Climate Change, Energy, the Environment and Water portfolio

The Climate Change, Energy, the Environment and Water portfolio is responsible for advising the government and implementing programs on: climate change; energy supply efficiency; the environment, biodiversity and heritage; meteorological services; water resources; and Australia’s interests in the Antarctic and Southern Ocean.

The Department of Climate Change, Energy, the Environment and Water is the lead entity in the portfolio. It is responsible for developing and implementing policies and initiatives to protect Australia’s environment, biodiversity and heritage; helping Australia respond to and address climate change; and managing Australia’s water and energy resources. Further information is available from the department’s website.

In addition to the Department of Climate Change, Energy, the Environment and Water, there are 13 entities   within the portfolio that are responsible for: regulation of energy markets, renewable energy regulation; financing the renewable energy sector; advice on climate change mitigation; meteorological services; Commonwealth national parks; managing Commonwealth lands around Sydney Harbour; and the Great Barrier Reef Marine Park.

In the 2026–27 Portfolio Budget Statements (PBS) for the Climate Change, Energy, the Environment and Water portfolio, the aggregated budgeted expenses for 2026–27 totalled $9.1 billion. The PBS contain budgets for those entities in the general government sector (GGS) that receive appropriations directly or indirectly through annual appropriation Acts.

The level of budgeted departmental   and administered   expenses, and the average staffing level for entities in the GGS within this portfolio are shown in Figure 1. The Department of Climate Change, Energy, the Environment and Water represents the largest proportion of the portfolio’s expenses, and departmental expenses of the portfolio are the most material component, representing 51 per cent of the entire portfolio’s expenses.

Figure 1: Climate Change, Energy, the Environment and Water portfolio – total expenses and average staffing level by entity

Source: ANAO analysis of 2026–27 Portfolio Budget Statements.

In determining the 2026–27 audit work program, the ANAO considers prior-year audit and other review findings and what these indicate about portfolio risks and areas for improvement. The ANAO also considers emerging risks from new investments or changes in the operating environment.

The ANAO has considered the final report of the capability review of the Department of Climate Change, Energy, the Environment and Water that was tabled in the Australian Parliament on 2 June 2026. 

The primary risks for the Climate Change, Energy, the Environment and Water portfolio relate to:

• delivering programs to assist Australia meet its emissions reductions targets and respond to climate change;
• maintaining a reliable, affordable and secure energy system during the transition to clean energy;
• implementing reforms to environmental protection laws to conserve, protect and sustainably manage the natural environment and cultural heritage;
• overseeing and delivering significant government investments, including equity, concessional loans and guarantees;
• administering risk-based regulatory regimes effectively; and
• governing a broad portfolio of responsibilities, including in remote and unique environments.

The strategic risks in the Climate Change, Energy, the Environment and Water portfolio relate to governance, grants administration, procurement, regulation, asset management and sustainment and policy development.

Governance

The portfolio includes functions such as national park management, coordinating Australia’s Antarctic presence and construction of Snowy 2.0. These activities present risks relating to culture and workforce management given the remote and unique operating environments. 

Across the portfolio, a range of financial mechanisms such as equity investments, concessional loans, and guarantees are used to support the achievement of objectives. The use of these mechanisms requires careful oversight, risk management and the right expertise. 

Achievement of outcomes in the portfolio is often reliant on complex stakeholder relationships, such as with state and territory governments, First Nations people, and private sector businesses and investors.

Deficiencies in record keeping arrangements limit entities’ ability to demonstrate the effective and ethical delivery of their activities. Audits have found record keeping issues across the portfolio. 

Portfolio outcomes often are long-term in nature or not solely the responsibility of portfolio entities. Issues have been identified with portfolio entities not being able to measure and report on the contribution of activities to their intended outcomes. 

Implementation of the sustainability reporting framework and assurance regime in Australia is progressing.   Climate-related disclosures under the Corporations Act 2001 apply to certain entities. Snowy Hydro Limited (Snowy Hydro) is required to prepare a sustainability report under these arrangements. The sustainability report requires Snowy Hydro to disclose information about climate-related risks and opportunities that could reasonably be expected to affect cash flows, access to finance or cost of capital.

Grants administration

In 2024–25, portfolio entities subject to the Commonwealth Grants Framework awarded 2,165 grants at a value of $1.14 billion. The majority of these related to the portfolio’s energy responsibilities. There is a risk that the grant programs and funds may not comply with requirements, achieve desired outcomes, or achieve value for money, if they are not supported by effective grants administration. Effective grant administration requires appropriate planning, implementation and monitoring arrangements. 

Procurement

In 2024–25, portfolio entities who report through AusTender procured $1.57 billion in goods and services. There are complex procurements across the portfolio including for water entitlements and infrastructure projects such as Snowy 2.0 and Marinus Link. Previous performance audits have identified deficiencies in demonstrating value for money in the portfolio’s procurement activities.   A recent audit concluded that the department’s procurement of strategic water entitlements was largely effective ; however, there is a risk that other areas of the department may not have improved performance in this area.

Policy development

Policy in the portfolio is complex, contested and highly politicised. The Australian Government has set emissions reduction targets, and increased investment in climate change policies. Data and modelling of expected outcomes, and performance monitoring and reporting of actual outcomes, are required to support informed decision-making and provide assurance that investments are delivering intended outcomes. 

High value initiatives that have commenced in the portfolio over recent years include: the $20 billion Rewiring the Nation program; the $2 billion Hydrogen Headstart program; the $1.9 billion Powering the Regions Fund; the $1.3 billion Household Energy Upgrades Fund; and the $7.2 billion Cheaper Home Batteries Program. There is a risk that new initiatives may not achieve desired outcomes efficiently if they are not supported by sufficient and effective planning, a clear rationale of where intervention is required, use of the best available evidence to inform decision-making, and application of appropriate risk management and performance measurement frameworks. 

Regulation

The department manages more than 20 regulatory schemes such as greenhouse and energy minimum standards, water efficiency labelling and standards, fuel security and building energy efficiency. Effective regulatory approaches help to achieve the desired outcomes of regulation. Past audits have identified gaps in regulatory approaches relating to: the use of intelligence; establishment of a risk-based approach to regulation; and record keeping. 

Reforms to Australia’s environmental laws were passed by the Australian Parliament in November 2025. Effective implementation of these reforms will require robust arrangements, including managing transitional risks and risks under the current laws. Previous audits of environmental regulation identified poor governance, limited support systems and processes, and a lack of performance monitoring and evaluation.   Previous uncertainty over the future of environmental law reform has exacerbated these risks.

Asset management and sustainment

Portfolio entities manage a large number of physical assets, including: Snowy Hydro infrastructure used for energy generation activities and water services; an icebreaker vessel; national parks; Antarctic and other research stations; and meteorological equipment. These assets require specific maintenance and sustainability planning that is unique to the nature and use of the asset.   Planning should consider the full lifecycle of the asset including predicted costs that are considered in the context of the entity budget. It is also important that targets are set in asset management strategies, and that tracking and reporting against targets is undertaken, to provide a clear focus for performance and accountability for delivering on objectives. 

The ANAO’s performance audit activities involve the independent and objective assessment of all or part of an entity’s operations and administrative support systems. Performance audits may involve multiple entities and examine common aspects of administration or the joint administration of a program or service.

During the performance audit process, the ANAO gathers and analyses the evidence necessary to draw a conclusion on the audit objective. Audit conclusions can be grouped into four categories:

• unqualified;
• qualified (largely positive);
• qualified (partly positive); and
• adverse.

In the period between 2021–22 to 2025–26 entities within the Climate Change, Energy, the Environment and Water   portfolio were included in tabled ANAO performance audits 21 times.   The conclusions directed toward entities within this portfolio were as follows:

• one was unqualified;
• ten were qualified (largely positive); and
• ten were qualified (partly positive).
• none were adverse.

Figure 2 shows the number of audit conclusions for entities within the Climate Change, Energy, the Environment and Water portfolio that were included in ANAO performance audits between 2021–22 and 2025–26 compared with all audits tabled in this period.

Figure 2: Audit conclusions 2021–22 to 2025–26: entities within the Climate Change, Energy, the Environment and Water portfolio compared with all audits tabled

Source: ANAO data.

The ANAO’s annual audit work program is intended to deliver a mix of performance audits across seven audit activities: governance; service delivery; grants administration; procurement; policy development; regulation and asset management and sustainment. These activities are intended to cover the scope of activities undertaken by the public sector. Each performance audit considers a primary audit activity. Figure 3 shows audit conclusions by primary audit activity for audits involving entities in the Climate Change, Energy, the Environment and Water portfolio.

Figure 3: Audit conclusions by activity for audits involving entities within the Climate Change, Energy, the Environment and Water portfolio, 2021–22 to 2025–26

Source: ANAO data.

Overview

Entities within the Climate Change, Energy, the Environment and Water portfolio , and the risk profile of each entity, are shown in Table 1.

Table 1: Climate Change, Energy, the Environment and Water portfolio entities and risk profile

Department of Climate Change, Energy, the Environment and Water

The Department of Climate Change, Energy, the Environment and Water (the Department) is responsible for developing and implementing a national response to climate change and improving Australia’s energy supply, efficiency, quality, performance and productivity; conserving, protecting and sustainably managing Australia’s biodiversity, ecosystems, environment and heritage; advancing Australia’s interests in the Antarctic region; and improving the health of rivers and freshwater ecosystems and water use efficiency.

The Department’s total budgeted assets for 2026–27 are $59.5 billion, with other investments representing 45 per cent as shown in Figure 4. Other provisions represents 48 per cent of total budgeted liabilities and grants and subsidies expense represents 58 per cent of total budgeted expenses.

Figure 4: Department of Climate Change, Energy, the Environment and Water’s total budgeted financial statements by category ($’000)

Source: ANAO analysis of 2026–27 Portfolio Budget Statements.

The engagement risk rating reflects the Department’s broad strategic direction across several diverse functions, which carry heightened public interest and Parliamentary scrutiny, the complexity of some financial statements balances that impact the Australian Government’s consolidated financial statements, and the Department’s mature system of internal control and governance.

There are five key risks for the Department’s 2025–26 financial statements that the ANAO has highlighted for specific audit coverage, including three risks that the ANAO considers potential key audit matters (KAMs).

• KAM – Valuation of water entitlement assets, requires significant judgement due to the estimation and judgement involved in the valuation methodology, and given the trading of water assets is conducted in a developing market.
• KAM – Valuation of Snowy Hydro Limited, due to complexities and judgement associated with the discounted cash flow valuation methodology adopted, and the significance of the fair value of Snowy Hydro Limited to the Australian Government’s consolidated financial statements.
• KAM – Valuation of the Antarctic restoration provision, due to the complexity of the model used to determine the provision, which requires judgement for the input of several variables and assumptions.
• Accounting and disclosure of Capacity Investment Scheme (CIS) due to the complexity and judgement involved in the recognition and measurement of financial guarantees and associated obligations of underlying contracts.
• The valuation of non-financial assets, given the level of activity as the Department manages a significant number of capital projects in various locations. Additionally there is complexity associated with the valuation process which involves judgement and estimation, including for specialised assets such as the icebreaker vessel operated by the Australian Antarctic Division (AAD).

Bureau of Meteorology

The Bureau of Meteorology (the Bureau) is responsible for providing weather, water, climate and ocean services for Australia.

The Bureau’s total budgeted assets for 2026–27 are $1.2 billion, with 42 per cent attributable to property, plant and equipment and 27 per cent attributable to intangible assets, as shown in Figure 5. Sales of goods and services represent 31 per cent of total budgeted revenue.

Figure 5: Bureau of Meteorology budgeted financial statements by category ($’000)

Source: ANAO analysis of 2026–27 Portfolio Budget Statements.

There are three key risks for the Bureau’s 2025–26 financial statements that the ANAO has highlighted for specific audit coverage.

• The valuation of non-financial assets, due to the significance of tangible and intangible non-financial assets to the Bureau’s financial statements, their unique and diverse nature, and judgement required in determining their valuation.
• The recognition of the Bureau’s own source revenue due to the importance of own-source revenue to the Bureau’s financial sustainability, and judgement required in determining when a performance obligation is satisfied for recognition of revenue.
• Accounting for leases, due to the large number and range of lease agreements and the key judgments required by management determining whether a contract contains a lease and regarding the appropriate recognition of leases.

Clean Energy Finance Corporation

The Clean Energy Finance Corporation (CEFC) is responsible for facilitating increased flows of finance into the clean energy sector and facilitating the achievement of Australia’s greenhouse gas emissions reduction targets.

CEFC’s total budgeted revenues for 2026–27 are $474.8 million, with 74 per cent of this revenue attributable to interest, as shown in Figure 6. Advances and loans, investments in shares and investments in other interest-bearing securities represent 52 per cent, 20 per cent and 16 per cent, respectively, of total budgeted assets.

Figure 6: Clean Energy Finance Corporation budgeted financial statements by category ($’000)

Source: ANAO analysis of 2026–27 Portfolio Budget Statements.

There are six key risks for the CEFC’s 2025–26 financial statements that the ANAO has highlighted for specific audit coverage.

• The measurement of interest and fee income from the CEFC’s loans and deposits, which is a significant portion of the CEFC’s revenue.
• The accounting for complex financing arrangements, due to the bespoke nature of CEFC’s investment transactions.
• The adequacy of the impairment provision relating to loans, due to the complexity of the transactions, the concentration of sectoral exposure and the degree of management judgement required to estimate the provisions.
• The valuation and accounting for direct unlisted equity investments, which are required to be recognised at fair value. CEFC applies a range of valuation methodologies and exercises increased levels of judgement and estimation in determining an appropriate fair value for these investments.
• The verification of the carrying value of the CEFC’s investment in its associates – entities that the CEFC does not control but has significant influence over.
• The accuracy of key management personnel remuneration calculation and disclosures, due to their material nature.

Clean Energy Regulator

The Clean Energy Regulator (CER) is responsible for the administration of market-based mechanisms that incentivise reduction in greenhouse gas emissions and the promotion of additional renewable electricity generation. In achieving these objectives, the CER is responsible for the administration of the Australian Carbon Credit Unit Scheme and the programs and regulation supporting the Renewable Energy Target.

CER’s total budgeted expenses for 2026–27 are $266.2 million, with other expenses attributable to 33 per cent, as shown in Figure 7. Other provisions represent 90 per cent of total budgeted liabilities.

Figure 7: Clean Energy Regulator budgeted financial statements by category ($’000)

Source: ANAO analysis of 2026–27 Portfolio Budget Statements.

There are two key risks for the CER’s 2025–26 financial statements that the ANAO has highlighted for specific audit coverage.

• The occurrence of expenditure, and the valuation of liabilities, in relation to the ACCUs Scheme (moderate risk), due to the uniqueness of the ACCUs scheme, the complex legislative framework it operates in, the professional judgement required to recognise the associated financial statements balances, and evolving risks related to market developments, policy changes and system enhancements.
• The valuation and recognition of RET shortfall charges under the Renewable Energy (Electricity) Act 2000 (moderate risk), due to the professional judgement required to recognise shortfall charges and refunds, the complex IT environment that supports the administration and payment process, evolving risks related to market developments, policy changes and system enhancements, and the integration of battery Small Generation Units (SGUs) under the Cheaper Home Batteries Program (CHBP) into the RET framework.

Snowy Hydro Limited

Snowy Hydro Limited (Snowy Hydro) is a government business enterprise responsible for energy generation activities to supply the National Electricity Market as well as operating as a retail energy provider through the Red Energy and Lumo Energy brands.

Snowy Hydro’s total assets for 2024–25 were just under $16.9 billion, with property, plant and equipment contributing 78 per cent and other financial assets (including energy derivatives) contributing 8 per cent, as shown in Figure 8. Snowy Hydro’s total liabilities were just over $8.5 billion, with interest bearing liabilities (including debt) contributing 76 per cent.

Figure 8: Snowy Hydro Limited actual financial statements by category ($’000)

Source: ANAO analysis of Snowy Hydro Limited’s 2024–25 Annual Report.

There are five higher risks for Snowy Hydro’s 2025–26 financial statements that the ANAO has highlighted for specific audit coverage, including two risks that the ANAO considers potential key audit matters (KAMs).

• The valuation of derivative financial instruments, reflecting the complexity of the valuation processes and models for Snowy Hydro Limited’s various financial instruments which include hedging instruments, forward contracts and swaps. The valuation of these derivative instruments requires a high level of judgement from management to determine inputs into the valuation model, particularly for unobservable inputs. (KAM – Valuation, existence and completeness of financial instruments – energy derivatives)
• The capitalisation of Snowy 2.0, which reflects the complexity of the underlying project and the judgement that needs to be applied to meet the requirements of the accounting standards. (KAM – Valuation of property, plant and equipment (‘PPE’) – construction in progress)
• The recoverability of retail debtors, due to the level of judgement applied by management in determining the estimate of expected lifetime credit loss on trade and other receivables.
• The capitalisation of Hunter Power Project costs, which reflects the complexity of the project and the judgement that needs to be applied to meet the requirements of the accounting standards.
• The carrying value of non-current assets, due to the significant value of large-scale infrastructure assets owned by Snowy Hydro’s Generation CGU, and complexity and management judgements associated with the underlying valuation models when determining whether impairment exists.