The government’s Clean Energy Regulator yesterday announced the results of the second “reverse auction”. It spent A$557 million to buy emissions cuts of some 45 million tonnes of carbon dioxide.
Australia needs to cut its CO₂ emissions by 236 million tonnes to meet its current 2020 mitigation target of -5% below 2000 levels. The Direct Action Plan and its Emissions Reduction Fund (ERF) is the Turnbull government’s major program for doing so.
The first auction, in April this year, spent A$660 million for 47.3 million tonnes.
So far, then, almost half of the A$2.55 billion allocated to the ERF has been used and some 92.8 million tonnes of emissions reduction “bought” at an average rate of almost A$13.12 per tonne of CO₂. The ERF will also form part of efforts to achieve Australia’s 2030 climate target.
The latest round of UN climate negotiations begins in Paris in three weeks’ time. These talks aim to produce tougher national greenhouse targets for the decade to 2030. Ironically, the focus on Paris is drawing attention away from the urgency of emissions cuts that need to be delivered beforehand.
In Australia, the Paris talks encourage us to accept as given our 2020 target of -5% below 2000 emissions levels, although it is among the weakest of national mitigation efforts for that period.
They encourage us to ignore the fact that – according to criteria accepted by both Labor and Coalitions governments and now met because of the rising ambitions and efforts of major emitters elsewhere – Australia’s target should have increased to -15% by 2020.
It is against this second benchmark that the Turnbull government’s efforts should now be measured.
Crunching the numbers
Assuming all the emissions reductions contracted in these auctions are delivered, and the price per tonne of carbon remains the same for future sales, then the A$1.89 billion remaining in the ERF’s coffers will buy around another 101 million tonnes of emissions.
All up then, the total emissions reduction bought by the ERF will be around 193 million tonnes of CO₂. While this is 10 million tonnes better than predicted after the first auction this outcome remains 44 million tonnes (or about 19%) short of Australia’s -5% target – and much more for the -15% goal.
But that’s not the whole story. Some 275 projects will deliver their contracted emissions reductions over different periods – a few in a year, some over three, a few over five, many over seven, and most over ten years… by 2025.
Looking at the duration of contracts, it appears that only 45% (by volume) of this mitigation effort will contribute to the 2020 target. The rest will be occur after 2020.
In other words, only 51 million tonnes of emissions will be have been cut by 2020, leaving Australia 85 million tonnes (or 36% of the total) short of its -5% target and at least treble that amount for a -15% goal.
Structural change needed
The vast bulk of the contracts agreed in both the first and second auctions have re-funded emissions reduction schemes established well before the Direct Action Plan was conceived. As was the case for the first auction, most of the projects (by volume of emissions) involve “forest protection”. These rural projects generate carbon credits by paying to halt the destruction of native vegetation (so-called “avoided deforestation”). Such reductions could be achieved at no cost through regulatory intervention.
Most people paying superficial attention to the workings of the ERF would expect public money to be spent on creating structural change, by moving our industries onto renewable energy sources, for instance, rather than on paying rent to rural landowners to avoid activities that may release emissions in the future. Useful though these projects are, one wonders whether they should constitute the core and bulk of Australia’s flagship climate policy.
If the average price of carbon rises in subsequent auctions – and if Australian energy use and emissions continue to grow – the overall shortfall will increase still further. Recent evidence suggests that emissions from stationary electricity production and energy have increased by some 3% since the removal of the carbon price last year.
It is notable that – again – no major emitters in the energy and resource sectors were among the successful bidders. In other words, the major sectors involved in producing Australia’s emissions are not engaged by this scheme.
The ERF’s reverse auction approach seems incapable of driving an economic and cultural transition to renewable energy or of encouraging substantial mitigation by major industrial emitters. It is not helping Australia work “more agilely, more innovatively”, as Prime Minister Turnbull has put it, in this case to tackle climate change.
Using this mechanism Australia won’t meet, let alone exceed, even its very weak 2020 reduction target. The ERF would need well over A$3 billion to buy all the emissions needed for that goal.
And it is equally clear that this approach is doing nothing to prepare Australia for the 2030 target it is taking to Paris, of -26 to -28% below 2005 levels. Nor for the much more ambitious targets required to avert dangerous climate change.
While the UN Paris talks approach at the end of November, attention is currently focused on another forum, the Organisation of Economic Cooperation and Development (OECD), where member countries are negotiating a deal to limit public finance to overseas coal projects in emerging and developing countries.
Australia and South Korea are reportedly opposed to an agreement struck by the US and Japan and supported by other member countries, notably Germany and France, to prevent public finance to all but the very cleanest power plants.
How will these discussions at the OECD impact on the UN Paris negotiations? Australia’s approach to these international meetings would seem to be inconsistent.
Many pathways to action on climate change
The UN Framework Convention on Climate Change is still the main negotiating forum through which countries negotiate emission reduction commitments. However, over the last decade, other international forums, in particular the World Bank, International Energy Agency, G20, G7 and the OECD, have played an increasingly important role in progressing emission reduction outcomes.
The OECD’s broad objective is to assist governments foster prosperity and fight poverty through economic growth and financial stability. It helps to ensure that the environmental implications of economic and social development are taken into account. Pursuant to this mandate the OECD has worked with the G20 and G7 to address climate change, in particular through promoting green growth, reducing fossil fuel subsidies, reforming energy regulation and facilitating climate finance
This multi-forum approach to addressing climate change is critical as it diversifies the range of action, but it also maximises accountability in the process and exposes countries’ weaknesses and internal inconsistencies in their climate change policy positions.
Given the different membership and mandates of international organisations, outcomes that might be impossible in one forum are able to be achieved in others. Clearly, this multi-layered approach is essential if we are to solve the climate change problem.
The strength of the UN process is in providing an overarching framework, whereas more concrete actions can be achieved through the OECD, the World Bank and other forums.
Limiting coal finance
The work on fossil fuel subsidies by international organisations was undertaken in response to a request by G20 Leaders when they met in Pittsburgh in September 2009.
At that time, leaders agreed to “rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption”. They asked the OECD together with the International Energy Agency (IEA), Organization of the Petroleum Exporting Countries (OPEC) and the World Bank to “provide an analysis of the scope of energy subsidies and suggestions for the implementation”.
Export credit finance is a particular type of fossil fuel subsidy, through which public credit agencies, such as the Export Finance and Insurance Corporation in Australia, provide government-backed loans and other types of finance to businesses wishing to invest in industries abroad. It is estimated that agencies from OECD countries channelled US$34 billion into coal power projects between 2007 and 2014.
The discussions to phase out export credit finance for coal power stations in the OECD commenced last year, but hit a stalemate in June this year. In November, however, the US and Japan will reportedly announce a proposal which would restrict export credit finance to all but the cleanest power stations, known as ultra-supercritical pressure coal plants, a technology that Japan is a leader in.
The text of the proposal also reportedly includes a clause that a coal plant could only win public funding if cleaner alternatives, such as renewables, were not viable. If adopted, the US-Japan proposal would substantially reduce the number of new power stations built in emerging economies in Asia and South America. Australia opposes these restrictions and also rejects the clause requiring project developers to look at cleaner alternatives.
OECD rules require that decisions are made by consensus by the members, so countries will need to reach a compromise next week, when the process concludes. The ultimate outcome will have a direct impact on the ambition of the Paris negotiations, so is important.
Australia is walking a fine line in climate diplomacy
Are Australia’s positions on climate change in the UN and the OECD inconsistent?
On the one hand, Australia supports the objective of keeping the global temperature rise within 2℃ and is willing to make some domestic emission reductions to assist in achieving this.
On the other hand, it is not yet willing to place any real limits on its coal exports to developing countries. It justifies this position on the basis that coal is required by developing countries to alleviate poverty and that it is not for Australia to decide how other countries allocate their public finance.
Other countries, notably the US, Japan and Germany, however, now accept that if we are to meet the 2℃ goal then developed countries have a responsibility, including through the direction of public finance, to ensure that emerging economies transition away from fossil fuels, by allocating funding to clean energy technologies instead.
This transition is not as fanciful as it once seemed, given the decreasing cost of renewable technologies every year. The International Energy Agency recently highlighted that in order to meet the 2℃ goal, any new power stations must on average emit 200 grams of CO₂ per kilowatt-hour, whereas even super-critical power stations emit above 600 grams per kWh. It is therefore clear that the cleanest power stations will be required to limit warming to 2℃, unless carbon capture and storage technology becomes viable for power stations, which currently seems unlikely.
While Australia’s economy is more vulnerable than others to the effects of restrictions on coal uptake, it seems inevitable that there will be a continuing decline in coal demand and thus the sooner we transition our economy accordingly, the easier this transition will be in the long term. Many businesses recognise this probability and are already planning scenarios around it.
In addition, taking a blocking position at the OECD has the potential to damage Australia’s credibility in other international negotiations and particularly as its role as co-chair of the Green Climate Fund. Overall, to address climate change, our policies on energy and climate change will need to align. As the US, EU and China step up their leadership on climate change, Australia will come under increasing pressure to reconcile its different positions.
The aviation emissions problem is a significant one. Aviation is a growing source of emissions, and those emissions are largely unregulated. Emissions from aviation are increasing against a background of decreasing emissions (or, at least, emissions regulation) from many other industry sectors.
If global aviation was a country, its emissions would be ranked about seventh in the world, between Germany and South Korea on CO₂ emissions alone. Put another way, aviation’s contribution to worldwide annual emissions could be as high as 8%.
And the International Civil Aviation Organization forecasts significant further emissions growth: against a 2006 baseline a 63-83% increase by 2020 is expected, and a 290-667% increase by 2050 (without accounting for more use of biofuels). UN action on aviation emissions so far: no COP involvement.
Under the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC), developed-state parties to the Protocol (including Australia) ‘shall pursue limitation or reduction of emissions of greenhouse gases … from aviation … working through the International Civil Aviation Organization’ (ICAO).
In other words, aviation is excluded from (to date) the world’s primary climate change instruments. It leaves the aviation emissions problem up to ICAO, a UN agency.
ICAO resolved to make a recommendation on a global scheme, including a means to take into account the ‘special circumstances and respective capabilities’ of different nations, and the mechanisms for the implementation of such a scheme from 2020 as part of a basket of measures. These include operational improvements and development of sustainable alternative fuels.
It is an agreement to agree. If everything goes to plan, from 2020 we might see a global market-based mechanism – presumably an emissions trading scheme, although a (non-fuel) tax can’t be ruled out – covering global aviation.
But that outcome is far from guaranteed. In effect, states have agreed to agree, and to keep talking at their next major meeting next year – and nothing more.
COP 21 – aviation won’t get off the ground
Given that ICAO is tasked with addressing the aviation emissions problem, aviation is most interesting in terms of references to it in successive draft versions of the COP 21 negotiating text and related documents.
The negotiating text for the agreement to be finalised in Paris in December stood at 90 pages after the UNFCCC Bonn meeting in August and September. It was essentially a compilation of state parties’ proposals – it wasn’t really negotiated. This text was subsequently reduced to just 20 pages in a ‘non-paper’ note dated 5 October 2015 but has now expanded to 51 pages as a result of the 19-23 October Bonn UNFCCC meeting.
In that 5 October draft note aviation was excluded. In the latest draft negotiating text (from the Bonn working group dated 23 October) – Article 3, ‘Mitigation,’ clause 19 – aviation is definitely included. Unsurprisingly, the clause – as expected – refers to ICAO as the appropriate UN agency to deal with the aviation emissions problem.
The only real uncertainty for aviation emissions at COP 21 is whether the words “shall” or “should” (which currently appear in square brackets in the negotiating text) or some other word will be used in relation to reduction of aviation emissions.