Transcript CSIRO on Climate Change

Australia’s Clean Energy Action Plan
Explanation and commentary
Summary of Australian Government’s approach
Achieve a 5% reduction in carbon emissions in 2020 compared 2000:
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Introduce a price on carbon
Establish a Clean Energy Finance Corporation ($10b)
Create a new Australian Renewable Energy Authority
Achieve 20% Renewable Electricity Generation in 2020
Introduce a National Energy Savings Initiative
Put in place a Carbon Farming Initiative – tradeable credits for carbon storage
and reduction
Australia’s contribution to world carbon emissions
Figure 2.1: Global comparison — overall and per person emissions in 2005
Source: Climate Analysis Indicators Tool, Version 8.0 (World Resources Institute, 2010). Note land use change is excluded.
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Where the pollution comes from
The profile of Australia’s carbon pollution is driven by our use of fossil fuels. Our pollution
person is high because we have an energy sect or that is very emissions-intensive. For
every kilowatt hour of electricity generated in Australia, considerably more carbon pollution is
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CSIRO on Warming Climate in Australia
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CSIRO on Climate Change
“Studies have linked most of the warming in global
temperatures in the past 100 to 120 years, especially in
the last 50 years, to Increasing greenhouse gases and
the enhanced greenhouse effect. It is extremely
unlikely that the observed global-scale warming is due
to natural variability.”
Karl Braganza and John A Church
CSIRO, Observations of Global and Australia Climate,
2011
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CSIRO on Sea Levels
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Why Should Australia Act to Cut Carbon Pollution
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Australia is vulnerable to climate change
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Generally a hot dry climate
Vulnerable to extreme weather events
Great assets under threat – Barrier Reef
Population concentrated along coast
Potential to Influence USA
Great potential to build a low carbon economy
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Plentiful supply of high quality renewable energy sources
Abundant supply of natural gas
Great scope to improve energy efficiency
• Build future competitive strength on low carbon products and services
“Our research has shown that latecomers are losers… I hope Australia can provide a
very positive signal with ambitious targets. It's not difficult for Australia, even though they
use a lot of coal, because the economy is in very good shape and they have a lot of
renewable energy sources.” Jiang Kejun, Director of Research, ERI, China
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Economics of Climate Change
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Australia will continue to achieve strong economic growth
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Winners
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Critical factors – carbon price level and complementary measures
Service sector – Tourism, Education, Health, Research
Cleaner energy sources – ETS part of the solution
• Gas
• Renewables
Energy Efficiency
Losers
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Federal Treasury projections – GNI per person increases by $9,000 by 2019/20
Change composition of products and services
Reduction in Energy Intensity of GDP
Carbon intensive electricity generators
Carbon intensive products and services
Politics of Climate Change: Europe
Contrast with the UK and other European countries
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Conservative UK Prime Minister announced major new initiatives
• Dramatic shift away from fossil fuels
• Developing leadership in European Union
• Support carbon price, increase cost of fossil fuel, make low carbon power
more attractive
• Feed-in-Tariff for low carbon power
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Germany major parties support emissions trading and foster renewable energy
• Feed-in-Tariff for solar and wind
• Support for emissions trading scheme
Politics of Climate Change: Australia
Australian debate degenerated to base politics
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Ad hoc policies dominated over past decade
Opposition focus on a “great big new tax”
Partisan politics reigns supreme
Virtually no debate on the detail of climate change policy
No consensus between major parties
International Perspective
The UK Government’s Approach
• Ensuring all countries are well placed to deliver Cancun mitigation
measures
• Develop a detailed verification and reporting system
• Work towards an international deforestation agreement
• Ensure that accounting rules are established which underpin the
integrity of actions
• Put in place detailed design arrangements that support developing
countries taking action
• Pursue the development of new market mechanisms to support cost
effective emission reductions
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The construction of Australia’s scheme in four steps
Fixed price period
1. Define
pollution
2. Define
polluters
3. Polluters
to surrender
permits
Flexible price period
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4. Unlimited
supply @ fixed
price
4. Constrain
permit supply
Step 1: Define pollution
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Pollution = emission of 4 Kyoto Protocol greenhouse gases in Australia from liable
entities
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Around 60% of Australia’s emissions covered by the Clean Energy Action Plan
legislation with another 6% affected by other legislation.
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Step 2: Define polluters (liable entities)
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>25ktonnes CO2e direct emissions per “facility” per year (a bit different for landfill);
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excludes emissions from agriculture, legacy landfill, decommissioned coal mines, and
combustion of some processed fossil fuels that are covered by excise or customs
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entity that has operational control of a facility;
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if facility operated by joint venture, liability is split proportionate to ownership;
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liability is transferrable;
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there are about 500 liable entities.
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Step 2: Defining polluters (treatment of gas suppliers)
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Gas retailers are liable for “potential” (not actual) GHG emissions related to gas
which they withdraw from distribution pipelines (not transmission pipelines);
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Gas users who combust natural gas and this causes emissions > 25ktonnes per
year, can choose to accept the liability for emissions associated with this gas, and
negotiate a “carbon-free” gas price;
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Gas users who use gas a feed-stock or to manufacture CNG, LNG or LPG can
accept liability themselves (and hence negotiate a “carbon-free” gas price);
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Gas users who buy their gas directly (i.e. not through retailers) are liable either as a
direct emitter or “application to own use” provisions.
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Step 3: Polluters to surrender permits (emission units) to match
their pollution: Fixed charge period
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Unlimited supply of carbon units issued by the Regulator at a fixed price. Assumed to
be automatically surrendered when bought. Not transferable and no banking allowed.
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Limited supply of free units issued to emission intensive trade-exposed industries
and high emission electricity generators.
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Free units are tradable, can not be banked but can be sold back to the Government
(at the annually fixed price) if not used.
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Emission units from carbon farming initiative can be used to acquit up to 5% of the
obligation.
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During the fixed charge period (1 July 2012 to 30 June 2015) there is no cap. Liable
parties are required to buy emission units issued by the government for $23/tonne
CO2-e in 2012, rising at 2.5% in real terms per year.
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Step 3: Polluters to surrender permits (emission units) to match
their pollution: Flexible charge period
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Limited supply of units to be auctioned by the Regulator, up to the level of the cap.
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Unlimited supply of fixed charge units priced at $20 above the international price from
2015 to 2018;
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Minimum reserve price of $15 in 2015 rising at 4%+CPI (but implemented only if
surrender charge for international units is implemented);
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Surrender charge for international emission units so that international units can not be
cheaper than the minimum reserve price of Australian units;
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Unrestricted use of units from carbon farming initiative;
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Volume limit of 50% on use of international emission units;
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Export of Australian units only allowed if bilateral links between Australia and other
emission trading scheme.
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Step 4: Constrain the supply of permits (emission units) to create
scarcity (from start of flexibility period)
Overall objective: Unconditionally reduce emissions (globally) by an amount equal to
5% below Australia’s year 2000 levels, by 2020 (and at least half of this reduction to be
achieved in Australia)
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The emission cap in 1 July 2015 will be 38 Mt less than emissions from liable entities
in year from 1 July 2012.
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The emission cap from 1 July 2016 will be 16 Mt less than the year before unless
Parliament sets higher reductions.
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Industry assistance
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Primary objective is to reduce carbon leakage and provide transitional assistance.
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The assistance provided for:
• direct (liable) emissions;
• emissions associated with the use of steam in an activity;
• the cost increase associated with the indirect emissions from the use of
electricity in an activity;
• the cost increase related to the upstream emissions from the extraction,
processing and transportation of natural gas and its components, such as
methane, used as feedstock and sequestered by an activity.
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Eligible activities (currently 31) meet thresholds for trade-exposure and impact of
emission prices on value-added or revenue.
94.5%, 66% and 50% (for LNG) assistance categories (i.e. allocation of free permits),
declining by 1.3% per year.
Baselines (GHG per unit of production of different activities) to be set in regulations,
based on emissions and production between 2006 and 2008.
Volume of free permits based on production in the last financial year.
To be reviewed by the Productivity Commission in 2014/15 (or before if the
Government asks it to).
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Electricity generator assistance
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$1bn in cash payments in 2011/212.
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41.7m free permits to be divided amongst eligible generators for each year from 2013 to 2017
(although slightly different in 2014).
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Only for power stations that are grid-connected, have emission intensity above 1 tonne CO2e/MWh and that use coal for 95% of production.
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Permits divided amongst eligible generators based on their “annual assistance factor”:
– Difference between emission intensity (capped at 1.3 tonnes CO2-e/MWh) and 0.86 topnnes
/CO2-e;
– Production between 1 July 2008 and 30 June 2010 relative to that of all other eligible
generators.
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In addition to allocation of permits, there will be payments for closure of the most polluting plant.
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By our calculation, the most GHG-intensive generators are likely
to profit from the compensation
EBITDA before and a er emission prices and before and a er
compensa on
$700,000
$600,000
EBITDA before
emission price and
before
compensa on
$millions
$500,000
EBITDA a er
emission price but
before
compensa on
$400,000
$300,000
EBITDA a er
emission price and
compensa on
$200,000
$100,000
$-
Hazelwood
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