22
Jun
2015

Australia has a huge stake in the global energy and climate puzzle

by Tony Wood


Published by The Australian Financial Review, Monday 22 June

Early this month, the G7 countries made a commitment to decarbonise the global economy over the course of this century. To do so, they envisaged a global objective to reduce greenhouse gas emissions by 40 per cent to 70 per cent below 2010 levels by 2050.

It all sounds great. Yet Australia’s coal exports are not falling, Japan is looking to build new coal-fired power stations and the Minerals Council of Australia echoes Prime Minister Tony Abbott’s claim that coal will be the “world’s main energy source for decades to come”. Something doesn’t add up.

The G7 commitment provoked various strong responses. The Minerals Council insisted that coal “will continue to play an ongoing role in the world’s electricity generation due to its reliability and cost competitiveness”. The council supported this claim by referencing a projection from the International Energy Agency (IEA) that global coal trade will grow by 40 per cent over the next 25 years.

Also in June, at the World Gas Conference in Paris, the global gas industry sought to distance gas from coal by citing the lower carbon dioxide emissions it produces. The industry’s objective, restated by major Australian gas suppliers Woodside Petroleum and Origin Energy, is to position gas as part of the solution rather than the problem.

The climate debate is moving, and Australia has a big stake in where it ends up. As a nation with a significant greenhouse gas footprint and a high level of per-capita emissions, Australia is caught on the wrong side of a market failure, in which those who damage others by emitting greenhouse gases generally do not pay for this damage. Once it benefited from this market failure; increasingly, a correction to Australia’s energy policy and emissions output cannot be avoided.

Australia describes itself as an energy export superpower. A recent Department of Prime Minister and Cabinet issues paper cites the IEA: “For the foreseeable future, Australia will continue to be a major supplier of crucial energy and raw materials to the rest of the world, especially Asian countries.

“At present, about 80 per cent of the world’s primary energy needs are met through carbon-based fuels. By 2040, it is estimated that 74 per cent will still be met by carbon-based sources because of growing demand in emerging economies.”

This is the scenario that the government and industry prefer. In this scenario, the world fails by a large margin to meet its agreed goal of limiting the long-term global average temperature increase to 2 degrees. Yet Australia has committed to this goal. Two plus two equals five.

WISHFUL THINKING

If the world does act to meet its commitment, then fossil fuel’s share of global energy must fall below 60 per cent by 2040. Coal’s share will decline the most, falling from 24 per cent to 17 per cent – and it only retains this share if effective carbon capture and storage (CCS) technologies are adopted.

By 2040, the emissions from 80 per cent of coal-fired electricity generation will need to be captured and stored, a massive challenge in which Australia has a considerable interest.

The position of gas is hardly much better. Despite the industry’s efforts to convince us otherwise, burning natural gas emits CO₂.

And simply switching from coal to gas is not the answer. The IEA projects that if all the world’s coal power stations were turned off and replaced with modern gas-fired plants, global CO₂ emissions would fall by about 5 billion tonnes a year, to 25 billion tonnes. Yet emissions need to fall to about 5 billion tonnes a year for the climate to stabilise. In other words, gas-fired power plants will also need to be fitted with CCS.

In fact, neither coal nor gas has a future without CCS. The IEA envisages a world in which, by 2040, CCS sits alongside wind and solar power as a competitive option to reducing emissions. Yet CCS has proven exceedingly hard to develop at large scale and is fitted onto just one power plant in the world, in Saskatchewan, Canada. The credibility gap is a chasm.

The current disconnect between aspirational statements about a low-emissions world and pragmatic commitments to fossil fuels means that good policy has given way to platitudes and wishful thinking. Two changes could make a big difference.

The first would be the adoption at the Paris Climate Change Conference in December of an agreement with legal force under the United Nations Framework Convention on Climate Change. The agreement would have to be ambitious, robust and inclusive, and reflect evolving national circumstances.

The second would be the adoption of credible policies by individual countries, including Australia, to meet their commitments within this framework.

Experience suggests that we will once again fall short of what is required. Hope and necessity lead us to dream that maybe this time things will be different.