Energy and Environment (NER 66)

National Economic Review

National Institute of Economic and Industry Research

No. 66               September 2011

The National Economic Review is published four times each year under the auspices of the Institute’s Academic Board.

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Editor: Kylie Moreland

National Institute of Economic and Industry Research

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ISSN 0813-9474

Energy and environment

Graham Armstrong, NIEIR

Abstract

This paper reviews the global and Australian developments during the months leading to the Conference of the Parties of the United Nations Framework Convention on Climate Change Conference in Cancun, Mexico (COP-16) in December 2010. The legislation progress and climate action developments of Brazil, Indonesia, Africa, New Zealand, the United States and Australia are reviewed.

Introduction

In the year following the Conference of the Parties of the United Nations Framework Convention on Climate Change (UNFCC) Conference in Copenhagen (COP-15) and the associated disappointments, a range of UNFCC subsidiary bodies and non-UNFCC organisations met to advance global negotiations leading up to COP-16, Mexico.

Some progress has been made in relation to the major issues, including: the future of the Kyoto Protocol, the positions of China and India, the status policy after the mid-term elections, the financing of reduction of emissions from deforestation and forest degradation (REDD), the prospective roles of regulations, carbon taxes and emissions trading systems, the 2020 and beyond targets, the adaptation strategies and the outlook for abatement technologies.

Prospects for Cancun

As this paper was being finalised (1 December 2010) there had been very little discussion on COP-16, Cancun, Mexico, particularly compared to the lead up to Copenhagen the previous year.

On a recent (August–September 2010) trip, Graham Armstrong held discussions with two respected climate change observers on the prospects for Cancun.

Erik Haites, Margaree Consultants, Toronto, Ontario, Canada

Erik is an economist with a long-established (30 years) consultancy based in Toronto. Over the past 15 years, Erik has been involved in climate change policy at both national and international levels. Erik is a principal advisor to the UNFCC and the Intergovernmental Panel on Climate Change and, as such, is in an excellent position to comment on global climate change policy trends.

Approaching COP-16 in Cancun, Mexico in December 2010, Erik sees the global institutional structure for addressing climate change developing along some promising lines. Erik recognises the divergent views of the groups involved: the Organization of the Petroleum Exporting Countries, the Small Island States, Africa, China, Brazil, Russia, India, China, the United States and the European Union (EU).

Erik believes that despite much pessimism over Copenhagen and the potential outcomes from Cancun, there are drivers for some progress at Cancun:

  • There will be a desire, overall, not to have two successive COP failures.
  • Actions, agreements and negotiations outside the UNFCC, for example in China, sub-national progress in North America and Australia, and developments on energy efficiency improvement (EEI) and renewables, are progressing greenhouse gas abatement (GHGA) and there is a trend towards concensus on the need for and forms of a global agreement.
  • There is growing acceptance, albeit grudging by the EU, and others, that there will need to be a differentiated approach to obtain ‘approval’ from the United States.

Perhaps Erik is too optimistic, as indeed he must be as an advisor to the UNFCC/IPCC, but he is deeply involved with the global process and, accordingly, his views are very important.

Erik emphatically believes that China has the most progressive and aggressive climate change policies, despite the general view that China’s growth in emissions is out of control. He views Chinese policies, for trade and overall environmental disruption concern reasons, as having a significant impact on reducing emissions growth in China and globally.

On overall energy policy and trends Erik believes that, in line with the 2010 International Energy Agency (IEA) World Energy Outlook:

  • energy use is stable or declining in the OECD;
  • energy security is of major concern in most parts of the world;
  • China/India energy use will continue to grow, although not as rapidly as GDP;
  • excess supply capacity is exerting downward pressure on energy prices; and
  • energy infrastructure requirements are increasing in the United States (declining market) due to ageing assets compared, on an energy use basis (i.e. investment compared with energy use), with China (an expanding market), where infrastructure is overall of a newer vintage.

On technologies, Erik sees carbon capture and storage (CCS) and nuclear costs as increasing in real terms compared with solar, for which costs are declining in real terms.

Rod Janssen, Energy/Climate Change Consultant to the European Union, Brussels and to the European Council for an Energy Efficient Economy

Rod is a Canadian who worked for the Federal Energy Department in Ottawa and for the IEA. Since 1982 he has been an independent consultant. He is now based in Paris.

Rod recently acted as rapporteur for the European Capacity Building Initiative (ECBI) funded by Sweden to encourage dialogue and action on climate change action in developed and developing (e.g. African) countries. At an ECBI meeting in Oxford, UK in early September, Rod’s general impression was that no agreement was likely in Cancun in December 2010 or even in South Africa in 2011. Rod believes that an agreement might not be reached until 2020! He sees the United States as the major problem due to the lack of concensus in relation to political action. However, the United States Environmental Protection Agency (EPA) CO2 regulations starting with power stations might provide some progress. In contrast to the United States, China has taken considerable climate change GHGA action even though China is wary of political action at a global level.

The EU is becoming more aggressive in relation to coal phase-out, renewables and aviation, but has been slower to act on EEI. There has been increased emphasis on energy security (gas from Russia), and on CCS and renewables.

Reduction of emissions from deforestation and forest degradation

One positive outcome of the COP-15, Copenhagen in December 2009 was the pledge by some wealthier countries to provide US$4–5 billion by 2012 for REDD in developing countries. Much more support will be needed for a significant REDD result, but beyond 2012 the funding mechanism is uncertain. Currently, forest carbon credits are not accepted in the EU emissions trading scheme (ETS), but this is likely to change as REDD develops stringent, credible and audited credits.

The Informal Working Group on Interim Financing for REDD estimates that a REDD investment of US$100 billion by 2025 could cut deforestation by 25 per cent: this is the equivalent of 3 million ha of forest saved and 7 Gt of carbon emission reductions a year, approximately 17 per cent of total global emissions. The estimated cost was US$2.4/tonne of CO2e.

However,  Indonesia’s  National  Council  on  Climate Change puts the opportunity cost of foregoing oil palm plantations at US$30/tonne of CO2e, still a relatively low cost. For example, CCS is probably not viable at under US$75–115/tonne of CO2e.

Concerns

Avoided deforestation might not be permanent, particularly where there is a risk of climate-induced forest dieback.

In addition, REDD funds will inevitably go to the most ‘avid’ deforesters, such as Indonesia, which might create an incentive for other countries to engage in deforestation. Hence, REDD will have to be applied on a large comprehensive scale, even if the payments vary.

Brazil

Brazil has been developing REDD for 2 years and has received US$1 billion in funding from Norway. The payment formula favours Brazil’s Amazon states with higher deforestation rates. However, a state’s record on meeting REDD commitments is also taken into account when determining payments.

In Brazil, REDD faces substantial challenges, including, for example, forest title issues. Unowned forests are unprotected, leading to Brazilian grileiros (land grabbers) turning rainforest into pasture.

In the Brazil State of Para in 2009, 20 ranches were identified as operating on illegally cleared land, and selling meat to well-known retailers, such as Wal-Mart and Carrefour. The ranchers were fined US$1.2 billion in total and the retailers were threatened with fines, unless they were able to verify legal supply chains.

As a result, abattoirs in the region only deal with legal suppliers. Greenpeace has also acted on a report on Amazon beef and deforestation, linking beef and leather from the region with companies such as Adidas, Nike, Toyota, Gucci and Kraft. Many of these companies have agreed to work with Greenpeace, thus putting pressure on developing countries’ to adopt developed world standards in the supply chain, and thereby raising the prospects for an effective REDD program to reduce global emissions.

Indonesia

Even where governments own a forest, the degradation results can be similar. An estimated 63 per cent of Indonesia’s West Kalimantan national parks were illegally cleared by loggers between 1985 and 1990.
Unclear ownership is a barrier to the effective land use planning necessary for REDD. For example, in Indonesia, palm oil can be produced on degraded land (40 million ha available) rather than on forested land. Between 1990 and 2005, Indonesia planted over 3 million ha of oil palms, with over half of it on freshly cleared land.

When forests are on peat deposits, the problems are substantial as peat land can store over 5,000t CO2e/ha and, when drained for cultivation, greenhouse gases are emitted for over 20 years.

Indonesia’s peat area plantations contribute less than 1 per cent of GDP but nearly 20 per cent of emissions. With Indonesia planning to double the area for oil palms, emissions could increase greatly, but this provides a REDD opportunity through palm oil expansion on degraded land. A 2-year moratorium on commercial deforestation resulted in US$1 billion in funding from Norway for REDD in Indonesia.

Corruption also poses a threat to REDD success. Indonesia’s forest ministry, claiming control of over 75 per cent of the country’s area, is suspect. In the 1990s, over US$5 billion disappeared from the national reforestation fund: saving trees is not a priority at the national or state level.

Africa

In Africa, the problems are even greater. National forest is virtually non-existent, land titles are vague and corruption rife. However, aerial surveillance can help and REDD payments tied to improvement in practices can provide an incentive to improve performance. REDD dollars can be partly provided for improved land use control and inventory programs, and to encouraging local forest management. Overall, the prospects for REDD are not encouraging, but there are some grounds for optimism for REDD to contribute to reducing global CO2e emissions.

New Zealand climate change policy

On 1 July 2010, the New Zealand Government introduced an ETS. The ETS is expected to cost New Zealand households an average A$2.45/week. This cost will be derived from of an increase in petrol prices of A$0.025/litre and an increase in average electricity prices of 5 per cent.

A major reason for introducing an ETS was concern that without it New Zealand could have been subject to trade sanctions, a concern that appears to be absent from the Australian climate change debate. Revenue from the ETS will be used for reforestation.

The ETS covers emissions from six greenhouse gases: CO2, CH4, N2O, HFCs, PFC and SF6. The ETS will eventually incorporate all sectors of the economy, and, by 2015, all greenhouse gases will be included. The ETS is internationally linked and conforms to current climate change rules. Self-assessments will be undertaken for monitoring, reporting and verifying emissions produced by liable parties.

During a transition phase between 1 July 2010 and 31 December 2012, liable parties will be able to buy emission permits from the government for a fixed price of NZ$25/t CO2e. Also in this period, parties in the energy, industrial and liquid fossil fuel sectors will only have to surrender one emission unit for every 2 tonnes of emissions they produce, effectively halving the costs. Parties can surrender international permits, such as Clean Development Mechanism (CDM) carbon emission reductions (CERs) and EU assigned amount units. The ETS will eventually cover the following sectors: forestry, transport fuels, electricity generation, industrial processes, synthetic gases, agriculture and waste. Forests planted after 1989 can produce emission units for CO2 stored or removed from the atmosphere.

Most participants are required to meet their obligations under the scheme by surrendering emission units. Surrendering a unit means it cannot be used again: for example, it cannot be also given to another participant.

Some participants, such as those with forests planted after 1989, are able to earn emission units for carbon dioxide stored or removed from the atmosphere by their activities.

The liable party is not necessarily the business at the actual point where emissions are produced. For example, a coal producer would be required to surrender units for the coal it sells, even though the actual emissions will occur when the coal is burned.

Alongside those who are required to participate in the scheme and those who can opt in, other people may also hold and trade emission units. These parties are commonly referred to as ‘secondary market traders’.

Businesses participate in the ETS in different ways.

  • Some have a legal obligation to acquire and surrender emission units to cover their direct greenhouse gas emissions or the emissions associated with their products. These participants are generally ‘upstream’ operators: for example, transport fuel producers or importers of products.
  • Some have the choice to apply to opt into the scheme if they carry out a relevant GHGA activity.
  • Some receive free emission units that can be used to meet their own obligations or to sell to other firms: for example, landowners with forests planted before 1990.
  • Some do not have to take part in the ETS, but can trade emission units in the same way that stockbrokers or real estate agents trade in their respective markets. These are secondary market traders. They may have specialist expertise in linking those who can reduce their emissions and have spare emission units with those wishing to buy these units.

Liable parties are required to:

  • monitor, record and report activities that produce or remove greenhouse gas emissions; and
  • surrender to the government emission units to cover emissions associated with their activities each year.

Secondary market traders, such as brokers, can also hold and trade emission units, but do not have to monitor and report emissions and are not required to surrender emission units. They can hold and trade emission units to take advantage of opportunities in the financial market.

Examples of emissions trading scheme participation

  • Firm A is an oil company. It needs to buy emission units to cover the greenhouse gas emissions it is responsible for.
  • Firm B is a large forestry company that receives emission units for land it is planting in forests. It is also cutting down some trees, leading to emissions for which it has to surrender emission units. Initially, Firm B has a shortfall of units,
  •  Firm C is a major industrial user of electricity for which it has to surrender emission units. To help Firm C adapt to these higher costs, the government gives Firm C a free allocation of emission units, which Firm C can sell to offset its increased electricity costs.

Under the ETS, Firm A and Firm B can both buy Firm C’s units in the short term to cover their emissions.

Because it now has to pay higher energy prices, Firm C finds it has lower costs if it invests in energy efficiency.

Over time, as its forest matures, Firm B has spare units available and can sell them to Firm A.

Some participants will be eligible to receive a free allocation of emission units from the government to cover some of their emissions.

The New Zealand Emission Unit Register (NZEUR) will record:

  • who holds emission units and the number of units that they hold;
  • transfers of emission units between holders both within the NZEUR and between international unit registers; and
  • emission units surrendered by participants to meet their obligations under the ETS.

As with a share registry, the NZEUR does not record information about the price or financial value of emission unit trades, nor does it provide a mechanism for exchanging cash for units traded.

Sectors will be introduced to the ETS gradually over a period of 7 years, starting in 2008.

The transport fuels, electricity production, industrial processes and waste sectors are able to start voluntarily reporting their greenhouse gas emissions 2 years before their obligations to surrender emission units begin, and are required to report their emissions 1 year before. Those in the agriculture sector can voluntarily report emissions 4 years before their obligations to surrender emission units begin and are required to do so 3 years before.

Table 1 E and E NER 66

 The Ministry of Economic Development manages the day-to-day running of the ETS. It is the main compliance and enforcement agency. It also runs the NZEUR.

The  Ministry  for  the  Environment  administers  the Climate Change Response Act, which established the ETS. It is also responsible for developing emission unit allocation plans and regulations under the Act, except for those relating to the forestry sector, which are managed by the Ministry of Agriculture and Forestry.

The ETS will be reviewed once during each international commitment period: the review must be completed 12 months before the end of each period. The review will consider impacts of the ETS on the economy, how it links with other trading schemes, and any social, economic and environmental impacts, such as the effects on biodiversity. The review will be conducted by an independent panel of experts.

Penalties will be imposed on liable parties for incomplete and incorrect emissions data or if all required permits are not surrendered, at a rate of NZ$30/t CO2e plus a requirement to acquire and surrender liability permits.

Progress of the New Zealand ETS should be closely followed in Australia.

United States climate change policy

The United States Administration has abandoned efforts to limit United States greenhouse gas emissions through a cap and trade ETS. Instead, at this stage, the 27 July Energy Bill only includes measures such as subsidies for home insulation and natural gas vehicles due to the seeming impossible task of gaining Senate approval for the comprehensive Bill passed in the House last year.

Like Abbott in Australia, Republicans and some Democrats view carbon pricing as detrimental to the economy, especially when economic recovery is weak. In addition, representatives from coal states are concerned about the impact of carbon pricing on their constituents. Polling indicates low levels of belief in the seriousness of the impacts of global warming.

However, despite the demise at this time of a United States ETS, there has not been complete United States inaction on climate change. Under the Clean Air Act, the United States Supreme Court has ruled that regulations could be applied to greenhouse gas emissions and, therefore, that the United States EPA could decide on their public health impacts.

The EPA has determined that there are considerable negative public health impacts of greenhouse gas emissions and is now working on regulations to apply to large stationary emissions sources, such as generation plants. Such regulations will include the introduction of minimum efficiency standards, and the use of renewable/green technologies will be promoted.

In addition, agencies, at the government’s discretion, can set fuel efficiency and appliance standards. Again, states are developing measures to restrain greenhouse gas emissions: for example, north-eastern states have a cap and trade ETS in place for power stations. The World Resources Institute has studied the potential for emission reductions using the existing federal and state regulations and has concluded that emission reductions of 13 per cent below 2000 levels could be achieved by 2020 (below the 17 per cent reduction pledged at Copenhagen).

However, indications are that United States action over the next 5–10 years will fall far short of 2009 expectations, unless international pressure is applied through sanctions and/or competitiveness in domestic and global markets. Inaction is likely over the next 2 years as a result of Republican Party (members of which are mainly opposed to climate change policies) success in the November 2010 mid-term elections. One surprising climate change outcome of the elections was the rejection of the referendum proposal in California to defer the state climate change action plan until the state economy recorded 3 per cent annual growth.

Carbon markets

Under the CDM, destruction of HFC-23 can be eligible for CERs, which are tradeable in the EU ETS. HFC-23 has a global warming potential 14,800 times that of CO2. HFC-23 is produced as a by-product of HFC-22 manufacture, an ozone depleting refrigerant. HFC-22 is banned in developed countries but will not be banned in developing countries until 2030.

Wind and solar energy and other low greenhouse gas intensive projects are eligible to create CERs under the CDM, but destroying HFC-23 is much lower cost for the creation of CERs and has, therefore, become the main source of CDM credits. In the EU ETS in 2009, 55 per cent of CERs came from HFC-23 destruction, representing approximately US$700 million in credits. HFC-23 production/destruction is limited to HFC-22 plants operating in 2000–2004 so as to avoid setting up HFC-22 plants to produce HFC-23 credits.

Clean Development Mechanism Watch, monitoring the offsets market, has found that some plants reduced their HFC-22 production during periods in which they were ineligible for CERs and increased production when they became eligible. Since the CDM Watch report by the CDM Executive Board, eight HFC projects have been placed under review and the HFC-23 methodology is being reassessed. As a result, the supply of CERs from this source is likely to decline, putting upward pressure on CER prices, possibly from €15 in August 2010 to €25 by January 2011.

Increased price pressure could result from any CDM Board decision to retroactively invalidate some HFC-23 credits, causing entities responsible for invalid CER issuance liable for replacing those CERs.

Australian developments

Overview

Before the 21 August 2010 federal election, neither the Australian Labor Party (ALP) nor the Coalition planned to introduce carbon pricing, the Coalition with no carbon pricing plan (but with policies that would have a price impact: see Energy Working Paper, August 2010) and the ALP with no price before 2013 and some incentives (particularly for renewables). However, both parties aimed to reduce 2000 emissions by 5 per cent by 2020.

The Greens, with a 25–40 per cent below 2000 emissions by 2020 target, wanted immediate introduction of carbon pricing at around A$20–25/t CO2e.

In the aftermath of the election, the support of two Independents and a Green enabled the ALP to form government, but in the Senate, the Greens will hold the balance of power after 1 July 2011. The Greens’ electoral success put early carbon pricing back on the agenda and the two Independents supporting the ALP, together with the Greens, want increased support for renewables and EEI. A further climate change policy ‘twist’ was the release of the Victorian Climate Change White Paper in late July 2010 (see below).

Two ‘round table’ consultative/advisory bodies were set up, one comprising business and one non-government organisation, reporting to nominated Ministers to consider options: a limited ETS, a carbon tax and incentives/regulations.

Post-election, several senior business leaders came out in support of carbon pricing, while other business identities (e.g. mining industry) continued to oppose carbon pricing.

In  another  development,  the  Prime  Minister’s  (then Rudd) Task Force (TF) on Energy Efficiency released the TF’s report, which strongly supported a major energy efficiency effort. The TF also released a study (commissioned by the TF) on design, costs and benefits of a National Energy Efficiency Obligation Scheme. Thus, since the election, the Australian Climate Change debate has been reinvigorated and carbon pricing is firmly back on the policy agenda.

Whether it will be introduced, and its timing, depends on support in the House of Representatives (and the Senate before 1 July 2011) from the ALP, Independents and possibly some dissident Coalition members. Support from some powerful business interests (e.g. BHPB, AGL and Origin Energy) and a majority of community support suggests to us that carbon pricing will be introduced in 2012 (the consultative committees are not due to report until the end of 2011). Accordingly, NIEIR is building carbon pricing into modelling, commencing with $10/t CO2e in 2012 (revenue raising, minimal GHGA impact) rising to approximately $45/t CO2e in 2015–2020.

A CO2e tax/price of <$20/t CO2e would have a low price response impact, but would raise revenue that could be applied to GHGA incentives.

National Institute of Economic and Industry Research analysis indicates that a price of at least $30/t CO2e is needed before there will be significant incentives to shift towards gas for base load generation. The prospect of such a price would remove much of the uncertainty surrounding electricity generation investment, a major reason for business support for early introduction of carbon pricing.

Removal of this uncertainty is urgently required as although electricity demands are, overall, increasing slowly (<2 per cent per year) and spare capacity remains, by 2015 there could be significant electricity supply security concerns.

Grattan Institute study on emissions trading scheme/Carbon Pollution Reduction Scheme free permit compensation

In a study released in April 2010, the Grattan Institute argued that Australia would gain from letting its aluminium smelters and oil refineries close rather than providing them with free carbon permits under an ETS. The study argues that free permits undermine emission reduction, which is the purpose of an ETS. Issuance of free permits to these industries would remove the incentive for them to shift to lower emission operations.

Regarding job losses through industry relocation, the study states that a carbon price would leave most emissions intensive sectors relatively healthy. Where there were noticeable negative effects, permits should only be issued if a closure would not noticeably reduce greenhouse gas emissions. The money saved by not issuing free permits could be spent on support for communities affected by plant closures.

The study, ‘Restructuring the Australian Economy to Emit Less Carbon’, is based on A$35/t CO2e. Some assistance would be justified to prevent steel and cement production shifting to countries that did not penalise carbon, but this would be best done by rebating the carbon cost on exports and imposing tariffs on competing imports. This would be allowable under World Trade Organization rules, provided imports were treated the same as local production.

In the study, it was estimated that free permits would have an average cost of A$59,000/employee, highest for aluminium at A$161,000/employee and A$103,344/employee for LNG (see Table 2). At a price of A$35/t CO2e, the study found that there would be little impact on the profitability of the Australian LNG industry, as Australia has fewer establishment and operating risks for developers and customers. With respect to aluminium, the study argues that higher Australian electricity costs without carbon pricing is still directing investment towards lower electricity price locations (such as Qatar) with or without carbon pricing.

table 2 E and E NER 66

The ETS (Carbon Pollution Reduction Scheme) legislation did not eventuate and the policy debate appears to have moved away from carbon pricing compensation (although it is likely to reappear with any carbon pricing) and towards, at least initially, a carbon tax, regulation and incentives.

Business supporters of carbon pricing

Given the advantages of carbon pricing to gas industry players such as Origin Energy, AGL and Santos, their support is not surprising. However, the support by BHPB’s Marius Kloppers changed the balance of industry support for carbon pricing because of the potential impact on BHPB’s investment in a range of commodity sectors. On 20 September 2010, the Australian Financial Review put the impact on BHPB’s net present value at 21 per cent, assuming a carbon price of A$25/t CO2e in 2012 rising to A$50/t CO2e in 2019. Note also that the Business Council of Australia acknowledges that it is inevitable that implementing some form of ETS is the lowest cost way to cut carbon emissions.

In September, AGL analysts indicated that the cost of a delay until 2013 in regulatory uncertainty is A$2.1 billion a year to 2020. The rationale is that wholesale electricity prices would be 13 per cent higher ($8.6/MWh) in 2020 than if certainty on carbon pricing were delivered in 2010.

Energy Supply Association of Australia data indicates that the generation sector’s forecast of capital expenditure over 2010–15 has fallen by more than 50 per cent, from A$18 billion in 2007 to A$8.2 billion, due mainly to uncertainty on climate change policy. For example, TRU Energy has A$3 billion in gas fired power in Victoria and New South Wales on hold and Origin cannot, in this situation, commit to upgrading Mortlake from essentially a gas peaking plant to a combined cycle gas turbine base load plant.

Any plant, coal or gas, requires more than 5 years from decision to commissioning, and risk of power shortages is increasing as investment decisions are not taken. AGL suggests consideration of an ETS for generation, whereas BHPB suggests a combination of carbon tax, land-use measures and a limited ETS.

A recent (August 2010) survey of 1,000 members by the Australian Chamber of Commerce indicated 75 per cent believed policy should focus on renewable energy and EEI rather than placing a direct price on carbon.

Garnaut Climate Change Review update

In October 2010, Greg Combet, the Minister for Climate Change and Energy Efficiency, commissioned Garnaut to update significant elements of his 2008 Garnaut Climate Change Review (the 2008 Review), and to report on the update by 31 May 2011.

The review update will update elements of the Climate Change Review:

  • where significant changes have occurred, or the sum of expert knowledge has increased, since the original analysis of the 2008 Review was undertaken; and
  • where these changes or improvements in expert knowledge could have significant implications for the key findings and recommendations of the 2008 Review, such that they should be updated.

The Review update should consider:

  • international developments in climate change mitigation efforts;
  • developments in climate change science and understanding of climate change impacts;
  • previous proposals to develop a carbon price in Australia and the ensuing public debate;
  • domestic and international emissions trends;
  • changes in low emissions technology costs and availability;
  • the potential for abatement within the land sector; and
  • developments in the Australian electricity market.

Throughout the Review update, consultation with key stakeholders will be required to understand views and inform analysis. A series of publicly released papers is to be prepared between November 2010 and March 2011. A final report is to be presented to the Government by 31 May 2011. The Report will embody the independent judgments of its author.

 

Victorian Climate Change White Paper,

July 2010

The Victorian Climate Change White Paper, ‘Taking Action for Victoria’s Future’, while not detailing how plan proposals are to be implemented, goes further than any other Australian Government in drawing up a climate change strategy. A White Paper Implementation Plan is due to be released before 2011. The Paper outlines 10 Action areas (see Table 3).

Note that following the Victorian 27 November election the future of the Climate Change Policy is very uncertain.

Targets

From 2008, emissions of 122 Mt CO2e to a 2020 BAU of approximately 130 Mt CO2e, the White Paper proposes a target of 20 per cent below 2020 BAU emissions by 2020: a reduction from BAU of 34 Mt CO2e, or 24 Mt CO2e below 2000 emissions.

This is a significant challenge. In August 2010, NIEIR projected an average 1.25 per cent increase per year for electricity (GWh) over 2010–2020 (without considering the potential White Paper impacts).

Clean energy

There is a commitment to reduce greenhouse gas emissions from brown coal generation by up to 4 Mt CO2e/year, a cumulative saving of 28 Mt CO2e by 2020. This is generally seen as closing 25 per cent of Hazelwood capacity. Financing and compensation are significant implementation issues. There is an emissions target level of 0.8t CO2e/MWh for any new brown coal plant. This compares with 0.8t CO2e/MWh for new black coal stations and 0.4t CO2e/MWh for gas CCGTs.

Solar

The target for large-scale solar (+100 MW) is approximately 5 per cent of electricity supply by 2020 (approximately 2,500 GWh), derived from 5–10 large-scale plants. This target will be supported by a Large-scale Solar Feed-in-tariff (FIT). The tariff might also be available for other low emission technologies, such as geothermal energy. A Medium-scale Solar Working Group has been established, and FIT could also be available for medium-scale plants. There will be funding of A$5 million provide for up to 10 solar energy hubs, generating approximately 8.6 MW of community-based solar power.

Homes

From May 2011, a 6-star standard will be required for new homes (as per a Council of Australian Government’s decision).

The goal is to improve the energy efficiency of existing housing stock to an average 5-star equivalent energy rating by 2020.

Also included are:

  • a doubling of the Victorian Energy Efficiency Target (VEET) and expansion of VEET activities;
  • a comprehensive household retrofit program;
  • extended solar hot water rebate scheme;
  • mandatory disclosure of residence energy performance on sale and lease, in 2011; and
  • promotion of Green Power (GP), aiming to increase GP homes from 300,000 to 500,000.

Business

Goals for Victorian business include VEET expansion to small and medium enterprises. The government will encourage energy efficiency in businesses though the Climate Tech Strategy and the Clean Business Fund. The Environment and Resource Efficiency Plan is to be expanded.

Transport

Transport initiatives include an electric vehicle program. The government has committed to improving fuel efficiency in the Government fleet to reduce emissions by 20 per cent emissions by 2015. They will purchase 2,000 Camry hybrids.

Government

Additional 20 per cent in EEI in all government buildings and facilities by 2018:

  • further $100 million in Greener Government Building Program;
  • study installation of 50 MW of cogeneration in Victoria’s existing hospitals (36 MW at present);
  • increase Green Power commitment to 35 per cent by 2015 and 50 per cent by 2020 (said to be equivalent to output of 100 MW of wind); and
  • support for local government initiatives.

Overall, the Victorian Climate Change Strategy is impressive (although relatively weak on initiatives in the business sectors, both commercial and industrial), but success will depend on effective implementation plans and the monitoring, review and evaluation of initiatives as they proceed.

Coalition plans for energy and climate change include:

  • review of Smart Metering: (impacts, costs, in-house display);
  • review of wind farm guidelines;
  • $1 billion Regional Growth Fund, including a $100 million natural gas distribution expansion;
  • review of brown coal phase-out and transition strategy (road map) for the Latrobe Valley;
  • ‘apparent’ support for carbon pricing and natural gas replacement of brown coal generation;
  • support for cogeneration, tri-generation and standby generation;
  • support for consideration by VCEC of gross FIT design, including tariff PV policies and low emission sources and expansion of size limit;
  • support for CCS, algae research and doubling of ETIS for low emission R, D, D and C;
  • support for 5 per cent solar generation by 2020, doubling of VEET (to SMEs) but review of VEET compliance; and
  • review of VCEC of barriers to distributed energy (renewables, cogeneration/tri-generation).