What does the new 2030 national climate target mean for business?

14 Aug 2015Archived News Dr Gordon Weiss Climate Change Matters

Australia’s 2030 emissions reduction target of 26 - 28% below 2005 levels has been criticised - although from different points of view.  It has been argued that the target compares poorly with other developed nations, but also that 26-28% is too aggressive and costly for the Australian economy.
 

Energetics contends that in order to understand the emissions reduction challenge to 2030, the most significant metric is the emissions reductions required per unit of GDP. With the new target, emissions per unit of GDP need to fall at a rate of 3.8% per year.  In a growing economy (albeit growing more slowly than the previous two decades), this is a considerable task. 
 

The immediate action for business is to understand and assess the risks in the context of their own emissions intensity, energy needs into the future and overall plans for growth.  Businesses derive an advantage by continuing to reduce carbon intensity and improve energy productivity.  Action now will position organisations well; not only possible future carbon regulatory requirements (a distinct possibility over the next 15 years), but for continued domestic energy price volatility which may see energy costs rise. 

 

Cutting through the noise – different baselines, different economies, different growth prospects

Direct comparisons with other nations can be difficult.  Economies are structured differently, the outlook for growth varies and there may be other complementary measures enacted by individual governments to support national targets.  For example, Australia’s target is less than Europe’s at 40% on 1990 levels by 2030, however Australia’s economy is forecast to grow more rapidly through to 2030 than many other OECD countries including many European countries, making the challenge relatively greater for Australia.  Also, at first glance, Australia’s 2030 target appears to mirror that of the US which is also 26 -28% on 2005 baseline levels, however, unlike Australia, its reduction target is to 2025 and complemented by the US Government’s regulation of electricity generators which requires 30% reductions in emissions by 2030

Business should also be mindful that internationally, there is considerable commentary that criticises Australia’s new 2030 target (The New York Times , France’s conservative national paper Figaro and reports on the response from the UK's head of the climate change advisory body, Lord Deben, provide three examples). 
 

The importance of science-based targets will grow

The INDCs (Intended Nationally Determined Commitments) being announced in the lead up to the COP21 negotiations in Paris at the end of the year are also being evaluated for their link to climate science which highlights the need to contain global warming within a 2 degree increase of the average surface temperature.  Most nations do not meet this criteria.  RenewEconomy in its article 11 August, showed that Australia joined Japan, Canada and New Zealand in a list of nations with INDCs that do not put those countries on a pathway to containing warming within 2 degrees.  The USA and EU are cited as possibly on such an emissions reduction pathway according to some assessments. 

Business needs to manage the risks of climate change to their businesses always in view of the growing problem of climate change as described by the world’s scientific institutions. This focus on international comparisons and the 2 degrees target will see growing pressure for deeper cuts in Australia’s emissions.

In a separate article, Energetics will discuss the impact of issues around science-based targets on business risk management strategies. 

A snapshot of where Australia is now and the challenge ahead

How does a 26% target compare to our previous national climate targets? Under the Kyoto Protocol, Australia agreed to slow the growth in emissions so that total emissions in 2012 were no more than 108% of 1990 emissions, and then to cut emissions to 5% below 2000 levels by 2020. Australia easily met its 2012 target and several recent studies have suggested that Australia will meet its 2020 commitment.

Certainly some commentators have argued that our Kyoto targets were too lenient and that Australia achieved the 2012 target and will reach its 2020 target largely without needing to take any real action.

In the period from 1990 to 2014, Australia managed to reduce emissions per unit of real GDP by 3.1% per year, at a time when GDP was growing at an average rate of 3 - 3.25% per year. Yet early on there were very few policies in place to drive down emissions and relatively straightforward changes led to significant reductions.  For example, we started our emissions reduction journey with vastly inefficient energy management practices.  Lifting energy efficiency, whether driven by government programs, the carbon price, or in response to rising energy costs, was a major contributor to reducing national emissions.  The Renewable Energy Target, while arguably an expensive way of reducing emissions, nonetheless achieved significant emissions reductions as evidenced today by Australia’s continued love affair with solar, and was one of the drivers of reduced electricity demand in the NEM (National Electricity Market).

However what are the options available to further reduce emissions?  A 26 - 28% by 2030 reduction target requires emissions per unit of GDP to fall by approximately 3.8% per year from now to 2030 and GDP is forecast to grow at an average of 2.8% per year, some say as low as 2.5% per year.
 

Questions around the policy levers that can be used to drive additional emissions reductions

How much can the ERF achieve?  Certainly the government has since announced an expansion of funding to the scheme through to 2030. 

What will be the role of the safeguarding mechanism?  This has significant potential to require Australia’s largest companies to reduce their emissions intensity in order to comply with an industry baseline, which, if lowered annually will deliver abatement. 

The Government has also announced a new energy productivity initiative with a national drive to deliver improvements in the order of 40% by 2030 which has the dual benefit of delivering both emissions reductions and enhancing industry competitiveness as energy is managed to produce more products at a lower energy cost.  

Over the coming weeks, Energetics will closely examine the range of policy levers available to government and quantify the potential emissions reductions that can be delivered, and also consider the outlook for Australia’s energy mix.   All of which impact business risk profiles. 

Contact Energetics’ carbon strategy team for advice on how the new national target impacts your business and your sector.  

 

Join the conversation

Get in touch with our expertsView All

Dr Peter Holt

Associate

View Profile
Dr Gordon Weiss

Associate

View Profile