Sven Teske, University of Technology Sydney and Sarah Niklas, University of Technology SydneyThe International Energy Agency (IEA) last month made global headlines when it declared there is no room for new fossil fuel investment if we’re to avoid catastrophic climate change.
However, our new research suggests the horse may have already bolted. We found even if no new fossil fuel projects were approved anywhere in the world, carbon emissions set to be released from existing projects will still push global warming over the dangerous 1.5℃ threshold.
Specifically, even with no new fossil fuel expansion, global emissions would be 22% too high to stay within 1.5℃ by 2025, and 66% too high by 2030.
However, keeping global warming under 1.5℃ is still achievable with rapid deployment of renewables. Our research found solar and wind can supply the world’s energy demand more than 50 times over.
The stunning potential of wind and solar
While our findings were alarming, they also give us a new reason to be hopeful.
We analysed publicly available oil, gas and coal extraction data, and calculated the future production volume. We worked under the assumption no new fossil fuel extraction projects would be developed, and all existing projects would see production declining at standard industry rates.
We found fossil fuel projects already in the pipeline will, by 2030, produce 35% more oil and 69% more coal than what’s consistent with a pathway towards a 1.5℃ temperature rise.
Fossil fuels are the main driver of climate change, accounting for more than 75% of carbon dioxide emissions. Continuing to expand this sector will not only be catastrophic for the climate, but also for the world’s economy as it locks in infrastructure that will become stranded assets.
Ultimately, it’s not enough to simply keep fossil fuels in the ground. To meet our climate goals under the Paris Agreement, we must phase down existing production.
Solar and wind power technologies are already market ready and cost competitive. And as our analysis confirms, they’re ready to be scaled up to meet the energy demands of every person on the planet.
We mapped all the potential areas where wind and solar infrastructure can be built, and the energy potential across six continents.
Even after applying a set of robust, conservative estimates that take environmental safeguards, land constraints and technical feasibility into account, we found that solar and wind energy could meet the world’s energy demand from 2019 — 50 times over.
It’s clear we don’t need new fossil fuel development to ensure 100% energy access in the future.
Australia’s laggard status
In Australia, the Morrison government refuses to set new emissions reduction targets, and continues to fund new fossil fuel projects, such as a A$600 million gas plant in the New South Wales Hunter Valley.
Despite Australia’s laggard status on climate change, there are positive moves elsewhere around the world.
The progress was evident ahead of the G7 summit this past weekend, where climate change was firmly on the agenda. Ahead of the summit, environment ministers worldwide agreed to phase out overseas fossil fuel finance and end support for coal power.
And in recent weeks, three global fossil fuel giants – Shell, Chevron and ExxonMobil – faced legal and shareholder rebukes over their inadequate action on climate change.
Coming on top of all that, the IEA last month set out a comprehensive roadmap to achieve net-zero emissions by 2050. It included a stark warning: no new fossil fuel projects should be approved.
Natural carbon storage is key
However, the IEA’s findings contradict our own on several fronts. We believe the IEA underestimated the very real potential of renewable energy and relied on problematic solutions to fill what it sees as a gap in meeting the carbon budget.
For example, the IEA suggests a sharp increase in bioenergy is required over the next 30 years.
This would require biofuels from energy plantations — planting crops (such as rapeseed) specifically for energy use.
But conservationists estimate the sustainable potential for biofuels is lower. They also say high volumes of bioenergy might interfere with land use for food production and protected nature conservation areas.
Our research found the exact opposite is needed: rapid phase out of deforestation and significant reforestation alongside the decarbonisation of the energy sector.
Bioenergy should be produced predominantly from agricultural and organic waste to remain carbon neutral.
Likewise, the IEA calls for an extreme expansion of carbon capture and storage (CCS) projects — where carbon dioxide emissions are captured at the source, and then pumped and stored deep in the ground.
In its roadmap, the IEA expects CCS projects to grow from capturing 40 million tonnes of carbon dioxide (as is currently the case), to 1,665 million tonnes by 2030.
Establishing natural carbon sinks should be prioritised instead, such as keeping forest, mangrove and seagrass ecosystems better intact to draw carbon dioxide from the atmosphere.
Phasing out early
As a wealthy country, Australia is better placed than most to weather any economic disruption from the energy transition.
Our research shows Australia should phase out fossil fuels early and urgently. The Australian government should also ensure communities and people reliant on fossil fuel industries are helped through the transition.
We must also support poorer countries highly dependent on fossil fuels, particularly in the Asia-Pacific region.
There is new international momentum for climate action, and the future of the fossil fuel industry looks increasingly dire. The technologies to make the transition are ready and waiting – now all that’s needed is political will.
Sven Teske, Research Director, Institute for Sustainable Futures, University of Technology Sydney and Sarah Niklas, Research Consultant, Institute for Sustainable Futures, University of Technology Sydney
Hugh Saddler, Australian National University and Frank Jotzo, Australian National UniversityWorld leaders including Prime Minister Scott Morrison will gather in the UK this weekend for the G7 summit. In a speech on Wednesday ahead of the meeting, Morrison said Australia recognises the need to reach net-zero emissions in order to tackle climate change, and expects to achieve the goal by 2050.
So has Australia started the journey towards deep cuts in greenhouse gas emissions?
In the electricity supply system, the answer is yes, as renewables form an ever-greater share of the electricity mix. But elsewhere in the energy sector – in transport, industry and buildings – there has been little or no progress.
This situation needs to change. These other parts of the energy system contribute nearly 40% of all national greenhouse gas emissions – and the share is growing. In a new working paper out today, we propose a way to track the low-carbon transition across the energy sector and check progress over the last decade.
A stark contrast
The energy sector can be separated into three major types of energy use in Australia:
- electricity generation
- transport and mobile equipment used in mining, farming, and construction
- all other segments, mainly fossil fuel combustion to provide heat in industry and buildings.
In 2018-19, energy sector emissions accounted for 72% of Australia’s national total. Transition from fossil fuels to zero-emissions sources is at the heart of any strategy to cut emissions deeply.
The transition is already happening in electricity generation, as wind and solar supplies increase and coal-fired power stations close or operate less.
But in stark contrast, elsewhere in the sector there is no evidence of a meaningful low-emissions transition or acceleration in energy efficiency improvement.
This matters greatly because in 2019, these other segments contributed 53% of total energy combustion emissions and 38% of national greenhouse gas emissions. Total energy sector emissions increased between 2005 (the reference year for Australia’s Paris target) and 2019.
As the below graphic shows, while the renewables transition often gets the credit for Australia’s emissions reductions, falls since 2005 are largely down to changes in land use and forestry.
Let’s take a closer look at the areas where Australia could do far better in future.
1. Transport and mobile equipment
Transport includes road and rail transport, domestic aviation and coastal shipping. Mobile equipment includes machinery such as excavators and dump trucks used in mining, as well as tractors, bulldozers and other equipment used in farming and construction. Petroleum supplies almost 99% of the energy consumed by these machines.
Road transport is responsible for more than two-thirds of all the energy consumed by transport and mobile equipment.
What’s more, prior to COVID, energy use by transport and mobile equipment was steadily growing – as were emissions. The absence of fuel efficiency standards in Australia, and a trend towards larger cars, has contributed to the problem.
Electric vehicles offer great hope for cutting emissions from the transport sector. As Australia’s electricity grid continues to decarbonise, emissions associated with electric vehicles charged from the grid will keep falling.
2. Other energy emissions
Emissions from all other parts of the energy system arise mainly from burning:
- gas to provide heat for buildings and manufacturing, and for the power needed to liquefy gas to make LNG
- coal, for a limited range of heavy manufacturing activities, such as steel and cement production
- petroleum products (mainly LPG) in much smaller quantities, where natural gas is unavailable or otherwise unsuitable.
Emissions from these sources, as a share of national emissions, rose from 13% in 2005 to 19% in 2019.
These types of emissions can be reduced through electrification – that is, using low- or zero-carbon electricity in industry and buildings. This might include using induction cooktops, and electric heat pumps to heat buildings and water.
However the data offer no evidence of such a shift. Fossil fuel use in this segment has declined, but mainly due to less manufacturing activity rather than cleaner energy supply.
And in 2018 and 2019, the expanding LNG industry drove further emissions growth, offsetting the decline in use of gas and coal in manufacturing.
How to track progress
Over the past decade or so, Australia’s emissions reduction policies – such as they are – have focused on an increasingly narrow range of emission sources and reduction opportunities, in particular electricity generation.
Only now are electric vehicles beginning to be taken seriously, while energy efficiency – a huge opportunity to cut emissions and costs – is typically ignored.
Our paper proposes a large set of new indicators, designed to show what’s happening (and not happening) across the energy sector.
The indicators fall into four groups:
- greenhouse gas emissions from energy use
- primary fuel mix including for electricity generation
- final energy consumption including energy use efficiency
- the fuel/technology mix used to deliver energy services to consumers.
Our datasets excludes the effects of 2020 COVID-19 lockdowns. They’re based on data contained in established government publications: The Australian Energy Statistics, the National Greenhouse Gas Inventory and the Australian Bureau of Statistics’ national accounts and population estimates.
By systematically tracking and analysing these indicators, and combining them with others, Australia’s energy transition can be monitored on an ongoing basis. This would complement the great level of detail already available for electricity generation. It would also create better public understanding and focus policy attention on areas that need it.
In some countries, government agencies monitor the energy transition in great detail. In some cases, such as Germany, independent experts also conduct systematic and substantial analysis as part of an annual process.
The road ahead
Australia has begun the journey to a zero-emissions energy sector. But we must get a move-on in transport, industry and buildings.
The technical opportunities are there. What’s now needed is government regulation and policy to encourage investment in zero-emissions technologies for both supplying and using all forms of energy.
And once available, the technology should be deployed now and in coming years, not in the distant future.
Hugh Saddler, Honorary Associate Professor, Centre for Climate Economics and Policy, Australian National University and Frank Jotzo, Director, Centre for Climate and Energy Policy, Australian National University
Rupert Posner, ClimateWorks Australia and Simon Graham, ClimateWorks AustraliaGetting to net-zero greenhouse gas emissions and 100% renewable energy might seem the end game for climate action. But what if, like Tasmania, you’ve already ticked both those goals off your list?
Net-zero means emissions are still being generated, but they’re offset by the same amount elsewhere. Tasmania reached net-zero in 2015, because its vast forests and other natural landscapes absorb and store more carbon each year than the state emits.
And in November last year, Tasmania became fully powered by renewable electricity, thanks to the island state’s wind and hydro-electricity projects.
The big question for Tasmania now is: what comes next? Rather than considering the job done, it should seize opportunities including more renewable energy, net-zero industrial exports and forest preservation – and show the world what the other side of net-zero should look like.
A good start
The Tasmanian experience shows emissions reduction is more straightforward in some places than others.
The state’s high rainfall and mountainous topography mean it has abundant hydro-electric resources. And the state’s windy north is well suited to wind energy projects.
What’s more, almost half the state’s 6.81 million hectares comprises forest, which acts as a giant carbon “sink” that sucks up dioxide (CO₂) from the atmosphere.
Given Tasmania’s natural assets, it makes sense for the state to go further on climate action, even if its goals have been met.
The Tasmanian government has gone some way to recognising this, by legislating a target of 200% renewable electricity by 2040.
Under the target, Tasmania would produce twice its current electricity needs and export the surplus. It would be delivered to the mainland via the proposed A$3.5 billion Marinus Link cable to be built between Tasmania and Victoria. The 1,500 megawatt cable would bolster the existing 500 megawatt Basslink cable.
But Tasmania’s climate action should not stop there.
Other opportunities await
Tasmania can use its abundant renewable electricity to decarbonise existing industrial areas. It can also create new, greener industrial precincts – clusters of manufacturers powered by renewable electricity and other zero-emissions fuels such as green hydrogen.
Zero-emission hydrogen, aluminium and other goods produced in these precincts will become increasingly sought after by countries and other states with their own net-zero commitments.
Tasmania’s vast forests could be an additional source of economic value if they were preserved and expanded, rather than logged. As well as supporting tourism, preserving forests could enable Tasmania to sell carbon credits to other jurisdictions and businesses seeking to offset their emissions, such as through the federal government’s Emissions Reduction Fund.
The ocean surrounding Tasmania also presents net-zero economic opportunities. For example, local company Sea Forest is developing a seaweed product to be added to the feed of livestock, dramatically reducing the methane they emit.
Concrete targets are needed
These updates give Tasmania a chance to be a global model for a post-net-zero world. But without firm action, Tasmania risks sliding backwards.
While having reached net-zero, the state has not legislated or set a requirement to maintain it. The state’s current legislated emission target is a 60% reduction by 2050 on 1990 levels – which, hypothetically, means Tasmania could increase its emissions in future.
Also, despite reaching net-zero emissions, Tasmania still emits more than 8.36 million tonnes of CO₂ each year from sources such as transport, natural gas use, industry and agriculture. Tasmania’s emissions from all sectors other than electricity and land use have increased by 4.5% since 2005.
Without a net-zero target set in law – and a plan to stay there – these emissions could overtake those drawn down by Tasmania’s forests. In fact, a background paper prepared for the Tasmanian government shows the state’s emissions may rise in the coming years and stay “positive” until 2040 or later.
The legislation update should also include a process to set emissions targets for each sector of the economy, as Victoria has done. It should also set ambitious targets for “negative” emissions – which means sequestering more CO₂ than is emitted.
Action on all fronts
Meeting this momentous task requires action on all fronts, in all jurisdictions. Bigger states and territories are aiming for substantial emissions reductions this decade. Tasmania must at least keep its emissions net-negative, and decrease them further.
Tasmania has a golden opportunity. With the right policies, the state can solidify its climate credentials and create a much-needed economic boost as the world transitions to a low-carbon future.
Michael (Mike) Joy, Te Herenga Waka — Victoria University of WellingtonAs countries explore ways of decarbonising their economies, the mantra of “green growth” risks trapping us in a spiral of failures. Green growth is an oxymoron.
Growth requires more material extraction, which in turn requires more energy. The fundamental problem we face in trying to replace fossil energy with renewable energy is that all our renewable technologies are significantly less energy dense than fossil fuels.
This means much larger areas are required to produce the same amount of energy.
Earlier this year, data from the European Union showed renewable electricity generation has overtaken coal and gas in 2020. But previous research argued that to replace the total energy (not just electricity) use of the UK with the best available mix of wind, solar and hydroelectricity would require the entire landmass of the country. To do it for Singapore would require the area of 60 Singapores.
I am not in any way denying or diminishing the need to stop emitting fossil carbon. But if we don’t focus on reducing consumption and energy waste, and instead fixate on replacing fossil fuels with renewable energy, we are simply swapping one race to destruction with another.
We must stop burning fossil fuels, but we must also understand that every technology to replace them, while attempting to maintain our current consumption, let alone allowing for consumption growth, requires huge amounts of fossil energy.
Environmental impact of renewables
Carbon reduction without consumption reduction is only possible through methods that have their own massive environmental impacts and resource limitations.
The new renewable infrastructure requires rare earth minerals, which is a problem in itself. But most of the raw materials required to produce and apply new energy technology are also getting harder to find. The returns on mining them are reducing, and the dilemma of declining returns applies to the very fossil fuels needed to mine the declining metal ore.
Globally, despite building lots of renewable electricity infrastructure, we have not yet increased the proportion of renewable energy in our total energy consumption.
The problems with wanting to maintain industrial civilisation are many, but the starkest is that it is the actual cause of our climate crisis and other environmental crises.
If we carry on with life as usual — the underlying dream of the “green growth” concept — we will end up destroying the life-supporting capacity of our planet.
What happened to environmentalism?
The green growth concept is part of a broader and long-running trend to co-opt the words green and environmentalist.
Environmentalism emerged from the 1960s as a movement to save the natural world. Now it seems to have been appropriated to describe the fight to save industrial civilisation — life as we know it.
This shift has serious implications because the two concepts — green growth and environmentalism — are inherently incompatible.
Traditionally, environmentalists included people like Rachel Carson, whose 1962 book Silent Spring alerted Americans to the industrial poisons killing birds and insects and fouling drinking water, or environmental organisations like Greenpeace saving whales and baby seals.
In New Zealand, being green had its roots in movements like the Save Manapouri campaign, which fought to save ancient native forests from inundation when a hydropower dam was built. Environmentalism had a clear focus on saving the living world.
Now environmentalism has been realigned to reducing carbon emissions, as if climate change was our only impending crisis. Parliamentary Greens seem set to want to reach net zero carbon by 2050 at any cost.
The word “net” allows champions of industry-friendly environmentalism to avoid considering the critical need to reduce our energy consumption.
We must somehow drag ourselves away from our growth paradigm to tackle the multiple crises coming at us. Our only future is one where we consume less, do less, waste less and stop our obsession with accumulating.
If we keep trying to maintain our current growth trajectory, built on a one-off fossil bonanza, we will destroy the already stressed life-supporting systems that sustain us. Protecting these and their essential biotic components is true environmentalism — not attempting to maintain our industrial way of life, just without carbon.
Michael (Mike) Joy, Senior Researcher; Institute for Governance and Policy Studies, Te Herenga Waka — Victoria University of Wellington
Some Australian states have committed to 100% renewable energy targets, or even 200% renewable energy targets. But this doesn’t mean their electricity is, or will be, emissions free.
Electricity is responsible for a third of Australia’s emissions, and making it cleaner is a key way to reduce emissions in other sectors that rely on it, such as transport.
So it’s important we have clarity about where our electricity comes from, and how emissions-intensive it is. Let’s look at what 100% renewables actually implies in detail.
Is 100% renewables realistic?
Achieving 100% renewables is one way of eliminating emissions from the electricity sector.
It’s commonly interpreted to mean all electricity must be generated from renewable sources. These sources usually include solar, wind, hydro, and geothermal, and exclude nuclear energy and fossil fuels with carbon capture and storage.
But this is a very difficult feat for individual states and territories to try to achieve.
The term “net 100% renewables” more accurately describes what some jurisdictions — such as South Australia and the ACT — are targeting, whether or not they’ve explicitly said so.
These targets don’t require that all electricity people use within the jurisdiction come from renewable sources. Some might come from coal or gas-fired generation, but the government offsets this amount by making or buying an equivalent amount of renewable electricity.
A net 100% renewables target allows a state to spruik its green credentials without needing to worry about the reliability implications of being totally self-reliant on renewable power.
So how does ‘net’ 100% renewables work?
All east coast states are connected to the National Electricity Market (NEM) — a system that allows electricity to be generated, used and shared across borders. This means individual states can achieve “net 100% renewables” without the renewable generation needing to occur when or where the electricity is required.
Take the ACT, for example, which has used net 100% renewable electricity since October 2019.
The ACT government buys renewable energy from generators outside the territory, which is then mostly used in other states, such as Victoria and South Australia. Meanwhile, people living in ACT rely on power from NSW that’s not emissions-free, because it largely comes from coal-fired power stations.
This way, the ACT government can claim net 100% renewables because it’s offsetting the non-renewable energy its residents use with the clean energy it’s paid for elsewhere.
SA’s target is to reach net 100% renewables by the 2030s. Unlike the ACT, it plans to generate renewable electricity locally, equal to 100% of its annual demand.
At times, such as especially sunny days, some of that electricity will be exported to other states. At other times, such as when the wind drops off, SA may need to rely on electricity imports from other states, which probably won’t come from all-renewable sources.
So what happens if all states commit to net 100% renewable energy targets? Then, the National Electricity Market will have a de-facto 100% renewable energy target — no “net”.
That’s because the market is one entire system, so its only options are “100% renewables” (implying zero emissions), or “less than 100% renewables”. The “net” factor doesn’t come into it, because there’s no other part of the grid for it to buy from or sell to.
How do you get to “200% renewables”, or more?
It’s mathematically impossible for more than 100% of the electricity used in the NEM to come from renewable sources: 100% is the limit.
Any target of more than 100% renewables is a different calculation. The target is no longer a measure of renewable generation versus all generation, but renewable generation versus today’s demand.
Tasmania, for example, has legislated a target of 200% renewable energy by 2040. This means it wants to produce twice as much renewable electricity as it consumes today.
But this doesn’t necessarily imply all electricity consumed in Tasmania will be renewable. For example, it may continue to import some non-renewable power from Victoria at times, such as during droughts when Tasmania’s hydro dams are constrained. It may even need to burn a small amount of gas as a backup.
This means the 200% renewable energy target is really a “net 200% renewables” target.
Meanwhile, the Greens are campaigning for 700% renewables. This, too, is based on today’s electricity demand.
In the future, demand could be much higher due to electrifying our transport, switching appliances from gas to electricity, and potentially exporting energy-intensive, renewable commodities such as green hydrogen or ammonia.
Targeting net-zero emissions
These “more than 100% renewables” targets set by individual jurisdictions don’t necessarily imply all electricity Australians use will be emissions free.
It’s possible — and potentially more economical — that we would meet almost all of this additional future demand with renewable energy, but keep some gas or diesel capacity as a low-cost backstop.
This would ensure continued electricity supply during rare, sustained periods of low wind, low sun, and high demand, such as during a cloudy, windless week in winter.
The energy transition is harder near the end — each percentage point between 90% and 100% renewables is more expensive to achieve than the previous.
That’s why, in a recent report from the Grattan Institute, we recommended governments pursue net-zero emissions in the electricity sector first, rather than setting 100% renewables targets today.
For example, buying carbon credits to offset the small amount of emissions produced in a 90% renewable NEM is likely to be cheaper in the medium term than building enough energy storage — such as batteries or pumped hydro dams — to backup wind and solar at all times.
The bottom line is governments and companies must say what they mean and mean what they say when announcing targets. It’s the responsibility of media and pundits to take care when interpreting them.
Christian Downie, Australian National UniversityThe International Energy Agency confirmed last week what many already knew: the world is undergoing a huge transformation in global energy markets. Fossil fuels are dying and renewables are on the rise.
Much of the focus has been on what this means for Australia, given the IEA declared there can be no new fossil fuel projects if global temperature rise is to be kept below 2℃.
But what the discussion has missed is how the shift to renewable energy is also set to transform Australia’s geopolitical environment. For a country that likes to think of itself as an energy superpower, it’s time we started paying attention.
Australia should embrace the opportunity to become a renewable energy power. If we don’t act now, with the global energy transition gathering pace, Australia could be exposed to a hostile international energy environment with profound economic, security and diplomatic consequences.
The new geopolitics of energy
The IEA’s declaration that new fossil fuel projects have to end now sits at odds with the federal government’s plans for a gas-led economic recovery, and its recent announcement of A$600 million to fund a major new gas-fired power plant.
But the IEA isn’t the only authoritative body making this claim. Most global energy transition scenarios project a peak in fossil fuel demand this decade and exponential growth in renewables, before a long decline in fossil fuel demand in the decades thereafter.
The IEA set out a roadmap to bring the planet to net-zero emissions by 2050. Indeed, under this net-zero scenario, oil demand peaked in 2019 and will fall by almost 75% between now and 2050. Demand for coal has peaked, too, and will fall even faster by 90%. The prospects for gas are only slightly better, with a decline of 55% out to 2050.
It’s no wonder Australian financial regulators keep warning about stranded assets.
The geopolitical consequences of this transition will be profound. To varying degrees, the changes taking place in energy markets will reorder patterns of cooperation and conflict between states.
At one end of the spectrum, some states will emerge as renewable powers — think Chile with its large solar resources in the Atacama Desert, or China with its superiority in renewable technologies.
At the other end of the spectrum, some states will experience political instability from the decline of fossil fuel revenues — think countries such as Saudi Arabia and Kuwait, where oil and gas revenues comprise more than 40% of their GDP.
Transitioning to clean energy will have huge upsides for Australia. But let’s start with the downsides, because the IEA has just put them up in lights.
Our international leverage will soon disappear
Successive federal governments have declared Australia to be an energy superpower.
One reason is our exports of coal and gas. Take LNG (liquefied gas) for example. In 2019 Australia overtook Qatar to become the largest exporter of LNG in the world, with total exports valued at A$48 billion, representing a 22% share of global exports.
The IEA says this must end if the world is to have any hope of avoiding the worst effects of climate change. If the gas industry hasn’t got the message yet, the IEA had some chilling news.
As the graph below shows, Australia’s gas exports will have to peak by 2025 and then fall off a cliff in the decades after, under a net-zero-by-2050 emissions scenario. The picture for coal is even worse.
The economic repercussions are obvious. As a political leader might say, it’s “jobs and growth” that’ll be hit hardest.
But this also has geopolitical implications. Australia has long relied on the economic strength we derive from being a dominant exporter of coal and gas to shape our bilateral relationships with countries, such as Japan and South Korea.
This leverage will soon disappear and it will force Australia to rethink how it engages with many nations and international organisations.
For example, potential disruptions to oil shipping lanes will likely become less of a concern. Nations may also compete to control the supply of rare minerals that are vital for a range of technologies needed for a clean energy transition, such as batteries and wind turbines.
What should Australia do?
First, Australia should harness its renewable resources. Australia’s solar radiation per year is around 10,000 times larger than our total energy consumption. If these resources are exploited, Australia can become energy self-sufficient and, at the same time, reduce its vulnerability to energy supply disruptions, such as from international conflicts.
Second, Australia should pursue export dominance. The rise of renewables will open up significant opportunities for Australia to become one of the primary exporters of clean electricity, hydrogen and critical minerals.
For example, growing demand for electricity in Asia combined with improvements in high-voltage direct current cables could see Australia export electricity to countries in our region, such as Indonesia and Singapore.
Third, Australia should leverage its energy advantage. States with significant renewable resources that become energy self-sufficient and attain export dominance are likely to be “geopolitical winners”.
In other words, the economic power derived from Australia’s renewable energy advantage will open up opportunities to influence other countries and shape intergovernmental arrangements, such as those governing the future of international trade in hydrogen.
Being energy self-sufficient will also insulate Australia from the risk that other countries will seek to coerce it by disrupting energy supplies.
This opportunity won’t last forever. Countries that move first will gain an advantage in new industries, technologies and export markets. Those that wait may never catch up.
Arjuna Dibley, The University of MelbourneThe Morrison government today announced it’s building a new gas power plant in the Hunter Valley, committing up to A$600 million for the government-owned corporation Snowy Hydro to construct the project.
Critics argue the plant is inconsistent with the latest climate science. And a new report by the International Energy Agency has warned no new fossil fuel projects should be funded if we’re to avoid catastrophic climate change.
The move is also inconsistent with research showing government-owned companies can help drive clean energy innovation. Such companies are often branded as uncompetitive, stuck in the past and unable to innovate. But in fact, they’re sometimes better suited than private firms to take investment risks and test speculative technologies.
And if the investments are successful, taxpayers, the private sector and consumers share the benefits.
Lead, not limit
Federal energy minister Angus Taylor announced the funding on Wednesday. He said the 660-megawatt open-cycle gas turbine at Kurri Kurri will “create jobs, keep energy prices low, keep the lights on and help reduce emissions”.
But missing from the public debate is the question of how government-owned companies such as Snowy Hydro might be used to accelerate the clean energy transition.
Australian governments (of all persuasions) have not often used the companies they own to lead in clean energy innovation. Many, such as Hydro Tasmania, still rely on decades-old hydroelectric technologies. And others, such as Queensland’s Stanwell Corporation and Western Australia’s Synergy, rely heavily on older coal and gas assets.
Asking Snowy Hydro to build a gas-fired power plant is yet another example – but it needn’t be this way.
The burning question
Globally, more than 60% of electricity comes from wholly or partially state-owned companies. In Australia, despite the 20-year trend towards electricity privatisation, government-owned companies remain important power generators.
At the Commonwealth level, Snowy Hydro provides around 20% of capacity to New South Wales and Victoria. And most electricity in Queensland, Tasmania and Western Australia is generated by state government-owned businesses.
But political considerations mean government-owned electricity companies can struggle to navigate the clean energy path.
For example in April this year, the chief executive of Stanwell Corporation, Richard Van Breda, suggested the firm would mothball its coal-powered generators before the end of their technical life, because cheap renewables were driving down power prices.
Queensland’s Labor government was reportedly unhappy with the announcement, fearing voter backlash in coal regions. Breda has since stepped down and Stanwell is reportedly backtracking on its transition plans.
Such examples beg the question: can government-owned companies ever innovate on clean energy? A growing literature in economics, as well as several real-world examples, suggest that under the right conditions, the answer is yes.
Privatised is not always best
Economists have traditionally argued state-owned companies are not good innovators. As the argument goes, the absence of competitive market forces makes them less efficient than their private sector peers.
But recent research by academics and international policy institutions such as the OECD has shown government ownership in the electricity sector can be an asset, not a curse, for achieving technological change.
The reason runs contrary to orthodox economic thinking. While competition can lead to firm efficiency, some economists argue government-owned firms can take greater risks. Without the pressure for market-rate returns to shareholders, government enterprises may be freer to invest in more speculative technologies.
My ongoing research has shown the reality is even more complex. Whether state-owned electric companies can drive clean energy innovation depends a great deal on government interests and corporate governance rules.
For example, consider the New York Power Authority (NYPA) which, like Snowy Hydro, is wholly government owned.
New York Governor Andrew Cuomo has deliberately sought to use NYPA to decarbonise the state’s electricity grid. The government has managed the company in a way that enables it to take risks on new transmission and generation technologies that investor-owned peers cannot.
For instance, NYPA is investing in advanced sensors and computing systems so it can better manage distributed energy sources such as solar and wind. The technology will also simulate major catastrophic events, including those likely to ensue from climate change.
These investments are likely to contribute to greater grid stability and greater renewables use, benefiting not just NYPA but other electricity generators and ultimately, consumers.
Such innovation is nothing new. Also in the US, the state-owned Sacramento Municipal Utility District built one of the first utility-scale solar projects in the world in 1984.
The way forward
More could be done to ensure Australian government-owned corporations are clean energy catalysts.
Clean energy technologies can struggle to bridge the gap from invention to widespread adoption. Public investment can bring down the price of such technologies or demonstrate their efficacy.
In this regard, government-owned companies could work with private technology firms to invest in technologies in the early stages of development, and which could have significant public benefits. For instance, in 2020, the Western Australian government-owned company Synergy sought to build a 100 megawatt battery with private sector partners.
But many problems facing state-owned companies are the result of ever-changing government policy priorities. The firms should be reformed so they are owned by government, but operated at arm’s length and with other partners. This might better enable clean energy investment without the politics.
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The government wants us to phase out fossil fuels. Yet natural gas is much cheaper for households to buy per kWh than electricity. Why?
But the key point to note is that we simply cannot continue to produce greenhouse gases and the demand for natural gas, as for coal and oil, will soon have to decline rapidly.
In its draft package of recommendations to the government, New Zealand’s Climate Change Commission has called for a stop to new connections to the natural gas grid for commercial and residential buildings after 2025.
In that context, comparing the retail price of gas with electricity is not useful unless all other costs and likely future trends are considered.
The natural gas grid
Natural gas is extracted from gas fields and processed to “scrub” out other gases and condensates. The resulting gas, mainly methane, is then distributed through pipelines.
In New Zealand, natural gas is reticulated around much of the North Island, but it is not available in the South Island, where bottled liquid petroleum gas (LPG) is the alternative.
LPG is pressurised butane and propane that come from the scrubbed natural gas condensates as well as from oil refineries. A few cars such as taxis still use LPG, as do gas barbecues.
Natural gas is also combusted in gas-fired power stations to generate electricity. In New Zealand, this accounts for around 15% of total generation. Large volumes of gas are purchased relatively cheaply by power-generating companies and the electricity is then distributed through the grid to homes and businesses.
The retail cost of electricity varies but is typically around 25 cents per kWh (also known as “c/unit”) for domestic users. Some retailers offer cheaper rates during “off-peak” times (to heat water for example).
The retail price for natural gas also varies and can be around 8c/kWh in Auckland or 5c/kWh in Wellington. If used for cooking, it can be cheaper than electricity. But to heat a building, an electric heat pump can be a cheaper option than a gas heater.
A heat pump concentrates the heat taken from the outside air and “pumps” it into the house very efficiently. One kWh of electricity consumed to run a heat pump can produce 3-4kWh of heat energy inside the house. It can also run the process in reverse and cool the air inside during hot summer days.
When comparing the cost of gas with electricity, two other cost factors must be considered. Under New Zealand’s Emissions Trading Scheme, there is a cost on the carbon dioxide produced when the gas is combusted because, like LPG, it is a fossil fuel and produces greenhouse gases.
The current cost per tonne of carbon dioxide emitted is around NZ$35 (or around 1c per kWh of gas), but it is likely to increase significantly over the next few years. This will be added to domestic gas bills. Electricity bills are less affected by carbon price rises because (more than 80% of electricity) in New Zealand is generated from low-carbon renewable resources.
The other cost to consider is the fixed connection charge for having a gas pipeline coming into the house. This cost also varies, but in Auckland some customers pay $1.15 per day. In Wellington, some pay $1.60 per day.
A house running fully on electricity will avoid this fixed cost. There will be a fixed daily supply charge for the electricity connection but most homes have to pay this anyway in order to have lighting and electrical appliances.
When gas is combusted inside a building to provide heat, the process consumes oxygen and produces water vapour. If ventilation is poor, oxygen levels drop and carbon monoxide is also produced, which can lead to poisonous air.
The water vapour results in condensation, obvious on windows at certain times of the day. That, too, can lead to unhealthy mould in poorly ventilated homes.
And there are further risks with gas. As exemplified by an explosion last year in a Christchurch home, natural gas (methane) is volatile as well as toxic.
Of course there are also risks with using electricity, though fairly rare, such as getting an electric shock or vermin eating through plastic cable coverings and shorting the wires, which can start fires.
While gas may appear cheaper, this applies only to certain energy uses (such as cooking). Overall, the cost of gas is likely to rise significantly in the near future.
The Climate Change Commission’s final advice to government is due at the end of May and will provide a time frame for the end of new gas connections — but there is no intention to disconnect existing gas supplies to buildings at this stage.