What the 2026–27 Federal Budget means for climate reporting, energy and decarbonisation

The 2026–27 Federal Budget landed on 12 May 2026, and there's a lot in it for anyone working on climate reporting or decarbonisation. Some of it is loud, some of it is quiet but arguably more important for reporters.

Key takeaways:

• Group 3 climate reporting thresholds are effectively being lifted. The Budget doubles the "large proprietary company" definition that Group 3 is pegged to, taking mid-sized unlisted private companies out of scope.
• A new national standard-setter is on the way. External Reporting Australia will replace the AASB, AUASB and FRC, with additional resourcing earmarked for climate sustainability reporting.
• The data underpinning every AASB S2 disclosure is getting maintenance funding. $13.3 million to strengthen the National Greenhouse Accounts, which produce the emission factors that make Australian disclosures comparable.
• Treasury will consult on "improving the efficiency" of climate-related financial disclosures, including how "undue cost or effort" applies and how to set boundaries on supplier information requests.
• Deployment dollars are going to consumer-side electrification, EVs and batteries, with the Cheaper Home Batteries Program ($7.2 billion) the single largest commitment. Hydrogen, Solar Sunshot and the Battery Breakthrough Initiative have been quietly scaled back.
• Energy security is now driving the framing. The Iran conflict has pushed electrification and storage into a dual role as climate policy and resilience policy.

Here's the practical breakdown.

The big picture

The Budget reports $12.3 billion in new "net zero spending" across the forward estimates and $18.2 billion across the medium term to 2036–37 (Budget Paper No. 1, Statement 3, Table 3.9). That's only new commitments since the 2025 Pre-election Economic and Fiscal Outlook, and it doesn't net off the $2.2 billion in savings the Government has taken back out of the Climate Change, Energy, Environment and Water portfolio in the same Budget, mostly from Hydrogen Headstart, Solar Sunshot and the Battery Breakthrough Initiative.

Net zero spending is reported under five categories. Here's where the money is going:

Source: Budget Paper No. 1, Statement 3, Table 3.9

Two things shape almost everything else in this Budget. The Net Zero Plan and 2035 Target were released in September 2025, so this is the first Budget framed around them. And the conflict in the Middle East has disrupted around a fifth of the world's seaborne oil and gas supply, which has pushed energy security and fuel resilience right to the top of the agenda.

How the Budget changes mandatory reporting

This is key if you're a preparer or advisor. The headline framework for climate reporting (Groups 1, 2 and 3, with their phased commencement dates) is unchanged. But the Group 3 thresholds are effectively being lifted, and the Government has flagged broader consultation on reforms to "improve the efficiency" of climate-related financial disclosures.

Lifting the large proprietary company thresholds

Australia's climate reporting regime sits inside Chapter 2M of the Corporations Act 2001. To be caught, an entity needs to be required to lodge a financial report under Chapter 2M and meet the size tests for its Group. For unlisted private companies, the gateway into Chapter 2M is the "large proprietary company" definition, and Group 3's thresholds are pegged to it.

The Budget proposes to double the large proprietary company thresholds:

A company needs to meet at least two of the three tests to be classified as "large".If a company no longer meets the thresholds they willl stop being Chapter 2M reporting entities at all, which means they fall out of the climate disclosure regime entirely.

The Budget factsheet confirms it:

"Australian businesses that cease to meet the thresholds due to this increase would no longer need to lodge an annual audited financial report, directors' report or sustainability report."

- Whole-of-Government Regulatory Reform Agenda factsheet, 2026–27 Budget

Group 1 and Group 2 thresholds are unaffected, but if you're a mid-sized unlisted private company sitting just above the current thresholds and assuming you'll be caught by Group 3 from 1 July 2027, the Budget's reforms are likely to take you out of scope entirely.

Consultation on "undue cost or effort" and other efficiency reforms

The second relevant reform is the Government's commitment to consult on changes that would "improve the efficiency of climate-related financial disclosures". The regulatory reform factsheet sets out three specific things on the table:

• Clarifying how "undue cost or effort" applies in practice. This is a phrase that already sits in AASB S2 (it's the relief mechanism for Scope 3 estimation and certain other disclosures), and how it's interpreted has huge consequences for preparer burden. Expect Treasury to consult on guidance or guardrails here.
• Adjusting assurance settings to ensure they are proportionate and practical. The AUASB has already legislated a phased assurance pathway (limited assurance on Scope 1 and 2 first, expanding to Scope 3, then reasonable assurance on all three from Year 4). This signals the Government may revisit the calibration.
• Setting clearer boundaries on supplier information requests. This is targeted squarely at the Scope 3 problem: large reporters asking small suppliers for emissions data, and small suppliers feeling the squeeze. The Government wants to reduce costs and complexity, particularly for small businesses.

The detail will come through Treasury consultation. None of this is settled yet, but the direction of travel is clear: narrower scope, more proportionate assurance, and lighter touch on supply chain data requests.

How the Budget changes the institutions and data behind reporting

Two other measures to be aware of for anyone preparing or assuring climate disclosures.

External Reporting Australia: a new national standard-setter

In Budget Paper No. 2 (p. 142), the Government commits $4.8 million over four years from 2026–27 to finalise funding arrangements for External Reporting Australia, the new statutory body that will replace three existing institutions.

"External Reporting Australia ... will replace the Australian Accounting Standards Board, the Auditing and Assurance Standards Board and the Financial Reporting Council, including additional resourcing to support climate sustainability reporting."

- Budget Paper No. 2, p. 142

For the first time, accounting standards, sustainability standards, and assurance standards will all be set inside the same statutory body. The team writing AASB S2 and the team writing the assurance standard for it will sit under one roof.

The funding has a practical purpose. As Group 2 entities prepare for their first reporting cycles and Group 3 follows, ERA inherits the workload of maintaining AASB S2, issuing application guidance, and running a post-implementation review. The additional resourcing is what allows it to keep up.

National Greenhouse Accounts and why government-published factors are important

In Budget Paper No. 2 (p. 53), the Government provides $13.3 million in 2026–27 to maintain and strengthen the capability of Australia's National Greenhouse Accounts.

At a national level, the Accounts are how Australia tracks progress against its 2030 and 2035 targets and reports to the UNFCCC. Without them, there's no credible way to know whether Australia is on track.

For companies reporting their emissions, the Accounts matter for a different reason. DCCEEW publishes the National Greenhouse Accounts Factors (NGAF) each year, and those are the emission factors that AASB S2 reporters use to calculate Scope 1, Scope 2 and parts of Scope 3.

Comparability under ASRS is strengthened on everyone using the same factors, so having a centralised trusted source for key emission factors that feed into the preparation of companies’ GHG inventories is really important.

AI and digital modernisation at DCCEEW and NEPA

Tucked inside the "Boosting Productivity – Accelerating Approvals" measure in Budget Paper No. 2 (p. 58) is $105.9 million over four years for DCCEEW and the new National Environmental Protection Agency (NEPA) to modernise environmental information, data and digital systems, including through the use of AI.

On its face this is about speeding up EPBC Act approvals. It's part of the $500 million-plus package implementing the December 2025 environmental law reforms, and the immediate beneficiaries are project proponents waiting on assessments for housing, renewables and critical minerals.

It is interesting to see regulators are starting to invest in the data and digital infrastructure that disclosure regimes lean on, with AI in the mix. Where that lands over time (better access to government-held environmental data, more transparent approval decisions, AI-enabled regulatory tooling) is something worth watching as the climate reporting regime matures alongside it.

Where the deployment dollars are going: electrification, EVs and batteries

If you ask where the money actually is in this Budget, the answer is unambiguous. It's consumer-side electrification, EVs and batteries.

Source: Budget Paper No. 1, Statement 3, Table 3.9. 

A few highlights worth pulling out:

• The Electric Car Discount becomes a permanent 25% FBT discount for eligible EVs over $75,000 from 1 April 2027, and for all eligible EVs from 1 April 2029. Cars up to $75,000 keep the full FBT exemption until then.
• $40 million to accelerate kerbside and fast EV charging, plus $40.5 million to electrify Australia Post's delivery fleet.

What's been quietly trimmed back: Hydrogen Headstart Round 2 is now capped at $1.0 billion, the Battery Breakthrough Initiative has been reduced, and Solar Sunshot has had uncommitted funding pulled out.

The energy security overlay

The Iran conflict has changed how the Government talks about decarbonisation in this Budget. Statement 3 of BP1 puts it directly: established delivery vehicles like the Capacity Investment Scheme and Cheaper Home Batteries "will take pressure off more volatile international energy sources while decarbonising Australia's energy mix".

Box 3.5 of Statement 3 compares Australia's position now to during the Russia-Ukraine shock of 2022.

"In the June quarter 2022, black coal and gas set the price in the National Electricity Market 44 per cent of the time, whereas in the March quarter 2026, they set the price 25 per cent of the time."

- Budget Paper No. 1, Statement 3, Box 3.5

The same box cites ACCC analysis that households with rooftop solar and a home battery have electricity bills on average 40 per cent lower than grid-only customers.

Sitting alongside the climate measures is a separate $14.8 billion Strengthening Australia's Fuel Resilience package. It includes the $7.5 billion Fuel and Fertiliser Security Facility, the $3.2 billion Australian Fuel Security Reserve, and expanded Minimum Stockholding Obligations.

The framing is important here because electrification and battery storage are now positioned as both climate policy and energy security policy. That should make these deployment commitments more durable across political cycles than the more contested industrial decarbonisation programs.

What to watch next

Four things to keep an eye on:

1. The Treasury consultation on large proprietary company thresholds. The dollar figures are in the regulatory reform factsheet but the legislation hasn't been introduced yet.
2. The consultation on "improving the efficiency" of sustainability reporting, particularly how "undue cost or effort" is clarified.
3. The legislation establishing External Reporting Australia and its governance, including whether the AASB and AUASB continue as separate boards inside ERA.
4. The next iteration of the National Greenhouse Accounts Factors under the strengthened funding, which is what flows through into every AASB S2 disclosure.

We'll be tracking all four.