Many Australians are increasingly distracted by the political agenda and lamenting the demise of the Carbon Pollution Reduction Scheme (CPRS) legislation.
Regardless of the policy debate going on in Australia today, the need to take concerted global action is critical. And let’s be clear, it will take place with or without Australia, and will eventually have an impact. Rather than concentrate on the science, the scheme or the scenarios, let’s consider the numbers.
Targets: Many believe that Copenhagen will not result in a binding global agreement, but most nations have already agreed to take action and have set targets for 2020:
Europe: 20% from 1990 levels and 30% if there is international agreement;
USA: 17% from 2005 levels;
China: a 45% reduction in carbon intensity;
India: 25% reduction by 2030;
Japan: 25% from 1990 levels;
Russia: 25% from 1990 levels and
Brazil: up to 38.9% reduction by 2020.
The discussion is likely to be one of abatement equity between developing and developed nations. To date, Australia’s commitment is a target of 5% below 2000 levels by 2020 and up to 25% if there is international agreement. Either way the challenge is not trivial and provides significant risks and opportunities for all companies in Australia, not just electricity generators or miners. The numbers are compelling:
Notwithstanding the CPRS, the government predicts that with the current policies and emission reduction measures, including the 20% renewable energy target (RET), emissions will reach 664 Mt p.a.
Australia’s Total CO2-e emissions and targets
Financial Year 1990-2020
With targets of either 5% or 25% the absolute abatement challenge facing Australia is between 140 or 250 MtCO2-e pa. This is equivalent to improvements in energy intensity of 40% to over 60% when accounting for GDP growth of 2.5% p.a.
This means that every GDP dollar must be generated with between 40% and 60% less emissions. When Australia hasn’t even begun to curb its carbon intensity growth let alone reduce its emissions, this task is substantial.
Australia has also articulated targets of 60-80% below 2000 levels by 2050. With the expected growth in GDP this means carbon intensity must drop by up to 90% by 2050.
The later we start, the harder it will be.
A key feature of developed nation’s mitigation strategies is energy efficiency. The United Kingdom, the United States and the European Union all have comprehensive energy efficiency targets and proven programs. So what happened to Australia’s bi-partisan support for energy efficiency?
The “second plank” that was energy efficiency seems to have been forgotten. On the 19th August 2008, shortly after his election victory, our Prime Minister said: "...in order to make an overall longer term impact on drawing down carbon emissions...energy efficiency [is the] second plank."
The fact is that despite any debates around targets and the CPRS, corporate Australia will certainly be impacted by rising energy prices – by 20% to 40%.
Immediate action on energy efficiency measures reduces business exposure to volatile energy markets and price shocks.
Energy costs have increased due to a fundamental shift in prices for primary fuels, a shortage of water and the cost of maintaining an ageing infrastructure. World demand for energy is also pushing up the cost of our primary fuels, especially natural gas and coal.
Australia is still heavily reliant on these existing fossil fuel stocks and without a long-term price signal on carbon, investment in cleaner technology and the transition to a low carbon economy will be further delayed. A lack of investment in new generation may make us more vulnerable to energy price shocks post 2014.
The disadvantages of not passing a scheme soon are clear:
The lack of a clear pricing signal for investment in renewable sources means that the demand for generation will surpass the supply. Right now large wind and solar farm developers are waiting for a definitive position on which to make further investments;
A lack of a national plan for energy efficiency, and funding for taking proactive action, means that we are planning for increased growth on a substandard network. NSW has already increased network charges by 50% this year in order to invest in what ultimately may become a stranded asset,
Any delay in taking action on climate change and, in particular energy efficiency and abatement, means that when an ETS is ultimately passed demand for permits will exceed availability.
Where does this leave corporate Australia? Forget the debate about which mechanism will be used to implement change, the long-term global trend is clear and companies need to act now. Our delay in taking concrete action is unlikely to result in a smaller abatement target. We will simply be required to do the same amount within a shorter timeframe. Our delay places Australia at risk of a competitive disadvantage to proactive nations for decades to come.