The draft
report of the Climate Change Authority is as much about trying to inform the
direction of Direct Action as it is about making recommendations about
Australia's national emission target.
Predictably,
the Authority's finding the current target of minus five percent on 2000 levels
is "inadequate" has been viewed in the context of the
Coalition's plan to repeal the carbon scheme and that its amorphous Direct Action scheme will have trouble even reaching
that level.
On the
flip side, the Coalition's plan to abolish the Authority seems at first to make
its recommendations somewhat academic.
But that
would be a short-sighted reading of it. It does a disservice to its chair
Bernie Fraser, a pragmatic and canny political operator.
For a
start, the CCA finds falling demand for power, reduced land clearing, changes
to the economy and Australia's surplus under the first period of the Kyoto
Protocol to reach the current 5 percent 2020 target. Was a result, it is going to be easier to hit the target with
Direct Action than previously thought - the big swing factor will be what happens to energy demand.
More
importantly, the CCA report shows there is more than one way to skin a cat when
it comes to reducing emissions. The CCA board - like a number of other experts in the field - are trying to work out how to make something serviceable out of Direct Action.
Bear in
mind that the United States is on track to achieve its target of reducing
emissions by 17 percent, not with a direct price on carbon but through
regulation and rapid expansion of its unconventional gas industry.
With
clear awareness the days of the carbon price scheme and the Authority are
numbered, the CCA has laid down markers and provided guidebook to the
Coalition for reducing emissions without an explicit price on carbon.
Only last
week, environment minister Hunt released an issues paper calling for
submissions in relation to, among other things, "the likely sources of low
cost, large scale abatement to come forward under the Emissions Reduction
Fund".
"The
ERF will provide incentives for companies to reduce their
emissions," Mr Hunt said on releasing an issues paper.
In
releasing its draft report, the CCA has obliged by providing advice on possible
likely sources of low cost, large scale abatement. And it has gone out of
its way to be positive about the Coalition's plan and deliberately refers to "price incentives' rather than a carbon price.
According
to the draft report, the scenarios in it are "largely based on the
current legislative arrangements in the Clean Energy Act 2011 (Cth)"
But, the
carbon price can be seen as a broad proxy for "incentive"-
based measures, the CCA says.
"The
results show the potential scale and source of emission reductions available in
Australia at different marginal costs," the report said.
"Depending
on the policy design, the Government’s Direct Action Plan may mobilise many of
the same opportunities."
Store
that away - it's not often you will hear climate change specialists speaking in
such terms about the Coalition's plans. But the truth is that Direct Action
will mobilise many of the same opportunities as a direct price on carbon; the
problem is more that it is likely to do so at a much higher cost.
However,
on the upside, direct contracts with polluters - envisaged under Direct
Action - may provide more investment certainty to invest in low-emission
technology than a carbon price scheme. While a carbon scheme is intended
to provide a price signal to invest, uncertainty around future price path and
the current low price act as a disincentive to investment.
As a
result, the CCA has gone out of its way to provide pointers to the Coalition as
to how it could target Direct Action through investment in low-emissions technology and
also regulation.
"Other
policies, including the Direct Action Plan ...could create price incentives to
reduce emissions. Such policies may mobilise similar emission reductions
opportunities to those identified in the modelling.
"There
may also be a number of differences depending on the detailed policy design.
"
The CCA
has focused particularly on investment in low-emissions technology in
the energy sector, where about half of the least-cost domestic opportunities to
reach Australia’s minimum 5 per cent emissions reduction target could be
found. Energy efficiency measures come in for special mention but the CCA makes pointed reference to the need to ensure measures are "cost effective".
"Incentives
for emissions reductions could be established at different levels of
government, using a wide range of policy tools. The type of emissions
reductions and the rate at which they are realised will be affected by the
relative costs of low-emissions technologies."
The CCA
also - strategically- identifies the importance of the Renewable Energy Target.
"Pitt
& Sherry (2013a) estimates that about 40 per cent of the reduction in
emissions from the NEM in the year to 2013 was due to lower electricity demand,
and 60 per cent due to the uptake of lower emissions electricity generation.
AEMO’s (2013a) forecasts note the effect of the RET in lowering the emissions
intensity of electricity supply."
In the
transport sector - which is not currently covered by the carbon scheme and
accounts for 15 percent of emissions - "sustainable biofuels, vehicle
electrification and mode shift " could be deployed.
"Fleet-average
fuel economy or carbon dioxide emissions standards for light vehicles have been
adopted in many major markets, including the European Union, the United States,
Canada, China, Japan and South Korea. Such standards warrant further
investigation for Australia. "
Similarly,
in direct combustion, beyond efficiency improvements, the main opportunity to
reduce emissions could be to substitute alternative lower emission energy
sources, such as biofuels.
And almost
half of the estimated emissions reductions in the industrial processes sector
in 2020 and 2030 could be delivered by nitrous oxide conversion catalysts for
nitric acid production. The other significant emissions reduction opportunity
is in the destruction and replacement of synthetic greenhouse gases.
But the
problem in all of this is the growth of Australia's fossil fuel exports.
"The
main challenge to reducing fugitive sector emissions is strong growth in
LNG and coal production, which could outstrip improvements in emissions
intensity. "
Agriculture
emissions are also projected to grow in the period to 2030 in all scenarios
modelled, driven primarily by strong growth in demand for Australia’s
agricultural exports.
Then of
course, there is the big problem of how to increase the national target about
minus five percent under Direct Action. A major factor behind the CCA's
recommendations is the fall in the international price on carbon and the
ability to increase the national target by purchasing overseas abatement with
relatively little further cost.
"While
there are extensive emissions reductions opportunities available in the
domestic economy, the modelling also shows that international emissions
reductions can help Australia meet its targets in a cost-effective way. There
are many options for securing emissions reductions from other countries."
While the
Coalition has been adamant it will reach the five percent target exclusively
through domestic abatement, it has been silent on what will occur if it increases
the target, which Mr Hunt has indicated may occur in 2015. Indeed, in some
discussions Mr Hunt as even hinted the Coalition may look to purchasing
international abatement if the target is increased.
And the
CCA has picked up on these hints in its report and goes into detail about
how to ensure the integrity of international carbon permits.
"In
the Authority’s view, the Government should consider allowing the use of
international emissions reductions to go beyond its minimum 5 per cent commitment,
paying careful attention to the environmental integrity of the emissions
reductions allowed,". Moreover, the Government could consider using
genuine international emissions reductions to complement domestic efforts to
achieve Australia’s minimum 5 per cent commitment. "
It seems
unlikely - given Tony Abbott's strong views against international abatement -
this would occur in the short term.
But the
CCA is playing the long game, despite its limited short-term future.
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