Renewable energy deal gives no certainty over coming decades

Ken Baldwin, Australian National University

Over the past 14 months the uncertainty over the future of the Renewable Energy Target (RET) has completely stalled Australia’s electricity industry (both renewables and fossil fuels), causing many companies to reconsider their future in this country.

A compromise target of 33,000 gigawatt hours (GWh) in 2020 agreed between Labor and the Coalition has finally ended the deadlock. Or has it?

The electricity industry needs certainty to invest in long-term generating capacity, but the target itself is only in force until 2020 (just four years and seven months away). At least the major parties have agreed to get rid of the intermediate biennial reviews which would have thrown certainty out the window.

But Labor has promised to increase the target after the next election, and who knows what a re-energised post-election Coalition government might do if they were to retain power.

So where does that leave the sector over the coming decades?

Falling demand increases renewable share

The ostensible reason for the current review was that for a notional goal of 20% renewables by 2020, the original target of 41,000 GWh would have been “too high” (23% to 26%) – given that grid-based electricity demand has fallen over the last seven years (see the chart below).

Pitt and Sherry Emissions Index, May 2015

This fall is the result of a combination of reasons: the changing structure of our economy away from manufacturing, fallout from the global financial crisis, increases in electricity prices arising from over-investment in networks to meet projected peak demand, improvements in energy efficiency, and the explosion of rooftop solar to replace grid-based electricity.

The decline is marked: 9% in the four years and seven months since September 2010 or around 2% a year. If this decline continues to 2020 – a similar time interval away – then it could significantly increase the percentage contribution of renewables.

Minister for the Environment Greg Hunt currently estimates that the 33,000 GWh target will provide 23.5% renewables by 2020. This is similar to projections by ACIL Allen in their report commissioned for the RET Review Committee which assumes that electricity generation will rise (not fall) each year by 1.6% on average.

Alternatively, if demand flatlines until 2020, then the contribution of renewables (currently around 16%) could exceed 25% based on the other ACIL Allen parameters.

Even more significantly, if demand continues to fall at the same rate as in recent years, then the number could surpass 28%.

By comparison, a 41,000 GWh RET would have yielded around 26% renewables under the growth scenario, around 29% with flatlined demand, or around 32% with declining demand.

Pushing out large solar

In any event, without a price on carbon, the lower renewable uptake created by the 33,000 GWh target will slow the much-needed decarbonisation of Australia’s economy. The electricity sector’s emissions have dramatically increased since the removal of the carbon tax (see the chart above), at a time when the international imperative to reduce emissions is increasing.

Further, because of the backlog of wind projects already stalled by the RET uncertainty, large-scale solar may be squeezed out even though it will be increasingly competitive towards 2020. While wind is currently the cheapest new-build renewable, the Australian Energy Technology Assessment shows it will be followed hard on its heels by solar in 2020 because of rapid cost reductions. But the potential to overtake wind on price may come too late if the 33,000 GWh is already built out by new and pipelined wind projects.

In addition, the predicted potential for the RET to eventually reduce electricity prices (due to increased competition with incumbent generators) will be less effective now that the RET is reduced and future low-price competitors are potentially squeezed out.

No room for wood-burning

One thing is for sure, there should be no room in the RET for the burning of so-called “native timber waste” left over from other logging operations. Even if leftover timber that would otherwise decay is used, this is not a zero-carbon source of electricity for two key reasons.

First, the timber decay process itself takes many decades and retains some of the carbon in the soil, whereas burning the waste timber releases it immediately into the atmosphere.

Second, there is an additional and ongoing carbon footprint from the collection, transport and further processing of the waste timber before burning.

This is the best-case scenario. The worst case is that burning timber waste is a stalking horse for logging trees that would otherwise have locked up carbon naturally or in timber products.

With the current RET deadlock over, our next focus should be on Australia’s emissions reduction trajectory post-2020. If Australia is to meet its international obligation to keep global warming below dangerous levels, we need to provide the electricity sector with the certainty needed to make this happen.

The Conversation

Ken Baldwin is Director, Energy Change Institute at Australian National University.

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A matter of degrees: why 2C warming is officially unsafe

Kate Dooley, University of Melbourne and Peter Christoff, University of Melbourne

The goal of international climate negotiations is “to avoid dangerous atmospheric concentrations of greenhouse gases”. In 2010, Parties to the United Nations Framework Convention on Climate Change formally recognised the “long term goal” of the convention was to hold the increase in global average warming to below 2C above pre-industrial levels.

Is 2C therefore the safe limit above which climate change becomes “dangerous”? A UN expert dialogue of more than 70 scientists, experts, and climate negotiators recently released a final report concluding that 2C is “inadequate” as a safe limit.

The report will feed into a review of the 2C limit, including discussions on a tougher 1.5C warming limit in the new climate agreement expected in Paris in December.

So, what does the evidence say?

What’s the difference between 1.5 and 2C?

It is well known that the risks of climate change can be significantly reduced if warming is limited to well below 2C.

However, the scientific literature related to 1.5C is scarce, as the Intergovernmental Panel on Climate Change (IPCC) compares differences along 2C and 4C pathways – somewhat at odds with the current policy debates over temperature limits and danger thresholds.

Global average warming is just that – an average. Regional warming and vulnerability to climate impacts will vary significantly. Therefore the difference in projected risks between 1.5C and 2C of warming is particularly important for highly temperature-sensitive systems, such as the polar regions, high mountains and the tropics, and low-lying coastal regions.

At 2C the very existence of some atoll nations is threatened by rising sea-levels. Limiting warming to 1.5C may restrict sea level rise below 1 metre.

Yet even at 1.5C warming, regional food security risks are significant. Africa is particularly vulnerable, with significant reduction in staple crop yields in some countries. Current levels of warming are already causing impacts that many people will not be able to adapt to – more scope for adaptation would exist at 1.5C, especially in the agricultural sector.

Can we limit warming to 1.5C?

The 2C warming limit or “guardrail” has long been controversial. It was rejected by many developing countries at Copenhagen and over two thirds of Parties to the Convention call for a 1.5C limit. So is this ambitious temperature limit still within reach?

The carbon budget approach – adopted by the Intergovernmental Panel on Climate Change (IPCC) in its latest report – defines the amounts of cumulative CO2 emissions which will drive warming to a given global temperature limit. The most stringent IPCC scenario gives a remaining (from 2011) carbon budget of 1,000 billion tonnes of CO2, for a “likely” chance of keeping global temperature within 2°C.

Yet whether a lower temperature limit is still within reach, and the pathway to get there, is debated. The more ambitious mitigation scenarios reported by the IPCC are characterised by overshooting the budget and then removing greenhouse gases from the atmosphere. This usually means relying on bioenergy plus carbon capture and storage (burning biomass for energy, removing the CO2, and then storing it underground) to remove carbon from the atmosphere – which comes with its own risks.

1.5C pathways which do not rely on negative emissions depend on a much lower remaining budget. Even a 50% chance of keeping below 1.5C requires immediate and radical emission reductions. This would mean unprecedented annual rates of decline which are not in line with current levels of energy consumption or ideas of economic growth.

Others suggest that, for fossil fuel emissions and for developed economies, there is already no carbon budget left at all.

Moreover, this discussion doesn’t account for aerosol and particulate pollution masking the impact of greenhouse emissions, which could mean an additional 0.8C of warming is already “locked in”, increasing the scale of the challenge.

The UNFCC expert group recognised that limiting global warming to below even 2C necessitates a radical transition, not merely a fine-tuning of current trends, yet such radical emissions reduction pathways are so far excluded from IPCC assessment, leaving policy makers with little evidence on the impacts and feasibility of lower targets.

Where to from here?

The group concluded that the world is not on track to achieve the long-term global goal of 2C, noting that the longer we wait to bend the curve of global greenhouse gas emissions, the steeper we will have to bend it down later.

The report will feed into discussions in relation to a decision on the global goal, expected at the Paris congress, with the report noting that limiting global warming to below 1.5C would come with several advantages in terms of coming closer to a safer “guardrail”.

However, the expert group falls short of recommending a 1.5C goal, arguing that the science on a 1.5C warming limit is less robust, despite presenting evidence that, in some regions, very high risks are projected for warming above 1.5C.

The idea that the 2C threshold is not safe is not new. Ten years ago prominent climate scientist James Hansen said the 2C threshold “cannot be considered a responsible target” and subsequently called for a 1C limit, with a carbon budget of just 500 Gt.

Only a few weeks ago, Hansen told ABC breakfast radio that it was crazy to think of 2C safe limit.

Others have joined the fray, challenging the acceptance of high probabilities of exceeding 2C, and risky mitigation pathways to get there. Kevin Anderson of the Tyndall Centre in Britain has said that 2C represents a threshold, not between acceptable and dangerous, but between “dangerous” and “extremely dangerous” climate change.

According to the IPCC’s budget numbers, only the very ambitious 1.5C pathway also gives us a high probability of holding warming even below 2C. After decades of procrastination, limiting warming to 1.5C, or even increasing the probabilities of not exceeding 2C, will now require action “faster than most policy makers conceive is possible”.

The Conversation

Kate Dooley is PhD candidate, Australian German Climate & Energy College at University of Melbourne.
Peter Christoff is Associate Professor at University of Melbourne.

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Given the value of emissions cuts, solar subsidies are worth it

Dylan McConnell, University of Melbourne

Earlier this week the Grattan Institute released the report Sundown, sunrise: how Australia can finally get solar power right. It looked at the cost of solar subsides and explored emerging challenges and opportunities for solar power to “find its place in the sun”, and generated widespread reports of its headline figure, that the cost of solar photovoltaic take-up has outweighed the benefits by almost A$10 billion dollars.

That figure (A$9.7 billion, to be precise) was generated by comparing the benefits of greenhouse emission reductions from solar, against the capital and maintenance costs. The first part of this calculation is therefore dependent on the assumed carbon price of A$30 a tonne, which gives a total benefit to society of A$2 billion by 2030.

The Grattan Institute’s analysis says that rooftop solar photovoltaic panels have come at a large cost to society. Figures (in 2015 dollars) refer to benefits and costs of solar PV systems installed from 2009.
Grattan Institute

But why A$30 per tonne? And what is the actual cost of carbon emissions?

The real cost of carbon

One metric commonly used is the “social cost of carbon”. This is an estimate of the economic damages from the emission of one extra unit of carbon dioxide (or equivalent). There is a huge range and debate about what the social cost of carbon really is.

Earlier this year, a paper in Nature Climate Change estimated the social cost of carbon to be US$220 per tonne. This significantly changes the cost benefit analysis.

Rooftop solar PV has come at a large cost to society Aggregate net present benefits and costs to society of solar PV systems installed from 2009, $2015, with a carbon price of $220 per tonne
Authors illustration

Last year, Nicholas Stern and Simon Dietz updated their internationally renowned model, finding that a carbon price between US$32 and US$103 was required today to avoid more than 2C of warming, (rising to between US$82-260 in 2035).

Other work suggests that should global greenhouse mitigation continue to be delayed, a carbon price of US$40 per tonne of CO2-equivalent would reduce the probability of limiting global warming to 2C by only 10–35%.

The Grattan report argued that “subsidies are expensive and inefficient”, but arbitrarily used a A$30 per tonne cost, significantly underestimating the most important subsidy: the fact that polluters are allowed to emit carbon dioxide for free.

While the choice of carbon price and costs significantly changes the calculus, looking only at the emissions and avoided generation really misses the point of the support mechanisms in the first place.

Why do we have renewable energy support mechanisms?

The Grattan report concludes that “Australia could have reduced its emissions for much less money”.

This is undeniably true. As the report points out, the federal government’s Emissions Reduction Fund has purchased emissions abatement at an average price of A$13.95 per tonne, and the Warburton review estimated the cost of the large-scale Renewable Energy Target to be A$32 per tonne up until 2030.

However, the objective of renewable energy policy is not solely for cheap and efficient emissions reductions. In fact, the objectives within the legislation of the renewable energy target are to:

  • encourage the additional generation of electricity;
  • reduce emissions of greenhouse gases;
  • ensure that renewable energy sources are sustainable.

It is not particularly fair to assess a support mechanism against objectives it was not designed to achieve. Only assessing the efficacy of the renewable energy target against emissions abatement efficiency misses an important component of renewable energy support policy: industry development.

Market mechanisms, such as carbon pricing, are widely acknowledged to be the most efficient method to reduce emissions. However, they are not sufficient by themselves and do not address other market failures.

In fact this is something that the Grattan Institute itself previously reported on in a previous report, Building the bridge: a practical plan for a low-cost, low-emissions energy future, which said:

Governments must address these market failures, beyond putting
a price on carbon


…in order to develop, demonstrate and deploy the technologies that are likely to be lowest cost in the longer time frame of meeting the climate change targets, further government action is essential.

As indicated, deployment policies are an essential policy to tool to develop the renewable energy industry, and ensure the lowest cost in the long term. Typically, in the context of renewable energy deployment policies sit between R&D on one hand, and pure market mechanism (such as carbon pricing) for mature technologies on the other.

Such deployment policies are essential to enable learning-by-doing and realising economies of scale. The cost reductions enabled by this simply cannot be developed in the lab, or be captured in the market by individual companies (due to knowledge and technology spillovers and other similar positive externalities).

The cost of reducing emissions

The report concludes that solar schemes have reduced emissions at a cost of A$175 per tonne to 2030. This figure has been derived by using the net present costs and for the emissions abated to 2030, which includes the capital cost of older and significantly more expensive systems.

If carbon costs were price at A$220 per tonne, the cost of abatement becomes negative, that is, a saving.

An alternative measure looks at the subsidy paid today. Households are currently purchasing solar systems subsidised by the RET at rate of approximately A$0.80 per watt installed, while receiving cost-reflective (unsubsidised) feed-in tariffs. Over an expected 25 year life, and an average grid carbon intensity of 0.85 tonnes per megawatt hour, the cost of abatement would be approximately A$28 per tonne.

Comparing this with the cost of abatement only a few years ago (in the order of several hundred dollars per tonne), the support mechanisms look very successful in delivering on objectives of industry development, and delivering cost reductions.

Most would agree that some renewable policies have previously been poorly implemented, and the Grattan report is right in highlighting these. However measuring their costs against objectives they were not intended to achieve is unfair.

The simple cost benefit analysis fails to incorporate all benefits of renewable energy support policy, and underestimates the avoided costs of carbon emissions.

The Conversation

Dylan McConnell is Research Fellow, Melbourne Energy Institute at University of Melbourne.

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