Critical backbenchers push back on Finkel clean energy target plan



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Josh Frydenberg’s task of garnering broad support for the Finkel scheme is proving to be more difficult than expected.
Lukas Coch/AAP

Michelle Grattan, University of Canberra

A sizeable slice of his backbench has sent Malcolm Turnbull a forceful message that his road to implementing the clean energy target (CET) proposed by the Finkel inquiry will be rocky even within his own ranks.

After Energy Minister Josh Frydenberg gave an extensive briefing on the Finkel plan to the Coalition partyroom on Tuesday morning, MPs later reconvened for nearly three hours of questions and debate.

About one-third of the 30-32 who spoke expressed misgivings, according to Coalition sources. There was broad support from another third. The rest didn’t express a firm view, asking questions and seeking more information.

The report from the panel led by Chief Scientist Alan Finkel says a CET “will encourage new low emissions generation [below a threshold level of carbon dioxide per megawatt hour] into the market in a technology neutral fashion”.

A key issue will be where the government, which is disposed to adopt the Finkel plan, sets the threshold. It is clear that to accommodate the Nationals and a section of the Liberal Party it will have to be at a level that allows for the inclusion of “clean” coal.

The meeting was to gauge backbench views ahead of cabinet considering the report. Ministers, apart from the minister with carriage of the issue, don’t speak on these occasions.

Tony Abbott, who had publicly flagged his belief that the Finkel scheme represents a tax on coal, spoke strongly at the meeting.

The degree of pushback against a CET was stronger than had been anticipated, given the intense lobbying of the backbench that Frydenberg had done ahead of the meeting.

Frydenberg said afterwards: “I want to emphasise that this meeting was not making any decisions about Dr Finkel’s proposal. Rather, it was an information-gathering session.”

A common theme from backbenchers was that it was vital to be able to be confident the Finkel plan would make energy more affordable. A number of MPs, especially from outer suburban and regional areas, said affordability was what mattered most to their electorates.

Some questioned the Finkel modelling showing that prices would fall. The chairman of the backbench environment committee, Craig Kelly, said: “If you believe that you can lower prices by replacing existing coal-fired generation with higher-cost renewables, then I have a harbour bridge to sell you.”

Concern was expressed about the place of coal, and there was criticism of Finkel’s projection of an effective renewable energy target of 42% by 2030. Some backbenchers believed it would take the Coalition too close to Labor, which has a 50% target. There were also queries about the status of the Paris targets.

But Frydenberg told the ABC: “There was an overwhelming feeling among those in the party room tonight that business-as-usual is not an option.”

Asked on 7.30 “are you going to be able to get your colleagues to agree to support a clean energy target?,” Frydenberg replied: “It is too early to say.”

Finkel met with the government’s backbench environment committee on Tuesday to explain his plan and answer questions.

Frydenberg conceded that backbenchers “are concerned about the future of coal”. But he flatly rejected the Abbott suggestion that the Finkel plan amounted to a tax on coal, saying it was “absolutely not”.

“Dr Finkel has made it very clear he is not putting in place any prohibitions on coal or any form of generation capacity. He is putting in place incentives for lower emission generation. It is not a price on carbon or a tax on coal.”

The CET had “similarities to what John Howard put forward back in 2007”, Frydenberg said – a point he made in his briefing to the party meeting.

Deputy Prime Minister Barnaby Joyce also slapped down Abbott’s proposition that the CET amounted to a tax on coal, telling Sky that “Mr Abbott’s entitled to his opinion” but “there is no penalty placed on coal.

The Conversation“There is an advantage that is placed on those that are below the line. An advantage, because they get a section of a permit, which is like a payment. Those above the lines don’t … I suppose ipso facto it could be seen as not having the same advantage.”

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Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Explainer: what is a ‘low emissions target’ and how would it work?


Frank Jotzo, Australian National University

The main job of the Finkel Review, to be released this week, is to set out ways to reform the National Electricity Market (NEM) to ensure it delivers reliable and affordable power in the transition to low-carbon energy. Yet most of the attention has been focused on what type of carbon-reduction scheme Australia’s chief scientist, Alan Finkel, will recommend.

The expectation is that he will advocate a “low emissions target” (LET), and it looks like industry is getting behind this.

That would be instead of an emissions intensity scheme (EIS), which had been supported by much of industry as well as regulators and analysts, but the government rejected this.

Both types of scheme are second-best approaches to a carbon price. They can have similar effects depending on their design and implementation, although an EIS would probably be more robust overall.

How a LET might work

A LET would give certificates to generators of each unit of electricity below a threshold carbon intensity. Electricity retailers and industry would be obliged to buy the certificates, creating a market price and extra revenue for low-emission power generators.

How many certificates get allocated to what type of power generator is an important design choice. Government would also determine the demand for the certificates, and this defines the overall ambition of the scheme.

At its core, the scheme would work rather like the existing Renewable Energy Target, which it would replace. But the new scheme would also include some rewards for gas-fired generators, and perhaps even for coal-fired generators that are not quite as polluting as others. The question is how to do this.

A simple but crude way of implementing a LET would be to give the same number of certificates for every megawatt hour (MWh) of electricity generated using technologies below a benchmark level of emissions intensity. In practice, that would be renewables and gas. In principle, the scheme could include nuclear power as well as coal plants with carbon capture and storage, but neither exists in Australia, nor are they likely to be built.

Such a simple implementation would have two drawbacks. One, it would create a strong threshold effect: if your plant is slightly above the benchmark, you’re out, slightly below and you’re in. Two, it would give the same reward to gas-fired generators as to renewables, which is inefficient from the point of view of emissions reduction.

A better way is to scale the amount of certificates issued to the emissions intensity of each plant.

If the benchmark was 0.7 tonnes of carbon dioxide per MWh of electricity (as some media reports have predicted), then a gas plant producing 0.5 tonnes of CO₂ per MWh would get 0.2 certificates per MWh generated. A wind or solar farm, with zero emissions, would receive 0.7 certificates per MWh generated.

The benchmark could also be set at a higher level, potentially so high that all power stations get certificates in proportion to how far below the benchmark they are. For example, a benchmark of 1.4 tonnes CO₂ per MWh would give 1.4 certificates to renewables, 0.9 certificates to the gas plant, 0.5 certificates to an average black coal plant and 0.2 certificates to a typical brown coal plant.

Including existing coal plants in the LET in this way would create an incentive for the sector to move towards less polluting generators. It would thus help to reduce emissions from the coal fleet, and perhaps pave the way for the most polluting plants to be retired earlier. But the optics would not be good, as the “low emissions” mechanism would be giving credits to coal.

Whichever way certificates are distributed, the government also has to specify how many certificates electricity retailers need to buy. Together with the benchmark and with how electricity demand turns out, this will determine the emissions intensity of overall power supply. The benchmark would need to decline over time; alternatively, the amount of certificates to be bought could be increased.

The price of LET certificates would depend on all of these parameters, together with the cost of energy technologies, and industry expectations about the future levels of all of these variables. As the experience of the RET has shown, these can be difficult to predict.

Low emissions target vs emissions intensity scheme

An emissions intensity scheme (EIS) is the proposal that in recent times had the broadest support in the policy debate. Finkel’s preliminary report referenced it and the Climate Change Authority earlier put significant emphasis on it. But it got caught in the internal politics of the Liberal-National Coalition and was ruled out.

Under an EIS, the government would set a benchmark emissions intensity, declining over time. Generators below the benchmark would be issued credits, whereas those running above the benchmark would need to buy credits to cover their excess emissions. Supply and demand set the price in this market.

Depending on how the parameters are set, the effects of a LET and an EIS on the power mix and on power prices would differ, but not necessarily in fundamental ways.

There are some key differences though. Under a LET, electricity retailers will need to buy certificates and not all power plants may be covered by a low-carbon incentive. Under an EIS, the higher-polluting plants buy credits from the cleaner ones, and all types of plants are automatically covered. The EIS market would be closely related to the wholesale electricity market, with the same participants, whereas a LET market would be separate and distinct, like the RET market now.

Further, the benchmark in an EIS directly defines the emissions intensity of the grid and its change over time. Not so for the benchmark in a LET. A LET will also require assumptions about future electricity demand in setting the total amount of credits that should be purchased – and bear in mind that the estimates used to calibrate the RET were wildly off the mark.

What’s more, an EIS might present a chance to circumvent the various special rules and exemptions that exist in the RET, and which might be carried over to the LET.

Politics vs economics

Neither a LET nor an EIS provides revenue to government. Since the demise of Australia’s previous carbon price this has often been considered desirable politically, as it avoids the connotations of “carbon tax”. But economically and fiscally it is a missed opportunity.

Globally, most emissions trading schemes generate revenue that can be used to cut other taxes, help low-income households, or pay for clean energy research and infrastructure.

An economically efficient system should make carbon-based electricity more expensive, which encourages energy consumers to invest in energy-saving technology. Both a LET and an EIS purposefully minimise this effect, and thus miss out on a key factor: energy efficiency.

Ambition and confidence

More important than the choice of mechanism is the level of ambition and the political durability of the policy.

Bringing emissions into line with the Paris climate goals will require fundamental restructuring of Australia’s power supply. Coal would need to be replaced well before the end of the lifetime of the current plants, probably mostly with renewables.

To prompt large-scale investment in low-carbon electricity, we need a reliable policy framework with a genuine and lasting objective to reduce emissions. And investors need confidence that the NEM will be governed by rules that facilitate this transition.

Of any policy mechanism, investors will ask the hard questions: what will be its actual ambition and effects? Would the scheme survive a change in prime minister or government? Would it stand up to industry lobbying? Investor confidence requires a level of predictability of policy.

The ConversationIf a LET were supported by the government and acceptable to the Coalition backbench, and if the Labor opposition could see it as a building block of its climate policy platform, then the LET might be a workable second best, even if there are better options. Over the longer term, it could be rolled into a more comprehensive and efficient climate policy framework.

Frank Jotzo, Director, Centre for Climate Economics and Policy, Australian National University

This article was originally published on The Conversation. Read the original article.

Shorten goes on front foot over 50% renewables ‘target’


Michelle Grattan, University of Canberra

Australia could be the “energy capital of Asia” but instead it is going backwards, Bill Shorten will say in a speech on Thursday, vigorously defending Labor’s target of 50% of Australia’s electricity coming from renewables by 2030. The Conversation

As the government floats the prospect of help for cleaner-coal power stations and attacks Labor for committing too strongly to renewables, Shorten will say that to achieve the ALP’s 50% target much more private investment in renewable generation and technology will be needed than the amount required to get to the legislated Renewable Energy Target (RET). The RET is for 23.5% of Australia’s electricity generation in 2020 to come from renewable sources.

He will say that what is required is an emissions-intensity scheme (EIS) for the electricity sector, ongoing support for research and investments in renewable energy technology, and a plan to modernise the National Electricity Market.

The speech comes as an Essential poll this week found nearly two-thirds (65%) approved of Labor’s target of 50%; 18% disapproved. Support for the policy was 55% among Coalition voters.

After much debate last week about the precise nature of Labor’s 50% commitment – whether it was a “goal” or a “target” – Shorten will take a more assertive line. “Forget the word games – 50% renewables by 2030 is Labor’s target, our goal, our objective and our aspiration,” he will say.

“We can be the energy capital of Asia. And if Australia nails the energy question, we will collect a growth dividend that can set us up for the century.

“But despite the prize on offer, despite all our natural advantages, we’re not just stuck in the gates – we are going backwards.

“When the Coalition came to office and declared war on the RET scheme, investment in large-scale renewables fell by 88% in one year.

“After being rated one of the four most attractive destinations in the world for renewable energy investment in 2013, we now don’t even crack the top ten.

“In the last three years, the world has added nearly three million jobs in renewables energy – and Australia has lost 3000,” Shorten will say, speaking at Bloomberg.

Bloomberg has estimated the Labor target would need about $48 billion in new investment. Shorten will say: “That’s not a cost figure. It is money brought into the economy by renewable energy. It is investment in technology, financing, energy generation, advanced manufacturing and installation that will create 28,000 jobs.”

He will say that without confidence in the policy environment, investors would never put up the billions of dollars required for energy projects.

The first and most important step to provide that certainty and to assist the transition to renewable energy is to establish an EIS for the electricity sector, he will say. An EIS rewards energy generators that produce pollution levels lower than a set benchmark.

An EIS would drive investment in new sources of energy – renewables but also gas, Shorten will say.

“An EIS doesn’t rely on taxpayer funding or government officials making investment decisions. It leaves both decisions and funding to the private sector, to the market,” he will say. “It will reduce power bills and reduce pollution.”

Malcolm Turnbull has ruled out an EIS despite the preliminary report of the Finkel inquiry into future security of the national electricity market giving it a positive nod.

Energy Minister Josh Frydenberg on Wednesday met the executive director of the International Energy Agency, Fatih Birol. Frydenberg said carbon capture and storage technology, high-efficiency, low-emission coal-fired power stations, and the improvements in the technology of battery storage were canvassed in their discussion.

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Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Is ‘clean coal’ power the answer to Australia’s emissions targets?


Lynette Molyneaux, The University of Queensland

As Australia’s energy debate heats up, some politicians are calling for cleaner and more efficient coal power stations to reduce greenhouse gas emissions.

Energy Minister Josh Frydenberg told ABC radio on Tuesday that “ultra-supercritical coal-fired power plants actually drive down the carbon footprint by up to 40%”.

And last week Resources Minister Matt Canavan referenced a report, as yet not released by the Department of Industry, Innovation and Science, which claims that Australia can meet its carbon emission targets by replacing existing coal generators with ultra-supercritical coal generation.

So, is this a reasonable strategy to reduce Australia’s emissions?

Cleaner coal

Australia’s coal generation fleet is ageing and needs replacing. Two-thirds of the 25 gigawatts in operation (after Victoria’s Hazelwood power station is retired this year) is more than 30 years old, according to ACIL Allen’s generator report. By 2025 a further 18% of the fleet will be more than 30 years old.

That means that in 2025 a mere 4GW of our existing coal power will still be considered adequately efficient. This is important because efficient generation affects not only how much generators are paying for fuel, but also carbon dioxide (CO₂) emissions.

Modern coal power plants feed pulverised coal into a boiler to combust. Tubes in the boiler walls then absorb the heat and the steam generated in these boiler tubes turns the steam turbine and generates electricity.

The difference between subcritical, supercritical and ultra-supercritical boilers is in the steam conditions created in the boiler. Supercritical and ultra-supercritical boilers are often referred to as high-efficiency, low-emissions technologies.

Ultra-supercritical power stations are designed to operate at higher steam temperature and pressure. This improves efficiency, and has been made possible by new materials that can cope with higher temperatures.

Ultra-supercritical coal power stations operate under steam conditions above 593-621℃ and 28.4 million pascals (a measure of pressure). You can find further detail in this report.

Using higher temperatures means greater efficiency, producing more electricity using less coal. Australia’s most efficient coal power station, Kogan Creek, is able to convert 37.5% of the gross energy, or calorific value, of coal into electricity. Hazelwood converts only 22%. The remaining energy is lost as heat.

By comparison, ultra-supercritical coal stations are able to convert up to 45% of the gross energy of coal to electricity.

Advanced ultra-supercritical coal generation is expected to convert over 50% of the gross energy of coal to electricity, but the expensive alloys required to accommodate the very high temperature requirements make the plants very expensive. Before advanced ultra-supercritical coal plants can be deployed, new design changes like this will first need to be tested and evaluated in pilot implementations.

Reducing fuel use reduces emissions. Hazelwood’s reported CO₂ emission intensity from 2014-15 was 1,400kg of greenhouse gas for every megawatt-hour of electricity it produced. Kogan Creek emitted 831kg per megawatt-hour.

The greater efficiency of ultra-supercritical generators can reduce emissions intensity to 760kg per megawatt-hour for black coal. Advanced ultra-supercritical generators can reduce emissions even further. Upgrading or replacing Victoria’s brown coal generators to ultra-supercritical would reduce emissions intensity to 928kg per megawatt-hour.

So greenhouse gas emissions can be reduced if ultra-supercritical generators replaced Australia’s old, inefficient coal generators.

But is it enough?

The problem is just how much CO₂ emissions can be reduced. Emissions from coal power are the largest contributors to Australia’s total emissions.

In 2013-4, coal generators emitted 151 million tonnes of greenhouse gas, generating 154 million kilowatt-hours of electricity. Details can be found here. This is 29% of Australia’s total emissions in 2013-14 of around 523 million tonnes. (Transport contributed around 18% to total emissions.)

Let’s assume the current fleet of power stations is operating at 80% capacity, considered to be an economic optimum for coal power. This would generate 176 gigawatt-hours of electricity and 165 million tonnes of emissions. This allows for a 14% increase in consumption of electricity by 2030, which is likely given projections of population and economic growth.

If we then replace the entire 25GW, both black and brown, with ultra-supercritical generation, according to the assumptions included in the Australian Power Generation Technology Report, emissions would total 139 million tonnes. This would represent a 16% reduction in coal emissions, but a mere 5% reduction in Australia’s total emissions in 2013-4.

And then we would have those ultra-supercritical power stations for the next 30-40 years, incapable of reducing our emissions further as global targets tighten.

If Australia were to wait until advanced ultra-supercritical coal power is tested and trialled, then we could speculate that emissions from coal generation could reduce by a further 10% to 124 million tonnes. This would be a more promising 25% reduction in coal emissions, but still only a 7.7% reduction in Australia’s total emissions.

Understanding Australia’s emission reduction target

Australia’s emission reduction target for 2030 is 26-28% below 2005 levels.

Emissions in 2005 were 594 million tonnes. Australia’s climate target would require emissions to reach around 434 million tonnes in 2030, a reduction of 160 million tonnes.

If coal power stations were to reduce emissions by 26-40 million tonnes through a shift to ultra-supercritical generators, then Australia would still be a very long way from meeting its committed targets.

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The only way shifting to ultra-supercritical coal power could meet Australia’s 26-28% climate target is if carbon capture and storage (CCS) were applied.

Ultra-supercritical coal plants are expected to generate electricity at A$80 per megawatt-hour, according to the Australian Power Generation Technology Report. This is 45% more expensive than the average wholesale cost of electricity for 2015-16. If CCS is added, then the projected cost swells to A$155 per megawatt-hour, nearly three times last year’s wholesale cost of electricity.

These costs eventually get passed on to electricity bills, and it’s unlikely that consumers will be willing to see electricity prices rise that much.

Until we see more detail underpinning the current enthusiasm for “clean coal”, we’ll have to speculate on the assumptions of the report referenced by minister Canavan.

The Conversation

Lynette Molyneaux, Researcher, Energy Economics and Management Group, Global Change Institute, The University of Queensland

This article was originally published on The Conversation. Read the original article.

Queensland’s renewable target isn’t ‘aggressive’, it’s entirely achievable


Lynette Molyneaux, The University of Queensland

In the wake of South Australia’s state-wide blackout, Prime Minister Malcolm Turnbull urged states to avoid “extremely aggressive and extremely unrealistic” renewable energy targets.

In the midst of this discussion, the Queensland government released a draft report from an expert panel on its renewables target of 50% by 2030. Currently around 7% of the state’s electricity comes from renewable sources.

After South Australia’s misfortunes with its electricity system over the past few months, including price spikes and blackouts, some would say this was an inopportune time to be discussing aspirational renewable energy targets.

But the report provides a welcome discussion about how states can achieve their targets, without the politics and ideology. The panel consulted widely, and commissioned detailed modelling on potential credible pathways for Queensland to meet its target, as well as the economic consequences of those pathways.

Renewables at minimal cost

The cost and impact of any renewable target depends on many factors: the technology mix, how the target is met, the degree of government intervention (or assistance), the regulatory framework, and of course the demand for the electricity produced.

The analysis in the Queensland report attempts to answer a “simple” question: how do you achieve a 50% target at the lowest cost with the least impact on energy security and the maximum benefit to the state bottom line?

The pathways examined by the panel delivered the following outcomes:

  • on average, no net impact on household electricity prices

  • a private-sector-driven investment of around A$6bn in the state

  • a required “subsidy” of around A$1bn over the 14 years of the policies

  • no forced retirement of coal-fired generation in Queensland

  • around 6,500 full-time equivalent jobs per year

  • between 4,000 and 5,500 megawatts of new generation will be required after 2020 to meet a 50% target, based on typical wind and solar capacity factors

  • around 14,000 megawatt hours of renewables in the Queensland electricity system by 2030 with system security maintained by coal power stations.

But there are many questions remaining, and these are the questions that many in Canberra are pondering.

How to meet the target

The panel proposed a market mechanism known as a “reverse auction contract for difference” (CFD), similar to that employed recently in the Australian Capital Territory for its renewable target. Reverse auction CFDs are gathering momentum in energy markets around the world.

The basic idea is this: in an open auction, bids are accepted from investors to provide a specific amount of electricity at a pre-defined price (say for instance 100MW at A$80 per MWh for 15 years). The contracting entity (be it government or private) will contract the lowest bid, and then subsidise the winning bid with the “difference” between the bid price and the market value (in this case the National Electricity Market wholesale price).

The investor with the winning bid builds the plant and delivers the electricity. The “difference” may be positive, which ensures that the contracting entity gets paid a subsidy. The subsidy is then passed through to the consumer and the contracting entity underwrites the long term risk.

These mechanisms are a well-accepted tool for pricing and accounting for long-term risk.

The modelling done for the expert panel finds that increased competition and cheap power generation in Queensland’s energy mix will put downward pressure on wholesale prices. With a subsidy counteracted by lower wholesale prices, there is unlikely to be an increase in electricity prices from electricity generation.

Coal power still needed

The modelling found that because the Queensland’s coal power station are relatively efficient and profitable they will remain viable at lower output and continue to provide critical baseload and ancillary services.

A lack of critical baseload and ancillary services contributed to price spikes in South Australia recently.

With a robust transmission grid and interconnection with New South Wales, the Queensland transmission system is also better placed for a high proportion of renewables in the mix.

Joining up the dots

While states are going it alone, nationally Australia is also aiming to increase renewable energy to 33,000 gigawatt hours by 2020 under the Renewable Energy Target.

The Queensland report recommendations include measures to facilitate integration with federal policy, including:

  • reverse auctions in 2017-18 to increase the delivery of renewables in Queensland to meet the national Renewable Energy Target by 2020

  • engagement in the development of integrated climate and energy policy at the national level

  • developing a flexible and adaptable Queensland RET to facilitate integration with the national scheme

  • engagement with the Australian Energy Market Operator to assist with policy development.

There is little in the report to suggest any trade-off between federal and state goals.

For the last 15 years, Germany’s mature approach to renewable energy took it from 6% to 31% renewable energy in its electricity generation. In doing so, it created a renewable energy industry that employs 355,000 people. Electricity prices have increased but that is because Germany, as an early adopter, has subsidised the rest of the world’s low-cost solar panels and wind turbines.

PriceWaterhouse Coopers found in 2015 that 92% of Germans continue to support the rollout of renewable energy. This “aggressive” rollout has not impacted the reliability of the German grid. Germans experienced an estimated 12.28 minutes of outage in 2014. This figure has improved since the arrival of renewables, and indicates higher reliability than neighbouring countries.

For coal-dependent Queensland, customers experienced an average of 243.44 minutes of outage in 2014. Comparisons between Queensland and Germany are not meaningful, but Germany’s reliability statistics suggest that claims of reduced reliability as a result of high levels of renewable energy really need to be backed up by facts, not fear.

What is clear though, as pointed out almost laboriously throughout Queensland’s report, is a need for national leadership, co-ordination, and simple joined-up thinking.

The Australian public largely supports the rollout of renewable energy, so it is up to politicians to find a way to deliver.

The Conversation

Lynette Molyneaux, Researcher, Energy Economics and Management Group, Global Change Institute, The University of Queensland

This article was originally published on The Conversation. Read the original article.

Climate Change Authority suggests emissions trading but no new climate targets


Michael Hopkin, The Conversation

An “intensity-based” emissions trading scheme for the electricity sector, to begin in 2018, is among a “toolkit” of policies recommended by the Climate Change Authority in a report setting out how Australia can meet its obligations under the Paris climate treaty.

The scheme, similar to a plan proposed by Labor at the last federal election, would set “baselines” for greenhouse emissions per unit of electricity generation, awarding credits to generators who emit less. The report recommended that these baselines be steadily reduced to zero “well before 2050”.

But it stopped short of recommending a planned phase-out of the most polluting power sources such as brown coal power stations, concluding that this will not be a cost-effective way to decarbonise the sector.

“The final composition of the electricity sector would be a matter for various electricity companies,” said Climate Change Authority chair Wendy Craik, although she added that the new scheme would help to incentivise renewable energy.

The report also recommended applying baselines to other emissions-intensive industries such as cement, steel and natural gas, under the government’s existing “safeguard mechanism” which penalises emitters who overshoot these limits.

The report also calls for five-yearly reviews of Australia’s climate policies, beginning in 2022 – a similar timetable to the five-year reviews under which nations are required to review and strengthen their climate pledges under the Paris agreement. The government is already set to review the effectiveness of its existing climate policies next year.

The report does not recommend any strengthening of Australia’s current emissions target, which calls for a 26-28% reduction in greenhouse emissions on 2005 levels by 2030, or of the Renewable Energy Target, which was scaled back last year.

It also recommends continuing with the government’s A$2.55 billion Emissions Reduction Fund, which “reverse-auctions” taxpayer funds for emissions-reducing projects.

Craik said that Australia needs a wide range of policies to drive down emissions in different sectors of the economy.

But the report has revealed divisions within the Authority, with members Clive Hamilton and David Karoly reportedly planning to issue their own dissenting report in the coming days.

Last July, the Authority recommended much deeper emissions cuts of 40-60% on 2000 levels by 2030. But in December Australia’s more modest target was enshrined in the Paris agreement.

Craik said the Authority stands by its earlier report, despite it having been ignored by the government, and that the new report is “focused on the policies the government might use to hit its targets”.

She said that talk of ramping up Australia’s emissions targets is premature while the Intergovernmental Panel on Climate Change is still working to calculate the carbon budget associated with the Paris agreement’s most ambitious goal of restricting global warming to 1.5℃. But she added that the policies recommended are designed to be “scalable” in future.

Climate Institute chief executive John Connor said the report’s recommendations “neglect a key fundamental of climate science” by failing to endorse deeper emissions cuts before 2030.

“If we emit more now, we have to emit much less later in order to keep within the overall temperature limits of 1.5-2℃ that the government agreed to in Paris,” he said.

The Climate Council also criticised the recommendations as “woefully inadequate”.

“Accepting Australia’s current 2030 emissions-reduction targets rather than the action required to limit global warming to less than 2℃ means the report’s recommendations will not protect Australians from dangerous climate change,” said council member Will Steffen.

The current targets would use up 84% of Australia’s overall carbon budget to meet the 2℃ target by 2030, he said.

Hitting the target?

Dylan McConnell, a research fellow at the Melbourne Energy Institute, said the suggestion of a baseline-and-credit scheme was unsurprising, as “that’s the direction everyone has been rowing in for the past 18 months or so”.

He said the report outlines ways in which the electricity sector can significantly cut its emissions by 2050, but none that is in line with meeting the Paris agreement’s goal of keeping global warming below 2℃.

To do that, Australia would need to emit less than 15g of CO₂ per kilowatt hour of electricity in 2050 – compared with 800g today. But the scenarios outlined in the report would fall well short of this, he said.

A baseline-and-credit scheme, unlike a carbon tax, would avoid passing on significant costs to consumers. But that would also mean consumers will be less likely to change their own behaviour and try to use less electricity, McConnell said.

He added that Australia’s current emissions targets, like those of many other nations, are not consistent with the 2℃ warming goal, and that any delay to strengthening these targets will make the job tougher still. “Kicking the can down the road always makes it harder,” he said.

RMIT University energy researcher Alan Pears said the gap between the politics and the science is “enormous and widening”.

“All we can hope for really in the next few years, regardless of who is in power, is to put in place the mechanisms for carbon pricing or trading, and see the beginnings with very low carbon prices and lots of generous exemptions,” he said.

The Conversation

Michael Hopkin, Environment + Energy Editor, The Conversation

This article was originally published on The Conversation. Read the original article.

One day we won’t need a Renewable Energy Target, because we’ll have good climate policy


David Blowers, Grattan Institute

Australia’s Renewable Energy Target (RET) has had a rough time in recent years. After a 2014 government review recommended it be abolished, both major parties eventually agreed to downsize the RET in 2015. But even with bipartisan support, investment in new projects has slowed to a trickle.

Endless politicking over the policy has damaged investor confidence, which shows only limited signs of recovery.

So how do we bring investor confidence back to the sector? We provide a solution in our latest report from the Grattan Institute: a healthy climate policy. A good climate policy, perhaps surprisingly, means that one day we won’t need the RET at all.

The problem with renewable energy

The RET mandates that 33 terawatt-hours of electricity must be generated from renewables by 2020. To meet the target, renewable generators such as wind and solar farms create Renewable Energy Certificates (REC) for each unit of electricity they produce. Electricity retailers are required to buy enough certificates from renewables to meet the target.

The income renewables receive from selling credits along with the income they receive from selling electricity provide the financial justification for renewable energy projects.

Renewables are long-lived investments – they need to earn revenue for many years to pay off the initial costs of building them. Renewables built to meet the target in 2020 need to prove they can generate revenue beyond this point in order to get finance to build them in the first place.

Allowing renewables to create RECs between 2020 and 2030 is a means to provide this revenue certainty. The problem is that, under current policy, renewables will not generate RECs beyond 2030. In investment terms, 2030 is fast approaching.

The problem can be solved, though. Revenue from selling RECs is not the only source of income for renewables. If the price of electricity after 2030 is high enough, renewables will not need the incentives provided by the RET.

Before July 2014 there was a good reason why the electricity price would be high after 2030: Australia had put a price on carbon.

Now that the carbon price has gone, both future electricity prices and government policy are less certain.

Beyond the RET, existing government policies do not provide any incentive for building more renewable generation. It is no wonder that the environment for investing in renewables, at least in the short term, is poor.

A blueprint for climate policy

But it can change. Our report outlines a climate change policy roadmap for Australia that both parties can embrace under their existing policies.

The report shows how the government’s climate change policy (the Emissions Reduction Fund, which pays polluters to reduce emissions) can be transformed over time to reduce emissions as well as attracting investment in clean technology.

For the electricity sector this involves changing the Emissions Reduction Fund initially to what is known as an intensity baseline scheme.

Under an intensity baseline scheme, big polluters, such as brown coal, are penalised. Emissions producers have to buy permits or credits for every unit of electricity they generate based on the amount of carbon in that electricity. But low or zero polluters earn credits for each unit of electricity they generate. They can then sell these credits.

Eventually, all businesses would have to buy permits for every unit of greenhouse gas they emit.

The upshot is that the cost of producing electricity from fossil fuels increases, while the cost for producing electricity from renewables goes down. In this way an intensity baseline scheme will encourage investment in new renewable energy.

Let the RET retire

This does not mean that once an intensity baseline scheme is introduced the RET no longer has a purpose and should be abolished. Existing investments in renewables have been made in good faith and should be protected from any change of policy.

Besides, the RET can operate alongside an intensity baseline scheme, providing additional revenue to projects if revenue from the intensity baseline scheme is insufficient. It will also protect existing investments in renewables that have been made in good faith.

But the RET should not be extended beyond its current timeframe (a target to 2020 and certificates credited to 2030). A robust intensity baseline scheme will provide incentives for renewable generation and should make an additional policy unnecessary.

As long as the baseline on emissions is tight enough, renewables should be enough to meet any emissions reduction target that Australia chooses to adopt. Setting a separate target might mean that Australia pays too high a cost to reduce its emissions.

Most importantly for the renewables industry and other industries, our roadmap provides a policy framework that both major parties can adapt and adopt. A bipartisan climate policy is vital to achieving the stability needed for businesses to invest in the low-emissions technologies this country needs if it is to transition successfully to a low-carbon economy.

For years, the renewables sector has lacked stability. This plan can bring it back.

The Conversation

David Blowers, Energy Fellow, Grattan Institute

This article was originally published on The Conversation. Read the original article.