Daniel J Cass, University of Sydney; Joel Gilmore, Griffith University, and Tim Nelson, Griffith UniversityAustralian governments are busy designing the nation’s transition to a clean energy future. Unfortunately, in a misguided effort to ensure electricity supplies remain affordable and reliable, governments are considering a move that would effectively pay Australia’s old, polluting coal-fired power stations to stay open longer.
The measure is one of several options proposed by the Energy Security Board (ESB), the chief energy advisor to Australian governments on electricity market reform. The board on Friday released a vision to redesign the National Electricity Market as it transitions to clean energy.
The key challenges of the transition are ensuring it is smooth (without blackouts) and affordable, as coal and gas generators close and are replaced by renewable energy.
The redesign has been two years in the making. The ESB has done a very good job of identifying key issues, and most of its recommendations are sound. But its option to change the way electricity generators and retailers strike contracts for electricity, if adopted, would be highly counterproductive – bad both for consumers and for climate action.
The energy market dilemma
The National Electricity Market (NEM) covers every Australian jurisdiction except Western Australia and the Northern Territory. It comprises electricity generators, transmission and distribution networks, electricity retailers, customers and a financial market where electricity is traded.
Electricity generators in the NEM comprise older, polluting technology such as gas- and coal-fired power, and newer, clean forms of generation such as wind and solar. Renewable energy, which makes up about 23% of our electricity mix, is now cheaper than energy from coal and gas.
Wind and solar energy is “variable” – only produced when the sun is shining and the wind is blowing. Technology such as battery storage is needed to smooth out renewable energy supplies and make it “dispatchable”, meaning it can be delivered on demand.
Some say coal generators, which supply dispatchable electricity, are the best way to ensure reliable and affordable electricity. But Australia’s coal-fired power stations, some of which are more than 40 years old, are becoming more prone to breakdowns – and so less reliable and more expensive – as they age. This has led to some closing suddenly.
Without a clear national approach to emissions targets, there’s a risk these sudden closures will occur again.
So what’s proposed?
To address reliability concerns, the ESB has proposed an option known as the “physical retailer reliability obligation”.
In a nutshell, the change would require electricity retailers to negotiate contracts for a certain amount of “dispatchable” electricity from specific generators for times of the year when reliability is a concern, such as the peak weeks of summer when lots of people use air conditioning.
Currently, the Australian Energy Market Operator has reserve electricity measures it can deploy when market supply falls short.
But under the new obligation, all retailers would also have to enter contracts for dispatchable supply. This would likely require buying electricity from the coal generators that dominate the market. This provides a revenue source enabling these coal plants to remain open even when cheaper renewable energy makes them unprofitable.
The ESB says without the change, the closure of coal generators will be unpredictable or “disorderly”, creating price shocks and reliability risks.
A big risk
Even the ESB concedes the recommendation comes with considerable risks. In particular, the board says it may:
- impose increased barriers to retail competition and product innovation
- lead to possible overcompensation of existing coal and gas generators.
In short, the policy could potentially lock in increasingly unreliable, ageing coal assets, stall new investment in new renewable energy storage such as batteries and pumped hydro and increase market concentration.
It could also push up electricity prices. Electricity retailers are likely to pass on the cost of these new electricity contracts to consumers, no matter how much energy that household or business actually used.
The existing market already encourages generators to provide reliable supply – and applies strong penalties if they don’t. And in fact, the NEM experiences reliability issues for an average of just one minute per year. It would appear little could be added to the existing market design to make generators more reliable than they are.
Finally, the market is dominated by three large “gentailers” – AGL, Energy Australia and Origin – which own both generators and the retail companies that sell electricity. The proposed change would disadvantage smaller electricity retailers, which in many cases would be forced to buy electricity from generators owned by their competitors.
Australia’s gentailers are heavily invested in coal power stations. The proposed change would further concentrate their market power while propping up coal.
What governments should do
If coal-fired power stations are protected from competition, it will deter investment in cleaner alternatives. The recommendation, if adopted, would delay decarbonisation and put Australia further at odds with our international peers on climate policy.
The federal and state governments must work together to develop a plan for electricity that facilitates clean energy investment while controlling costs for consumers.
The plan should be coordinated across the states. Without this, we risk creating a sharper shock later, when climate diplomacy requires the planned retirement of coal plants. Other nations have acknowledged the likely demise of coal, and it’s time Australia caught up.
Daniel J Cass, Research Affiliate, Sydney Business School, University of Sydney; Joel Gilmore, Associate Professor, Griffith University, and Tim Nelson, Associate Professor of Economics, Griffith University
Bill Hare, Potsdam Institute for Climate Impact Research; Carl-Friedrich Schleussner, Humboldt University of Berlin; Joeri Rogelj, Imperial College London, and Piers Forster, University of LeedsLimiting global warming to 1.5℃ this century is a central goal of the Paris Agreement. In recent months, climate experts and others, including in Australia, have suggested the target is now impossible.
Whether Earth can stay within 1.5℃ warming involves two distinct questions. First, is it physically, technically and economically feasible, considering the physics of the Earth system and possible rates of societal change? Science indicates the answer is “yes” – although it will be very difficult and the best opportunities for success lie in the past.
The second question is whether governments will take sufficient action to reduce greenhouse gas emissions. This answer depends on the ambition of governments, and the effectiveness of campaigning by non-government organisations and others.
So scientifically speaking, humanity can still limit global warming to 1.5°C this century. But political action will determine whether it actually does. Conflating the two questions amounts to misplaced punditry, and is dangerous.
1.5℃ wasn’t plucked from thin air
The Paris Agreement was adopted by 195 countries in 2015. The inclusion of the 1.5℃ warming limit came after a long push by vulnerable, small-island and least developed countries for whom reaching that goal is their best chance for survival. The were backed by other climate-vulnerable nations and a coalition of high-ambition countries.
The 1.5℃ limit wasn’t plucked from thin air – it was informed by the best available science. Between 2013 and 2015, an extensive United Nations review process determined that limiting warming to 2℃ this century cannot avoid dangerous climate change.
Since Paris, the science on 1.5℃ has expanded rapidly. An Intergovernmental Panel on Climate Change (IPCC) report in 2018 synthesised hundreds of studies and found rapidly escalating risks in global warming between 1.5℃ and 2℃.
The landmark report also changed the climate risk narrative away from a somewhat unimaginable hothouse world in 2100, to a very real threat within most of our lifetimes – one which climate action now could help avoid.
The message was not lost on a world experiencing ever more climate impacts firsthand. It galvanised an unprecedented global youth and activist movement demanding action compatible with the 1.5℃ limit.
A matter of probabilities
The IPCC looked extensively at emission reductions required to pursue the 1.5℃ limit. It found getting on a 1.5℃ track is feasible but would require halving global emissions by 2030 compared to 2010 and reaching net-zero emissions by mid-century.
It found no published emission reduction pathways giving the world a likely (more than 66%) chance of limiting peak warming this century to 1.5℃. But it identified a range of pathways with about a one-in-two chance of achieving this, with no or limited overshoot.
Having about a one-in-two chance of limiting warming to 1.5℃ is not ideal. But these pathways typically have a greater than 90% chance of limiting warming to well below 2℃, and so are fully compatible with the overall Paris goal.
Don’t rely on carbon budgets
Carbon budgets show the amount of carbon dioxide that can be emitted for a given level of global warming. Some point to carbon budgets to argue the 1.5℃ goal is now impossible.
But carbon budget estimates are nuanced, and not a suitable way to conclude a temperature level is no longer possible.
The carbon budget for 1.5℃ depends on several factors, including:
- the likelihood with which warming will be be halted at 1.5℃
- the extent to which non-CO₂ greenhouse emissions such as methane are reduced
- uncertainties in how the climate responds these emissions.
These uncertainties mean strong conclusions cannot be drawn based on single carbon budget estimate. And, at present, carbon budgets and other estimates do not support any argument that limiting warming to 1.5℃ is impossible.
Keeping temperature rises below 1.5℃ cannot be guaranteed, given the history of action to date, but the goal is certainly not impossible. As any doctor embarking on a critical surgery would say about a one-in-two survival chance is certainly no reason not to do their utmost.
Closer than we’ve ever been
It’s important to remember the special role the 1.5℃ goal plays in how governments respond to climate change. Five years on from Paris, and the gains of including that upper ambition in the agreement are showing.
Some 127 countries aim to achieve net-zero emissions by mid-century at the latest – something considered unrealistic just a few years ago. If achieved globally and accompanied by stringent near-term reductions, the actions could be in line with 1.5℃.
If all these countries were to deliver on these targets in line with the best-available science on net zero, we may have a one-in-two chance of limiting warming this century to 2.1℃ (but a meagre one-in-ten that it is kept to 1.5°C). Much more work is needed and more countries need to step up. But for the first time, current ambition brings the 1.5℃ limit within striking distance.
The next ten years are crucial, and the focus now must be on governments’ 2030 targets for emissions reduction. If these are not set close enough to a 1.5℃-compatible emissions pathway, it will be increasingly difficult to reach net-zero by 2050.
The United Kingdom and European Union are getting close to this pathway. The United States’ new climate targets are a major step forward, and China is moving in the right direction. Australia is now under heavy scrutiny as it prepares to update its inadequate 2030 target.
The UN wants a 1.5℃ pathway to be the focus at this year’s COP26 climate summit in Glasgow. The stakes could not be higher.
Bill Hare, Director, Climate Analytics, Adjunct Professor, Murdoch University (Perth), Visiting scientist, Potsdam Institute for Climate Impact Research; Carl-Friedrich Schleussner, Research Group Leader, Humboldt University of Berlin; Joeri Rogelj, Director of Research and Lecturer – Grantham Institute Climate Change & the Environment, Imperial College London, and Piers Forster, Professor of Physical Climate Change; Director of the Priestley International Centre for Climate, University of Leeds