But emissions from steel production, domestic flights and diesel-powered road transport are still rising, and bigger cuts will be needed to meet the 2030 climate target.
An update to the National Greenhouse Gas Inventory revealed the trends on Friday, and also showed Australia had reduced its emissions by 25 per cent compared to 2005.
The findings follow widespread adoption of solar panels, household batteries and electric vehicles, but also come after criticism of some large-scale renewable energy projects and transmission infrastructure in regional areas.
The government report analysed greenhouse gas emissions in the year to March 2026, and found Australia had cut 7.5 million tonnes of carbon emissions compared to the previous year — a reduction of 1.6 per cent.
The electricity sector led the trend, with renewable energy rising by 13 per cent, helping push gas generation down by 17.1 per cent and coal generation by 4.1 per cent.
Wind generation recorded the largest increase, growing by 20.3 per cent.
Electricity emissions dropped by 3.7 per cent during the year, which Energy Minister Chris Bowen said proved renewable energy could help Australia reach its environmental goals.
"The latest quarterly update is further proof that what's better for the planet is better for your pocket – more of the cheapest form of new energy, more storage to back it up, and lower emissions as a result," he said.
The agriculture industry also cut its emissions by one per cent due to fewer grazing cattle and sheep, and fugitive emissions from fuel industries fell by 3.3 per cent.
But pollution from transport rose during the period, the report found, with domestic aviation and diesel-powered vehicles helping to increase emissions by 0.2 per cent.
The report noted transport emissions may be nearing their peak, however, due to falling petrol consumption.
Australian motorists have purchased a record number of electric vehicles and more hybrid cars since petrol shortages began in March, with low-emission models making up 48 per cent of new vehicle sales in July.
The change helped to offset other sources of transport pollution, Mr Bowen said, and showed Australia had reached a tipping point.
"Australia is turning the corner when it comes to stubborn transport pollution," he said.
"That's good news for motorists as more drivers embrace cheaper-to-run cars."
The figures also showed Australia would need to significantly accelerate its emission cuts to meet its 2030 climate target of a 43 per cent reduction on 2005 levels.
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