SUBMISSION ON POST-2020 EMISSIONS REDUCTION TARGETS
BY: David Rossiter, MEngSci, BSc, CPEng (Ret), FICE, FIEAust
Former Renewal Energy Regulator, and former Greenhouse Energy and Data Officer
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Introduction and Background
Most of the 196 countries in the United Nations Framework Convention on Climate Change
(UNFCCC), representing well over 80% of the global total of emissions, have agreed that the effects
of climate change need to be limited to a maximum temperature rise of 2 degrees Celsius. Pledges
were made following the Copenhagen Conference of Parties in December 2009. The Australian
Government is part of that international commitment known as the Copenhagen Accord.
Article 1 of the Copenhagen Accord states:
We underline that climate change is one of the greatest challenges of our time. We emphasise
our strong political will to urgently combat climate change in accordance with the principle of
common but differentiated responsibilities and respective capabilities. To achieve the ultimate
objective of the Convention to stabilize greenhouse gas concentration in the atmosphere at a
level that would prevent dangerous anthropogenic interference with the climate system, we
shall, recognizing the scientific view that the increase in global temperature should be below 2
degrees Celsius, on the basis of equity and in the context of sustainable development, enhance
our long-term cooperative action to combat climate change. We recognize the critical impacts
of climate change and the potential impacts of response measures on countries particularly
vulnerable to its adverse effects and stress the need to establish a comprehensive adaptation
programme including international support.
As the issues paper states, global warming is a fact and Australia has already experienced 0.9
degrees C of warming, mostly since 1950. The scientific basis of global warming is well established
and has been known for over 100 years, yet carbon dioxide equivalent levels are still increasing
rapidly into the atmosphere. To limit global warming to no more than 2 degrees C, total emissions
to the atmosphere must be significantly and rapidly reduced.
Carbon dioxide equivalent levels in the atmosphere have already risen to over 400 parts per million
(ppm) which is around 42% above the highest levels in the 800,000 year period prior to
industrialisation (pre-1750). This is why Australia already has experienced 0.9 degrees C warming
and why further warming is already locked in to the system.
For the world to have any chance of remaining below the agreed 2 degree limit, it has been
calculated that total global emissions to the atmosphere should be effectively zero by 2050. This
amount of total global emissions has been described as a carbon budget. The world carbon budget
is estimated to be 565 billion tonnes, based on studies done using over forty different climate
change models. Ensuring that the production of greenhouse gases does not exceed that amount
over the next 35 years is the challenge facing the entire global community.
Australia’s share of that world carbon budget is only around 8 billion tonnes of carbon dioxide
equivalent emissions. The current target of 5% reduction in emissions (from 2000 level) by 2020
represents emissions of around 531 million tonnes (Mt) per year. If this rate continues unchanged,
Australia’s total carbon emissions budget will all be exhausted in about fifteen years, giving society
and industry only a short time to adapt to a net zero emission world.
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So, Australia’s challenge is to steadily reduce our emissions over a longer period, so that our 8
billion tonne budget is gradually used up over the next 35 years, instead of the next 15 years, slowly
reducing emissions by under 3% per year. This would have the benefit of allowing a graduated
transition to a net zero carbon economy over that period.
What should Australia’s post-2020 target be and how should it be expressed?
The post-2020 target should be expressed in the context of the Copenhagen Accord, meaning that
countries have agreed that they will be producing virtually zero net emissions by the year 2050. So,
we know what the end result and the time frame are. Zero percent by 2050.
While that is unambiguous, there is clearly a need to set interim targets, so that we can measure
how we are tracking and whether our policies and strategies for getting there need adjustment. At
the very least, interim decadal targets for 2020, 2030 and 2040 should be established.
To repeat, we have only 35 years to reach our zero emission commitment.
I propose the following emissions reduction targets, utilising the year 2000 as the base:
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2020 – 19%
2030 – 40%
2040 – 70%
2050 – 100%
The current target for 2020, which seems likely to be met, is 5%. The Government committed to
increasing that target as high as 25% if there was evidence of similar commitments from key
international players.
It is now becoming apparent that there is real movement on the international front, especially in
the lead-up to the international climate change meeting in Paris later this year. Countries have
been asked to declare their commitments by June, and all the indications are that the key players,
including China, the US, Brazil and the EU, are making the sort of commitments that should demand
a complementary significant commitment from Australia.
In addition, on 20 April 2015, evidence was published to show a number of these countries have
used the current UN process to ask Australia a number of questions about its commitment to
reducing emissions. For instance, China accused Australia of doing less to cut emissions than it is
demanding of other developed countries, and asked it to explain why this was fair, and the US
asked whether the emissions reduction fund was the main replacement for carbon pricing, or
whether Australia planned to introduce other policies. In addition, the European Union questioned
whether the emissions reduction fund could deliver a 15 or 25 per cent cut by 2020 – targets
Australia has said it would embrace if other countries did the equivalent.
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The Australian Climate Change Authority has already expressed the view that Australia could raise
its 2020 target and meet a target of 19% without too much difficulty, especially as it has excess
credits from the Kyoto period targets of about 4%. I support that position, and would note that an
increased target for 2020 would make it easier to achieve the post-2020 targets.
From the Government’s rhetoric, it looks as if the emissions for 2020 should be close to 5% below
2000 levels or even lower, showing that Australia can change from growing emissions to reducing
emissions, described as turning the ship around by some, and decoupling GDP growth from
growing emissions. This is a good news story for Australia’s international negotiating position.
As for a base year for emissions reductions, sticking with 2000 is easier to explain than using earlier
dates (1990) or complicating it by using half decades such as 2005 as base years.
Proceeding with an inadequate post-2020 target or delaying the target implementation would have
the following implications:
1. Australia will be placed under intensive international pressure, possibly including sanctions,
and will lose any right to be regarded as an international player of substance.
2. Much tougher decisions will have to be made down the track as we will have exhausted too
much of our 8 billion tonne allocation, with resultant increase in social, economic and
environmental impacts.
3. Instead of spreading the costs of transition to a net zero carbon economy over 35 years, the
costs will be experienced more in the period 2030-2050, causing an unfair amount of
economic pain to the next generation.
4. The current business world will receive very mixed messages on the value of investment in
Australia, its potential for increased sovereign risk and on the potential for stranded assets.
5. It is already clear that there will be no more coal-fired power stations built in Australia due
to the likelihood of stranded assets, and almost all those already in existence are reaching
the end of their design lives. This has significant implications for the country’s power
generation capability.
6. We will be missing the opportunity to be a key player in the low carbon technology
industries, including renewable energy and electric vehicles.
What would the impact of that target be on Australia?
A post-2020 target of 40% by 2030 is definitely achievable, particularly if the Renewable Energy
Target is also increased to 40% by 2030. This policy, which was introduced by the Howard
Government, has done much of the heavy lifting so far in helping Australia to meet its current
targets. The recent Warburton review of the RET showed that the costs were less than predicted
and currently the benefits exceed the costs – a win for the economy, society and the environment.
The two biggest contributors to Australia’s carbon emissions are coal and gas-fired electricity
generation, and the burning of fossil fuels in the transport sector. The development and uptake of
new technologies such as renewable energy, electric and hybrid vehicles, are already contributing
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to reduced emissions in these sectors, and, with policy encouragement, it is quite feasible that a
greater shift to low carbon alternatives in these sectors alone can largely deliver the interim
targets.
We already know that almost all the coal-fired power stations in Australia are reaching the end of
their design lives. They have long since amortised their costs (hence the need for the RET to enable
renewables to compete), and there is virtually no likelihood that new coal-fired power stations will
be built to replace them. The communities which live around these power stations are aware that
the associated employment is time limited and will also welcome the demise of the disease-causing
pollution associated with the industry. However, Governments will need to encourage new sources
of employment in these regions if significant social impacts are to be avoided.
In addition it can be reasonably be expected that, in the next 35 years, further new technologies
and advances in existing technologies will give yet more valid options towards the achievement of
these targets. Bear in mind technology is advancing at an ever increasing rate – one need only look
back 35 years to see what advances have occurred in the period from 1980 to 2015 to conjecture
what might happen in the future. We have had the expansion of the internet, mobile phones,
radical improvements in motor vehicle fuel consumption, the ability to self-generate electricity
from our roof tops, combined cycle power generation, super critical power plants, plus many more
beneficial changes in the last 35 years. All have arrived at what appeared to be premium costs
initially but have been quickly adopted and assimilated as costs have fallen rapidly with increased
deployment.
The impact of these targets on Australia can be estimated quite precisely using existing costs and
current technology. But it is also well known (see Grattan Institute reports on the topic) that
because the costs of existing and new technologies will fall with increasing demand, and more new
technologies and smarter ways of doing things can emerge through properly structured markets,
any costs derived at this point should be regarded as the upper bounds for costs. Ultimately, costs
will be lesser.
For example, it was estimated when the Renewable Energy Target (RET) was first mooted and
costed (around 2000, less than fifteen years ago) that the price of Renewable Energy Certificates
(RECs) would exceed $40 per MWh by 2005 (for an annual supply of 3.4 million RECs) and that most
of the renewable energy would come from burning sugar cane waste (bagasse) because that was
the cheapest technology at the time.
More than ten years on, RECs still cost less than $40/MWh (for an annual supply of 18 million) and
come mostly from solar photovoltaics and wind generation, with some bagasse, as these are now
cheaper technologies – in the case of solar PV the capital costs are about one sixth of those
experienced in 2000.
So what economic impact might there be as we seek to reduce emissions from the proposed 19%
target in 2020 to 40% by 2030? History tells us that if a market can be set up properly the costs are
likely to be lesser than those initially calculated which tend to be upper limits of cost because they
do not include sufficient allowance for the reduction in costs achieved through competition,
decreased costs due to increased demand for a given technology and innovation coming from other
actors in the market.
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With the right policy environment these targets can be implemented with very little effect on the
economy with beneficial effects on jobs, business and the environment. And, it seems likely that,
with more incentivised participants in a polluter pays market based scheme more options will
emerge and costs will tend to fall per unit of abatement.
About 75 Mt per year emissions reduction would be required to meet the 40% target in 2030 (with
lesser amounts in the years leading up to 2030 from 2020) which at, say, $10 per tonne would cost
about $750 million per year or under 0.05% of GDP if there were no co-benefits from the emission
reduction activity. Experience shows us that co-benefits will reduce the costs still further and may
even completely negate them.
For instance, it should be borne in mind that the recent Warburton RET review showed that cobenefits of emission abatement under that scheme now exceed the costs. In other words, the
abatement costs were not only less than $10 per tonne but effectively less than zero. In that
context, the estimated 0.05% of GDP cost should be regarded as a worst case scenario.
(To get some feel of what a GDP cost of 0.05% in 2030 would mean, if GDP were rising at 2.5% per
year in 2030 this would mean the level of GDP reached on 1 Jan 2030 without such a scheme, then
that same level of GDP would be reached a week later on 8 Jan 2030.)
Interestingly, the Warburton RET review also showed a 30% target for renewables by 2030 was
cheaper for consumers than options reducing the 20% target for 2020 as about $2 billion per year
were wiped off peak electricity costs on hot days by renewables.
Which further policies complementary to the Australian Government’s direct action
approach should be considered to achieve Australia’s post-2020 target and why?
There will need to be a range of supplementary policies, including market-based mechanisms, as
the direct action policy will be insufficient, by itself, to deliver any target over and above the
existing 5% by 2020 target. The Abbott Government made it abundantly clear when it introduced
the direct action policy that it did not plan to pay polluters for their abatement after 2020, and the
$2.55 billion so far allocated for the Emissions Reduction Fund (ERF) would be unlikely to extend
beyond a 5% target.
Since the emergence of the carbon budget approach, it is now evident that much larger targets will
be required both up to 2020 and beyond. It is also obvious that expansion of the direct action (ERF)
approach is not the answer, as it would be prohibitively expensive and unsustainable in the current
fiscal environment.
During the development of the ERF policy, cost abatement curves were produced for potential
emission reduction options and it was estimated that the maximum cost of abatement the
Government would need to pay polluters would be about $8 per tonne of carbon dioxide.
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With an emission reduction direct action policy in place, a complementary polluter pays policy
could be introduced to speed up the direct action process, enhance implementation rates and
provide a boost to innovation.
In the UK in the early 2000’s a similar situation arose as the Non Fossil Fuel Obligation (NFFO), a
government subsidised renewables payment scheme rather like direct action, was sped up by
introducing a market based polluter pays system. Both schemes – direct action and polluter pays –
worked successfully in parallel for some years, boosting emissions reduction substantially.
If abatement for the ERF can be done at around $8 per tonne, then a market based polluter pays
system is likely to cost less for each tonne of abatement as it has more incentivised participants
looking for legitimate abatement innovations rather than an options limited polluter paid system
like the ERF.
Some of the abatement innovations we are likely to see will include improving energy efficiency of
energy production, more efficient use of energy transmission and distribution, more efficient use
of energy produced, switching to low carbon fuels, adoption of more renewables, establishment of
sequestration projects, and, adopting new and cheaper technologies such as better battery
technology for electric vehicles and household power systems, as they become more widely
available over the interim 15 years.
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