recommendations made in the 2023 Infrastructure Market Capacity Report, this year’s edition refreshes existing demand and supply insights, while adding new evidence, all of which is oriented towards demonstrating progress against the recommendations.  

For each recommendation area — managing demand, boosting labour supply, boosting non-labour supply and increasing productivity — we propose the future directions for the Australian Government to continue the momentum gained this year. Collectively, these recommendations present national priorities for monitoring and mitigating infrastructure market capacity constraints, across all infrastructure sectors. Table 1 sets this out in detail.

Table 1: Update on progress made against 2023 recommendations and future directions

The annual Infrastructure Market Capacity reports respond to a request made by the Prime Minister and First Ministers in 2020: that Infrastructure Australia work with jurisdictions and industry bodies to monitor the infrastructure sector. 

“Leaders considered analysis on the market’s capacity to deliver Australia’s record pipeline of infrastructure investment to support the country’s growing population. This analysis highlighted the importance of monitoring infrastructure market conditions and capacity at regular intervals to inform government policies and project pipeline development. Leaders agreed that Infrastructure Australia will work with jurisdictions and relevant industry peak bodies to monitor this sector.”

Source: Council of Australian Government Communiqué, 20 March 2020

The fourth publication on infrastructure demand and supply from Infrastructure Australia

Like the previous three editions of the Infrastructure Market Capacity Report, this report examines public infrastructure demand and market supply capacity over five years - in this case, 2023—24 to 2027—28. It provides an updated health check and analysis of our national construction market’s capacity to deliver public infrastructure works. 

The report is structured as follows:  

• Understanding demand: a quantification of total infrastructure demand across five years by sector, by project type, and detailed analysis of the Major Public Infrastructure Pipeline including year-on-year changes and escalation costs.
• Non-labour supply: an appraisal of the main supply-side risks to market capacity today, including industry views gleaned from interviews and surveys conducted for this report. The focus is on materials supply, which is the largest non-labour supply category by cost shares.
• Labour and skills supply: projections of infrastructure construction labour supply and shortage by jurisdiction and occupation groups. Plus, summary of emerging skills and an assessment of boarder construction workforce trends.   
• Industry productivity: analysis of the current state of the construction industry, including productivity and insolvency trends, supplemented with industry perception obtained from our 2024 Industry Confidence Survey.

New for 2024: Expansion of demand-side coverage, updated demand-side resource cost assumptions, and steel fabrication capacity analysis  

This edition of the Infrastructure Market Capacity Report advances the analysis on current and emerging influences on market capacity from previous reports, including:

Demand-side coverage: we have expanded our demand-side database by capturing investment in defence infrastructure works, private investment in mining and resources, and smaller scale residential buildings which have not previously been captured in earlier editions.  

Demand-side resource costs: recent data has indicated that the cost-escalation volatility of the past three years has reached a point of relative stability, while analysis of the project cost estimates in our database verifies that cost pressures have been incorporated in estimates. To maintain accuracy of our modelled resource requirements, Infrastructure Australia updated its cost assumptions for resources demanded by applying appropriate increases (based on the Australian Bureau of Statistics Producer Price Index and Wage Price Index) to cost rates per resource.

Steel fabrication capacity analysis: The Australian Steel Institute initiated a collaboration with Infrastructure Australia to compare steel fabrication supply-side capacity by geography with nearby project-level demand. Similar supply-and-demand analysis on other materials could be included in future editions of this report if useful supply-side data is willingly shared following the positive example set by the Australian Steel Institute.

Continued emphasis on policy implications with acknowledgement of progress and looking ahead at future directions 

Significant work has been undertaken against all four categories of recommendations from the 2023 Infrastructure Market Capacity Report to actively manage demand, boost materials supply, boost labour supply, and turn around construction productivity. This edition provides an update of market capacity conditions with respect to demand and points to future directions for the Australian Government to maintain the momentum for work in progress against each of the existing recommendation areas.

A brief explanation of our Market Capacity Program

The Market Capacity Program is an assumptions-based methodology for identifying market capacity risks. It was developed in collaboration with state and territory governments, industry, advisory bodies and other subject matter experts. These partnerships are integral to the ongoing evolution of the Market Capacity Program. 

The Market Capacity Program is underpinned by two system components: 

The National Infrastructure Project Database

The National Infrastructure Project Database aggregates and organises infrastructure project data supplied by the Australian Government (including defence), state and territory governments (public investments), the Australian Bureau of Statistics (housing building activity) and GlobalData (private investments).

The following infrastructure sectors are included in the Market Capacity Program: 

• Buildings: non-residential buildings for health, education, sport, justice, transport buildings (such as parking facility and warehouse), other buildings (such as art facilities, civic/convention centres and offices), detached, semi-detached and multi-detached residential, apartments and renovation activities (using all residential building activities captured in the Australian Bureau of Statistics Building Approvals). 
• Transport: roads, railways, level crossings, and other transport projects such as airport runways.
• Utilities: water and sewerage, energy and fuels, gas and water pipelines, and telecommunications.
• Resources: base metals, precious metals, critical minerals, hydrogen and ammonia, chemical & pharmaceutical plants, oil and gas, and ports.

Market Capacity Intelligence System

The Market Capacity Intelligence System is a set of analytical tools that interrogates and visualises project demand sector, project type and resource inputs, for the following infrastructure pipelines: 

• Major Public Infrastructure Pipeline: Publicly funded infrastructure projects valued over $100 million in New South Wales, Victoria, Queensland and Western Australia, and over $50 million in South Australia, the Australian Capital Territory, the Northern Territory and Tasmania.
• Small Capital Public Infrastructure Pipeline: Publicly funded infrastructure projects valued $100 million and under in New South Wales, Victoria, Queensland and Western Australia, and $50 million and under in South Australia, the Australian Capital Territory, the Northern Territory and Tasmania.
• Private Infrastructure Pipeline: Privately funded public infrastructure, such as a wind farms, that is funded, delivered and operated by the private sector.
• Private Buildings: Residential and non-residential buildings projects.
• Road Maintenance: Resource demands for road-maintenance projects.

Enhancements to the Market Capacity Program in 2024: accounting for cost escalations

We have comprehensively reviewed and updated our Market Capacity Program assumptions this year to ensure our cost estimates and assumptions reflect current economic conditions.

Step 1 involved a comparative analysis of 2024 data collection from jurisdictions to compare the average investment by infrastructure asset class across all jurisdictions, compared with 2022 project estimates before inflation accelerated. We found that those estimates had increased in line with cost pressures. Because this revision to estimates occurred across the pipelines of states and territories, it meant Infrastructure Australia’s modelling assumptions needed to be updated to reflect inflation, such that we are forecasting the right number of workers needed or material tonnages needed.

Step 2 involved work to integrate relevant price indices, including the Australian Bureau of Statistics’s Producer Price Index and Wage Price Index, to ensure differential escalation rates of construction inputs are factored into our cost estimates and assumptions.

Step 3 involved the application of resource-specific escalation rates. Different resource categories were found to have unique escalation rates. For example, the cost of materials like steel or concrete have increased at a different rate compared to labour costs or equipment rental fees. This variation is due to factors such as supply-chain dynamics, market demand, and industry-specific constraints. By incorporating differential escalation rates, the updated assumptions provide a more accurate and realistic representation of the current cost environment, ensuring that the project estimates are aligned with the latest economic conditions.

Industry confidence research   

Supporting the quantitative analysis research each year, Infrastructure Australia also undertakes industry research to gauge industry confidence levels and better understand their perspectives on current market conditions. 

This year, three surveys were undertaken of Australian businesses in the building and construction industry, supplemented with in-depth interviews:

• The 2024 Industry Confidence Survey (n=200) captured views across the infrastructure life cycle, across identification/planning, design, construction, operations and management. The survey sample were actively delivering contracts that ranged in value from less than $10 million to more than $1 billion over the last 12 months.
• The 2024 Civil Contractors Federation Survey of its members (n=122) captured views of civil-construction businesses, comprised of majority (63%) smaller Tier-3 and Tier-4 businesses with annual turnover of less than $100 million.   
• The 2024 Infrastructure Australia Labour Shortage Survey (n=40), as one of various inputs into the workforce analysis, supplements quantitative data and provides additional nuanced insights into projected shortages. Surveyed businesses had operations covering all jurisdictions and all construction sectors (transport, residential, commercial and social infrastructure). 
• In-depth interviews (n=20) with randomly selected building and construction businesses, with each tier represented, to get a more detailed understanding of the key issues for the year. 

All state and territories were represented in this year’s industry surveys and were roughly representative of construction industry geographical spread across the country – most in New South Wales and Victoria, followed by Queensland, Western Australia and South Australia, and the smaller jurisdictions Australian Capital Territory, Tasmania and the Northern Territory.

For more details on the survey methodology, see Appendix F: Industry Confidence surveys.

Detailed methodologies in Appendices      

See the Supporting Appendices for detailed explanations of the Market Capacity methodology: 

• Appendix A: Demand-side analysis methodology
• Appendix B: Supply-side analysis methodology
• Appendix C: Infrastructure typecasts
• Appendix D: Resource classifications
• Appendix E: Workforce and skills methodology
• Appendix F: Industry confidence surveys 
• Appendix G: Revision of cost escalation assumptions.

Active demand management – future directions 

The Australian Government, in partnership with state and territory governments, should continue to actively manage public infrastructure demand through: 

• adoption and adherence to the new Federation Funding Agreement Schedule on Land Transport Infrastructure Projects (2024-2029) processes to support active pipeline management. 
• building on the analysis from this 2024 Infrastructure Market Capacity Report, quantifying the construction workforce engaged in sectors outside infrastructure (such as housing and energy) to identify adjacencies and potential worker mobility between sectors to fill labour gaps.

The market capacity analysis now captures more construction activity than ever before

Figure 1 shows the Infrastructure Australia pipeline of forecast construction activity based on cost estimates against the backdrop of total construction activity as reported by the Australian Bureau of Statistics. The main difference between the two measures is that the Australian Bureau of Statistics incorporates the impact of cost escalations, while the Infrastructure Australia database shows cost estimates with far less certainty about the value of future escalations. This key difference makes it difficult to assert how much of total construction activity is captured in our database. However, by expanding our database this year to include more residential activity, mining projects and defence capital projects, our database now forecasts a volume of construction activity that peaks in 2026 almost in line with current levels of construction work done as reported by the Australian Bureau of Statistics.

Even though we do not expect all projects to proceed as announced, this approach provides valuable insight into market ambition in the coming years. It also provides the added benefit of enabling a more comprehensive analysis of market demand than was possible in previous editions. 

Figure 1: Forecast construction spend, as captured in the Infrastructure Australia database, in the context of historic total construction activity (2016 to 2028)

Note: Infrastructure Australia no longer displays a projection for future total construction activity as exists in previous editions of the Infrastructure Market Capacity Report.
Source (for total construction activity): Australian Bureau of Statistics (2024)⁴

Total construction demand captured in our database covers $1.08 trillion in the five years from 2023–24 to 2027–28. This level of forecast activity is almost in line with current run rates where the total construction activity reported by Australian Bureau of Statistics in the five years from to 2019–20 to 2023–24 was $1.2 trillion. 

Figure 2 shows the total infrastructure pipeline, as captured in our database, broken down by sector. Buildings account for most of the expected expenditure (62%), followed by transport (17%), utilities (11%) and resources (10%). 

Of the $671 billion in buildings, $71 billion is from the Major Public Infrastructure Pipeline, with another $43 billion invested in buildings by governments, totalling $114 billion of public investment. Figure 2 includes a breakdown of this public investment in buildings, which is dominated by residential and health projects.

For the period 2023–24 to 2027–28, public spending accounts for 25% of the $1.08 trillion construction market, of which the Major Public Infrastructure Pipeline totals $213 billion and $58 billion is planned on Small Capital Projects. The rest of this section provides an analysis of the Major Public Infrastructure Pipeline.

Figure 2: Combined construction pipeline, as captured in the Infrastructure Australia database, by sector (2023–24 to 2027–28)

The 5-year Major Public Infrastructure Pipeline has dropped by 8% to $213 billion, with a flatter peak demand moving out one year to mid-2026

As shown in Figure 3, the 5-year rolling Major Public Infrastructure Pipeline has dropped from $230 billion projected last year (2022–23 to 2026–27) to $213 billion this year (2023–24 to 2027–28).

Peak investment has moved one year out to 2026 compared to the projection last year. These changes are consistent with a continuing trend each year observed by Infrastructure Australia of projected investment peak shifting into outer years, suggesting that the market struggled to deliver on an overly ambitious pipeline. 

The peak demand is also flatter compared to previous years projections (2022, 2023) when demand rose exponentially to a high peak before dropping over outer years. The shape of the demand curve this year suggests a more realistic and achievable pipeline for a constrained market to deliver.

Figure 3: Comparison of 2023 and 2024 rolling forecasts of Major Public Infrastructure Pipeline activity (2022–23 to 2026–27 versus 2023–24 to 2027–28)

Like-for-like analysis of how project estimates have changed in the past 12 months reveals the drop in demand is primarily driven by projects recently completed or removed from the pipeline

Infrastructure Australia conducted an in-depth year-on-year analysis, comparing estimates of the Major Public Infrastructure Pipeline from 2023 and from 2024 for the same 5-year period (2023–24 to 2027–28, as shown in Figure 4). Unlike last year when we reported that the pipeline had increased by 13% for this exercise, this year the 2024 forecast is the same as the 2023 forecast for the specified time period.

Figure 4: Comparison of 2023 and 2024 forecasts of Major Public Infrastructure Pipeline activity (2023–24 to 2027–28)
 

By studying a sample of over 600 on-going major public infrastructure projects in the 2023–24 to 2027–28 pipeline using data from both the 2023 and 2024 pipeline estimates, we identified changes in the pipeline, as visualised in Figure 5.

The pipeline decreased by 12% due to projects being removed or recently completed, with a further 11% drop from investment cuts in continuing projects. 

The magnitude of 23% in reductions has not quite been netted out by new projects coming into the pipeline (10%, predominantly in the buildings sector) and increases to investment estimates (6%), leaving another 7% in increases still to be explained.

The remaining 7% increase year on year is explained by delays to project schedules. Schedule changes to several projects where construction has been delayed versus the estimates of one year earlier, had the effect of shifting project investment from 2022–23 out to later years. Where this shift occurred, we quantified the 2024 estimate as being 7% higher than the 2023 estimate for 2023–24 to 2027–28.

Figure 5: Major Public Infrastructure Pipeline spend from 2023–24 to 2027–28, changes from 2023 forecast to 2024 forecast

Transport remains the largest public infrastructure expenditure category but has declined this year, while building and energy investment continue to grow

Figure 6 shows investment in the Major Public Infrastructure Pipeline over the 2023–24 to 2027–28 outlook period, as broken down by sector.

Transport infrastructure investment is projected at $126 billion and remains the largest expenditure category, accounting for 59% of the Major Public Infrastructure Pipeline. This is a $32 billion reduction on the previous year’s outlook, driven by:

• Completions of megaprojects in 2023–24.
• Fewer new projects to commence in coming years versus the previous outlook period.
• Cost and schedule changes in the total investment estimates, for some megaprojects due to commence construction in the outlook period.

Buildings infrastructure investment is projected at $71 billion, which accounts for 34% of the Major Public Infrastructure Pipeline. This is up $8 billion on the previous year’s outlook. Buildings infrastructure is driven by health ($24 billion) and residential buildings ($17 billion), followed by other building types such as convention centres, offices, art facilities and laboratories ($12 billion). 

Utilities infrastructure investment is projected at $16 billion, which accounts for 7% of the Major Public Infrastructure Pipeline.  This is up $6 billion on the previous year’s outlook. While investment in energy projects is mainly driven by the private sector, significant public investment can be seen in large transmission projects.

Analysis of projected demand peaks by sector over the five-year outlook shows that while transport investment is expected to continue to decline, buildings infrastructure is expected to peak in 2026, while energy investment is expected grow steadily. The staggered demand peaks by sectors have an effect of maintaining a steadier level of overall investment across infrastructure. 

When interpreting these projections, it should be noted that the Major Public Infrastructure Pipeline accounts for only a quarter of the total construction market and there is significant private investment in buildings and particularly in energy infrastructure. 

Figure 6: Major Public Infrastructure Pipeline spend by sector (2023–24 to 2027–28)
 

Analysis of regional demand sees growth across northern Australia

Regional analysis of the pipeline has been made possible for the first time this year, through the development of analytical tools created in 2023 by Infrastructure Australia in collaboration with state and territory governments. These tools are designed to help government decision makers diagnose labour-supply bottlenecks, spot growth opportunities and build strong evidence bases for investment decisions. 

Two analytical tools are fundamental to this regional analysis: a national heat map of construction demand and supply, and a demand pipeline simulator – both of which analyse investment demand, material demand, and labour demand and supply.

In the five years from 2023–24 to 2027–28, when compared with the corresponding period in the 2023 forecast, there is a significant geographical shift in public investment to the north, with the Major Public Infrastructure Pipeline in Queensland and Northern Territory growing by $16 billion, while New South Wales and Victoria have reduced by $39 billion.

Deep dive: contribution of cost pressures by resource type

In 2024, Infrastructure Australia undertook a deep dive of the contributions to cost escalation on the Major Public Infrastructure Pipeline by PLEM (Plant, Labour, Equipment, Materials) resource types. This analysis breaks down the total project cost escalation into its constituent parts, allowing us to identify the contribution of each resource type to the overall escalation.

We have comprehensively reviewed and updated our Market Capacity Program cost assumptions this year (based on the Australian Bureau of Statistics Producer Price Index and Wage Price Index) to ensure our cost estimates and assumptions reflect current economic conditions.  

As shown in Figure 7, applying the updated cost assumptions to the Major Public Infrastructure Pipeline this year, average labour demand dropped by 20% in full-time equivalents per month compared to last year’s projection.

Figure 7: Comparison of 2023 and 2024 forecasts of demand for labour from the Major Public Infrastructure Pipeline (2020–21 to 2027–28)
 

Preparedness is needed for the workforce to deliver private-funded infrastructure demand

In terms of private investment (that is, separate to the Major Public Infrastructure Pipeline), we observed a jump in labour demand from the private infrastructure sector in the near future. This is driven by the renewable energy transition. As shown in Figure 8, from early 2027, labour demand from private infrastructure will almost double when compared with the forecast from 2023.

The top 5 occupations needed to deliver energy projects over the five-year outlook are Other Professional Engineers (those not classified as civil, electrical, industrial, mechanical or production engineers), General Construction Labourers, Electricians, Plant Operators and Project Managers.

Figure 8: Comparison of 2023 and 2024 forecasts of demand for labour from private infrastructure (2020–21 to 2027–28)

Demand for concrete and steel cuts across all construction sectors, while demand for other materials varies by sector

By cost shares, materials accounts for the largest proportion (73%) of total non-labour spend on the Major Public Infrastructure Pipeline, followed by plant (15%) and equipment (11%).

As shown in Table 2, concrete is the top construction material needed by volume to complete major infrastructure works over the five-year outlook (137 million tonnes), followed by rock/bluestone (31 million tonnes), asphalt (18 million tonnes) and steel (8 million tonnes).

Table 2: Demand for materials from the Major Public Infrastructure Pipeline (2023–24 to 2027–28)

As shown in Figure 9, across major public infrastructure works, materials demand is mostly driven by transport, due to its dominant position on the Major Public Infrastructure Pipeline, followed by buildings and utilities. As all sectors will be consuming concrete (aggregate/sand/cement) in bulk, it may be subject to cross-sector competition in the event of supply shortages. 

To remove the impact of pipeline size, we analysed materials required per $ million to normalise data and understand material requirement per sector. In doing so, we observe that steel is another material that is critical to delivery shared cross all sectors.

To deliver $100 million of investment, we need:

• 64 tonnes of steel for other buildings
• 44 tonnes for utilities
• 28 tonnes for transport
• 23 tonnes for residential buildings.

Asphalt and rock/bluestone are materials heavily needed for transport projects and non-residential building types. Wall materials (bricks, plasterboard, timber) on the other hand are unique to residential buildings.

Figure 9: Demand for materials from the Major Public Infrastructure Pipeline by sector (2023–24 to 2027–28)

Industry view

Most businesses report capacity as being the same or worse than last year, and a third expect work will increase in the next two years

When it comes to industry’s assessment of current market capacity compared to the previous year, 64% of surveyed building and construction businesses felt it was the same, 26% believed it was worse and 6% felt it is ‘not as challenging’ as last year. There were no significant variations in responses across industry subsectors or size of contracts delivered.

When looking two years ahead, approximately 40% of surveyed businesses expect capital project activity to stay about the same as current levels, with almost a third (32%) believing it will increase and a fifth (22%) believing it will decrease. 

By sector, more businesses in the utilities and transport sectors (over 40%) anticipate an increase in activity levels over the next two years than other sectors (housing, mining and commercial). A smaller proportion (32%) of residential-construction businesses expect activity levels to increase compared to 42% expecting activity to stay the same. These responses are slightly at odds with the pipeline-demand data that shows growth in residential buildings investment and a decrease in transport investment over the forward estimates compared to the previous years’ projections. 

The market observes a ‘two speed’ economy with demand driven by Queensland and falling in the New South Wales and Victoria

Industry notes diverging pipeline pressures in different states, observing many active or large infrastructure projects planned in some states such as Queensland, while in New South Wales and Victoria, government spending has reduced, and pipelines are lengthening. 

These views align with Infrastructure Australia’s analysis of the Major Public Infrastructure Pipeline over the forward estimates, with more subdued overall demand compared to previous projections characterised by weaker investment in east-coast states and growth up north.

Industry is confident to scale up operations moderately, with residential sector least confident to scale up 

As shown in Figure 10, when asked to rate their confidence to scale up in response to increased investment in public infrastructure across a few growth scenarios (scale up by 5%, 10%, 25%, 50%, 100% or over 100%), most businesses believe they have the capacity to scale up to meet increased activity to a degree. Over half (53%) were very or somewhat confident in their ability to scale up their activity by 25%. However, confidence to push beyond this then starts to drop with 40% of businesses confident to scale up their activity by 50%, and 37% confident to scale up by 100%. 

Figure 10: Confidence of building and construction businesses in their ability to increase activity to meet increased public infrastructure investment

Source: Infrastructure Australia Industry Confidence Survey (2024)

Consistently, businesses in the mining sector reported highest confidence to scale up, followed in order by the utilities, transport and commercial sectors. Businesses in the residential construction sector reported the lowest confidence levels to scale up. This suggests the residential construction sector is experiencing more significant capacity constraints of all construction sub-sectors.

Businesses delivering larger contracts have greater confidence to scale up. Across all growth scenarios, companies delivering contracts over $100 million are more confident to scale that those delivering contracts between $10 million and $100 million. Companies delivering contracts less than $10 million in value have consistently less confidence to scale up than the two prior-mentioned groups. 

Of those surveyed among the Civil Contractors Federation’s member base, representing a majority smaller Tier-3 businesses, nearly a third (31%) reported that if there was an increase in the number of projects tendered in their respective state, they could take on between 10–25% extra work. This is compared with a little over a fifth (21%) who said they could take on between 25–50% more work. Where these members suggest they have extra capacity to take on additional projects, nearly 80% said they could take on the most work in rural and regional areas, compared to 64% who reported capacity to take this extra work within metropolitan areas.

During interviews, businesses also noted the current economic environment, including inflation, rising costs and interest rates, as a challenge affecting project viability and profitability, which in turn is impacting on overall capacity

Boost non labour supply – future directions 

The Australian Government, in partnership with state and territory governments, should continue to expand construction non-labour supply through: 

• improving monitoring local production capacity of key construction materials. This could include industry collaborations such as the work done with the Australian Steel Institute for this report.
• exploring opportunities to coordinate national demands for specific materials or equipment facing strong global competition and long lead times in light of the energy transition and the enabling infrastructure needed to deliver it. 

Supply of steel and timber cited by industry as being a critical delivery risk this year

Businesses surveyed as part of the 2024 Industry Confidence Survey regarded most materials as posing some level of supply-chain risk. As shown in Figure 11, steel and timber supply were most often cited (rated as 9-out-of-10 or 10-out-of-10 risk by 14% and 12% of surveyed businesses, respectively), followed by concrete/cement and construction equipment as posting a threat to project delivery.

Figure 11: Views of building and construction businesses on materials supply threats to infrastructure projects delivery

Source: Infrastructure Australia Industry Confidence Survey (2024)

Table 3 provides a snapshot of key construction material, plant and equipment supplies in 2024.

Table 3: Key construction non-labour supply – 2024 insights 

Cost of materials still increasing but at lower rate

The cost of construction materials continues to remain high, with the majority of materials experiencing year-on-year growth for three straight years. However, the rate in which these materials have grown has largely eased over the past twelve months, with average annual price growth for all materials being 8% lower than in 2023 (average growth of 4.3% in 2024 versus 12% in 2023). 

As shown in Figure 12, while this slow down in price escalation was felt across the board, it was largely driven by large drops in the price for steel beams and sections, and reinforcing steel, which decreased over the year by 16% and 8%, respectively. For these materials, this is a notable shift in the annual changes in the prices Infrastructure Australia observed in 2022, when the prices for these materials had increased beyond 30%. There were, however, some outliers to the broader trend for this year, with clay bricks, coating, and electrical products experiencing significant increases.

Some of these material cost escalations are being driven by conflicts in Ukraine and the Middle East, which are disrupting international supply chains. The conflict in the Middle East, for example, has seen disruptions to shipping routes, which are adding substantial costs to the transportation of materials. However, overall the increases in costs are stabilising and becoming more predictable, especially as Australia continues to move past the post-COVID-19 period.

Figure 12: Annual % input price changes for house construction materials (2021–22 to 2023–24)

Source: Australian Bureau of Statistics (2024)¹⁹

Prices of imported materials have been stable over the last 12 months

Over the past 12 months, the prices of oil, coal and iron ore have continued to fluctuate. While these prices are expected and not unusual, these fluctuations were not as extensive as they were in previous years. 

When compared with the nature of the price fluctuations in 2021, 2022 and 2023, the prices for these materials throughout 2024 can be described as being much more stable. That is, they did not experience such wild swings in price points, which were caused by the COVID-19 pandemic, the start of the conflict in Ukraine, and renewed   geopolitical tensions and conflicts within the Middle East. These events saw significant disruptions to supply chains and demand. For instance, conflict in the Middle East, especially disruptions to shipping routes in the Red Sea, has driven up shipping costs as companies are forced to reroute, resulting in longer and more expensive journeys.

Additionally, there is strong demand for materials such as iron ore from China, driven by the country’s significant infrastructure boom. As conflicts in Ukraine and the Middle East persist, along with global demand for materials, these factors will continue to influence material prices. However, this impact is likely to be more predictable than what has been experienced in the past. Figure 13 shows minimal change in the price of imported oil, iron ore and coal over last 12 months, following periods of greater variability. 

Figure 13: Changes in oil, coal and iron ore prices (2016 to 2024)

Source: Department of Industry, Science and Resources (2024)²⁰

Freight schedules and costs were impacted by global supply chain disruptions

Events such as conflicts in Ukraine and the Middle East continued to disrupt global supply chains earlier in 2024. Figure 14 shows their impact on the Federal Reserve Bank of New York’s Global Supply Chain Pressure Index. 

Figure 14: Global Supply Chain Pressure Index including key events (1998 to 2024)

Source: Federal Reserve Bank of New York (2024)²¹

In January and February, conflict in the Red Sea had a major impact on key global trade routes. As shown in Figure 15, trade volumes through the Suez Canal – the crux of Europe and Australasia’s shortest maritime route – were 50% lower than in 2023. As a result, trade levels surged around South Africa’s Cape of Good Hope due to re-routed freight.

Cost impact: The Australian Bureau of Statistics links a 1.2% rise in water freight (shipping) prices to the Red Sea conflict, while noting the increase followed six consecutive quarters of price drops.²²

Schedule impact: The average journey time of rerouted freight was 26 days, which is 19 days (55%) longer than average equivalent freight trips through the Suez Canal.²³

Figure 15: Daily transit trade volumes for Suez Canal and Cape of Good Hope (January 2023 to October 2024)
 

Source: International Monetary Fund Port Watch (2024)²⁴

Imported steel is fulfilling local demand for products that are not manufactured anywhere in Australia 

In Infrastructure Australia’s 2023 Infrastructure Market Capacity Report, we noted a 20% increase in steel imports over the previous two years compared with the past two decades. It is evident that this reliance on imports has continued with specialised products such as stainless steel and tool steel,²⁵ and Figure 16 shows an increase in overall steel imports in 2023–24. Over the same period, steel prices have decreased due to a combination of factors such as lower global demand, greater global production capacity and changing raw material costs, such as for iron ore.²⁶

Figure 16: Steel imports by type compared to price of steel (2013–14 to 2023–24)
 

Source: Australian Bureau of Statistics (2024)²⁷

Industry view

Industry is cognisant of both global and domestic risks to supply

Infrastructure Australia has been tracking industry’s sentiments, through the Industry Confidence Survey, for four years. As shown in Figure 17, there have been shifts in how industry assesses domestic versus global supply risks over that time.

In 2022, just over half (53%) of building and construction businesses surveyed thought global issues alone were responsible for supply-side risks, while 37% thought it was domestic issues and 11% thought it was due to both. In 2023, industry’s opinion switched to viewing domestic factors being the predominant source. This year, half of respondents regarded both global and domestic supply chain issues being equally problematic, compared to 30% who viewed domestic and 20% who viewed global supply-chain risks as being more problematic. 

The Russian invasion of Ukraine and the impacts of the COVID-19 pandemic on global supply chains in the preceding years may have elevated industry’s assessment of global risks in 2022. This year, industry is aware of the impacts of both global and domestic supply risks to their business. This aligns with our observations on the need to balance reliance on imports with domestic production capability to mitigate supply risks of key construction materials. 

Figure 17: Views of building and construction businesses on whether global or domestic supply chain issues are more problematic, changes over 2022 to 2024

Note: These figures exclude ‘not sure’ responses.
Source: Infrastructure Australia Industry Confidence Survey (2022, 2023, 2024)

Figure 18 presents industry views on the main risks in sourcing global supplies for infrastructure project delivery. Industry regarded international supply-chain disruptions, delays and shortages as the highest threat (60% ranked as a threat, including 16% as a major threat). 

Competing domestic demand from adjacent sectors (such as building and mining) and competing global demand were both regarded by industry as relatively similar levels of threat to the global supply chain (50–51% ranked both as a threat, including 10% as a major threat). 

Figure 18: Views of building and construction businesses on the threat level of global supply-chain risk factors to successful delivery of infrastructure projects in Australia

Source: Infrastructure Australia Industry Confidence Survey (2024)

Businesses have noticed a 10–20% price escalation of non-labour costs over the last 12 months and believe prices are yet to peak

62% of surveyed businesses noted an increase in price escalation in terms of non-labour costs over the last 12 months. The vast majority (62%) of industry surveyed noted the increase in price for non-labour resources this year. Of those that noticed this increase in costs, 64% reported a 10–20% increase.

Many believe a peak in non-labour costs is still yet to come. In fact, 43% say that prices are increasing at an accelerating rate, whereas 36% believe they have been doing so at a steady rate. 

Looking specifically to those surveyed within the Civil Contractors Federation membership, the largest group (45%) said they had noticed an increase of between 10–25% in the cost of project inputs. Only 18% noted an increase of more than 25%. However, these figures reflect respondents’ views of both labour and non-labour inputs combined, not solely materials. 

These industry perceptions on cost increases are largely consistent with Infrastructure Australia’s analysis of the Australian Bureau of Statistic’s price index data,²⁸ which shows that non-labour inputs are 80% higher now than in 2010–11. 

Spotlight

Spotlight: Steel and steel products

Australia needs 8 million tonnes of steel to deliver the pipeline of public and private sector construction projects over the next five years.

Steel is a critical input of transport, energy and other infrastructure projects, and a critical construction input overall. As shown in Figure 19, over half the world’s annual steel output (52%) was used within buildings and infrastructure.

Figure 19: Global steel use by sector

Source: World Steel Association (2024)²⁹

Imported steel and global supplies

The global steel industry, producing over 1.8 billion metric tonnes of steel annually, is dominated by a few major producers: China (the largest), India, Japan, the United States and Russia.³⁰ Australia plays an important role in the global steel supply chain, by mining and exporting iron ore and coking coal for steel production.

Local Australian steel output is supplemented by imported steel, some of which is critical for project success, particularly finished-steel products that are not manufactured in Australia, such as stainless steel and tool steel. Over 2013–14 to 2023–24, Australia imported approximately 2.5 million tonnes of steel a year.  

Using imported steel in local construction can expose projects to risks inherent to global resourcing, such as price fluctuations, greater competition, supply-chain disruptions, product quality variances and local compliance modifications. 

Additionally, embodied carbon emissions of imported steel can create uncertainty, add complexity and compromise Australia’s measures and efforts in decarbonising the infrastructure sector.

Domestic steel production  

With an estimated output of 5.3 million tonnes annually, Australia’s steel industry is substantial. There are four major manufacturers of steel in Australia, supported by over 300 distribution outlets and numerous manufacturing, fabrication and engineering companies.³¹

The capabilities of the Australian steel industry include: steel manufacturing, roll-forming, distribution, fabrication, construction modelling, hot dip galvanizing, protective coatings and grating and handrails.

Steel fabrication 

Analysis undertaken with the Australian Steel Institute reveals Australia has an estimated steel fabrication capacity of 1.4 million tonnes per year. The domestic steel-fabrication sector is comprised of majority small and medium-size enterprises, many of which are multi-generational family-owned businesses.
Whilst some businesses continue to operate as traditional ‘jobbing’ shops, many have developed specific areas of specialisation and associated capabilities. These include: bridge work, architectural steelwork, refurbishment and maintenance of mining equipment, sheet metal fabrication, chemical-industry infrastructure, civil construction, wind tower fabrication, and portal-frame structures. 

Green steel

The Australian Government has identified green metals (including green steel) as a priority industry under its Future Made in Australia National Interest Framework. While Australia is in the early stages of developing facilities with the capacity to produce green steel, it has the potential to reduce carbon emissions from the steel-production process and maximise the economic and industrial benefits of our move to net zero.

The Australian Government 2024–25 Budget commits funding for Green Metals Foundational Initiatives that will explore ways government can stimulate demand, including industry participation frameworks at federal and state levels, which will help define opportunities for the inclusion of green metals in energy, defence, infrastructure and housing projects.³²

Domestic steel fabrication supply capacity analysis

Australia needs 3.8 million tonnes of fabricated steel structure elements over 2023–24 to 2027–28.. By sector, buildings will require 55% of total demand for fabricated steel, transport 29% and utilities 16%. 

Based on data provided by the Australian Steel Institute, we analysed the capacity and location of 296 domestic steel fabricators, representing an estimated 70% of total domestic capacity. As shown in Table 4, we estimate these producers have a capacity to produce approximately 939,500 tonnes annually, with over two-thirds (69%) capacity located across New South Wales, Queensland and Victoria. 

We note that based on the Australian Steel Institute dataset, there is currently very little capacity in the Northern Territory, at less than 1% of total domestic capacity. However, the Territory will require 7% of national demand.

Table 4: Steel fabrication capacity versus demand, by state and territories

Note: Percentages do not add to 100% due to rounding.
Source: Infrastructure Australia analysis of Australian Steel Institute data (2024)

Delivery of fabricated steel to project sites will be critical for our energy transition

Energy projects will drive the nation’s energy and economic transition. As our demand analysis indicates, industry is gearing up to deliver a wave of energy projects over the next five years. Through the Rewiring the Nation program, the Australian Government has committed $20 billion to build and upgrade transmission infrastructure needed to transform the generated energy from renewable sources into electricity and move it across the network to end users.   

However, there is a lack of data about Australia’s fabrication capacity for specialist components needed in energy projects. Energy projects often need specialist steel components that are imported. For example, components such as lines, transformers and cables are manufactured near bigger markets in Europe and the United States, while transmission towers are imported from overseas and assembled in Australia.³³

The majority (89%) of planned government-funded solar and wind farms will be built in regional areas. Transportation of supply from source, whether from a local producer or overseas via a port, to the project site will require adequate road infrastructure, co-ordination and careful project staging, especially as equipment such as wind turbine blades can measure up to 70 meters in length and 7 meters in diameter.³⁴

Opportunities for industry to work together with Government  

One of the 14 recommendations put forward in Infrastructure Australia’s 2023 Infrastructure Market Capacity Report was for an analysis of domestic steel production and fabrication capacity. From a supply-chain-resilience perspective, this could inform broader Australian Government directions to strengthen sovereign capability and identify opportunities to grow future industries where warranted, including green steel.

More information on domestic production capacity of key construction materials could help strengthen the early stages of project planning and design. That is, projects could be planned with local businesses in mind. It could also help foster earlier engagement with the industry, providing more visibility of future demand and encourage businesses to increase capacity accordingly.

Improved visibility of demand against local supply gives the market a clearer understanding of gaps and opportunities to grow. It might also encourage small businesses within close proximity of a proposed project to collaborate and join forces to meet specific project requirements.  

One such example of local business collaboration was the construction of Western Sydney Stadium in Parramatta, New South Wales. This was a $360 million project that used 4,500 tonnes of Australian steel sourced by a local supplier, with the exposed local steel fabricated and painted by several Western Sydney businesses. The structure was designed and specified to ensure local steel mills could competitively produce steel, which was then sent to a large group of existing suppliers and fabricators within a 10-kilometre radius of the stadium. The scale of the project and early engagement with these businesses gave them confidence to invest in new equipment and expand their capability to deliver.

Our collaboration with the Australian Steel Institute this year on the analysis of domestic steel fabrication capacity is a starting point to improving awareness of domestic supply capacity of a key construction material. Industry and governments can continue to work together to improve knowledge of demand, mapped against supply capacity, for key construction materials, particularly in national priority areas such as renewable energy. 

National uptake of recycled materials

Over the next 5 years, Australia will need over 192 million tonnes of construction materials to deliver planned infrastructure projects. Key materials used in construction, such as concrete, asphalt and steel, produce significant embodied carbon emissions throughout their lifecycle. Buildings and infrastructure are directly responsible for almost one-third of Australia’s total carbon emissions and indirectly responsible for over half of all emissions.³⁵

In 2022, Infrastructure Australia estimated that based on current technology and standards, approximately 27% of the conventional material tonnage needed to deliver 998 road projects across Australia between 2015–31 could be replaced with a range of recycled materials.³⁶

This year we have estimated the current (2022–2023) national uptake of three recycled materials used in construction to replace conventional materials: 

• 13.9% supplementary cementitious materials – used to replace cement in concrete mixes across buildings, transport, water and energy infrastructure.
• 9.3% reclaimed asphalt pavement – used to replace asphalt in pavements for different road classes.
• 1.5% recycled crushed concrete – used to replace aggregate in road pavements.

These estimates were derived from uptake rates captured as part of our Embodied Carbon Projections for Australian Infrastructure and Buildings research, released in July 2024.³⁷ An average uptake rate was calculated for each state and territory by combining rates for each recycled material across different asset classes. These averages were then weighted by demand, using our market-capacity materials demand data for the equivalent conventional material, to generate a weighted uptake rate for each material by jurisdiction. The jurisdiction uptake rates were then aggregated to provide a national uptake rate for each material. 

Infrastructure Australia’s research highlights the potential of using recycled materials, among other decarbonisation strategies, to lower the embodied carbon produced by the national infrastructure pipeline, but acknowledges that several barriers exist to hinder greater adoption. It is one aspect of a wider range of opportunities to reduce construction emissions to support Australia’s net-zero commitments. 

Over the last 12 months, we note the Australian Government has taken significant first steps to support industry’s continued uptake of recycled construction materials, including: 

• Development of the National Framework for Recycled Content Traceability, which will give buyers the ability to trace the history, location or source of recycled materials. This initiative aims to boost demand for recycled materials by providing greater awareness of circular economy principles opportunities and increasing buyers’ confidence of quality of supplies. 
• Agreement with state and territory governments, as part of the renegotiated Federation Funding Agreement Schedule on Land Transport Infrastructure Projects (2024–2029), to optimise their procurement practices to support recycle content uptake on land-transport infrastructure projects.³⁸

Expand labour supply – future directions 

The Australian Government, in partnership with state and territory governments, should continue to expand construction labour supply by:

• continuing to strengthen the long-term pipeline of new graduate entrants from the tertiary sector (Vocational Education and Training and higher education), supplemented by skilled migrant intakes to fill immediate skills and worker shortages.   
• progressing actions under the BuildSkills Australia 2024 Workforce Plan.

Infrastructure construction workforce update 

The infrastructure workforce stands at 198,000 and is expected to grow steadily 

As of August 2024, there are 198,000 workers engaged in infrastructure across the nation. Between 2020 and mid-2022, demand and supply both increased rapidly. Since then, we observe a temporary dip in supply while demand has continued to rise, leading to more acute shortages over the last two years. 

We estimate historical workforce numbers by analysing the Australian Bureau of Statistic’s Labour Force Survey and Census data. Our workforce projections are calculated by adding expected workforce entrants from training and migration, minus exits from retirement modelling and applying a population growth factor to estimate supply to 2030. Based on the long-term historical view of supply, we predict the workforce to grow steadily in the future.

Infrastructure Australia has created three occupational groups, and the current workforce can be broken down as follows: 

• 62% (122,000) Trades and Labour workers.
• 26% (52,000) Engineering, Scientists, and Architects.
• 12% (24,000) Project Management Professionals.

Infrastructure Australia’s website hosts the Infrastructure Workforce Skills Supply Dashboard, which presents detailed insights on infrastructure workforce supply, demand and shortages. The dashboard is an interactive tool that allows views of the workforce broken down by state and territory, specific roles, age, and gender. Infrastructure Australia refreshes the Dashboard data annually.

Labour shortages have slightly eased over the next five-year outlook, as governments successfully bring demand closer to market capacity 

We estimate a shortage of 197,000 infrastructure workers as of August 2024 – a 13% decrease from the shortage of 229,000 workers predicted last year. 

Figure 20 shows the latest projection of demand versus supply over the forthcoming horizon. Compared to last year’s projections, peak demand has moved one year out, from mid-2025 to mid-2026. This trend is consistent with observations made in previous years and is likely reflective of planned expenditure being pushed back as the market struggles to deliver on overly ambitious delivery targets.

Figure 20: Demand and supply of infrastructure workers (2020 to 2030)

Source: Nous Group commissioned by Infrastructure Australia (2024)

Shortages are unevenly dispersed across the nation, and are set to increase in regional areas

Figure 21 presents a national comparison of shortages across capital cities and in regional areas (outside the Greater Capital City Statistical Areas as defined by the Australian Bureau of Statistics).

Shortages appear to have peaked in capital cities but are projected to rise in regional areas, driven by significant new renewable energy projects announced in the regions with only modest increases in supply projected. It should be noted, however, that the diminishing shortage in capital cities may largely reflect poor pipeline visibility in the years beyond the forward estimates.

While all jurisdictions remain in shortage, these impacts are unevenly felt across the nation:

• Northern Territory, Queensland and Tasmania are experiencing more dispersed demand across cities and regional areas.
• Shortages in New South Wales and South Australia are mostly concentrated in cities.

Figure 21: Labour shortage by occupation group, capital-city areas versus regional areas (2024 to 2027)

Note: This shows shortages only for projects with a known location (those that can be mapped to a specific Statistical Area Level 4 as defined by the Australian Bureau of Statistics) and thus does not equate to total national labour shortage.
Source: Nous Group commissioned by Infrastructure Australia (2024)

As discussed in Section 2: Understanding Demand, energy projects are driving the growth in workforce demand over the five-year outlook. The top five occupations needed to deliver energy projects in over the five-year outlook are:

• Other Professional Engineers (those not classified as civil, electrical, industrial, mechanical or production engineers)
• General Construction Labourers
• Electricians
• Plant Operators
• Project Managers.

Chronic shortages will remain across the workforce 

Broken down by occupation groups, the 197,000 total workforce shortfall comprises of:  

• 111,000 Engineering, Scientists, and Architects in shortage (56% of total shortages). While still the largest group in shortfall, shortages appear to have peaked and will decline from 2025, potentially a reflection of more projects in the pipeline moving past design and planning into the construction phase.  
• 29,000 Project Management Professionals in shortage (15% of total shortages). Shortages are expected to increase steadily until mid-2027 to 37,000.
• 57,000 Trades and Labourers in shortage (29% of total shortages). Shortages are expected to climb up quickly and peak in early 2026 to 74,000. 

Vocational Education and Training is the biggest source of new entrants into the workforce, followed by higher education and migration

Vocational Education and Training, higher education and migration all play crucial roles to the supply pipeline of workers. Figure 22 shows a majority (61%) of new entrants in 2025 will come from VET, followed by 28% from higher education and 11% from migration. 

Furthermore, the relative share of Vocational Education and Training entrants will grow slightly to 64% in 2029, compared to the share of higher-education graduates which will drop to 26% over the same period. This reflects the evolution of the workforce profile over time as demand for trades workers increase and surpass engineers over the forward estimates. 

Looking at skilled migration intake in 2023, Engineers, Scientists and Architects received the largest portion (66%) of visas in the construction industry compared to visas granted to skilled workers in Finishing Trades and Labour (18%), Structure and Civil Trades and Labour (7%) and Project Management (8%).

Given it takes longer to train engineers, scientists and architects than workers in trade and labourers, migration provides a quicker short-term fix to address shortages. However, as noted in the 2023 Infrastructure Market Capacity Report, many qualified migrant engineers, once on shore, struggle to secure an engineering role due to a range of barriers. Several initiatives are underway by governments working with industry to address this problem, such as Engineers Australia’s Global Engineering Talent Program.

Figure 22: Share of new entrant inflows by source (2025 to 2029)

Source: Nous Group commissioned by Infrastructure Australia (2024)

Engineers Australia’s Global Engineering Talent Program

The Global Engineering Talent (GET) Program is a program run by Engineers Australia, targeting engineers currently in Australia on a skilled migration visa who are unable to find work or are working in a position not commensurate with their skill and experience level. 

It delivers participants with a six-week preparatory course through Engineering Education Australia with engineering standards specific training and a 12-week paid internship at an engineering firm.

• Throughout 2024, the GET Program saw 21 participants commence across three cohorts from three states (Queensland, Northern Territory and Tasmania). In June 2024, the first cohort completed the program and saw three of the four participants successfully transition into further employment opportunities with their host employers.
• The program has received encouraging and positive feedback, helping Engineers Australia refine the learning component of the program. 
• The Queensland Government committed funding for up to 20 participants through its Clean Energy Workforce Roadmap. Similarly, the Northern Territory Government provided funding for 20 participants through their Flexible Workforce Solutions Fund. 17 government and private organisations have successfully been onboarded.
• Engineers Australia continues to work with industry, stakeholders and partners to connect employers with the skills they need now and in the future. Assessment from the pilot shows the initiative could be scaled with further support from the Australian Government. 

‘Emerging’ skills continues to vary from year to year 

Figure 23 provides a snapshot of the top emerging skills per occupation group with the highest annualised growth in the share of job ads that mention them in 2023–24. 

All skills identified, except for two, were not present in the list of top emerging skills last year. As noted in the 2023 Infrastructure Market Capacity Report, this analysis does not capture the volume of demand, as many of the skills identified would not be in wide circulation or in high demand for some time, if ever. While demand for these newly identified skills is unclear, the speed of their arrival indicate that skill requirements evolve rapidly, and that job designs need time to settle.

Figure 23: Skills with strongest compound annual growth (mid-2021 to mid-2024)

Note: Skills mentioned in 2024 but not in 2021 may not be strictly ‘new’ – they may have appeared in intervening years.
Source: Nous Group commissioned by Infrastructure Australia (2024)

There is scope for greater mobility of construction workers between infrastructure and housing

Infrastructure is a subset of the larger construction labour pool. To better understand the drivers behind worker movements, we conducted an analysis to compare changes that could be attributable to individuals moving between construction sectors (infrastructure, housing and commercial/industrial) and those moving in and out of the construction industry entirely.

Figure 24 suggests changes to the size of the infrastructure workforce appears to be largely attributable to workers moving out in and out of the construction industry, rather than within construction sectors. Over 2021–22 to 2023–24, net gains of 56,700 infrastructure workers entering or leaving construction more broadly overshadowed the net losses of 5,300 workers to adjacent construction sectors. Three in every four of these movements were attributable to ‘all of construction’ activity, or workers moving in and out of construction, rather than between sectors within construction. As such, all-of-construction trends play a key role in shaping the infrastructure workforce.

Figure 24: Impact of worker shifts within construction sectors and between industries on the infrastructure workforce (2021–22 to 2023–24)

Source: Nous Group commissioned by Infrastructure Australia (2024)

Industry view

Industry remains pessimistic about how it can address worker shortages

As shown in Figure 25, over half (56%) of respondents surveyed in Infrastructure Australia’s 2024 Labour Shortage Survey expect the labour market to worsen over the next 1–2 years, while 22% expect shortages to remain the same and another 22% expect an improvement. This supports our analysis that, while workforce shortages have peaked this year due to a flatter demand profile compared to previous years’ estimates, industry will continue to struggle to secure the workers as shortages will remain across all occupational groups. 

Industry reports that labour shortages have contributed to delays in project timelines, increased workloads for existing employees, and increased costs this year. Fewer respondents, however, noted poor work quality or increased rework as an impact.

76% of surveyed respondents believe that demand growth outstripping supply is the top driver of workforce shortages. Aside from demand growth outstripping supply, industry does not have firm views about other causes for the shortage, with responses shared almost equally across wage, training and retention issues. 
These findings reinforce the continued need for a two-pronged approach to alleviating workforce shortages – boosting supply as well as careful demand management.  

Figure 25: Industry outlook on how the labour market will change in the next 1–2 years 

Source: Infrastructure Australia Labour Shortage Survey (2024)

Businesses can’t attract candidates, and may have given up advertising vacancies  

Industry reports that the top barriers to hiring the right candidates are poor skills and experience, and difficulty attracting candidates. 

• 81% of businesses report candidates do not have the appropriate skills or experience.
• 42% of businesses couldn’t get enough candidates to apply.
• 40% of businesses report candidates did not want the type of work they need filled.
  40% of businesses report that project locations are not appealing to candidates.

There may be a range of reasons candidates do not have the skills or experience companies are looking for. This includes existing workers needing to be upskilled, learners requiring more on the job training before graduation, or applicants not meeting prequalification requirements set by the government.  

Despite ongoing workforce shortages, construction job vacancies have continued to decline

As shown in Figure 26, construction job vacancies have dropped from the peak in 2022, despite rising labour shortages from 2021. Within the context of low unemployment and a tight labour market, it may be that industry has given up attempting to recruit workers for what is seen to be less desirable work or locations considering chronic shortages. 

Source: Nous Group commissioned by Infrastructure Australia (2024)

Increasing pipeline certainty enables industry to plan and invest in building capacity 

The mix of skilled labour needed on a construction project varies as it progresses from planning to delivery and commissioning. Careful workforce planning and scheduling is necessary to ensure a company hires and retains the workers needed at each right stage of the project life cycle to deliver on schedule. Improving visibility and certainty of the pipeline enables businesses to more efficiently plan labour resources and invest in building capacity.

Consult Australia’s 2024 survey of design, advisory and engineering businesses found that in the last 12 months, almost half (46%) of respondents have made resource cuts and more (57%) have redeployed staff to alternative projects due to changes to the government infrastructure pipeline.³⁹

Infrastructure Australia’s 2024 Industry Confidence Survey found that businesses continue to report pipeline uncertainty as one of the biggest risks to project delivery. Notwithstanding the widespread construction workforce shortages at the national aggregate level, delays or uncertainty at the project level may disincentivise businesses from investing in longer-term workforce capacity building.
 

Prioritise productivity – future directions 

The Australian Government, in partnership with state and territory governments, should continue to progress national efforts to uplift construction industry productivity through:  

• completion of the National Construction Strategy and commencement of associated actions.
• investigating the impact of contractual arrangements and outsourced services (including labour hire and capital rental) to construction supply chain resilience, thereby identifying drivers to lift performance and productivity. 

Key industry trends

Construction industry growth lags the market average this year

As of June 2024, there were 452,820 businesses in operation in the Construction industry across Australia. This is far more than any other industry sector, outnumbering the next largest industry (Professional, Scientific and Technical Services) by over 100,000 businesses. 

Over the previous 12 months, the number of construction businesses grew by 2.0%, with 8,900 new entrants. As shown in Figure 27, this is 0.8% below the all-industries average, behind comparable sectors such as Transport, Postal and Warehousing (8.5%), Professional, Scientific and Technical services (2.6%), and Electricity, Gas, Water and Waste Services (2.5%), but slightly above Mining (1.5%). 

As of June 2023, almost all (98%) construction businesses are small in size, with less than 20 employees.⁴⁰

By employment-share size: 

• 44% of the workforce is employed by a micro business (less than 4 employees).
• 21% are employed by a small business (5 to 19 employees).
• 22% are employed by a medium business (20 to 199 employees).
• Only 14% are employed by a large business (over 200 employees).

Over half (55%) of construction businesses turn over less than $200,000 per year.

Figure 27: Change in number of businesses by industry (2023–24)

Source: Australian Bureau of Statistics (2024)⁴¹

Tier-1 construction companies are increasing their share of public infrastructure contracts

Based on project contract data from Infrastructure Australia’s Market Capacity database, we analysed construction companies that have delivered infrastructure projects that are funded publicly or via public-private-partnerships over the last three years. 

We have segmented the infrastructure construction market by capacity size, as follows:

• Tier-1 companies: have delivered or won megaprojects valued over $1 billion.
• Tier-2 companies: have delivered on at least one project valued at over $100 million.
• Tier-3 companies: representing rest of the market. 

Our analysis shows that the value of the infrastructure market has increased substantially in this time and, although lower-tier companies are being awarded more contracts of smaller work, tier-1 companies are undertaking more work of higher-value projects, with increased complexity.

In 2024, there are 25 tier-1 construction companies that meet the above definition. Collectively, as shown in Figure 28, the share of the public infrastructure construction market contracts held by tier-1 firms has grown from 49% to 59% since 2016. 

Figure 28: Market share of public infrastructure construction contracts by tier of construction company (2016 to 2024)

Source: Infrastructure Australia analysis of GlobalData (2024)

The top five companies have taken most of the share gains, growing 9% compared to the remaining tier-1 companies, which only grew 1%. As shown in Figure 29, the total value of contracts held by the top 5 companies amounts to 69% among tier 1s.

Figure 29: Market share of public-infrastructure contract value by Tier-1 construction companies (2016 to 2024)

Source: Infrastructure Australia analysis of GlobalData (2024)

While the value of the infrastructure market has increased substantially over time, and lower-tier companies are being awarded more contracts of smaller work, tier-1 companies are undertaking more work of higher value projects, with increased complexity. As shown in Figure 30, over the past 8 years, the average value of contracted works undertaken by tier-1 companies have nearly doubled to roughly $600 million in 2024.

Australia finds itself facing a situation where our largest and most important infrastructure projects are increasingly being allocated to large, offshore companies. Australia is therefore competing with other international infrastructure markets for their services. However, if one of these large foreign-owned contracting companies were to exit the Australian market, the impacts would include further concentration of the market, a loss of capability in terms of project delivery expertise and skills, and a loss of capability in terms of fiscal capacity.

Figure 30: Average contract value by tier of construction company (2016 to 2014) 

Construction industry insolvency rate remains below pre-pandemic levels, but leads the market in the number of insolvencies each year

The media has reported on the insolvency of several large construction companies this year, as the economy experiences an uptick of insolvencies across all industries during 2022–23. 

This comes off the back of extraordinarily low insolvency rates in the preceding two years (2020–21 and 2021–22). This coincided with key financial relief responses from the Australian Government to the COVID-19 pandemic, including the JobKeeper Payment, the HomeBuilder Grant and the Australian Taxation Office debt recovery pause. These efforts had the effect of artificially suppressing insolvency rates during the pandemic years.

During those years, as shown in Figure 31, the construction-industry insolvency rate dropped to a low of 0.21% in 2021–22, less than half the average rate of the previous 7 years (0.48%). 

Research indicates that for the construction industry, a substantial portion of corporate insolvencies tend to follow economic downturns.⁴² The current rate of construction insolvencies can also be linked to the unintended consequences of monetary policies and government stimulus designed to counteract the effects of the COVID-19 pandemic.⁴³

Figure 31: Comparison of insolvency rates for construction against all industries (2013–14 to 2022–23)

Note: These figures are based on external administrators’ and receivers’ reports, and on counts of businesses operating at end of each financial year.
Source: Infrastructure Australia analysis of Australian Bureau of Statistics (2024) and Australian Securities and Investments Commission (2023)⁴⁴

Construction industry insolvency rates have always been slightly higher than the all-industry average. On a cumulative basis, the insolvency rate for construction (0.35%) in 2022–23 is still lower than the pre-COVID-19 historical average and aligns with the broader market trend. 

In relative numbers, more construction businesses face insolvency each year than those in any other industry. As shown in Figure 32, 3,000 construction business entered insolvency during 2023–24, representing 27% of all insolvencies.

Figure 32: Number of insolvencies by industry – top 5 versus all other industries (2013–14 to 2023–24)

Note: These figures represent companies entering external administration or having a controller appointed.
Source: Australian Securities and Investments Commission (2024)⁴⁵

Businesses in residential construction are at higher risk of insolvency than those delivering heavy and civil engineering works, but construction-services businesses are at most risk

The Australian Securities and Investments Commission’s Insolvency Statistics show that construction businesses involved in residential construction carry a high risk of insolvency. As shown in Figure 33, residential building insolvencies accounted for 24% of total industry insolvencies in 2023–24, much higher than those in non-residential buildings (5%) and heavy and civil engineering (3%) that year. 

The category of businesses delivering ‘construction services’ is the only group collectively exhibiting higher insolvency numbers than residential building businesses, representing 68% of total industry insolvencies in 2023–24. 

An estimated 15% of construction services were for residential construction in 2022–23, which accounted for almost 40% of total intermediate inputs into residential building construction in that same year.⁴⁶

Figure 33: Insolvencies in construction by industry subdivision (Q1 2014 to Q3 2024)

Note: These figures are based on the notification of appointment lodged with ASIC when a company enters external administration or has a controller appointed. ASIC started collecting industry subdivision from 29 April 2021, and therefore this detail is not available prior to 2021.
Source: Australian Securities and Investments Commission (2024)⁴⁷

These construction services businesses deliver a range of trade services that can be further broken down into: residential building construction, building completion, building installation, building structure, land development and site preparation, and other services. As shown in Figure 34, most insolvencies have been in the ‘other construction services’ category.

Continued insolvency of these construction services businesses, which has been increasing since 2022, would further exacerbate the number of insolvencies directly affecting residential building construction.

Figure 34: Insolvencies in construction by detailed industry group (2023–24)

Note: These figures are based on notification of appointment lodged with ASIC when a company enters external administration or has a controller appointed.
Source: Australian Securities and Investments Commission (2024)⁴⁸

Small and micro businesses make up the majority of construction industry insolvencies 

As shown in Figure 35, micro construction businesses with less than 5 employees represent over two-thirds of insolvencies during 2022–23. Small businesses with less than 19 employees make up 82% of total construction insolvencies. 

Governments tend to focus on the head contractors with whom they enter into contracts. These head constructors then typically rely on a network of subcontractors to deliver much of the work. Subcontractors don’t have a direct contractual relationship with the principals who fund the project and are vulnerable to risks passed onto them from higher up the chain. 

The steep upward trend in the number of construction insolvencies over the last two years has added to the supply risk factors to successful infrastructure delivery. Insolvency in the construction sector can trigger a domino effect due to its reliance on a complex network of subcontractors and suppliers to deliver the work. For example, the flow-on effect of construction insolvencies in the supply chain can lead to subcontractors leaving behind projects due to chain bankruptcies. 

This occurs when the profit of the main contractor is compromised, causing a ripple effect of financial uncertainty throughout the construction chain. A 2008 study conducted in Japan found that nearly 20% of bankruptcies are attributed to this link effect, which is more pronounced in larger bankruptcies, indicating the ripple effect grows with the size of the initial insolvency.⁴⁹

Figure 35: Construction insolvencies by business size (2022–23)

Note: These figures are based on external administrators’ and receivers’ reports.
Source: Australian Securities and Investments Commission (2023)⁵⁰

A better understanding of the impact of contracting arrangements on construction supply-chain resilience would allow the industry to better manage capacity and absorb market fluctuations caused by economic downturns, thereby minimising negative impacts throughout the supply chain.

Aside from a 2016 study of tier-one subcontractors, much of the research to date has focused on head contractors. The 2016 survey identified key factors central to subcontractor productivity,⁵¹ such as:

• quality of trust and relationships on a project. When tendering, subcontractors price the project team as well as the project specification, and a good team makes a difference of up to 30% of productivity.
• poor tender practices, including bid-shopping, whereby head contractors share subcontractors’ intellectual property during the tender process to secure a lower price, thereby disincentivising subcontractors from putting forward productivity uplifting ideas.
• poor project documentation and document control, which can result in up to 40% of subcontractor staff on site being tied up with non-productive administration.
• poor scheduling and planning, as subcontractors are involved later in the tendering process, leaving them less time to plan in advance and identify solutions.

Further research to understand the network impact of subcontracting arrangements on construction supply-chain resilience would provide a useful lens on how to improve construction industry performance and productivity. 

Construction multifactor productivity drops for another year, however other key economic and financial performance indicators for the sectors are up

As shown in Figure 36, construction-industry gross-value-added multifactor productivity growth dropped to -0.8 in 2023, a decrease from 0.3 in 2022.⁵² This continues a 30-year trend of construction productivity consistently tracking flat and underperforming other comparable industries, such as transport and manufacturing, since the Australian Bureau of Statistics commenced its estimates in the late 1980s. 

Construction was one of the eight sectors that showed productivity decline over the preceding year. This is an opposite trend to 2022 when only three sectors presented a negative multifactor productivity growth.

The calculation of Australian Bureau of Statistics multifactor productivity is complex and decreases in growth can be attributed to several factors. Most recently, decreases in construction multifactor productivity and construction labour productivity resulted from growth in hours worked and capital services outpacing growth in construction output. Despite showing signs of recovery, the construction industry is still challenged by lingering effects of the economic downturn following the COVID-19 pandemic, including increases in the number of insolvencies, labour and skills shortages, material supply constraints, and high construction costs.

Figure 36: Gross-value-added multifactor productivity – comparison of construction and comparable industries (1989–90 to 2022–23)

Note: Selected industries include: agriculture, forestry and fishing; mining; manufacturing; electricity, gas, water and waste services; construction; wholesale trade; retail trade; accommodation and food services; transport, postal and warehousing; information, media and telecommunications; financial and insurance services; arts and recreation services.
Source: Australian Bureau of Statistics (2023)⁵³

In 2022–23, the construction industry grew across a range of other key economic and financial performance metrics:

• Earnings grew 11.6% ($6.8 billion), driven by 14.1% ($69.3 billion) in sales and service income and strong demand, reflecting the rising costs of construction being passed to customers.
• Industry value added grew by 14.8% ($21.0 billion), driven by the 17.3% ($14.4 billion) growth in Construction Services, which predominately provides the trade services for building and civil construction projects. By industry subdivision, Construction Services accounts for 60% of industry value added, compared to 23% by building construction and 16% by heavy and civil engineering construction.⁵⁴

2023–24 estimates of quarterly gross output increased by 0.5%, bolstered by a 0.5% rise in Construction Services (driven by trades for housing construction) and a 0.9% rise in Heavy and Civil Engineering (driven by public investment), offset by a 0.2% fall in Building Construction, driven by non-residential construction.⁵⁵

Notwithstanding declines in both dwelling commencements and approvals caused by higher borrowing and construction costs, the volume of dwellings under construction in 2022–23 contributed to an increase in the value of construction work done for the period.⁵⁶

Approximately 47 cents in every dollar spent by construction companies goes to outsourcing services 

At an industry level, construction productivity will be driven by sustainable construction output growth supported by growth in labour and capital productivity. Understanding the breakdown of outputs and inputs to the lowest level can help mapping of project-level effectiveness measures of cost, schedule, safety and asset performances. These linkages will provide necessary evidence to support measuring, monitoring and reporting of construction productivity on a project and portfolio level basis.

Gross-value-added multifactor productivity growth is broadly defined as a ratio of a measure of output to a combined input of labour and capital. To get a more complete picture of total inputs that go into construction, we examined the Australian Bureau of Statistics alternative gross-output-based multifactor productivity measure, which captures intermediate inputs – materials, energy and services – in addition to labour and capital. The gross-output-based multifactor productivity trend over time exhibits similar movement with the gross-value-added-based approach.  

When broken down into intermediate inputs, as shown in Figure 37, services comprised a majority share of total input costs and has been slowly growing, from 40% in 1995–96 to 47% in 2021–22. In comparison, materials accounted for 23%, labour 20% and capital 9% of total input costs in 2021–22. In relative dollar terms, the cost of services grew by $14.5 billion in 2021–22. 

Figure 37: Construction-industry cost shares (1995–96 to 2021–22)

Source: Australian Bureau of Statistics (2023)⁵⁷

The intermediate services input category covers any outsourced services by a construction company that is used up in the process of production within one year. 

The high reliance on outsourced services reflects a structural characteristic of the construction industry, where work is delivered by larger businesses subcontracting further down the chain to smaller or specialist businesses. 

Growth in this input cost also potentially reflects the growing scale and complexity of projects in recent years. 

Industry views on productivity and risk

Infrastructure Australia surveyed 200 businesses this year on their perceptions and claimed practices for improving productivity. The findings provide an indication of current practices and a basis for future work to develop evidence-based productivity metrics and activity drivers that could improve productivity at the project or program level. 

Industry rates their productivity as ‘good’, and about the same as two years ago

Despite poor productivity rates at the industry level, results from our 2024 Industry Confidence Survey shows that individual companies are reportedly content with their current productivity. Of companies surveyed that operate in the construction phase of the infrastructure life cycle, almost half (49%) believe that productivity is ‘good’ (with a rating of at least 8 out of 10), and a further 9% say productivity is ‘extremely good’ (with a rating of 10 out of 10). This is comparable to the average of companies across the infrastructure life-cycle, with 46% noting productivity is good and 8% extremely good.

Construction companies appear to be unclear about which direction productivity has shifted over the previous two years, with 40% rating it as ‘about the same’ and the rest split between higher (28%) or lower (31%). Similarly, across all infrastructure, 44% rate productivity as about the same, with the remainder split between 28% higher and 25% lower. Only a small percentage of respondents (2%) were unsure, answering ‘can’t say’ to how their productivity compares to two years ago.

Upskilling is regarded by businesses as having the greatest impact on productivity, and investment in digital and innovation as having the least impact

When asked to rate a range of factors impacting productivity on their business, surveyed businesses ranked upskilling as the most effective lever to increase productivity (as shown in Figure 38). With workforce consistently rising to the top of issues impacting both capacity and productivity, construction businesses should prioritise investment in workforce attraction, retention and upskilling first.  

A range of perceived barriers to workforce upskilling however were noted during interviews: 

• Some pockets of the industry, particularly in the trades, are resistant to change.
• Smaller sub-contractors are key players in infrastructure delivery, but they lack the time and resources necessary for ongoing upskilling.  
• Wider labour shortages and poor workforce diversity, including female participation rates continue to hinder both capacity building and productivity.

"The construction industry also has quite a significant reliance on subcontractors. And fair to say that subcontractors by nature of their business, unless they're a very highly skilled organisation, probably struggle to maintain the levels of training necessary" 

(Company)

After workforce upskilling, construction-focused companies ranked the following productivity factors:

• Over 60% regard improvements to procurement and supply-chain management and improvements to construction management as having the highest impact.
• Approximately half believe modern methods of construction, project management, front-end design and project planning development will have a high or moderate impact.
• Digital and innovation (automation, data digitalisation and materials innovation) are regarded has having less impact compared to the other categories.

Figure 38: Views of surveyed building and construction businesses about factors that affect their productivity

Source: Infrastructure Australia Industry Confidence Survey (2024)

While there is no common set of productivity metrics, labour and rework measures are the least popular 

As shown in Figure 39, when it came to measuring how these industry members measured the productivity of their operations, they use a wide range of work-level and project-level metrics. For instance, members said they measured their productivity by work unit cost; work unit output per worker; absenteeism; total project cost verses total material costs and the earned value of a project against the planned costs for work done.

The wide range of metrics used by the industry to measure productivity shows there is no universal way in which productivity is measured and reiterates the need for work to be undertaken to develop a set of productivity metrics and indicators to better measure infrastructure productivity, as was recommended by Infrastructure Australia in the 2023 Infrastructure Market Capacity Report. 

Less than 10% of respondents measure labour metrics at the company level (turnover and absenteeism rates), which is somewhat surprising given workforce shortages are a top market constraint.

Another surprising result is that very few companies (8%) measure rework done. Given the tight profit margins for construction businesses, rework done could have a significant impact on the final bottom line, particularly for smaller businesses who are more likely to be undercapitalised and thus less resilient to unexpected setbacks. It has been estimated that rework can reduce companies’ yearly profit by up to 28%.⁵⁸

Figure 39: Usage of metrics for measuring productivity among surveyed building and construction businesses and selected segments

Source: Infrastructure Australia Industry Confidence Survey (2024)

Beyond looking at immediate project costs, industry should take a strategic and longer-term approach to tracking productivity, particularly workforce indicators and other considerations that have the potential to seriously undermine their business sustainably, such as rework done. 

Further, given outsourced services account for almost half of construction company costs, companies should also look to capture productivity metrics of their outsourced labour contingent. 

Allocation of risk in contracts is the greatest threat to project delivery, particularly for those with larger contracts

Figure 40 below shows that industry surveyed by Infrastructure Australia this year regards risk allocation in contracts, timelines for delivery and delays in obtaining planning and environmental approvals as the highest risks to project delivery.

Figure 40: Views of building and construction businesses on risk factors to their ability to deliver infrastructure projects

Source: Infrastructure Australia Industry Confidence Survey (2024)

From interviews, business outlined key issues seen to be adding to overall costs:

• Contracts tend to be complex and bespoke, with built in ‘design-construct-litigate’ pathways: these require expensive expert lawyers to be engaged and facilitate post-project litigation and insurance claims as a way to recoup lost profits.  
• Excessive prudence hindering acceptable risk: risk appetite of governments below what should be reasonable levels.
• Extreme weather events: which are more frequent and impact on the timely completion of projects (for example, through forcing the closure of work sites). This year, weather conditions was the top-ranked cause of project delays, and is an issue particularly in areas such as Queensland, but also more recently in New South Wales. Risks associated with extreme weather events is reflected in contracts, with the onus falling back to contractors and subcontractors, who in turn add this additional risk into their overall contract costs.

Contract variations are becoming the pre-emptive tool for cost recovery

In light of continued escalation of costs, industry appears to be using cost variations as a pre-emptive tool to mitigate the impact of continued and ongoing cost escalations. 51% of businesses surveyed by Infrastructure Australia have sought a contract variation in the last 12 months. Businesses reported factoring in cost variations of at least 10% into budgets, or omitting the costs from quotes to win projects with the intention of a cost variation future down the track. 

Parties need to continue working together to find the best balance of risk to minimise unnecessary costs and deliver the best value for money.

Workplace culture and diversity 

Efforts to improve construction workplace culture and increase diversity will have positive flow on effects for attracting and retaining employees in the industry. Aside from wages, employment conditions, workplace culture, working hours and career development opportunities are factors influencing whether people choose to enter or leave construction. 

Currently, the industry does not track well on these metrics with the Construction Industry Culture Taskforce finding that:

• 64% of current construction industry workers are working more than 50 hours per week.
• 59% say they are unhappy with their work-life balance.
• Only 26% thought they could combine construction with parenthood.⁵⁹

Further, 63% of construction workers surveyed by the NSW Building Commission are considering leaving and cited the difficulty in achieving work/life balance as the main reason. 

Construction Culture Standard

The Construction Industry Culture Taskforce is tackling the three critical challenges of construction industry culture, which cost the Australian economy roughly $8 billion a year, and deter workers from joining and remaining in the industry at this crucial time of low productivity growth and acute skills shortages. These challenges are: 

• excessive working hours, which cause high rates of burnout, absenteeism, ill-health, and turnover.
• minimal gender diversity, with women occupying 12% of jobs, sector wide.
• double the rate of stress and suicide among construction workers compared to the national average.⁶⁰

The Taskforce has developed a Culture Standard: a framework for clients and contractors to co-create work cultures that prioritises time for life, diversity and inclusion, and wellbeing. This is to be used in procurement activities, whereupon clients commit to buying services from compliant constructors. For example, the Culture Standard requires constructors to comply with project programming requirements that ensure time for life for workers, including:

• a target of up to 50 hours per week
• a limit of 55 hours per week
• a five-day work week.

Creating a solid evidence base for the Culture Standard has been critical, so a multi-institutional research team, led by RMIT University, has captured and analysed interview and survey responses of construction workers engaged in one of five pilot projects. So far, findings indicate that:

• The majority of workers prefer a five-day work week.
• The majority of workers are happy with their work hours.
• Workers perceive high levels of support for their time for life.
• Workers perceive high levels of positive mental wellbeing.
• Many will not like returning to working a six-day week.

The Culture Standard was adopted by the Brunt Road Level Crossing Removal project, which composed a five-day work week from a 10-hour Monday-Friday schedule, and a 6-hour Saturday schedule on a Rostered Day Off week. The project achieved each of its time and budget milestones, including a 21-day reduction in total workdays per year, while intentionally focusing on workforce mental health and gender diversity. Senior project stakeholders have celebrated and attested to the ability of the Culture Standard to:

• enrich the work-life balance of employees
• foster a more engaged and vibrant work environment
• make strides in gender diversity, both on and off-site
• highlight the link between thoughtful workplace practices and enhanced wellbeing.

The Culture Standard will be finalised and released in early 2025, along with the final research report including an economic analysis.

The Construction Industry Culture Taskforce is a jointly funded initiative of the Australian Constructors Association and the Governments of New South Wales and Victoria that is supported by a multi-institutional research team led by RMIT University. Other jurisdictions have requested and joined the Taskforce since its inception, specifically the Australian Capital Territory, South Australia, Queensland and Western Australia.

Photo source: supplied by Fulton Hogan.

Photo source: supplied by Fulton Hogan.

New technologies and modern methods of construction

There has been much written about the productivity uplifting potential of new technologies and modern methods of construction. However, uptake rates remain low.

Interviewed respondents this year accepted that low uptake of technology hinders Australia’s ability as a market, and specifically as a sector, to stay competitive, and that investment in technology currently sits lower on the list priorities. 

Results from the Infrastructure Australia’s 2024 Industry Confidence Survey shows that industry regards digital and innovation (automation, data digitalisation and materials innovation) as having less impact compared to a range of other categories.

Views did vary slightly depending on the phase of the infrastructure life-cycle a business focused on, with companies placing more value on the factors that are closer to their core business:

• More engineers and designers ranked materials innovation, automation and data digitalisation as having high to moderate impact compared to the average for the industry. 
• More transport-sector companies ranked data digitisation as having high to moderate impact than the average for the industry.

Case study: Laing O’Rourke Kit of Parts

Laing O’Rourke has developed an award-winning bridge delivery system that demonstrates how modern construction methods can measurably improve infrastructure outcomes. 

The use of the modular bridge system adopts ‘product-led design’ where the bridge design takes account of the characteristics of the products, rather than attempting to retrospectively fit a set of precast products to an outline design. 

At its highest level, as shown in Figure 41, the system comprises a digital bridge configurator and an engineered kit of parts – a range of standard precast products – that can be formed to create modular single-span integral bridges with precast prestressed concrete beams and associated wingwalls.

Figure 41: Features of a modular bridge solution

Source: Laing O’Rourke (2024)⁶¹

The kit of parts is also readily applicable to steel beam solutions, bridges with bearings, multi-span bridges, standalone elements in larger schemes such as piers, retaining walls and box-structure sections.

The system was co-created with industry and academic partners and has been used to deliver solutions for major clients. These include High Speed 2 – the UK’s high-speed rail delivery partner – which has noted considerable improvements in programme, productivity and sustainability measures.

Programme

The construction and assembly of the 35-metre span High Speed 2 trace bridges delivered a programme saving of 18 weeks. This 50% reduction on the original programme (37 weeks using traditional construction methods, versus 19 weeks using the kit of parts) was primarily due to the rapid construction of the abutments and wingwalls.

Productivity of resource

The construction of the modular abutments and wingwalls of the High Speed 2 trace overbridges (each measuring 400 square metres on elevation, approximately) was completed in three weeks by a six-person on-site team. This represents an 84% reduction in on-site labour compared to traditional construction using in-situ reinforced concrete, which was estimated to be completed in 11 weeks (minimum) by a 10-person on-site team.

Sustainability – reducing carbon

A detailed carbon study of the modular bridge system concluded that the modular approach reduced embodied carbon by 8% in the abutments, compared to an equivalent, traditionally designed in-situ reinforced concrete abutment.

The bridge delivery system offers other potential benefits. For example:

• Modular abutment delivery can accelerate earthworks, by allowing backfilling to commence without the bridge deck in place. This instantly saves months of time and creates the potential for follow-on activities, such as road surfacing, to start earlier than programmed.
• Rapid construction of modular bridges can reduce or remove the need for temporary bridges, while creating the opportunity to utilise the bridges as construction/logistics routes, opening new work fronts earlier than would have been possible.
• Modular solutions create safer working environments, since well-defined processes and repeatable assembly are carried out in a warm and dry indoor environment, by smaller teams of multi skilled technicians. This compares to traditional environments where larger teams of specialist trades use multiple interfaces and hand overs in conditions and locations that can be difficult and dangerous due to changing weather conditions and scaffold access systems.
• In recent years, the Australian construction industry has experienced labour shortages and cost escalation at a significant scale. The benefits brought by the digital-bridges approach in improving productivity, sustainability and costs will bring certainty in delivery to Australian projects. However, we need to deliver infrastructure with a programmatic approach that provides economies of scale and harmonise specifications across jurisdictions to truly realise the benefits of repeatable design. 

Bridge beam installation on shell abutments on M25 Stratford Brook, United Kingdom

Source: Laing O’ Rourke (2024)⁶²

It is with pleasure that I present this Embodied Carbon Projections for Australian Infrastructure and Buildings report, which, for the first time, uses our Market Capacity Program data to measure the embodied carbon intensity of forward-looking infrastructure and buildings pipelines across a five year period. 

This report identifies that, in the near term, the biggest immediate opportunity for lowering embodied carbon emissions lies in upfront emissions from the manufacture and supply of materials. These easy-to-abate emissions represent almost 2% of the yearly national total, and are addressable via low-cost and practical decarbonisation strategies explored in this report.

In the long-term however, the decarbonisation of Australia relies on us cultivating the optimum conditions for success, today. This means developing an informed market that values carbon in policy, and consistently measures and reports embodied emissions. 

To this effect, we have included six recommendations for governments to consider in the development of sectoral decarbonisation plans that will inform the Australian Government’s Net Zero 2050 plan and 2035 carbon reduction targets. 

I would like to extend my thanks to the project team whose efforts culminated in this insightful research, and also express gratitude to all those involved across the jurisdictions and industry for their invaluable contribution which have enriched the depth and breadth of our findings.

Gabrielle Trainor AO
Interim Chief Commissioner
 

This Embodied Carbon Projections for Australian Infrastructure and Buildings report establishes a baseline for upfront embodied carbon in Australia’s built environment. It does this by estimating the carbon impact of the forward-looking construction pipeline for building and infrastructure from 2022–23 to 2026–27.

It finds that the built environment is directly responsible for nearly one third of Australia’s total emissions and contributes to over half of all emissions. Over the next five years, construction activity from the pipeline will be responsible for producing between 37 to 64 Mt CO₂e per year. Almost a quarter of upfront emissions from construction activity over the next five years (or 2% of Australia’s total emissions in 2022–23 can be abated at no additional cost by employing practical decarbonisation strategies, such as material substitution. Targeted engagement with industry and government stakeholders indicated that this will require an informed market which values carbon in policy and consistently measures and reports embodied emissions. 

The carbon impact of the forward looking construction pipeline is based on Infrastructure Australia’s National Infrastructure Project Database, which aggregates project level data for buildings, transport, and utilities projects valued over $100 million in New South Wales, Victoria, Queensland and Western Australia, and over $50 million in South Australia, the Australian Capital Territory, the Northern Territory and Tasmania, in addition to private building projects with a capital value of over $25 million. To account for the effect of project unknowns on construction material quantities and address gaps in smaller residential projects, an additional forecast of embodied carbon emissions was also conducted which aligns material demand quantities with estimates of national supply levels (See Section 5: Accounting for Uncertainty: Hybrid Analysis)

The report highlights key areas of opportunity for governments to consider in the development of sectoral decarbonisation plans that will inform the Australian Government’s Net Zero 2050 plan and 2035 carbon reduction targets.

We note the following efforts of governments to lower embodied carbon in infrastructure and buildings:

The Australian Government

• Work is underway to develop nationally consistent frameworks for decarbonising infrastructure. Under the auspices of the Infrastructure and Transport Ministers’ Meeting, three workstreams were established to:
  • develop a nationally consistent approach to measure embodied carbon for infrastructure, which will support industry action to reduce emissions and facilitate future benchmarking and target setting (led by Infrastructure NSW and approved in June 2024)
  • develop a nationally consistent approach to valuing carbon for economic appraisal and policy evaluation (led by Infrastructure Australia and approved in June 2024) 
  • explore policy levers available to governments to reduce embodied emissions, including principles to support the identification of opportunities for the national harmonisation of policies to reduce embodied emissions, as well as inform governments’ selection of these policies (led by Transport for NSW with the Australian Government).
    The National Australian Built Environment Rating System is developing a national framework for measuring, benchmarking and certifying emissions from construction and building materials. This will allow building owners to set robust and measurable targets for reducing embodied carbon in buildings. 

State and territory governments

• NSW Government, through Infrastructure NSW, has published a Decarbonising Infrastructure Delivery Policy which sets expectations for NSW Government infrastructure delivery agencies on managing carbon in public infrastructure projects. This is supported by Measurement Guidance. In partnership with the Environment Protection Authority, Infrastructure NSW is also developing a monitoring framework to require infrastructure projects to report embodied carbon and maximise the use of recycled materials.
• Infrastructure Victoria has released advice on opportunities for the Victorian Government to reduce emissions of future public infrastructure investments. This advice focuses on policy and guidance to address emissions at all stages of development. 

A report on embodied carbon in Australia’s infrastructure and buildings

This report offers a combination of quantitative and qualitative analysis to assist governments in understanding the potential for decarbonising infrastructure and buildings, as well as the increased usage of low embodied carbon materials in construction. These are key focus areas identified in the Australian Government’s most recent Infrastructure Policy Statement (November 2023).¹

By presenting data and insights, it seeks to inform the development of policies aimed at reducing embodied carbon in the built environment. It also aims to initiate discussions on potential policy levers that align with this goal, such as the ongoing development of sector-specific plans by the Australian Government for the decarbonisation of buildings and transport infrastructure.

It responds to three pieces of legislation:

• The Climate Change Act 2022 (Cth), which legislates a 43% reduction in 2005 national greenhouse gas (GHG) emissions by 2030, and a net zero reduction by 2050.
• The Climate Change (Consequential Amendments) 2022 Act, which legislates for government institutions to focus on achieving emissions targets.

The Infrastructure Australia Act 2008 which requires Infrastructure Australia to consider the impact of infrastructure proposals on Australia’s net greenhouse gas emissions, the achievement of Australia’s GHG emissions reduction targets and any policy issues arising from climate change that Infrastructure Australia considers relevant to the proposal. 

Baseline measures of carbon emissions for Australia’s infrastructure and buildings 

This report leverages Infrastructure Australia data to analyse the embodied carbon emissions of Australia’s infrastructure and buildings pipeline. This includes estimating the embodied carbon that will be produced in the next five years if no action is taken, evaluating the potential emissions and costs associated with using low-carbon building materials and construction methods, and identifying barriers and government interventions that could increase the adoption of these solutions.

Section 2: Baseline Measures of Embodied Carbon presents baseline measures of carbon emissions produced by Australia’s infrastructure (listed below and depicted in Figure 1):

• Emission type (embodied, operational, enabled)
• Embodied emission type (upfront, use phase, end-of-life) 
• Upfront carbon (materials manufacture, transport to site, construction process)

Also in Section 2: Baseline Measures of Embodied Carbon are the carbon and cost impacts of using like-for-like material substitutions in government infrastructure projects for two decarbonisation scenarios. 

Projections based on forward-looking government construction pipelines

Embodied carbon projections in this report are based on the quantities of construction materials demanded by the forward-looking infrastructure pipelines of the Australian Government, and state and territory governments. These quantities have been determined using the analytical tools of Infrastructure Australia’s Market Capacity Program - an assumptions-based methodology that identifies market capacity risks by analysing infrastructure project data provided by governments, which, combined with private investment data provided by GlobalData, reflects around 75% of market demand in the forward estimates period.

Working towards Net Zero 2050

This report offers high-level recommendations for the Australian Government to work towards the reduction of embodied carbon from infrastructure and buildings in support of Net Zero 2050. These recommendations aim to initiate investigations and identification of policy levers that are best placed to achieve this objective, and were developed following extensive consultations with government stakeholders, industry members, and technical experts - see Appendix for a summary of our stakeholder consultation insights.

A summary of opportunities and recommendations is included in the Executive Summary of this report.

Embodied carbon policy: current state

Throughout Australia, governments are taking steps to design and implement policies targeting the reduction to embodied carbon in the built environment.

The Australian Government

The Australian Government is actively working to create consistent frameworks for decarbonising infrastructure and buildings. Three key workstreams were established under the auspices of the Infrastructure and Transport Ministers’ Meeting:²

• Measuring embodied carbon: Infrastructure NSW has developed a nationally consistent approach to measure embodied carbon in infrastructure. This will aid in reducing emissions, supporting industry action, and enabling benchmarking and target setting.
• Valuing carbon: Infrastructure Australia has developed a nationally consistent approach to valuing carbon for economic appraisal and policy evaluation.
• Policy levers and harmonisation: Transport for NSW, in collaboration with the Australian Government, is exploring policy levers to reduce embodied emissions. This includes developing principles to harmonize national policies aimed at reducing embodied emissions and guiding governments in policy selection.

The National Australian Built Environment Rating System is working on a national framework to measure, benchmark, and certify emissions from construction and building materials. This framework aims to help building owners establish measurable targets for reducing embodied carbon in buildings.

The Environmentally Sustainable Procurement Policy aims to improve the environmental sustainability of government procurements. The reduction in embodied carbon in construction projects is a key metric of the policy. As of July 2024, procurement of construction services over $7.5 million requires suppliers to measure and report on embodied carbon reduction.

State and territory governments

NSW Government, through Infrastructure NSW, has published a Decarbonising Infrastructure Delivery Policy which sets expectations for NSW Government infrastructure delivery agencies on managing carbon in public infrastructure projects. This is supported by Measurement Guidance. In partnership with the Environment Protection Authority, Infrastructure NSW is also developing a monitoring framework to require infrastructure projects to report embodied carbon and maximise the use of recycled materials

Infrastructure Victoria has released advice on opportunities for the Victorian Government to reduce emissions of future public infrastructure investments. This advice focuses on policy and guidance to address emissions at all stages of development.

Overview of the Market Capacity Program

This research is underpinned by Infrastructure Australia’s Market Capacity Program, a data-driven research initiative designed to help stakeholders understand the national infrastructure pipeline. By continuously monitoring market conditions and capacity to deliver infrastructure, the Market Capacity Program provides insights to inform government policies and management of infrastructure pipelines. The Market Capacity Program was set up in response to a request by Ministers at the Council of Australian Governments meeting of 13 March 2020.

The Market Capacity Program is underpinned by a National Infrastructure Project Database, a central database that brings together and organises project data. State and territory governments contribute to the database by providing regular, comprehensive, up-to-date information. A Market Capacity Intelligence System complements the database. This is an extensive set of analytical tools to examine and visualise capacity across different sectors, project types and resources. Together, this suite of tools, data and reports provide up-to-date evidence to better understand Australia’s infrastructure pipeline and the market’s capacity to deliver in the coming years.

Accounting for uncertainty

Given that Market Capacity Program analysis cannot account for future changes in cost, schedule, or scope, Section 5: Accounting for Uncertainty: Hybrid Analysis offers an alternate forecast of embodied carbon emissions, which considers the effect of project unknowns on construction material quantities - for example, resource shortages and typical project slippage. In addition, these alternative projections address gaps in smaller residential projects, expand material categories, and align calculated material demand quantities with estimates of national supply levels.

Key findings

Embodied carbon from construction activity in 2023 contributed 10% of Australia’s total carbon emissions, with upfront carbon contributing 7%.

A steady reduction of upfront carbon is achievable by applying like for like decarbonisation strategies, with potential for 23% reduction on the baseline by 2027. This roughly equates to a reduction of 9 Mt CO₂e, or 2% of Australia’s national greenhouse gas (GHG) emissions in 2023.

The reduction of upfront carbon in the manufacturing of construction materials and the construction process provides a short-term opportunity for policymakers to consider in working towards Net Zero 2050. 

To support decarbonisation policy design and implementation, this section provides baseline measures of embodied carbon in infrastructure, and estimated emissions and costs from the use of like for like material substitutions in government infrastructure.

Embodied carbon accounts for 10% of national emissions

Australian infrastructure and buildings were projected to contribute 57% of national carbon emissions in 2023. Of this, embodied carbon from construction activity in the built environment represents 10% of national emissions, as shown in Table 4. 

Embodied carbon represents the sum of the GHG emissions associated with materials and construction processes throughout the whole lifecycle of an infrastructure or building asset, including material extraction, transportation, manufacturing, construction, use, replacement, demolition and end of life. These emissions are ‘locked in’ by the decisions made during the planning, design, procurement, delivery and maintenance of new construction projects.

As Australia strives towards net zero, it is crucial to address embodied carbon, which reflect the climate consequences of today’s construction decisions, and embed emissions for the lifetime of the asset.

Table 4: Breakdown of carbon emission projections for infrastructure and buildings, 2023
 

The importance of addressing embodied carbon

While operational and enabled emissions represent a larger proportion of the total compared to embodied carbon, there are already many initiatives targeting them, and they can be reduced by decarbonising the electricity grid or using green hydrogen.

Embodied carbon is much harder to abate. While some embodied carbon will reduce as the grid decarbonises, others will not. This is because the carbon footprint of many building products (such as steel, cement, bitumen, glass, plasterboard, bricks and aggregates) comes from process heat and chemical emissions rather than from electricity. 

As the grid decarbonises and progress is made on reducing the operational energy use of Australia’s buildings and infrastructure, embodied emissions are expected to account for a greater share of an asset’s carbon footprint over its lifecycle.

There is an opportunity for governments to increase their range of embodied carbon reduction policies as part of efforts to decarbonise the built environment, which have to date focused extensively on addressing operational emissions.

Focusing on upfront carbon

Embodied carbon can be divided into the different stages of an asset’s life at which they occur. 
These include:

• Upfront embodied carbon emissions, which occur at the start of an asset’s life, up to practical completion. They include emissions from materials production, transport, construction waste and the construction process.
• Use phase embodied carbon emissions, which occur during an asset’s life when it is maintained, repaired, replaced and renovated. Examples include regular fitouts of buildings, recladding of buildings and maintaining/replacing road pavements.
• End of life embodied emissions, which occur at the end of an asset’s life. This includes emissions from deconstruction, demolition, transportation and waste management after the asset is no longer in use.

The analysis in this report focuses on upfront embodied carbon, defined here as the greenhouse gas emissions and removals associated with the creation of an asset, network or system up to practical completion.³ 

Figure 2 illustrates the activities underlying the infrastructure and buildings lifecycle modules as defined by international and European standards for lifecycle assessment of buildings and infrastructure assets.^4,5,6,7,8

Activities factored into upfront carbon calculations include:

• Modules A1-A3: Manufacture of building products
• Module A4: Transport of building products to site.
• Module A5: Construction, which includes:
  • land use change from land clearing
  • construction waste
  • construction energy
  • commissioning energy.

Figure 2: Infrastructure and buildings lifecycle modules, highlighting upfront carbon

Based on data from Infrastructure Australia’s Market Capacity Program (2023), Australia’s construction pipeline is projected to produce between 37 Mt CO₂e and 64 Mt CO₂e of upfront carbon each year, between 2022–23 and 2026–27. Of this, buildings represent the largest share of the total upfront carbon, accounting for approximately half of total forecast emissions in most years. This is followed by utilities, which have the greatest variability, accounting for 14% of forecast upfront emissions in 2022–23 and 41% in 2026–27. Finally transport infrastructure accounts for approximately one-fifth to one-quarter of upfront emissions in most years. In 2023, upfront carbon from building activity is estimated to produce approximately 7% of Australia’s national emissions (see Table 5). 

Table 5: Embodied carbon emission projections by lifecycle module, 2023

Materials manufacturing produces the most upfront carbon 

Of the activities responsible for upfront carbon emissions, the manufacturing of construction materials (modules A1—A3 in Figure 2) account for most upfront carbon. These activities are described in Table 6.

Table 6: Upfront carbon projections for lifecycle modules A1—A3, A4 and A5, 2023

Across all sectors, materials manufacturing dominates upfront carbon emissions

Materials manufacturing (modules A1—A3 in Figure 2) represents the highest proportion of upfront carbon emissions across all sectors. This can be seen in Figure 3, which shows a breakdown of emissions by lifecycle module for 2023–24.

Figure 3: Upfront carbon projections for lifecycle modules A1—A3, A4 and A5 by sector, FY 2023–24 

The dominance of materials manufacturing in upfront carbon is most pronounced in the buildings sector in terms of volume (21 Mt CO₂e) and in the utilities sector in terms of share (89%). Construction is the second most significant lifecycle stage, accounting for 9% to 28% of total emissions. The key contributors to construction emissions vary between asset types. Some are due to construction or commissioning energy, while others are the result of land use change. Transport of building products to site is the least significant lifecycle module relatively, accounting for only 2–5% of total emissions. 

Emissions broadly follow population, but priorities differ between regions

Carbon emissions shown in Figure 4 reflect the five-year infrastructure ambitions of each state and territory. The largest share of emissions is forecast to come from New South Wales, followed by Victoria, Queensland, Western Australia, South Australia, Tasmania, the Australian Capital Territory and the Northern Territory. While these emissions broadly follow differences in population, there are major differences in how they are made up. South Australia, Queensland and New South Wales plan to invest heavily in utilities, particularly utility solar. Tasmania, Western Australia and Victoria plan to invest in transport infrastructure. The Australian Capital Territory and the Northern Territory are focused on buildings.

Figure 4: Upfront carbon emissions of states and territories, FY 2024

The potential for low-carbon building materials and construction methods

This research also investigated the carbon and cost impact of using like-for-like, decarbonisation strategies in forthcoming public infrastructure projects found in Infrastructure Australia’s Market Capacity Program database.

The adoption rates for decarbonisation strategies were calculated under two scenarios, reflecting a mid-level and maximum rate of adoption The Maximum Decarbonisation Scenario represents the highest level of ambition that industry stakeholders felt were achievable by 2026–27, assuming that cost was not a barrier. The Mid-level Decarbonisation Scenario uses lower uptake rates and reduces the use of decarbonisation strategies that are particularly expensive. 

Table 7 presents a summary of the different uptake rates per scenario. Section 4: Cost and Carbon Abatement Potential examines cost and carbon abatement potential of each strategy.

Table 7: Uptake rates per decarbonisation scenario

* A range indicates that uptake rates vary by state and typecast.

23% of upfront carbon from public infrastructure could be abated by 2026–27

Our analysis concludes that under the Maximum Decarbonisation Scenario, the upfront carbon emissions from public infrastructure could be 23% lower in 2026–27 with the use of like-for-like decarbonisation strategies considered in this report – see Table 8. 

Table 8: Carbon impact from Maximum Decarbonisation Scenario and reduction against Baseline Scenario

A 23% reduction in upfront carbon emissions from public infrastructure is equivalent to a reduction of 9 Mt CO₂e, roughly 2% of Australia’s gross national greenhouse gas emissions of 529 Mt CO₂e in FY 2023.⁹

This scenario would lead to a cost saving of $160 million (see Table 9), which is equal to 0.14% of the total value in Infrastructure Australia’s Market Capacity Program pipeline.

Table 9: Carbon and cost changes for the three decarbonisation scenarios in 2026–27

A breakdown of the costs of the Maximum Decarbonisation Scenario is shown in Table 10. Replacing materials with lower-carbon alternatives results in an overall saving in material spend as cost-saving strategies more than compensate for those with a cost uplift. Increases in construction and commissioning costs are due to the use of biodiesel and renewable electricity. The increase in labour cost is due to an estimated increase in structural engineering fees to optimise structural steel (i.e., to reduce the amount of structural steel needed to achieve the desired level of performance).

Table 10: Cost impact from the like-for-like use of replacement materials, by input (Maximum Decarbonisation Scenario) 

Under the Mid-level Decarbonisation Scenario, a 13% reduction in upfront carbon emissions is achievable with a larger cost saving of $280 million – or 0.24% of the total project value in Infrastructure Australia’s Market Capacity Program pipeline.

These scenarios show the significant potential for replacement materials in lowering embodied carbon emissions in infrastructure. However, it is worth noting that emission projections may not be realised exactly as presented as they are subject to government ambitions, market conditions, and emissions that occur beyond Australia’s territorial boundaries, which that may or may not change over time.

While a 23% saving in upfront carbon would be a significant contribution to Australia’s decarbonisation agenda, eliminating the other three quarters of upfront carbon emissions from the construction pipeline will need a different approach. It will need building products to be decarbonised from the supply side, and changes in how Australia plans, designs and procures assets so that embodied carbon is considered early. The only way to effectively reduce embodied carbon at scale is to start early and coordinate through the value chain.

A conscious and concerted national effort is going to be crucial in meeting Australia’s net zero commitments. Successful decarbonisation of the built environment will require coordinating across the whole infrastructure planning, delivery and operation system, and a step change in how infrastructure and building assets are planned, built, operated, maintained and reviewed. This also involves overcoming a series of obstacles to change. 

Taking insights from our consultation with industry and government stakeholders, this section explores obstacles to reducing embodied carbon in the built environment and provides recommendations for the Australian Government as it designs and implements targeted decarbonisation policies. 

RECOMMENDATION 1

The Australian Government, working with state and territory governments, should develop a comprehensive national plan to actively promote the decarbonisation of emissions embodied in Australia’s built environment, in particular by:

• linking new construction decisions to Net Zero 2050 and 2035 reduction targets 
• using the decarbonisation hierarchy to drive a clear strategy for reducing whole-life carbon from a project’s ‘needs’ stage to lock in the greatest opportunity to influence carbon reductions

Using lifecycle thinking to manage environmental and social impacts, minimise carbon footprints and avoid trade-offs 

Disjointed operating environments are not conducive for achieving net zero targets

The individual carbon-reduction efforts of governments are a welcome first step on the path to national decarbonisation. 
While many individual initiatives are underway, there is no overarching plan for targeting embodied carbon in the built environment. This limits the scope for collaboration across the built environment and linking new construction with Australia’s ambition for a net zero transition.

At the individual asset level, decarbonising a building or infrastructure asset is often considered without studying the implications for carbon on the wider system that the asset belongs to. Disconnected operations or any form of tunnel vision in decision making is a barrier to just transition, and can result in unforeseen trade-offs or unintended social, environment and/or economic impacts. 

To address this, decarbonisation of the built environment should be addressed using a systems-based approach and through close collaboration across the value chain.

Using lifecycle thinking, which considers the impacts that asset owners and managers can control and influence when assets are created, operated and used ensures that multiple environmental and social impacts are considered across an asset’s whole lifespan.  

Asset owners should also collaborate with other members of the value chain to speed up decarbonisation through the project delivery process. Early engagement and collaboration among value chain members such as owners and managers, designers, constructors, procurers and product/material suppliers is needed at all levels, from system to asset in order to effectively reduce carbon emissions.

Applying the decarbonisation hierarchy

To maximise whole-life carbon reduction and scale up the individual efforts of individual project teams, stakeholders should use the decarbonisation hierarchy (see Figure 5) to evaluate need, assess alternatives, adopt low carbon solutions, and improve. The greatest opportunity to avoid or reduce emissions occurs at the ’need’ stage, and gradually decreases through the design, materials selection, construction, and operation stages. Whole-life carbon can be influenced again at the end of an asset’s first life, if/when it can be refurbished, repurposed, deconstructed and/or decommissioned.

Figure 5: The decarbonisation hierarchy adopted from PAS 2080 (2023) 

RECOMMENDATION 2

The Australian Government, with state and territory governments, should build carbon confidence and literacy in buildings and infrastructure by:

• complementing the ongoing efforts of the Austroads Environment and Sustainability Taskforce and the Infrastructure Net Zero Initiative to develop education programs for professionals, trades and consumers which target carbon literacy and low carbon product specifications and construction
• developing a national sharing platform for industry practitioners to showcase learnings from projects, pilots, concessions, model contracts and specifications for low carbon solutions

Piloting projects to trial new solutions and produce data about new products and construction techniques. 

Widespread climate illiteracy and a lack of knowledge sharing can delay uptake of lower carbon materials
Australia’s decarbonisation efforts are detrimentally impacted by a general lack of understanding among industry professionals, trades, and consumers of climate and carbon issues (climate literacy), myths concerning low carbon materials and an absence of detailed and actionable learnings.

As assets are built or renewed, product choices are made based on current knowledge and perceptions developed over time. Myths about the difficulties and impracticality of using lower-carbon materials are common, and influence project decisions at both design and procurement stages. Where the availability, quality and performance of low-carbon construction materials are not well understood, hesitancy in their adoption is to be expected. 

Knowledge about characteristics of low carbon products needs to be supplemented with practical awareness and know-how on their use for a project. Lack of confidence about specification and use results in low and fragmented demand for low-carbon products, which slows supply chain development due to insufficient demand, and less product availability.

Use of low-carbon products on projects often rely on substantial trials and testing, which are essential to ensure that alternative products are fit for purpose for their intended applications. Without evidence of multiple prior successes, project teams may be unwilling to use lower carbon alternatives which is problematic as test results are rarely published and case studies lack the detail required to replicate results. 

One example of efforts to address these gaps in the industry and promote innovative building techniques in the transport infrastructure sector can be seen in the Austroads Environment and Sustainability Taskforce, comprising the Australian Government, state and territory governments, and New Zealand Government. Together, they are developing guidance, conducting research, and updating Austroads standards. 

Additionally, the Australian Government has invested in the Infrastructure Net Zero Initiative, which brings together industry and government stakeholders to achieve the shared goal of decarbonising infrastructure. This collaboration recognises the shared responsibility of decarbonisation and the opportunity to create an aligned and effective use of collective time, resources, and expertise to accelerate the highest-priority initiatives to drive lasting policy change and industry innovation.

RECOMMENDATION 3

The Australian Government, with state and territory governments, should continue developing a nationally standardised embodied carbon measurement system, which allows for consistent methods to collect, measure and assess data about embodied carbon.

This could involve:

• Establishing a national database of default emissions factors and EPDs to support embodied carbon measurement, and be a single source of truth for practitioners in the built environment.
• Setting requirements to measure and disclose upfront carbon on projects over a threshold value and make use of collected data for setting best practice targets informed by benchmarks for different asset classes.
• Investigating ways to drive national alignment on data to support carbon calculations, including standardising the collection of construction and commissioning data.

Standard measures and tools are needed for meaningful progress

Reducing carbon emissions at scale is only possible with reliable and consistent measurement tools. Implementing a standard methodology and data system at national level poses a significant challenge.

Historically, Australia has lacked a nationally consistent way of measuring embodied carbon in the built environment. Various methods are used to calculated and claim carbon reductions on projects, leading to a lack of consistency and credibility in measurement, with inconsistent and non-comparable results. This makes it difficult for stakeholders to accurately calculate and track carbon emissions. Additionally, there is no comprehensive dataset for process-based lifecycle analysis emissions factors, which makes it difficult to access and compare the emissions of different building products. Furthermore, a shortage of compliant product data, such as third party verified EPDs, which limits the ability for decision makers to make informed low carbon choices when selecting building materials.

Recognising the imperative to consistently measure, compare and set reduction targets for embodied carbon in buildings, the National Australian Built Environment Rating System (NABERS) is working to create an embodied carbon rating tool for buildings, which would allow building owners to set robust and measurable targets for reducing embodied carbon in buildings. In concurrence, the Infrastructure and Transport Ministers’ Meeting has approved the Embodied Carbon Measurement for Infrastructure: Technical Guidance, a nationally consistent approach to measuring embodied emissions in infrastructure projects.¹¹ Further work will involve developing and maintaining a national emissions factor library and nationally consistent data reporting and collection.

RECOMMENDATION 4

The Australian Government, working with state and territory governments, should agree a common national approach to drive market demand for low carbon solutions.

This could involve:

• developing nationally consistent procurement guidance through the Infrastructure Decarbonisation Working Group focused on enabling low carbon solutions in project requirements
• addressing cross-border carbon leakage and ensuring a means of fair carbon accounting between domestic and imported products, through the Australian Government’s ongoing work to investigate a domestic Carbon Border Adjustment Mechanism
• exploring funding or grants models to reduce the cost burden for projects to adopt lower carbon products and technologies
• investing in sustainable finance instruments to incentivise the adoption of low carbon materials and technologies on projects, by working with concessional finance providers
• investigating incentives for low carbon construction with planning authorities.

Industry needs a steadier flow of demand to justify decarbonisation investment 

Industry is less willing to create more products and solutions that have low carbon impact, because the demand for them is not dependable. This hinders the advancement of the sector and the country as a whole. 

Stakeholders identify several causes of demand dependability:

• The lack of common targets or incentives to drive demand for lower carbon solutions across jurisdictions.
• A focus on upfront cost that leads to low-carbon products being descoped in favour of lower-cost yet higher-carbon alternatives. A contributing factor is that carbon is not currently valued in the decision-making process for many projects.
• Suppliers not being engaged early enough in the project, limiting their ability to provide innovative solutions that meet design requirements as well a lower-carbon alternative. Once designs are finalised, the options for low carbon products become more limited.
• The high cost of product trials that reduce the pool of projects willing to undertake them.
• Leakage of carbon into Australia through higher-carbon, low-cost imports, which deters local, low carbon product development. 

Many stakeholders interviewed for this report called for fairer carbon accounting, including the Building Products Industry Council and representatives of the steel industry, for who carbon leakage was regarded as an item of importance for government intervention. 

In March 2023, the Australian Government announced it would undertake a review of carbon leakage as part of the Safeguard Mechanism reforms. The review will assess carbon leakage risks and policy options to address them, including the feasibility of an Australian Carbon Border Adjustment Mechanism. The review will focus on trade-exposed goods under the Safeguard Mechanism, particularly steel and cement which are key inputs for many types of infrastructure. The review’s first consultation paper was released on 13 November 2023 and closed on 12 December 2023. A second round of consultation will be undertaken in mid-2024. This review is expected to be completed by 30 September 2024.

The delivery of major infrastructure projects presents a unique opportunity for the Australian Government to drive decarbonisation outcomes. For instance, the Infrastructure Policy Statement, released in November 2023 notes that as emissions reduction techniques emerge, the Australian Government expects them to be factored into project delivery. This lays a clear foundation on which project selection funding decisions could be made in future.

There is also work underway to drive a more consistent approach to procurement. Through the ITMM, the Infrastructure and Transport Ministers’ Meeting, the Infrastructure Decarbonisation Working Group, chaired by NSW and the Commonwealth, is developing a ‘carbon in procurement and contracts’ guideline to inform the implementation of measures to ensure transport infrastructure projects support decarbonisation goals. 

To elevate the consideration of carbon in project decision making, ITMM approved a nationally consistent set of values for use in transport infrastructure projects. Infrastructure Australia has introduced a requirement that infrastructure proposals submitted to Infrastructure Australia must use the nationally consistent set of carbon values in their submissions from July 2024.

RECOMMENDATION 5

The Australian Government, working with state and territory governments, should develop new methods for project delivery which share risks and rewards for innovative approaches.

This could involve:

• specifying outcomes and expectations of project delivery that embeds specific requirements for decarbonisation
• developing performance based, collaborative contract models and business cases, which assume the use of low carbon materials, early contractor involvement on projects, embodied carbon analysis in pre-tender processes, and clear direction for decarbonisation in tender documentation
• exploring opportunities to include trials of new materials in flagship projects and sharing learnings.

Industry confidence to invest in decarbonisation is low, for fears that risks may not be rewarded

Stakeholders identified fear of risk exposure as one of the major barriers hindering effective decarbonisation efforts. This reluctance stems from industry inertia, where trying new approaches or technologies to reduce carbon emissions is often seen as risky.  Hesitance is further compounded by industry’s limited bandwidth, as it contends 
with numerous commercial and workforce challenges alongside the complexity of the bidding process. Government procurement practices were reported to be conservative, undermining the imperative to tackle climate change and adopt progressive policies.

This inherent reluctance to take risks has also led to a resistance to pilot new projects as well as a preference to pass on risks to other parties. This is particularly evident in traditional contract models, where risk is typically shifted to the constructor in post-tender D&C (design and construct) contracts. Unfortunately, by this stage, the opportunity for significant decarbonisation in the project has often passed, leaving the constructor with limited options for reducing carbon.

Moreover, the aversion to risk has also hindered the willingness to try new and innovative approaches. Many stakeholders reported that there is a preference for familiar and low-risk solutions, instead of considering effective or innovative alternatives. As a result, even when new and well-tested solutions are available in other countries, there is a reluctance to adopt them in Australian projects. This is exemplified by the use of general purpose limestone cement, which is commonly 
used overseas by not yet embraced in Australia. Overall, the apprehension towards risk and change in the industry is seen as a barrier to decarbonisation efforts.

RECOMMENDATION 6

The Australian Government, with state and territory governments, should work with industry to drive greater national alignment on low-carbon expectations through performance-based standards and specifications.

This could involve:

• establishing unified specifications and guidelines that promote the adoption of lower-carbon products more consistently across all jurisdictions. This should be incorporated into widely accessible model specification clauses to enable standardised practices
• procuring using performance-based specifications, that allow for materials and solutions to be judged on meeting performance criteria, rather than specifying that they must be of a certain characteristic.

Leading efforts to expedite the updating of standards and specifications, developing a more efficient system and providing funding for critical updates to keep pace with evolving options. 

Product development is hindered by traditional standards and specifications 

During consultation, industry stakeholders were frustrated by existing specifications, which prescribed specific characteristics for products rather than performance outcomes. This can limit the entry of new and innovative materials into the market. 

Existing construction bias and out-dated material standards and specifications often preclude the use of lower-carbon materials, mixes and processes. Traditionally, specifications prescribe characteristics of a compliant product, such as a minimum required composition. These are typically narrow, focusing on known solutions. 

Another barrier to progress is fragmentation in product specifications across jurisdictions, which discourages investment by diluting market demand. This is further compounded by Australia’s inherent challenges of low population and geographical spread, making it difficult to justify product changes due to inconsistent demand for specific requirements.

The low pace of updates to standards and specifications is another significant barrier. Stakeholders expressed frustration at the lag in updating these standards, which makes it difficult for the industry to keep up with the latest low carbon materials. According to some stakeholders, slow progress in the update of existing stipulations mean that new solutions are judged on their adherence to narrow and prescriptive specifications rather than their performance. 

As innovation in low carbon materials continues to advance, it is imperative that measures are taken to speed up the process of updating standards and specifications.

To overcome these barriers, it is necessary to address the issue of consistency in product specifications at a national level. There is also a need to transition to performance-based specifications and ensure that standards and industry specifications are updated in a timely manner. 

Analysis presented in Section 2: Baseline Measures of Embodied Carbon showed that Australia can reduce upfront carbon emissions from its pipeline of infrastructure and buildings by up to 23% in 2026–27 by applying like-for-like decarbonisation strategies considered in this report.

The cost and carbon abatement potential of each decarbonisation strategy is shown in Figure 6. Four of the 11 groups of strategies considered in this report lead to a cost saving at the project level – recycled crushed concrete replaces aggregates in concrete and pavement sub-base; reclaimed asphalt pavement replaces asphalt in base course and wearing course; structural steel lightweighting and hydrated lime replaced in asphalt - and one is cost neutral – reinforcing steel lightweighting. The following remaining strategies incur a cost, shown in red, however most costs are small compared to the value of assets in the pipeline:

• Aluminium made with 100% renewable electricity.
• Steel made in an electric arc furnace with 100% renewable electricity.
• Supplementary cementitious materials that replace cement.
• Renewable electricity in construction.
• Steel fibre reinforcing that replaces steel mesh/bar reinforcing.
• Biodiesel in construction.

Of the strategies, biodiesel uptake is by far the most expensive, with relatively small benefit to reducing greenhouse gas (GHG) emissions. The Maximum Decarbonisation Scenario assumes that usage increases from 1% in 2022–23 to 20% by 2026–27 (i.e., nationwide adoption of a B20 blend across the construction sector. However, with current pricing, this strategy becomes expensive at the national level. As such, the Mid-Level Decarbonisation Strategy assumes a moderate uptake of biodiesel beyond current levels.

The strategies with the greatest influence on upfront carbon are:

• steel made from electric arc furnace with 100% renewable electricity
• reinforcing steel lightweighting
• structural steeling lightweighting
• supplementary cementitious materials replace cement 
• renewable electricity in construction and commissioning.

Figure 6: Marginal abatement cost curve, 2026–27

The analysis in this report is based on Infrastructure Australia’s Market Capacity Project Database. This system aggregates project-level data to create a comprehensive overview of Australia’s infrastructure and building investment pipeline. This data is informed by budget processes and forward projections derived from budget estimate periods.

However, the landscape for project delivery has become progressively challenging, with constraints of available skilled labour and resources, market fluctuations, and inconsistencies in project and portfolio planning standards. Consequently, delays due to slippage are now widespread, which can lead to over-estimation of material demand.

Further, Infrastructure Australia’s Market Capacity project database focuses on major projects per state.

Major projects are defined as:

• infrastructure projects with a capital value of $100 million or more in New South Wales, Victoria, Queensland, and Western Australia
• infrastructure projects with a capital value of $50 million or more in South Australia, Tasmania, the Australian Capital Territory, and theNorthern Territory
• private building projects with a capital value of $25 million or more
• all energy projects, regardless of capital value.

The forecast may overestimate spend - and therefore upfront carbon - in some areas as a result of project slippage and threshold values, while underestimating it in others.

This project applies two scenarios to manage uncertainty:

• Pipeline Analysis: Calculations are based solely on the pipeline of infrastructure and building projects from Infrastructure Australia’s National Infrastructure Project Database, without any scaling. Projects below the thresholds above are excluded. Projects are reported in the year they are forecast, without accounting for potential slippage. In practice, this means that most of the residential housing market is excluded and that the pipeline is too full, particularly for the next 2—3 years (meaning it cannot all be delivered within the planned time horizon). 
• Hybrid Analysis: This analysis is designed to achieve a more realistic forecast of future embodied emissions, and represents a more comprehensive dataset for buildings. This is done in four steps:

1. Fill gaps for buildings under $25 million
   Data from the Australian Bureau of Statistics (ABS) is used to account for construction of all buildings, regardless of their capital value.^12,13 Forecasts from Master Builders Australia were used to project the ABS data into the future.¹⁴
2. Expand the material categories for buildings
   Additional materials (e.g., aluminium, glass and building services) is added to Infrastructure Australia’s materials classification to capture more embodied emissions from buildings.
3. Account for project slippag
   Historic building approvals data from Australian Bureau of Statistics was used to account for project slippage and project cancellations. Construction rates for transport and utilities were not adjusted.
4. Reconcile quantities of calculated material with the market’s ability to supply these materials
   Material quantities were summed to determine the deviation from total material supply at the national level. These comparisons were only made for a small number of materials where data was available or could be calculated, namely asphalt, total cementitious materials, reinforcing steel and structural steel. Where there were significant deviations (>±10%), project volumes were scaled to match total material demand. A rate of 5% year-on-year growth was allowed for per material category. (The reason for applying slippage factors first was to try to get a better balance across the project types before scaling up/down.) 

Hybrid analysis findings

Upfront carbon emissions from construction activity in Australia’s buildings and infrastructure under the Hybrid analysis was calculated as 38 Mt CO₂e in 2022–23, the baseline for this study. This is equivalent to 7% of Australia’s total greenhouse gas (GHG) emissions in 2022–23. Use phase embodied carbon was estimated to be 18 Mt CO₂e, and end-of-life embodied carbon was estimated to be 1.5 Mt CO₂e (Table 11).

For detailed results of the hybrid analysis please refer to the report Supporting Appendices: Embodied Carbon Projections for Australian Infrastructure and Buildings.

Table 11: Embodied carbon emissions by lifecycle module, hybrid analysis (2022–23).

Most upfront carbon emission come from manufacturing construction products. Figure 7 provides a breakdown of upfront carbon emissions by lifecycle module. Construction products make up 73% of upfront emissions (modules A1 to A3 in carbon footprint standards). The remaining 27% comes from transport (module A4, 4%) and construction (module A5, 23%). In the construction phase, emissions come from four main sources: land use change for greenfield sites, construction waste, construction machinery and commissioning.

Figure 7: Breakdown of upfront carbon emissions by lifecycle stage using the hybrid method

Figure 8 presents a 5-year view of upfront carbon emissions from the infrastructure and buildings construction pipeline. Under the hybrid analysis, the upfront embodied carbon in Australia’s pipeline of infrastructure and buildings is forecast to be between 40 Mt CO₂e and 56 Mt CO₂e each year for the next 5 years, equating to 256 Mt CO₂e. Buildings represent the largest share, accounting for approximately half of the total forecast carbon emission (133 Mt CO₂e). This is followed by Utilities, which accounts for approximately 28% of the total emissions (71 Mt CO₂e). Transport infrastructure accounts for approximately a fifth of the total (52 Mt CO₂e).

Figure 8: National emissions over 5 years (hybrid analysis).

Figure 9 presents forecast upfront carbon using both the hybrid analysis (lighter filled stacked bars) and the pipeline analysis (darker filled stacked bars). The pipeline analysis shows dramatic growth in upfront carbon (high ambition in the short-term) and then decline (projects later in the time horizon not yet identified and committed). The hybrid analysis attempts to correct for this variability and therefore shows steady growth over the 5-year period between 2022–23 and 2026–27. It shows a steady increase until FY 2025, followed by a levelling out in 2025–26 and 2026–27. 

Comparing the two analyses:

The total results are similar for the years 2022–23 to 2025–26. However, the make-up of these results is quite different. For buildings, the pipeline analysis is skewed towards larger projects, many of which will not be built in the forecast year. The hybrid analysis is influenced by many smaller projects, particularly residential building construction.

The pipeline analysis shows a rapid rise in construction, followed by a decline. The hybrid analysis is more stable over time. This is due to the difference in underlying approach for forecasting building construction, in which the pipeline analysis relies on self-reporting, and the hybrid analysis forecasts future building construction activity based on past construction activity.

Figure 9: A comparison of national emissions over five years using the hybrid analysis and pipeline analysis

Figure 10 shows a breakdown of the emissions by project type using the hybrid analysis for 2022–23. Detached residential buildings, multi-unit residential buildings and utility solar are forecast to have the highest upfront carbon footprint at the national level, with detached residential buildings in first place, due to the sheer number constructed. The next group of project types is state roads (Freeway/Highway), warehouse and office buildings – with state roads and warehouses having a relatively similar forecast upfront carbon footprint in 2022–23. Wind utilities, semi-detached residential buildings, retail stores and railway stations round out the top 10.

Figure 10: Embodied carbon for the 10 highest contributing typecasts in baseline year 2022–23 (hybrid analysis)

Figure 11 shows the carbon and cost changes for both the hybrid and pipeline Analysis, under the Mid-Level Decarbonisation Scenario and Maximum Decarbonisation Scenario. According to the hybrid analysis, the Maximum Decarbonisation Scenario is able to achieve a 21% carbon reduction on the pipeline by 2026–27, with a cost uplift of $37 million. The more moderate Mid-Level Decarbonisation Scenario can achieve a 12% carbon reduction on the pipeline for a saving of $200 million.

Figure 11: Carbon and cost changes from decarbonisation scenarios in FY 2027

Methodology overview

This report calculates:

1. A baseline carbon footprint for infrastructure and buildings. The baseline carbon footprint represents the upfront carbon that is expected to result from Australia’s construction pipeline of buildings and infrastructure between the financial years 2022–23 and 2026–27, if no action is taken. It assumes that the adoption of low-carbon technologies remains at 2022–23 levels.
2. The potential to reduce this baseline carbon footprint by substituting materials and energy with low-carbon alternatives, under two decarbonisation scenarios. Two decarbonisation scenarios are used to represent two technically achievable, levels of ambition for uptake of decarbonisation strategies.
   1. The mid-level decarbonisation scenario includes low-carbon technologies that are available on the market today, have proven technological viability, are cost competitive, and can be scaled up to the national level by 2026–27.
   2. The maximum decarbonisation scenario is designed to be an achievable best case. It assumes that barriers in standards, procurement and cost can be overcome. Achieving it would require strong alignment between government and industry on low-carbon outcomes.

Scope

The analysis in this report is based on Infrastructure Australia’s Market Capacity Project Database, including major projects per state, defined as:

• infrastructure projects with a capital value of $100 million or more in New South Wales, Victoria, Queensland, and Western Australia
• infrastructure projects with a capital value of $50 million or more in South Australia, Tasmania, the Australian Capital Territory, and the Northern Territory
• private building projects with a capital value of $25 million or more
• all energy projects, regardless of capital value.

Material quantities

Material quantities were determined from this system, which combines forecast capital expenditure with an overlay of the typical spend on plant, labour, equipment and materials (PLEM) per asset type.

For this report:

• Materials data were the primary source and the basis for calculations in modules A1-A3 and construction waste in module A5.
• Plant data were the basis for construction energy in module A5.
• Labour data were used for construction costs in module A5, where strategies had an influence on labour costs.
• Equipment data were not used.

Emission factor selection and calculation

Emission factors were calculated to represent national or state averages wherever possible. Emission factors were weighted using apparent consumption, as below:

𝐴𝑝𝑝𝑎𝑟𝑒𝑛𝑡 𝑐𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛 = 𝐷𝑜𝑚𝑒𝑠𝑡𝑖𝑐 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 + 𝐼𝑚𝑝𝑜𝑟𝑡𝑠 − 𝐸𝑥𝑝𝑜𝑟𝑡𝑠

Where there were multiple domestic manufacturers or multiple import countries, emissions were weighted by market share wherever possible. Where this information was not publicly available, plant manufacturing capacity was used as a proxy for market share for domestic manufacture.

Upfront carbon

The analysis in this report focuses on upfront carbon defined here as the greenhouse gas emissions and removals associated with the creation of an asset, network or system up to practical completion. This definition is based on that for ‘capital carbon’ from PAS 2080:2023 (BSI Australia, 2023).

Carbon emissions are calculated as the “sum of greenhouse gas emissions and greenhouse gas removals in a product system, expressed as CO₂-equivalent (CO₂e) and based on a life cycle assessment using the single impact category of climate change” (ISO, 2018). Where the term carbon is used in this report, it refers to the carbon dioxide equivalent (CO₂e) of all greenhouse gases.

Upfront carbon includes the following life cycle modules:

• Modules A1—A3: Manufacture of building products.
• Module A4: Transport of building products to site.
• Module A5: Construction, which includes:
  • land use change from land clearing
  • construction waste
  • construction energy
  • commissioning energy.

Figure 12: Lifecycle modules according to ISO 21931-1:2022, highlighting upfront carbon

These lifecycle module codes (i.e., A1-A3, A4 and A5) derive from international and European standards for lifecycle assessment of buildings and infrastructure assets. It is worth noting that many building/infrastructure asset carbon footprint studies do not include commissioning energy. This is an item that emerged as being relevant for some asset types during the stakeholder consultation process for this project. Further, land use change is often excluded due to a lack of good data on its potential impacts. Both are included within this study.

Two analyses for two purposes

This report employs two different calculation approaches for two different purposes:

1. The pipeline analysis calculates the emissions embodied in Australia’s pipeline of infrastructure and buildings, as forecast. Calculations are based solely on Infrastructure Australia’s National Infrastructure Project Database, without any scaling. Projects that fall below the thresholds are excluded. Projects are reported in the year they are forecast, without accounting for slippage. 
2. The hybrid analysis aims to calculate the embodied emissions that occur in a specific year. This is done by filling gaps for building projects under $25 million, by accounting for project slippage where possible and by including a wider range of construction products.

The purpose of the Hybrid Analysis is to demonstrate the significance of embodied carbon relative to Australia’s total national greenhouse gas (GHG) emissions. Its figures are presented as percentages of emissions as well as absolute emissions. By contrast, the Pipeline Analysis is not presented relative to national emissions because the forecast emissions may be spread across more than one year.

Calculation method

Calculating the baseline carbon footprint

The baseline carbon footprint was calculated by summing several elements:

• Manufacture of building products = amount of construction (in $) × material intensity (typically kg per $) × emission factor (typically kg CO₂e per kg).
• Transport of building products to site = amount of construction (in $) × material intensity (typically kg per $) × typical transport distance (in km) × emission factor (typically kg CO₂e per kg·km).
• Land use change from land clearing = total land use change from construction (in kg CO₂e) × construction per typecast (in $) / total amount of construction (in $)
• Construction energy = operation of plant (in $ per type of plant/machine) × energy intensity (e.g., MJ per $) × emission factor (e.g., kg CO₂e per MJ)
• Construction waste = amount of construction (in $) × material intensity (typically kg per $) × waste factor (%) × emission factor (typically kg CO₂e per kg).
• Commissioning energy = amount of energy used for commissioning (in $) × energy intensity (e.g., MJ per $) × emission factor (e.g., kg CO₂e per MJ)

The amount of construction is total dollars per asset type (of which there are 63 types) and per state/territory. In the base analysis for the report (the Pipeline Analysis), the amount of construction comes solely from Infrastructure Australia’s National Infrastructure Project Database. The Hybrid Analysis uses the same data for transport infrastructure and utilities, but bases its buildings data on statistics from the Australian Bureau of Statistics and the Department of Climate Change, Energy, the Environment and Water.

Forecasting emission savings 

Identifying decarbonisation strategies

The materials available within Infrastructure Australia’s database were used as the basis for developing an initial longlist of decarbonisation strategies. Strategies were divided into those that affect materials/products (modules A1-A3) and those that affect construction (module A5).

13 decarbonisation strategies were selected (in 11 groups) with different rates and levels of adoption, from an initial longlist of 25 strategies.

Five criteria were used to select decarbonisation strategies:

• MTargets upfront carbon
  Only decarbonisation strategies that had the potential to actively reduce upfront carbon were considered.
• Like-for-like replacement
  The analysis in this report focuses on like-for-like material replacement only (i.e., intra- material substitution). It does not consider inter-material substitution (e.g., replacing asphalt with concrete or concrete with timber), changes in project design or changes in project execution. This is because the data available per project type is so highly aggregated that it is not feasible to do anything else credibly.
• Additionality of emissions savings
  Emissions reductions must go beyond savings that would occur anyway due to other existing policies or activities. Perhaps the most obvious example is decarbonisation of the electricity grid. This analysis only considers electricity decarbonisation that is significantly above decarbonisation of the grid.
• Already available on the Australian market
  Decarbonisation strategies either had to already be available on the Australian market in the base year (2022–23) or to represent a change to a product already available on the market (e.g., supply-side decarbonisation of the energy mix for a product already on the market).
• Strong potential for decarbonisation.
  The intent of this project was to identify significant opportunities for decarbonisation nationally. As such, strategies had to have strong potential to reduce upfront carbon and be available at scale across Australia.  

For each of the 13 strategies, we consider:

• Level of uptake by 2026–27 The Maximum Decarbonisation Scenario always assumes a level of uptake that is the same or greater than the Mid-Level Decarbonisation Scenario.
• Change in amount of material used per asset (for efficiency strategies).
• Change in carbon intensity per unit of material (for material emission factor strategies).
• Change in material, energy and labour costs (as relevant).
• Change in carbon intensity per unit of construction energy.

Uptake scenarios

This analysis applies three scenarios for uptake rates of the decarbonisation strategies. The uptake rates for the Baseline Scenario, and the maximum uptake rate by 2026–27. under the Mid-level Decarbonisation Scenario and the Maximum Decarbonisation Scenario can be found in Table 7 in Section 2: Baseline Measures of Embodied Carbon. Current and future uptake rates were determined through workshops with industry, supplemented with research by the authors. Detailed analysis of the decarbonisation strategies can be found in the report Supporting Appendices: Embodied Carbon Projections for Australian Infrastructure and Buildings.

Baseline Scenario

This is the base case for this report. The project team has endeavoured to determine actual adoption rates for all decarbonisation strategies as of the base year 2022–23. These baseline rates are then assumed for all future years through to the final year for this analysis 2026–27. No further uptake beyond the current rate is considered within this scenario. Emission factors are also assumed to hold stable for each material. This means that the amount of product forecast to be used is the only variable between years.

Maximum Decarbonisation Scenario

This scenario represents the highest practical level of ambition by 2026–27. It is designed to be an achievable best case. It assumes that barriers in standards, procurement and cost can be overcome. The main limitations on uptake rates in this 
scenario are:

• Physical impossibility
  There would not be enough of the material physically available. Examples include reclaimed asphalt pavement (RAP), recycled, content in steel and recycled content in aluminium. There will never be enough material available for 100% recycling rates while material demand is growing globally.
• Deterioration in performance meaning replacement is no longer like-for-like 
  Stakeholders commented that while it is physically possible to achieve 100% replacement rates, this can lead to deteriorations in physical properties for some materials, meaning that the replacement material would no longer be functionally equivalent to original, virgin material. Examples mentioned during consultation include SCMs in concrete at replacement rates over 60–70%, high use of RAP in pavement wearing courses, and high use of recycled aggregates in concrete.
• Growth that outstrips capacity to supply within the next 4 years
  Given the relatively short time horizon for this analysis, we also assume that the sector cannot go from very low levels of replacement to extremely high levels overnight because supply would be unlikely to be able to grow fast enough.

Mid-Level Decarbonisation Scenario

This scenario represents an intermediate level of ambition that is part way between the Baseline Scenario and the Maximum Decarbonisation Scenario. Adoption rates are defined by a combination of three factors:

• Moderate price
  All strategies that either paid for themselves or could be achieved for a moderate price increase were implemented. Highly expensive strategies were eliminated (or taken up at a much lower rate to reduce cost), regardless of their decarbonisation potential.
• Technical and regulatory feasibility
  Strategies with high perceived barriers in technology and/or regulation/standards were eliminated. So too were those with high perceived risk.
• ‘Trickle down’ approach
  Performance rates already achieved by the best-performing sectors and/or best-performing states/territories in 2022-23 were rolled out to the worst-performing sectors/states by 2026–27, while the best performers were assumed to push ahead even further.

Costing replacement options

The costing of decarbonisation strategies was conducted by Slattery. Slattery contacted suppliers and contractors to obtain baseline material costs and how these costs would change if the material was substituted. Each supplier or contractor’s information was recorded in an Excel spreadsheet with material type and price per tonne impact. The percentage of cost increases for materials per state was obtained when available.

For low-carbon concrete, prices per tonne / cubic metre were not obtained. Rather, suppliers estimated how cost would increase for a variety of concrete products incorporating supplementary cementitious materials (SCMs) compared to standard cement blend products. Pricing data obtained from the market was sense-checked against Slattery’s own internal pricing data.

Once market research was completed, estimated percentage price changes were provided for each material substitution. Where a variation in price difference was obtained for the same material substitution, the middle value of the range was used.

Definitions

Manufacture of building products (modules A1-A3)

Emissions from manufacturing building products are calculated from extracting, harvesting, or recovering raw materials through to the manufacturer’s outbound factory gate.

For recycled and reused products, the boundary between asset life cycles has been set by applying the “end-of-waste state” defined by European standard EN 15804+A2 Sustainability of construction works - Environmental product declarations - Core rules for the product category of construction products.¹⁵ The end-of-waste state is the point at which material stops being counted as waste and starts being counted as a product. This boundary is important because it defines the point at which greenhouse gas emissions from recovery and recycling stop being counted as waste disposal in the previous asset’s lifecycle (i.e., zero emissions in the current asset’s lifecycle) and start being counted as the emissions of manufacture in the current asset’s life cycle.

Following EN 15804+A2, the end-of-waste state for a recovered material is reached when it meets four criteria:¹⁶ 

• It is commonly used for specific purposes.
• There is market demand (i.e., someone will pay for the recovered material).
• It meets relevant technical or legal requirements, e.g., relevant standards.
• It is not classified as hazardous by relevant legislation.

In practice, this definition means that the greenhouse gas emissions from many types of recycling will be classified as waste treatment operations at the end of the previous asset’s life cycle (and therefore not at the start of the current asset’s lifecycle). Exceptions include metals – particularly steel and aluminium – where the end-of-waste state is reached as soon as the metals are put into a (source- separated) skip on the construction site.

Transport to site (module A4)

Transport to site is modelled as a mixture of truck, rail and sea freight to get materials from their original supplier to the construction site. A consumption-based approach is applied, meaning that all freight is included, including freight that occurs overseas.

Land use change (module A5)

Land use change includes the greenhouse gas emissions caused by converting one land use type to another. It applies to greenfield developments only and is not relevant to brownfield developments (as the land has already been developed and there is no land use change). It is particularly significant where forested areas are cleared, or where wetlands are drained.

All land use change is assumed to occur in module A5. There was some confusion during the stakeholder consultation process, as to whether land use change impacts could also occur in module A0 (pre-construction).

Construction waste (module A5)

Construction waste emissions are calculated as the sum of four components:

• Emissions from manufacturing wasted materials. The same emission factors are used as for modules A1-A3.
• Emissions from transporting wasted materials to site. The same emission factors are used as for module A4.
• Emissions from transporting wasted materials to waste treatment. A default assumption of 50 km transport in a rigid truck is applied. The same emission factors are used as for module A4.
• Emissions from end-of-life treatment of waste, e.g., landfill or recycling up to the end-of- waste state (see definition of the end-of-waste state earlier in this section).

Construction energy (module A5)

Construction energy is all energy (diesel, electricity, etc.) associated with constructing an asset. This includes land clearing, excavation, laying materials, erecting structures, etc. Only energy used on- site – including site offices – is within the scope of this analysis. Activities that occur off-site are not considered. This means that corporate offices and design offices are excluded, as is transport of staff to and from the jobsite.

Commissioning energy (module A5)

Commissioning is the stage in the project where an asset is tested – in whole or in part – before being handed over to the client. It takes place between construction completion and practical completion, though it often occurs in stages for larger projects. Commissioning may continue following handover to the asset owner, however the commissioning energy included in module A5 contains only the work completed under the control of the constructor.

Typically, commissioning includes the testing of critical systems, such as back-up electricity generators, security systems, fire systems, extractor fans and plant rooms. Commissioning energy is typically electricity, though significant amounts of diesel can often be used, particularly to test back- up generators or in cases where commissioning is done when the project is still off-grid.

Greenhouse gas emissions

“Greenhouse gas emissions”, “GHG emissions”, “carbon footprint” and “carbon emissions” are used interchangeably in this report. They are defined as the “sum of greenhouse gas emissions and greenhouse gas removals in a product system, expressed as CO₂-equivalent (CO₂e) and based on a life cycle assessment using the single impact category of climate change” (ISO, 2018). Where the term “carbon” is used in this report, it refers to the carbon dioxide equivalent (CO₂e) of all greenhouse gases and not to elemental carbon.

GHG emissions have been calculated using Global Warming Potential over 100-year time horizon (GWP100). GWP100 is defined by the Intergovernmental Panel on Climate Change (IPCC). Where possible the IPCC’s latest report – the Sixth Assessment Report (AR6) – was used.¹⁷ However, given that this report relies on many different sources, many emission factors follow earlier reports, primarily AR4 and AR5.^18,19  This is expected to have little relevance to the results as nearly all upfront carbon emissions associated with buildings and infrastructure assets are carbon dioxide (CO₂) and 1 kilogram of CO₂ is characterised as 1 kilogram of CO₂-equivalent (CO₂e) across all versions of the GWP100 indicator.

GHG emissions and removals are reported separately for the Pipeline Analysis and Hybrid Analysis in the Supporting Appendices: Embodied Carbon Projections for Australian Infrastructure and Buildings in line with ISO 14067:2018 Greenhouse gases - Carbon footprint of products - Requirements and guidelines for quantification and PAS 2080:2023.^20,21 The main results in the body of the report focus on greenhouse gas emissions only.

Assumptions

Emissions are calculated from the bottom up

This report aggregates information from the bottom up and then validates it against top-down data. The approach was chosen to improve the granularity of the results. More specifically:

• All construction activity data is an aggregation of project-level data.
• All carbon footprint data is based on bottom-up process-based lifecycle assessment rather than top-down input-output life cycle assessment.

Exceptions have been made where no bottom-up data were available, notably for land use change.

Calculations focus on consumption, not production

This report applies a consumption-based approach. This approach includes the greenhouse gas emissions associated with materials and energy consumed within Australia and excludes the greenhouse gas emissions from domestically produced products that are exported.

The use of a consumption-based approach means that only a portion of the upfront carbon reported in this study occurs within Australia’s territorial boundaries. This is more important for some materials than others. For some products (e.g., photovoltaic panels), 100% of what is consumed domestically has been produced overseas. For others (e.g., aggregates and electricity), 100% of what is consumed here, has also been produced in Australia. For most products, there is a mix of domestic supply and imports.

A consumption-based approach was considered appropriate for this study because all countries share the same atmosphere, meaning that it doesn’t matter in which country greenhouse gas emissions are released. However, it is important to recognise that the Paris Agreement applies a production-based approach and only considers greenhouse gas emissions from within a country’s territory.

How significant is the difference between the two approaches for this analysis? Australia’s consumption-based emissions are typically 10-15% lower than our production-based emissions, according to work by the Department of Climate Change, Energy, the Environment and Water.²² These figures are net emissions, including the effects of Land Use, Land Use Change and Forestry. Previous analyses that have considered gross emissions – excluding Land Use, Land Use Change and Forestry – have shown similar emissions when applying production-based and consumption-based approaches.²³

The differences between consumption-based and production-based approaches are not likely to be significant for this analysis. Some of the forecast savings will fall outside Australia’s territorial boundaries, however many of the decarbonisation strategies considered will also apply to products that are manufactured in Australia for export, helping to balance the books.

Process-based life cycle assessment

There are three main ways to calculate emission factors:

1. Process-based lifecycle assessment (process-based LCA)
2. Input-output lifecycle assessment (IO-LCA)
3. Hybrid lifecycle assessment (Hybrid LCA)

Process-based life cycle assessment (process-based LCA) is a bottom-up approach that starts from the many individual process steps required to make something and adds them all up to calculate total emissions. Because of its detail, process-based LCA can be used to differentiate between many different product variants. So, for example, it is possible to distinguish between a concrete mix with 10% fly ash and another with 20% ground granulated blast furnace slag. However, to make the method practical, cut-off rules and/or proxies are used to represent parts of the supply chain that are less environmentally relevant. This leads to truncation error, meaning that not all environmental emissions are captured.

An alternative approach is input-output lifecycle assessment (IO-LCA). IO-LCA is a top-down approach that uses economic input-output tables to consider trade between sectors of the economy. Each economic sector is assigned a direct emission per dollar and the trade between sectors allows indirect emissions to be calculated. IO-LCA is complete by definition (i.e., no truncation error) provided that national inventories capture all direct emissions per sector. However, it has very low resolution – at the level of market sectors only – which means that it cannot distinguish between products from the same sector.

Hybrid lifecycle assessment (Hybrid LCA) seeks to combine the two methods and achieve the best of both worlds. There are two Hybrid LCA databases for construction products in Australia:

1. The Environmental Performance in Construction (EPiC) Database, published by the University 
   of Melbourne.²⁴
2. The Integrated Carbon Metrics (ICM) Embodied Carbon Life Cycle Inventory Database, published by the University of New South Wales.²⁵

This report uses process-based LCA as its primary method for four main reasons:

Granularity: This report includes two decarbonisation scenarios which are based on like-for- like replacement. As such, the analysis in this project requires a method that can distinguish between products in the same market sector. This requirement rules out IO-LCA.

Data availability: Process-based LCA is the method used to calculate the results in an Environmental Product Declaration and the method underpinning product carbon neutral declarations. As such, most of the product-specific data available in Australia (and worldwide) is process-based LCA data.

Industry support: Consultation through this process and through related projects (e.g., National Australian Built Environment Rating System Embodied Carbon) have shown overwhelming support for process-based LCA through the entire building and construction supply chain.

Global standardisation: International standards for LCA and product carbon footprinting typically rely on process-based LCA data wherever it is available.

The body of this report applies process-based LCA for all core calculations. For comparison purposes, upfront embodied carbon emissions for 2022–23 were also calculated using an economy-wide input-output LCA (IO-LCA) approach. This can be found in the report Supporting Appendices: Embodied Carbon Projections for Australian Infrastructure and Buildings.

Limitations

This analysis is limited primarily by its own scope. It does not consider:

• No-build or build-less solutions.
• Optimised design solutions.
• Inter-material substitution, e.g., concrete for asphalt, or timber for reinforced concrete.
• Life cycle stages beyond upfront carbon, including maintenance/replacement, end of life and emissions from users’ utilisation of the asset. The durability of materials has only been considered insofar as to eliminate strategies (or to lower uptake rates) to try to ensure that replacements are like-for-like and will not comprise performance.
• Environmental impacts other than carbon footprint.

Other limitations include:

• There is limited data on project rework (i.e., where something must be ripped out and replaced because it is out of specification). This is excluded from the current analysis.
• There is currently no simple way to split between rural versus urban projects. The location affects the availability of recycled bulk materials and transport distances. In this study, the split of rural/urban population has been used to adjust transport distances (module A4) and uptake rates try to reflect a mix of rural and urban projects.
• Not considering cost escalation over the five-year time horizon.
• Not considering decarbonisation of the business-as-usual case over the five-year time horizon.

Overview of stakeholder consultations

Engaging government and industry stakeholders was an important part of this project. The engagement ensured stakeholders:

• understood the project and what it meant for them (e.g., its aim, methods, planned outcomes and progress) and could update their own stakeholders 
• could contribute to the project (e.g., explain decarbonisation activities and challenges for their sector, provide feedback on issues identified, provide data, suggest areas to explore further).

Figure 13: Extent of stakeholder engagement in the project

Figure 14: Key messages from stakeholders

Supply chain insights

Stakeholders consulted during the project provided insights into the many constraints across the supply chain for low-carbon materials. They highlighted the need to innovate, coordinate and break down silos. The most common supply chain frustrations stem from:

• the absence of a national built environment net zero pathway,
• poor planning and coordination,
• pervasive inertia and conservatism, and
• lack of certainty and incentives to innovate.

These challenges are also present in the larger value-chain, within which the supply chain operates. Section 3: Barriers and Opportunities examines the barriers to and enablers of decarbonising the value- chain. This section provides examples to illustrate the most common supply chain constraints identified by the industry stakeholders who produce, supply, procure and install low-carbon materials.

The constraints to using low-carbon products identified through consultation can be grouped into six broad categories: geography, resource availability, availability of low-emissions power, technical constraints, economic barriers, and regulations.

Geography

Infrastructure Australia’s Replacement Materials report shows that geographical limitations hinder the use of lower-carbon replacement materials, such as recycled crushed glass, recycled crushed concrete, and supplementary cementitious materials.²⁶  These materials are not widely available due to logistical reasons, resulting in difficulty for stakeholders in accessing them. The high costs and associated transport emissions also counteract the potential carbon reduction. Availability of resources varies between states and between metropolitan and regional areas within the same state. The pavement industry reports that there is a lack of clean and suitable volumes of reclaimed asphalt pavement near to manufacturing facilities, and there is limited plant capacity to process in many locations.

Constructors too reported logistical challenges and cost impacts of sourcing lower-carbon ‘waste’ materials, because it is difficult to access these materials near new construction sites.

Resource availability

Limited supply of recyclate

Limited availability of recyclate hinders production of lower carbon building products, as many stakeholders reported. 
Reasons for this scarcity varied among industries. 

The plastic pipe industry said that despite being able to incorporate recyclate into non-pressure pipes, there is a low volume of waste pipe available for recycling. Since plastic pipes are long-lived (up to 100 years), post-consumer recyclate is scarce, which limits production of lower-carbon plastic pipe and conduit.

Similarly, steel and aluminium producers struggle with limited recyclate availability, with much of Australia’s aluminium recyclate being sent offshore. This impacts their competitiveness in terms of both price and lower-carbon production. The recycled content in Australian aluminium is predicted to remain at less than 5% for the next five years, so Australian producers will continue to rely on imports to manufacture high recycled content building materials.

Despite having the capability to process recycled steel, Australian steel manufacturers face insufficient steel scrap on the global market to meet demand. 

The concrete and pavement industries also struggle with sourcing quality recyclate, with shortages reported by asphalt producers for 
materials such as recycled crushed glass and crushed and screened reclaimed asphalt pavement. The concrete industry said that growing demand for supplementary cementitious materials threatened the future supply of lower carbon concrete mixes, unless grinding capability increased in line with that demand.

Limited supply of biobased alternatives

Bio-based alternatives are available to replace many fossil-based materials and processes, but using them on a large scale for low carbon building products remains challenging.

The plastic pipe industry reports that the available volume of alternative raw material sources is limited and costly, even though bio and circular resins that may be ‘dropped into’ existing production processes are commercially available.

The steel industry is also exploring biochar as an alternative to coke in steel making, but sourcing sufficient quantities to meet industry demand is difficult. Additionally, combining bio-based and fossil-derived materials in production systems may not produce a clearly recognisable biobased product, making it necessary to declare the entire product mix as one in Environmental Product Declarations.

Native forest timber

The timber industry expressed concern that the negative narrative around forest management may lead to reduced supply of responsibly sourced low-carbon timber products. Logging in native forests is set to be banned in Victoria and Western Australia in 2024, and a court action to halt logging is currently underway in Tasmania and New South Wales. Hardwood from Australia’s native forests is typically made into flooring, decking, window frames, beams and joists.

Availability of low-emissions energy

A decarbonised supply chain is reliant on low-emissions power generation to manufacture and transport low carbon materials. Until a spread of cost-competitive, low-emissions electricity is available, with capacity to support 24-hour operations, high-emitter industries will struggle to produce low-emissions solutions. 

The supply of low-emissions power generation extends to capital investment decisions too. For example, the aluminium industry said that the single biggest factor in developing future refining, smelting and manufacturing locations is reliable, internationally competitive, low emissions energy.

Constructors face similar challenges in decarbonising on-site operations. Biodiesel blends can be used to help power site generators and diesel machinery, but constructors said that supply is limited. In some cases it made more sense (commercially) to offset construction emissions with carbon credits. The ability to use ‘sustainable’ biodiesel to decarbonise construction activities is constrained by the lack of local commercial production facilities, as Australian feedstocks are exported. Imported biodiesel is subject to the full fuel excise and therefore uncompetitive with standard diesel.

Technical constraints

Existing construction biases and conservative materials standards often limit new and innovative materials, mixes, and processes. For example, although hydrated lime can reduce the 
carbon footprint of asphalt, it is only permitted for Northern Territory roads. Asphalt suppliers felt that the cost of additional testing required for reclaimed asphalt pavement mixes was ‘a tax on choosing the right mix’ which can limit uptake of a market-ready low-carbon solution.

The concrete industry faces frustration with overly restrictive standards for supplementary cementitious materials and conservative engineering specifications that lead to higher 
emission outcomes. Suggestions for harmonised national standards have been made, allowing for the uptake of alternative materials at scale. For example, state specifications permit different rates of fly ash; Western Australia specifies the recovery rate of generated fly ash at 72%, compared to 18% in Queensland and 10% in New South Wales.

Despite successes with buried thermoplastic pipes in other countries and a trial in Australia, the plastic pipe industry has faced difficulties negotiating with Australian road authorities and 
traditional higher carbon products are still favored. Furthermore, the timber industry has concerns about the current treatment of biogenic carbon at end of life reported in Environmental Product Declarations (EPD), following an update to EN15804+A2. They question the factual accuracy of the standard, and perceive that it limits the selection of low-carbon timber solutions due to the way the standard requires its carbon footprint to be expressed.

Economic barriers 

Stakeholders highlighted commercial constraints to supplying low carbon products, citing examples such as steel manufacturers needing funding for plant upgrades and research initiatives to produce higher grade steels by 2026–27.

Producers struggle to justify capital investment due to limited or inconsistent demand, hindering the implementation of processes for producing lower-carbon products. For example, the concrete industry said that they could implement processes to produce lower-carbon products now if there was enough demand to justify the investment. Likewise, the pavement industry said that capital costs to upgrade asphalt plants to provide lower-carbon asphalt would need to be justified commercially before a commitment could be made to invest.

With no strong market driver for low carbon products, national net zero targets must be embedded in the built environment for innovative solutions to thrive.

The market’s reluctance to pay a premium for some low carbon products is also a major disincentive, stifling innovation and limiting uptake.

Constructors noted that many start-ups struggle to introduce their products to the construction industry, due to a lack of carbon literacy and understanding of testing and quality assurance requirements. This can result in failure to penetrate the market, even with good, low-carbon products. Additionally, obtaining EPDs can be prohibitively expensive for small to medium enterprises and start-ups, further constraining the introduction of viable low carbon products to the market.

Regulations

Industry stakeholders stressed that requirements for regulatory licensing of recycling infrastructure limits their ability to receive, store and process ‘waste’ materials. The ability to store ‘waste’ on site depends on approvals at significant cost and often the storage volumes and timeframes are inadequate. For example, asphalt suppliers said that the Environmental Protection Authority (EPA) will not allow on-site storage of replacement materials for use in products.

Producers said that when they are classified as a waste receiver, there are regulatory barriers to the use of the recycled or waste content in their products. Regulatory reform is needed to re-classify resources that are currently classified as ‘waste’ so that they can be used as a feedstock.

A producer of non-cementitious building products said that the EPA could do more to pressure the waste industry to clean up waste streams destined for the building products sector. Access to more clean ‘waste’ can help increase the supply of these low-carbon products.

The pavement industry is frustrated at the lack of alignment in regulatory requirements and standards among state and territory roading authorities and the reluctance to adopt technologies and practices that have been proven elsewhere in the world. Stakeholders feel that statutory authorities are reluctant to listen to them, which prevents them from sharing their local expertise, and promoting the uptake of viable low-carbon innovations.

The pavement industry is frustrated that state and territory roading authorities will not align regulatory requirements and standards where practical or adopt technologies and practices that have been proven elsewhere in the world. Stakeholders feel their local expertise regarding viable low-carbon innovations is overlooked by statutory authorities.

The aluminium industry argues that Australia’s Critical Minerals List should be changed to include bauxite, alumina, and aluminium. The industry says this would stimulate investment in refining, smelting and processing these critical minerals in Australia, and support clean energy technologies and electricity network infrastructure. The Australian aluminium industry is not at capacity, and as noted above, most of Australia’s scrap aluminium is shipped offshore at a time when there is an increasing demand for recycled aluminium and low-carbon aluminium products.

Appendix – Policy levers

Levers available to governments to address upfront carbon at the project level

Australia will rely on every sector to decarbonise at scale to support the net zero transformation. The built environment is directly responsible for one-third of Australia’s total carbon emissions, and indirectly responsible for over half of all emissions. Policies that help the built environment to address upfront carbon at the project level will contribute to the national Net Zero 2050 goal. 

The analysis in this report shows that national, state and territory governments can make decisions to drive down Australia’s carbon emissions today. Policy-makers and teams delivering construction projects have effective interventions that will change how Australia constructs its 
built environment.

Identifying realistic and important government levers

Industry and government have identified many areas for the government to act on upfront carbon in infrastructure and buildings.

Assessment criteria and process

A two-step process based on two criteria led to the recommended areas of focus:

1. Criterion 1 (ability): how well the action can reasonably be adopted in policy or practice
   At step one of the process, representatives from government departments and agencies refined proposed lists of policy interventions and non-policy levers. These were then ranked based on how challenging they would be to implement successfully. They also identified interventions that lacked agreement. 
2. Criterion 2 (effectiveness): how well the action will help decarbonise the built environment at both pace and scale.
   At step two of the process, the Technical Reference Group reviewed the grouped lists and voted on how important or significant the actions are to decarbonisation. Their votes were translated into high, medium and low importance. 

Dealing with ‘additional’ topics

Further engagement with stakeholders later in the project saw other opportunities emerge. This report includes the opportunities that more than one stakeholder raised. ‘High importance’ means several stakeholders raised the opportunity. The additional opportunities are classified as ‘not rated’, meaning they have not been assigned a difficulty 
or importance. 
Figure 15 summarises the most promising opportunities identified for government intervention, based on importance and agreement on options as a possible government priority. 

Figure 15: Most promising opportunities identified for government intervention in consultation workshop

How policy can support decarbonisation of the built environment

The opportunities for government action fit broadly into nine categories:

Carbon in decision-making

Upfront carbon must be assigned value in the decision-making process for projects, such as in tender evaluations. Valuing reductions in carbon means it can be weighted against other criteria such as price, quality and delivery. 

A major barrier to using low-carbon products, or reusing existing buildings or materials, is a perception of unreasonable cost. However, if there is a clear priority to reduce carbon in all projects, this becomes another ‘necessary cost’, much like buying products that comply with codes and standards. 

Creating a perceived value for low-carbon commodities can encourage more reuse and retrofits. It can also promote taking a whole-life carbon view for an asset, which protects against possible trade-offs.

Standards and specifications

Industry often cites the content of existing standards and specifications as a major factor that inhibits using low-carbon products. They raise two challenges: a lack of national agreement and consistency, and the need to update standards and specifications to support low-carbon purchasing.

National agreements and consistency

The best way to support low-carbon construction is by setting consistent requirements that are included in all similar standards and specifications. Performance-based specifications allow for more innovative and flexible approaches. Confirming common expectations across national and sub-national jurisdictions helps create the consistent demand and volume that supply chains need to change.

Updating standards and specifications

The process for updating standards and specifications needs a systemic overhaul. Updates are often slow and arduous and create a barrier to innovation and change. New, more agile approaches to updates will encourage using lower-carbon solutions on construction projects. 
A more open approach to other forms of compliance, which include identifying and managing risks, can encourage industry to trial newer solutions more quickly. Government should also consider more requirements to disclose high-emissions products through EPDs and material passports.

Assessing emissions

A national approach to measuring upfront carbon involves adopting common principles, methodologies, emission factors and reporting mechanisms nationally and across all states and territories. This approach will create a consistent, credible way to decarbonise the built environment nationally over time and make it possible to compare different projects. 

Disclosures

A national methodology would enable the disclosure of upfront carbon for infrastructure and building projects. This will make it easier to understand the impacts of construction and continue to investigate the best levers to reduce it. Disclosure using agreed methods to measure the upfront carbon in construction, will help everyone understand what is possible and encourage a ‘race’ to reduce emissions which can be publicly monitored and measured. Disclosure will also show the progress being made and make it possible to refine actions to help achieve national and sub-national goals.

Setting targets and baselines

To help Australia reach its decarbonisation targets, managing and reducing the upfront carbon in infrastructure and buildings must be planned and deliberate. Carbon and energy management plans for construction projects are an important part of the carbon reduction toolkit. Requiring these plans for all government-funded projects and assets will ensure better decisions and action early in projects.

Consistent ways of measuring lead to baselines people trust. Setting targets for upfront carbon in construction will increase the potential for change in the built environment’s footprint. Targets are a better option than a carbon ‘cap’. Firstly, they are not seen as a ‘cap’. This is because some stakeholders view caps as unnecessary constraints where site conditions and other factors may make it hard or impossible to reach targets.

Carbon ‘budgets’, based on targets, can be allocated for projects or even parts of the pipeline. This makes it easier to take an holistic view about what is possible within the constraints of decarbonising.

Monitoring and reporting

Upfront carbon for developing assets should be seen as part of a wider Scope 3 emissions picture. Stakeholders wanted to see larger entities reporting their Scope 3 emissions. This would put more focus on upfront carbon and all the other carbon emissions that a company can influence.

Many stakeholders also wanted the National Construction Code (NCC) to include reporting of upfront carbon. 

Government procurement

The Australian Government, and state and territory governments have the largest buying power in the built environment, and the greatest commercial influence for change. Government policies and agencies need to lead changes in low-carbon procurement and leaders in the private sector need to support this. National, state and territory procurement strategies must be set to match net-zero policies, and support decarbonisation to achieve agreed targets. 

Industry reported that government projects typically avoid risk and lack ambition. A systemic change would see making decarbonising a national priority. It also means seeing the work involved in leading low-carbon construction and setting minimum standards for government-leased buildings as a necessary investment.

Support for supply chains

Supporting manufacturers in hard-to-abate sectors with both incentives and disincentives for change is a cornerstone of government policy. This is important and must be continued and strengthened. Manufacturers also raised reducing carbon leakage as an opportunity. 

Industries experiencing challenges with technological constraints are seeking new ways to lower their carbon emissions. Several stakeholders suggested that using ‘waste’ streams as raw material resources could be a promising way to decarbonise. However, regulatory constraints on how waste is classified, processed, and stored and how end-of-life products (resources) classified as ‘waste’ can be used has delayed developing lower-carbon products by years. 

Stakeholders also identified opportunities to provide cleaner, more consistent recyclate, such as recycled crushed glass. This would allow more processing of reused materials to make construction products instead of using new raw materials.

Funding and incentives

The Technical Reference Group saw introducing a national value for carbon as an important impetus for decarbonisation. Some stakeholders said that it was not a ‘price’ as a tradeable commodity that was needed. Rather, it was an agreed value for carbon to use in business cases and decisions to prioritise decarbonisation. 
Industry calls for government funding to support decarbonisation reflected the challenges of price premiums for low-carbon products and the possible benefits of offering incentives to decarbonise. Stakeholders raised the expense of research and development to create new products as a barrier, together with the rigorous testing needed to prove they are fit for purpose. A further suggestion was the development of sustainable finance instruments to support infrastructure projects.

Education and awareness

Government and the private sector, large and small entities, commercial and consumer, do not understand decarbonisation as well as they need to. Education is one of the greatest missing links. It should cover simple fundamentals and case studies that highlight best practice, and help people develop the techniques they need to design, specify and install for low-carbon construction. 

Industry identified an opportunity to partner with government to develop urgent solutions to this issue. 

Industry also requested a guide which combines the findings of this project with information about how to build low-carbon infrastructure and buildings.

Acting faster offers the greatest potential for decarbonisation

Governments across Australia are already acting on many of the issues raised in this report, to varying extent. However, more progress is needed.
The most urgent actions identified by the consultation, that should be acted on before 
2025, include: 

Decarbonisation measures in policy

• Align national policy and make it consistent.
• Confirm a nationally harmonised approach for principles, definitions, methodology, database (a national framework).
• Measure and disclose upfront carbon for all buildings and infrastructure.
• Require carbon and energy management plans for all big build projects.
• Require reporting of Scope 3 emissions for all major entities.
• Facilitate on-site waste (resource) storage and processing.
• Amend waste regulations to allow simpler ways to use ‘waste’ resources.

Requirements for government assets and government-funded projects

• Include weighted embodied carbon targets in business cases and tender evaluations.
• Align national standards and specifications and make them consistent.
• Use government projects as the exemplar for low-carbon construction.
• Use government procurement to signal a change in practices.
• Recognise the end-of-life value of products.
• Offer incentives for adaptive reuse and retrofitting.
• Be willingness to pay for lower-carbon products.
• Include whole-life carbon to factor in durability and lifespan.
• Require mandatory Environmental Product Declarations for emissions-intensive products.

Providing government support to promote and influence change in industry

• Fund education and training programs.
• Create a national carbon price.
• Create Commonwealth Treasury sustainable finance instruments for infrastructure.
• Fund R&D to develop, improve and age-test low-carbon products.
• Complete a fuller analysis of decarbonisation methods not included in this report.
• Develop a guide on how to build low-carbon infrastructure and buildings.
• Require waste industries to provide cleaner waste streams.

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4. European Standards, 2011, EN 15978:2011 Sustainability of construction works - Assessment of environmental performance of buildings - Calculation method, EN, available via https://www.en-standard.eu/bs-en-15978-2011-sustainability-of-construction-works-assessment-of-environmental-performance-of-buildings-calculation-method/
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10. British Standards Institution 2023, PAS 2080: 2023 Carbon Management in Buildings and Infrastructure (2nd), BSI, available via https://www.bsigroup.com/en-GB/our-services/product-certification/product-certification-schemes/pas-2080-carbon-management-in-infrastructure-verification/
11. Department of Infrastructure, Transport, Regional Development, Communications and the Arts, 2024, Communique for Infrastructure and Transport Minister’s Meeting, DITRCA, Canberra, available via https://www.infrastructure.gov.au/sites/default/files/documents/itmm-communique-7-june-2024.pdf
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14. Master Builders Australia 2023, Building and Construction Industry Forecasts - Australia - September 2023, Master Builders Australia, available via https://masterbuilders.com.au/product/national-forecast-september-2023/
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16. European Standards, 2019, BS EN 15804:2012+A2:2019 Sustainability of construction works - Environmental product declarations - Core rules for the product category of construction products, EN, available via https://www.en-standard.eu/bs-en-15804-2012-a2-2019-sustainability-of-construction-works-environmental-product-declarations-core-rules-for-the-product-category-of-construction-products
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24. Crawford, R., Stephan, A., & Prideaux, F. 2019, Environmental Performance in Construction (EPiC) Database. University of Melbourne, Melbourne, available via https://msd.unimelb.edu.au/research/projects/current/environmental-performance-in-construction
25. Wiedmann, T., Teh, S. H., & Yu, M. 2019, ICM Database - Integrated Carbon Metrics Embodied Carbon Life Cycle Inventory Database. UNSW, Sydney, available via https://researchdata.edu.au/icm-database-integrated-inventory-database/1957145
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Purpose of this statement

As required under section 5DB of the Infrastructure Australia Act 2008 (Cth) (IA Act), Infrastructure Australia, during each financial year, must give to the Minister and table in both Houses of Parliament:

• an annual budget statement to inform the annual Commonwealth budget process on infrastructure investment; and
• an annual performance statement on the performance outcomes being achieved by states, territories and local government authorities in relation to the infrastructure investment program and existing project initiatives funded by the Commonwealth.

Context

In 2022, the Australian Government undertook an Independent Review of Infrastructure Australia. Following the release of the Government’s response to the Review, Parliament passed legislative amendments to the IA Act in December 2023. This included the requirement for Infrastructure Australia to produce and publish these annual statements.

With the passage of the amendments occurring late in 2023, the Annual Performance Statement 2024 was developed using readily available data within the time available.

The Annual Performance Statement 2024

This first edition of the Annual Performance Statement sets out Infrastructure Australia’s advice regarding the outcomes being achieved in relation to the Australian Government’s Infrastructure Investment Program (IIP), which funds land 
transport projects. 

Agreed performance outcomes and measures across the nationally significant infrastructure sectors within Infrastructure Australia’s remit are yet to be determined. As a result, this year’s Performance Statement focusses on the IIP and its alignment to the outcomes sought through the Government’s Infrastructure Policy Statement (IPS). 

Infrastructure Australia will work with the Australian Government to agree an approach to reporting in future editions of the Annual Performance Statement, including considering the establishment of performance outcomes and measures for the sectors in Infrastructure Australia’s remit.

The Statement also includes market capacity analysis and trends and insights gleaned from Infrastructure Australia’s evaluation of business cases for nationally significant infrastructure for consideration in the development of future infrastructure proposals.

Infrastructure Australia’s 2023 Market Capacity Report found that Australia’s major public infrastructure pipeline had slightly smoothed over the preceding 12 months, with projected expenditure more evenly distributed over the 
forward estimates. 

In November 2023, the Australian Government announced changes to projects funded through one of its programs feeding into the public infrastructure pipeline, the IIP. The changes included allocation of additional funds, removal of funds, and deferral of funds. Infrastructure Australia has undertaken analysis to determine the effects of these changes on the public infrastructure pipeline. 

Infrastructure Australia’s analysis below assumes a conservative position that all defunded projects are not going ahead, with this scenario resulting in a 2.3% reduction in the 5-year public infrastructure demand pipeline. However, in reality, some projects may still proceed at the discretion of each respective state and territory, without an Australian Government funding contribution. 

Furthermore, the Australian Government’s cashflow contribution to the 5-year public infrastructure demand pipeline via the IIP is approximately 20%, with the remainder mostly comprising state and territory funding, including many projects which are not receiving Australian Government funding. Therefore, the impact of the announced changes to the IIP on public infrastructure construction capacity constraints will be properly understood after infrastructure pipelines from each state and territory have been updated. 

Under the assumption that all defunded projects will be cancelled, the revised IIP will slightly relieve the labour shortage in coming years. Labour demand for publicly funded projects will reduce by up to 8,000 full-time equivalents per month, representing up to 2% of current labour demand in 2024-25. 

Figure 1: Public infrastructure workforce demand

The announced changes also reduces quarried materials demanded, although the effect of this impact will be in later years as its impact takes effect during the construction phase of project delivery. By 2027-28, annual quarry demand in the public pipeline drops by up to 3%, or up to 1.2 million tonnes per year.

Figure 2: Public infrastructure quarried material demand

Global supply chain pressures have eased, with steady improvements in international production, trade, and transport measures compared with 12 months ago. However, demand still significantly outweighs supply, and productivity for the construction sector remains stagnant compared to other industries.
The analysis above demonstrates that revisions of proposed infrastructure pipelines can have material effects on managing market capacity and supporting performance of the infrastructure construction market. 

As part of normal yearly budget processes, Infrastructure Australia recommends governments carefully review their project pipelines, both within and across sectors. These reviews should ensure that demand is carefully matched to supply of plant, labour, equipment and material. This will ensure that governments are not competing against each other for scarce resources and provide a checkpoint for projects’ progress. 

The Australian Government’s over $120 billion infrastructure pipeline aims to improve the productivity of Australia’s land transport networks by working with every state and territory to build much-needed infrastructure across a number of individual funding programs.¹ The infrastructure pipeline comprises the IIP, financial assistance grants, equity, and other infrastructure investments.

Infrastructure Investment Program objective

The IIP, which comprises the majority of the infrastructure pipeline’s funding, ‘supports economic growth, makes travel safer, increases transport access and supports regional development. It increases the efficiency, productivity, sustainability and safety of Australia’s land transport infrastructure through programs and policy to improve connectivity for communities and freight.’² 

Recent Reforms

The Australian Government recently undertook two significant reviews relating to its infrastructure investment – the Independent Strategic Review of the IIP, and the Independent Review of the National Partnership Agreement on Land Transport Infrastructure Projects. 

The reviews recommended wide-ranging reforms to the Government’s infrastructure investments, including but not limited to:

• Implementing a long-term, integrated approach to planning, incorporating the IPS
• Developing a comprehensive outcomes and performance framework
• Taking a risk-based approach to project oversight
• Reviewing the National Land Transport Act 2014 and maintenance funding
• Improving data and systems practices

Infrastructure Australia supports the recommendations from both reviews. It is anticipated that as the reviews’ recommendations are implemented, such as those related to improved performance reporting, additional data will be available to support future performance statements.  

IIP context

Within the IIP, the breakdown between the funding parties comprises 60% from the Australian Government, with 39% from state and territory governments, and the remaining 1% coming from other sources, such as local governments.ⁱ 

Funding Split
 

^{i. Figures provided by the Department of Infrastructure, Transport, Regional Development, Communications and the Arts. Includes IIP major projects with funding from 2023-34 (excluding unallocated funding) and excluding sub-programs of Black Spot, Heavy Vehicle Safety and Productivity, Bridges Renewal, and Roads to Recovery.}

In terms of the modal breakdown of its investment, 69% of Australian Government funding (2023-24 to 2032-33) in the IIP is committed to road projects, with 25% allocated to rail infrastructure. The remaining 6% of funding is committed to the remainder of the IIP.ⁱⁱ Australian Government investment in infrastructure also occurs outside of the IIP on both road and rail infrastructure, for example Inland Rail.

^{ii. Figures provided by the Department of Infrastructure, Transport, Regional Development, Communications and the Arts. Includes unallocated funding to applicable states. Also includes national unallocated funding which is held against the road allocation.}

Australian Government Investment Allocation by Mode

The Infrastructure Policy Statement (IPS)

Future investments in the IIP will be guided by the Government’s IPS, which was released in late 2023. The IPS, in addition to defining nationally significant infrastructure, identifies three strategic themes that encapsulate the benefits the Government seeks from its infrastructure investments:

• Productivity and resilience – seeking to improve the ability of Australians to move around and between cities, towns and regions, and to strengthen the resilience and efficiency of transport networks.
• Liveability – connecting people with where they live and work, supporting vulnerable communities, providing better opportunities in lower socioeconomic areas and improving the safety of the nation’s transport networks.
• Sustainability – reducing transport and infrastructure emissions for private users and freight movements through design, construction and operation.

Performance of the IIP against the IPS

Infrastructure Australia undertook analysis of a subset of projects within the IIP to understand the alignment of the Government’s existing IIP investments with the policy outcomes in the IPS. It should be noted that for most, if not all of the projects we analysed, the IPS was not in place at the time funding decisions were made. The purpose of this analysis is therefore to demonstrate where governments may wish to focus future decision-making to help achieve the IPS outcomes.

What Infrastructure Australia assessed

The purpose of Infrastructure Australia’s analysis was two-fold and aimed at understanding projects’:

1. expected economic return (based on the business case), and 
2. alignment of the projects’ benefits with the Government’s IPS.

The analysis is based on Infrastructure Australia’s previous evaluations of project business cases. The business case data was developed by the relevant state or territory governments and provides a ‘before construction’ view of anticipated project benefits, as opposed to realised ‘after construction’ benefits. The analysis therefore gives an indication of the expected benefits of projects at or around the time decisions to fund them were made.

The data was considered current at the time Infrastructure Australia evaluated the business cases and does not account for any subsequent cost increases or scope changes. The data represents Infrastructure Australia’s position on the expected project benefits at the time the business case 
was evaluated. 

The analysis is limited to projects within the IIP that have:

1. An Australian Government commitment of $250 million or more, and
2. An Infrastructure Australia evaluation of the business case. 

Filtering out program and unallocated funding, 44 projects were deemed in scope and analysed.ⁱⁱⁱ As they comprise significant projects within the IIP, this subset of projects provides a good foundation for analysis.
To undertake this work, Infrastructure Australia sourced data from the business case evaluation summaries (available on the Infrastructure Australia website) and analysed this data against the themes in the IPS. 

^{iii. 17 rail & public transport projects; 27 road projects}

Infrastructure Australia’s findings

Overall, the projects analysed demonstrate a positive economic return

According to business case data, Infrastructure Australia found that the analysed projects were expected to deliver a positive economic return, with a forecast return of $1.17 of economic value for every $1 of infrastructure spending nationally.^iv Rail and public transport projects were found to have slightly lower economic returns, $1.13 for every $1 invested, compared to roads, $1.32 of economic return. This is because road business cases count higher productivity benefits, which are a greater share of overall benefits, while rail and public transport projects offer greater liveability and sustainability benefits.

^{iv. The economic return is the average of projects’ core Benefit Cost Ratio results, excluding wider economic benefits, weighted by the relative value of projects to represent a true economic return.}

It is important to note that the economic analysis of a project is only one of several key inputs into Infrastructure Australia’s evaluations. Other significant and important considerations when making infrastructure investment evaluations include the proposal’s:

1. Strategic fit – is there a clear rationale for the proposal? 
2. Societal impact – what is the proposal’s value to society, the environment and the economy? 
3. Deliverability – can the proposal be delivered successfully?
    

Productivity comprises almost three quarters of project benefits 

Infrastructure Australia’s analysis found that productivity is the main driver of project benefits in the projects analysed, comprising 73% of project benefits. 

Rail and Public Transport projects demonstrate higher liveability and sustainability benefits 

Across the projects, liveability comprised 24% and sustainability 3% of project benefits. Rail and public transport projects demonstrate higher liveability and sustainability benefits than road projects, representing 64% of projected liveability benefits and 65% of sustainability benefits, despite representing only 46% of the projected cost of the analysed projects.

Rail and Public Transport vs Road benefits

Improving the consideration of sustainability benefits in business cases needs urgent attention 

Sustainability benefits comprise 3% of project benefits, however this is not a true representation of the potential sustainability benefits of the projects analysed because:

• Typically, there is a low quality of sustainability evidence provided in business cases – particularly as business cases often do not describe a project’s:
  • emission reduction targets 
  • mitigation, avoidance and/or offset measures, and
  • intentions to use recycled/ low emissions building materials.
• Sustainability has not necessarily been a core objective of the projects (outcomes are usually focused on transport access, connectivity and place-making).
• Greenhouse gas (GHG) emissions baseline and savings in construction and operations, including embodied emissions, are often not included in cost-benefit analysis (CBA).
• Sustainability issues, such as recycled content or third-party sustainability certification requirements, are typically only considered later in the project development lifecycle (usually in procurement 
  or construction).

Improvements to the quality and detail of sustainability data provided in business cases are required to accurately understand the sustainability benefits of proposals. This is discussed further under Trend 4 – Inconsistent assessment of sustainability and resilience, in the Trends and Insights section below.

The Australian Government’s response to the Independent review of Infrastructure Australia (2022) recognised the need for post completion reviews to provide greater evidence that projects are achieving their intended outcomes.

Despite broad agreement on the merits of undertaking post completion reviews of infrastructure projects, including the application of lessons learnt and feedback for future investments, Infrastructure Australia’s research and engagement with jurisdictions demonstrates that these reviews are not consistently undertaken and rarely published.^22,23

Post completion reviews identify important lessons for governments, communities and industry regarding project successes following project delivery. These reviews determine whether the desired objectives and/or forecast benefits and costs have been realised and can explain the reasons for any differences between the expected and actual outcomes. The aim is to draw appropriate lessons to feed into future infrastructure development and delivery processes. 

A component of post completion reviews is after construction cost-benefit analysis, which helps to identify: 

• the relationships between inputs, outputs, outcomes and benefits 
• the extent of change in schedule, cost, outcomes and benefits 
• appropriateness of techniques and assumptions for estimating costs and benefits, including quantitative and qualitative analysis
• where projects have realised additional non-monetised benefits that were unforeseen during planning.

Conducting a cost-benefit analysis after construction can also be used to conduct benchmarking to help improve estimation techniques around costs and risks during planning, or to substantiate forecasts in the business case by comparing a portfolio of projects with similar characteristics. This can help reduce optimism bias during the planning phase of infrastructure projects, ensuring that scheduling, cost and risk of projects is better understood before funding commitments are made.

The analysis and insights provided in this Annual Statement are based on Infrastructure Australia’s evaluation of project business cases because post completion data is not currently available at a national level to assess project performance. Business cases provide a ‘before construction’ perspective of project performance that is based on expectations and probabilities. While useful for making decisions about the use of public resources in the future, this upfront cost-benefit analysis does not provide confidence that the forecasted performance was actually achieved.

Working with Infrastructure Australia and leveraging the well-defined guidance on benefits realisation 
and cost review at the jurisdictional level, there is a clear opportunity for all governments to adopt a consistent approach to post completion reviews to gain a better picture of whether the IIP is achieving its intended impact.

1. Department of Infrastructure, Transport, Regional Development, Communications and the Arts. Available at: https://investment.infrastructure.gov.au/about/national-initiatives
2. Department of Infrastructure, Transport, Regional Development, Communications and the Arts, 2023-27 Corporate Plan. Available at: https://www.infrastructure.gov.au/sites/default/files/documents/Secretary%20Approved%20INFRA5702%20Dept%20Corporate%20Plan%202023_04.pdf
3. Australian Government. Available at: https://www.infrastructure.gov.au/sites/default/files/documents/infrastructure-policy-statement-20231114.pdf
4. Ryan, P. and Duffield, C. 2017, Contractor Performance on Mega Projects–Avoiding the Pitfalls. Mahalingam, A (Ed.) Shealy, T (Ed.) Gil, N (Ed.) pp.1-34. Engineering Project Organization Society. The University of Melbourne, Melbourne, Australia. Available via:  http://hdl.handle.net/11343/168246; 
5. Infrastructure NSW 2023, 2022-23 State of Infrastructure Report, NSW Government. Available via: https://www.infrastructure.nsw.gov.au/investor-assurance/asset-management-assurance/resources/soir/ 
6. NSW Treasury 2019, WestConnex Project Summary 2019. NSW Government, Sydney, Australia. Available via: https://www.treasury.nsw.gov.au/sites/default/files/2020-11/0023_westconnex_summary.pdf 
7. Victorian Auditor-General’s Office 2023, Major Projects Performance Reporting 2023: Independent assurance report to Parliament 2023-24:9. Available via: https://www.audit.vic.gov.au/sites/default/files/2023-11/20231130_Major-Projects-Performance-Reporting-2023.pdf
8. The State of Queensland (Queensland Audit Office) 2023, Major Projects 2023 (Report 7: 2023–24). Available via: https://www.qao.qld.gov.au/sites/default/files/2023-12/Major%20projects%202023%20%28Report%207%20%E2%80%93%202023%E2%80%9324%29.pdf
9. Infrastructure NSW 2022, Trends and Insights Report 2022, NSW Government. Available via: https://www.infrastructure.nsw.gov.au/investor-assurance/project-assurance/resources/trends-and-insights/
10. Boston Consulting Group (BCG) 2021, International Major Infrastructure Projects Benchmarking Review: Final Report. Prepared by BCG for the Office of Projects Victoria (OPV). Available via: https://content.vic.gov.au/sites/default/files/2023-02/International-Major-Infrastructure-Projects-Benchmarking-Review.pdf
11. GHD, 2019, North East Link North East Link Environment Effects Statement Technical report R – Greenhouse gas impact assessment, Prepared for North East Link, Available from: Technical Report R Greenhouse gas (bigbuild.vic.gov.au)
12. AECOM, West Gate Tunnel Project – Technical report Q – Greenhouse gas, May 2017. 
13. Aurecon Jacobs Mott MacDonald in association with Grimshaw Joint Venture (AJM JV) Melbourne Metro Rail Project – Greenhouse Gas Impact Assessment, April 2016.
14. Extreme weather could burn investment portfolios by mid-century (theconversation.com), accessed 21 March 2024
15. The Australian Transport Assessment and Planning Guidelines outline best practice for transport planning and assessment in Australia. and are available at: https://www.atap.gov.au/ 
16. Australian Business Roundtable for Disaster Resilience & Safer Communities 2016, Building resilient infrastructure, Australian Business Roundtable, http://australianbusinessroundtable.com.au/our-research/resilient-infrastructure-report
17. Dobes, Leo, George Argyrous, and Joanne Leung. “Social Cost-benefit Analysis in Australia and New Zealand. The State of Current Practice and What Needs to Be Done”, 2016. https://doi.org/10.26530/oapen_610768
18. Vejchodská, Eliška. “Cost-benefit Analysis: Too Often Biased”. E+M Ekonomie a Management 18, no. 4 (2015): 68–77. https://doi.org/10.15240/tul/001/2015-4-005
19. Næss, Petter, Morten Skou Nicolaisen, and Arvid Strand. “Traffic forecasts ignoring induced demand: a shaky fundament for cost-benefit analyses.” European Journal of Transport and Infrastructure Research 12.3 (2012): 291-309.
20. Bureau of Infrastructure, Transport and Regional Economics (BITRE), 2018, Ex-post Economic Evaluation of National Road Investment Projects – Volume 1 Synthesis Report, Report 145, BITRE, Canberra ACT.
21. Bureau of Infrastructure, Transport and Regional Economics (BITRE), 2018, Ex-post Economic Evaluation of National Road Investment Projects – Volume 2 Case Studies, Report 145, BITRE, Canberra ACT.
22. Infrastructure Australia, Infrastructure Decision-making Principles (July 2018) https://www.infrastructureaustralia.gov.au/sites/default/files/2019-06/Infrastructure_Decision-Making_Principles.pdf
23. Grattan Institute, The rise of megaprojects: counting the costs (November 2020). Available at: https://grattan.edu.au/wp-content/uploads/2020/11/The-Rise-of-Megaprojects-Grattan-Report.pdf

Purpose of this statement

As required under section 5DB of the Infrastructure Australia Act 2008 (Cth) (IA Act), Infrastructure Australia, during each financial year, must give to the Minister and table in both Houses of Parliament:

• an annual budget statement to inform the annual Commonwealth budget process on infrastructure investment; and 
• an annual performance statement on the performance outcomes being achieved by states, territories and local government authorities in relation to the infrastructure investment program and existing project initiatives funded by the Commonwealth.

Context

In 2022, the Australian Government undertook an Independent Review of Infrastructure Australia. Following the release of the Government’s response to the Review, Parliament passed legislative amendments to the IA Act in December 2023. This included the requirement for Infrastructure Australia to produce and publish these annual statements.

With the passage of the amendments occurring late in 2023, the Annual Budget Statement 2024 was developed using readily available data within the time available.

The Annual Budget Statement 2024

This first edition of the Annual Budget Statement reflects on current infrastructure challenges and provides advice on the types of infrastructure proposals Infrastructure Australia recommends be considered during Budget processes.  It considers recent observed trends both globally and in Australia, and evidence across infrastructure sectors, in particular for land transport. This advice is based on Infrastructure Australia’s own research, together with structured analysis of recent evidence from states and territories and the research community.

Future editions of the Annual Budget Statement will use Infrastructure Australia’s products, such as a targeted Infrastructure Priority List, to inform advice to Government on recommended projects for consideration in future Budget processes. Infrastructure Australia will also work with the Government to consider how broader Government reforms to infrastructure investment planning and decision-making and the availability of other data sources can inform future statements. 

Australia’s infrastructure networks and systems are vitally important. Secure and resilient infrastructure is critical to connecting people and businesses, powering the Australian economy and supporting communities in an increasingly unpredictable natural environment.

The environment in which infrastructure is planned, delivered and operated has changed significantly over time. Domestic and global challenges such as climate change and extreme weather events, global availability of resources and materials and changing movement patterns can create an environment of risk and uncertainty.

However, there are significant opportunities to evolve our approach to infrastructure planning, delivery and operation. Development of new technologies, increased use and access to data, modern methods of construction and a greater focus on renewables and recycled materials can transform our infrastructure system and assist in overcoming the challenges we currently face.

Figure 1: Key infrastructure challenges 

Growing scale and complexity of infrastructure investments

Capital infrastructure investment is growing across Australian jurisdictions in sectors such as transport, social infrastructure, energy and buildings, driven by factors including growing populations, changing needs, and emerging priorities such as housing supply and the energy transition.^1,2,3

There is also clear global and jurisdictional evidence of a trend towards an increasing number and scale of ‘megaprojects’ (cost over $1 billion) in recent years.^4,5,6,7,8

This growth in spending has ramifications for project delivery across infrastructure sectors in terms of cost and risk, and longer-term ramifications due to a growing asset base and maintenance liability. 

Figure 2 illustrates the significant increase in combined public and private sector infrastructure investments over recent years and the scale of the forward pipeline. The 5-year, $690 billion combined pipeline comprises building and transport investments of $427 billion and $210 billion respectively, and a further $53 billion utilities pipeline that includes an expected four-fold increase in energy investments over the next four years. This rapid growth in energy projects will need to compete for resources despite being overshadowed by building and transport investments.  

Figure 2: Combined Infrastructure (public and private sector) - annualised investments by sector.

Source: Infrastructure Australia (2023).

Notes:

• Buildings: includes non-residential buildings for health, education, sport, justice, transport buildings (e.g., parking facilities and warehouses), other buildings (art facilities, civic/convention centres, and offices), limited coverage of detached and semi-detached residential buildings.
• Transport: includes roads, railways, level crossings and other transport projects such as airport runways.
• Utilities: includes water and sewerage, energy and fuels, gas and water pipelines, and telecommunications.

Figure 3: Recent trends in Australia’s public infrastructure investment across sectors

There are signals of shifts in investment trends. For example, Infrastructure Australia’s research indicates that energy sector investment is expected to grow nationally at around four times current activity levels.⁹
Jurisdictions such as Queensland are also seeing significant uplifts in energy sector funding.²

There are also indications of a greater balance of investment across sectors going towards regional areas. Infrastructure Australia’s 2023 Market Capacity Report indicates that regions across NSW, Queensland, and the Northern Territory will experience extraordinary growth in the three years from 2024-25, with investment up to three times higher than the three years prior in some regions.⁹

Market capacity constraints

Both in Australia and globally, there is a heated infrastructure market resulting from growing demand pressure as well as market constraints in terms of labour, skills and materials.¹⁰

Sustained Demand

Australia will continue to see prolonged pressure on construction capacity because of sustained cross-sectoral demand. 

This includes uplifts in overall capital spending and/or accelerated delivery (where capital expenditure is brought forward to earlier than originally planned). In NSW, the number of projects in the state’s infrastructure program increased by 4.8% year-on-year in 2022-23, while increasing numbers of megaprojects are also moving into delivery, putting pressure on the market’s capacity to deliver (both globally and locally) and leading to cost increases on projects.^11,1 Queensland has also seen substantial increases in overall infrastructure project costs, partly resulting from the accelerated delivery of capital projects such as rail and highway upgrades.²

Governments are recognising and acting to manage demand challenges, in both the short and longer term, for example through:

• Proactive management and re-sequencing of projects in response to market constraints – such as the Australian Governments review of the Infrastructure Investment Program (IIP), the NSW Government’s 2023 Strategic Infrastructure Review and the WA Government’s measures to smooth procurement and delivery of projects to align to industry capacity. 
• Improving visibility, transparency and detail of information on planning infrastructure projects and procurement – such as the Major Projects Pipeline Portal in NSW, the Infrastructure Projects in Western Australia report and Tasmania’s 10-year Infrastructure Pipeline database.
• Recognising a need to shift the balance away from large-scale capital projects towards a more sustainable investment mix, including greater emphasis on utilisation and maintenance of existing assets to maximise spare capacity and optimise outcomes.

In an environment of increasing demand pressure, factors such as rising material costs, disrupted or under-supply of materials, labour and skill shortages in the construction industry, and increasing labour costs have been identified by multiple Australian jurisdictions as a major cause of cost increases and delays to the delivery of infrastructure projects and represent an ongoing challenge.^8,12,13,2

Labour Constraints

Infrastructure Australia’s 2023 Market Capacity Report demonstrates that labour remains the top capacity constraint. Labour supply capacity is expected to recover to pre-COVID levels by mid-2024 and to continue to increase steadily. However, the expected rate of supply increase is not projected to close the construction sector’s labour gap indicating longer-term structural barriers.  Further, the Report asserts the workforce must continuously upskill to keep pace with evolving job designs and ways of working, and that improving workplace culture in construction overall will unlock productivity benefits.  However, a range of cultural problems such as inflexible and extended working hours, lack of diversity in teams and mental health issues, are reported to hinder women’s participation in the sector and increasingly, that of young men.  Many of these issues may be addressed through reforms outlined by the Australian Government in recent months (see below).⁹

Key Australian Government reforms addressing structural barriers to labour capacity and productivity include:

• Working Future – The Australian Government’s White Paper on Jobs and Opportunities – a roadmap with aims which include achieving sustained full employment, promoting job security and reigniting productivity growth 
• Australian Universities Accord – to improve the quality, accessibility, affordability and sustainability of higher education.
• National Skills Agreement – designed to strengthen the vocational education and training (VET) sector focused on addressing critical skills and workforce shortages.
• Australian Government Migration Strategy – address skills shortages, improve pathways, and enhance the overall migration experience.
• Build Skills Australia – the national Jobs and Skills Council for the built environment sector identifying solutions to the workforce challenges facing the construction, property and water industries.
• Australian Skills Guarantee – to introduce new national targets for apprentices, trainees and paid cadets working on Australian Government funded major projects, as well as introduce national targets for women to increase the proportion of women working on major projects.

Significant levels of public investment in priority growth areas such as energy, housing, heavy industries, and defence, will also compete for access to human resources. Our latest Market Capacity analysis indicates a shortage of 229,000 full-time infrastructure workers as of October 2023, with shortages in all occupational groups. These shortages are driven by heightened activity in public and private infrastructure investments. Labour demands total 405,000 full-time infrastructure workers, with transport accounting for 56% of total labour demand, buildings 34%, and utilities the remaining 10%. Further, extraordinary growth in public and private investments are expected to create labour gaps in coming years in some regional hot spots. The top five regional hot spots are Murray, mid-North Coast and the Riverina in NSW, the NT outback and central Queensland. 

Materials Constraints

Industry research indicates concerns that the domestic capacity of materials supply – particularly steel and quarry products – cannot meet demand in particular hotspots.⁹ Acute quarry shortages loom in a few hotspots across the country, notably Melbourne, mid-North Coast NSW and South East Queensland. Quarry materials are important to a range of infrastructure projects including roads, bridges, houses, railways and other infrastructure. Projects carry the risk of higher transportation costs, vehicle emissions and schedule delays if forced to source quarry materials from further afield.

A focus on productivity

Productivity in the construction sector has not improved for over 30 years. This is partly due to the absence of diagnostic productivity measures, low participation of women in the workforce, inconsistent adoption of new technologies and modern manufacturing methods, and unfair risk allocation in procurement and contracting. 

State and territory governments have initiated or are in the process of implementing reforms to increase industry productivity. However, joint effort by all governments is necessary to support ongoing work and raise reform outcomes to the national level. This effort should focus on developing diagnostic productivity measures, establishing a national productivity baseline, and creating national metrics and indicators to track progress. Regular progress reporting against these measures should be provided to relevant intergovernmental forums and/or Ministerial Councils.

Responding to climate change

Climate change impacts such as extreme weather, fires and floods are directly impacting existing infrastructure across sectors and jurisdictions and represent a significant and growing risk to assets, systems and user outcomes. There is growth in the frequency and intensity of these impacts, and this poses episodic but extreme risk to both developing infrastructure and existing assets.¹⁴

Increasing disaster and resilience events require investment in more resilient infrastructure, and create indirect impacts by requiring funding and resources to be diverted to increased operational costs, post-disaster maintenance and repair, reconstruction and recovery. As jurisdictions such as South Australia and New South Wales have observed, this places significant added pressure on already-constrained public finances as well as on market capacity for infrastructure delivery.^17,7

As identified by Infrastructure Western Australia in their State Infrastructure Strategy, considering resilience not only includes a focus on the resilience of an individual infrastructure asset, but also the contribution that piece of infrastructure makes to resilience of the community overall.¹⁵ Fundamental to this is an understanding of likely future climate change impacts, auditing of existing infrastructure systems, adequate planning, along with appropriate consideration of resilience in existing and new infrastructure projects and networks.  

Similarly, infrastructure planning, investment and design decisions need to be in step with national goals for decarbonisation and the circular economy. To date, the transition to more sustainable approaches to infrastructure, such as adoption of recycled materials as well as efforts to minimise embodied carbon through project delivery, has been slow and inconsistent.  

For example, approximately 43% of conventional materials used in road construction could be replaced by a range of recycled materials. Cost savings from the application of recycled alternatives in roads infrastructure range from 2% to 83%. Supporting the increased uptake of recycled materials in construction can help to lower project costs, and support Australia’s decarbonisation efforts to reach Net Zero by 2050.

Efforts to reduce embodied carbon would make a significant contribution to Australia’s decarbonisation agenda. This can be achieved through the decarbonisation of building materials on the supply side, and changes in how Australia plans, designs and procures assets so that embodied carbon is considered early. Research by Infrastructure Australia shows that low carbon building materials and construction methods have the potential to achieve a 23% saving of upfront carbon from the public infrastructure pipeline over the next five years.

Other infrastructure delivery challenges

• Increasing risks for project development and delivery due to complexity, emerging technologies and integration with existing operations and other systems and sectors.
• Ensuring appropriate timing and engagement for planning and environmental approval processes, including community engagement. 

Risks to on-time, on-budget delivery 

Infrastructure Australia’s 2021 National Risk Study highlighted that, both globally and in Australia, larger projects are more likely to face increased risks, costs and schedule overruns.¹⁴ This is reinforced by global research, which demonstrates that:

• Projects across sectors (including land transport, water and energy) experience average cost increases of between 10-39% from announcement to delivery, and these levels of cost overrun have changed little over time.^16,11
• Most (86%) major transport infrastructure projects experience cost increases or delays.¹⁷
• Cost increases on land transport projects are common and significant across modes, project types and project sizes, with over half (53%) of major transport projects exceeding initial estimated costs. Rail projects generally perform worse, with 73% exceeding costs compared to 43% of road projects.¹¹ 
• Delays to transport projects typically range from 7-33% compared to original plans, while 35% experience delays of more than six months, with delays a key contributing factor for many cost overruns.^18,11

The performance of infrastructure projects in Australia is broadly in line with these global trends. Australian studies indicate that the average cost increases on transport infrastructure projects in Australia typically range from around 12-52%.^19,20,21 This is reinforced by evidence from Australian jurisdictions. For example: 

• A 2023 review of 20 major infrastructure projects in Western Australia shows total cost increases of almost $2 billion (22.5%) compared to original budgets, with 14 projects exceeding budgeted costs by 10% or more and four seeing costs more than double.¹²
• In New South Wales, cost escalation was reported as a major contributing factor for 15% of underperforming Tier 1 projects.¹
• Self-assessments by Victorian agencies indicate 13% of major projects face cost increases of 11-20% over budget, with 4% of projects expecting more than 20% increases. 28 out of 101 projects included in a Victorian review saw total estimated project investment increase by over 10%, and costs on 12 projects rose by more than 50% over original estimates.⁸

The evidence is clear that major infrastructure projects, irrespective of their types, sectors and locations, often experience cost increases and delivery delays. Infrastructure Australia’s 2021 National Risk Study highlighted key strategies in the planning, scoping and development of projects to manage these risks and their underlying causes, including: 

• early engagement with contractors
• streamlined planning approvals 
• avoiding premature project announcement of solutions, budgets and timeframes
• more in-depth investigations and use of early works packages.

The need for a sustainable investment mix

Increased risks associated with megaprojects

The trend towards an increasing number and scale of ‘megaprojects’ (described earlier) adds to the risk in governments’ infrastructure portfolios because of their size, complexity and greater exposure to risk.^4,7

Across sectors, megaprojects consistently exceed cost and time estimates to a greater degree than other lower value projects that experienced overruns.11 This global evidence is reinforced by recent infrastructure delivery trends observed in Australian jurisdictions.^8,7

The increased risks associated with megaprojects are partly due to their unique characteristics. In particular, these issues relate to higher complexity – including planning and delivery within dense, built-up areas with extensive existing infrastructure, as well as challenges in the investment planning process – and longer project timeframes, resulting in greater exposure to cost and schedule risk.^4,1,11

The trend towards increasingly large and complex infrastructure projects also has implications for the complexity of procurement and contracting processes. This trend is observed internationally, leading to greater prevalence of adversarial engagements and issues with risk transfer during delivery, impacting project delivery costs and delays.¹¹ In recent years, states and territories have reported similar challenges with procurement and contract management processes as factors impacting on costs, timeframes and delivery confidence of infrastructure projects.^12,1

Megaprojects in sectors such as transport can also represent much more complex, multi-dimensional urban development and renewal interventions than more typical road or rail infrastructure projects. This complexity can make approaches to investment planning, appraisal and business case development more challenging for agencies based on standard guidelines. 

At the same time, international research shows that integrated planning, business case assessments and front-end due diligence are some of the most important areas for improving the performance of megaprojects.⁴ In NSW, key identified causes of increased megaproject risks also include unclear project roles and responsibilities and inadequate approaches to risk management and procurement.¹ 

Growing maintenance liabilities and ageing assets 

Some jurisdictions indicate a growing challenge with ageing assets. The Queensland Audit Office reports that estimated actual capital expenditure across all agencies in Queensland was 14% higher than expected in 2022-23, in part due to additional costs required to maintain ageing infrastructure in the energy sector, as well as rising supply costs and severe weather events.² Infrastructure NSW’s State of Infrastructure Report 2022-23 indicates that all infrastructure sectors in NSW reported issues with ageing assets, with evidence that more ageing assets are linked to an increase in high-risk safety incidents, maintenance challenges and impacts on service delivery.⁷

In addition to a growing challenge, understanding the problem at hand is another concern. Infrastructure WA notes that asset management practices, for the state’s approximate $159 billion asset base, varies considerably across government. This presents a challenge in determining both the size and cost of the backlog in maintenance across the state. Infrastructure WA also found that the variability of reported maintenance expenditure is suggestive of a large amount of reactive maintenance.¹⁵

Australian governments will play a critical role in meeting the challenges outlined above. As a major planner, funder, procurer and owner of infrastructure, governments have an important role in ensuring that infrastructure investments help to progress broader national goals and objectives, such as decarbonisation, waste action and improving productivity.

Productivity growth has slowed over the past decade in Australia.²² Infrastructure investments can support productivity and economic growth by improving the efficient movement of freight and people, increasing a network’s reliability and/or resilience, and reducing ongoing maintenance costs. Infrastructure Australia recommends that the Australian Government considers productivity benefits at the early stages of project planning and ensures that productivity-enhancing proposals form the majority of its investment portfolio.

Taking appropriate time to plan and select the right mix of infrastructure investments will improve the ability of governments to take these broader objectives into consideration. 

For example, an appropriate mix of build and non-build investments can deliver greater capacity in our infrastructure with less resources, balance portfolio risk, support meeting Australia’s climate targets and assist with addressing significant market capacity demand. An important enabler to this is ensuring the consideration of a range of options when considering infrastructure interventions. Conversely, a portfolio comprising a large proportion of megaprojects can significantly increase risk and the likelihood of 
cost overruns. 

In concluding the 2024 Annual Budget Statement, Infrastructure Australia makes the following recommendations for the Australian Government to consider in determining and prioritising projects for investment.

1. Infrastructure NSW 2022, Trends and Insights Report 2022, NSW Government. Available via: https://www.infrastructure.nsw.gov.au/investor-assurance/project-assurance/resources/trends-and-insights/
2. The State of Queensland (Queensland Audit Office) 2023, Major Projects 2023 (Report 7: 2023–24). Available via: https://www.qao.qld.gov.au/sites/default/files/2023-12/Major%20projects%202023%20%28Report%207%20%E2%80%93%202023%E2%80%9324%29.pdf
3. Victorian Auditor-General’s Office 2022, Quality of Major Transport Infrastructure Project Business Cases: Independent assurance report to Parliament 2022-23:5. Available via: https://www.audit.vic.gov.au/sites/default/files/2022-09/20220921%20Business%20Cases_0.pdf
4. Ninan, J., Clegg, S., Burdon, S., and Clay, J. 2023, Reimagining Infrastructure Megaproject Delivery: An Australia—New Zealand Perspective. In: Sustainability 15, no. 4: 2971. Available via: https://doi.org/10.3390/su15042971
5. Ryan, P. and Duffield, C. 2017, Contractor Performance on Mega Projects–Avoiding the Pitfalls. Mahalingam, A (Ed.) Shealy, T (Ed.) Gil, N (Ed.) pp.1-34. Engineering Project Organization Society. The University of Melbourne, Melbourne, Australia. Available via:  http://hdl.handle.net/11343/168246
6. Terrill, M., Emslie, O., & Moran, G. 2020, The rise of megaprojects: counting the costs. Grattan Institute. Available via: https://grattan.edu.au/wp-content/uploads/2020/11/The-Rise-of-Megaprojects-Grattan-Report.pdf
7. Infrastructure NSW 2023, 2022-23 State of Infrastructure Report, NSW Government. Available via: https://www.infrastructure.nsw.gov.au/investor-assurance/asset-management-assurance/resources/soir/
8. Victorian Auditor-General’s Office 2023, Major Projects Performance Reporting 2023: Independent assurance report to Parliament 2023-24:9. Available via: https://www.audit.vic.gov.au/sites/default/files/2023-11/20231130_Major-Projects-Performance-Reporting-2023.pdf
9. Infrastructure Australia 2023, Infrastructure Market Capacity 2023 Report. IA, Sydney. Available via: https://www.infrastructureaustralia.gov.au/sites/default/files/2023-12/IA23_Market%20Capacity%20Report.pdf
10. Boston Consulting Group (BCG) 2021, International Major Infrastructure Projects Benchmarking Review: Final Report. Prepared by BCG for the Office of Projects Victoria (OPV). Available via: https://content.vic.gov.au/sites/default/files/2023-02/International-Major-Infrastructure-Projects-Benchmarking-Review.pdf
11. Infrastructure NSW 2023, Annual Report 2022-23, NSW Government. Available via: https://www.parliament.nsw.gov.au/tp/files/187101/INSW Annual Report 2023.pdf
12. Office of the Auditor General (Western Australia) 2023, 2023 Transparency Report: Major Projects, Report 6: 2023-24. Available via: https://audit.wa.gov.au/reports-and-publications/reports/2023-transparency-report-major-projects/
13. Infrastructure SA 2023, Capital Intentions Statement 2023. Available via: https://www.infrastructure.sa.gov.au/our-work/capital-intentions
14. Infrastructure Australia 2021, A National Study of Infrastructure Risk: A report from Infrastructure Australia’s Market Capacity Program. IA, Sydney. Available via: https://www.infrastructureaustralia.gov.au/sites/default/files/2021-10/A%20National%20Study%20of%20Infrastructure%20Risk%20211013a.pdf
15. Infrastructure Western Australia 2022, Foundations for a Stronger Tomorrow State Infrastructure Strategy. Available via: https://prod-iwa-public-files.s3.ap-southeast-2.amazonaws.com/public/2022-07/strategy_download/2022 Final SIS.pdf 
16. Flyvbjerg, B. 2016, The Fallacy of Beneficial Ignorance: A Test of Hirschman’s Hiding Hand. In: World Development, Vol. 84, Available via: https://ssrn.com/abstract=2767128
17. Flyvbjerg, B., Holm, M. and Buhl, S. 2002, Underestimating Costs in Public Works Projects: Error or Lie? In: Journal of the American Planning Association, Vol. 68, No. 3,pp 279-295. Available via: https://ssrn.com/abstract=2278415
18. Flyvbjerg, B., Holm, M. and Buhl, S. 2004, What Causes Cost Overrun in Transport Infrastructure Projects? In: Transport Reviews, vol. 24, no. 1, January 2004, pp 3-18. Available via: https://doi.org/10.1080/0144164032000080494a
19. Duffield, C., Raisbeck, P. and Xu, M. 2008, Report on the performance of PPP projects in Australia. In: Construction Management and Economics, 28:4, pp 345-359. University of Melbourne. Available via: https://doi.org/10.1080/01446190903582731
20. Love, P., Wang, X., Sing, C.-P. and Tiong, R. 2013, Determining the Probability of Project Cost Overruns. In: Journal of Construction Engineering and Management 139.3, pp. 321–330. Available via: https://doi.org/10.1061/(ASCE)CO.1943-7862.0000575
21. Terrill, M. and Danks, L. 2016, Cost overruns in transport infrastructure. Grattan Institute. Available via: https://grattan.edu.au/wp-content/uploads/2016/10/878-Cost-overruns-on-transport-infrastructure.pdf
22. Commonwealth of Australia 2023, Working Future. The Australian Government’s White Paper on Jobs and Opportunities. Available via: https://treasury.gov.au/sites/default/files/2023-10/p2023-447996-working-future.pdf
23. ClimateWorks Australia 2020, Reshaping Infrastructure for a Net Zero Emissions Future. ClimateWorks Australia, Victoria. Available via https://www.climateworkscentre.org/resource/issues-paper-reshaping-infrastructure-for-a-net-zero-emissions-future/
24. The Treasury 2022, Delivering the National Housing Accord. Australian Government, Canberra. Available via: https://treasury.gov.au/housing-policy/accord