Mitigation Policy in Carbon-Intensive Economies: Australia Philip Adams, Centre of Policy Studies, Monash University
Emissions, CO2-e (2011) (% shares) Energy sector, total 78.7 Fuel combustion 70.8 Stationary 53.0 Electricity 33.2 Other 19.8 Transport 17.8 Fugitive emissions from fuels 7.8 Industrial processes 5.6 Agriculture 16.6 Waste 2.3 Land use change and Forestry -3.2 Total (Kyoto accounting) 100.0 Total (Mt) 553.1 Emissions per person (t/person 28 2 OECD average (t/preson) 13 World average (t/person) 7
Commitment • Without action Australia's emissions are projected to increase by 25 per cent between 2000 and 2020, and by 65 per cent between 2000 and 2050 • Australia ratified the Kyoto Protocol, agreeing to limit annual emissions to 108 per cent of 1990 levels (2008-2012) • Australia has also committed to reducing its emissions by between 5 and 15 or 25 per cent below 2000 levels by 2020 • 5 per cent target is unconditional • The rest is conditional on the extent of international action • By 2050 the Government is committed to cut emissions by 80 per cent below 2000 levels 3
“Clean Energy Future” A nation-wide price on CO2-e emissions • Price on production of CO2-e (2012 to 2015) • Unilateral with compensation to TEEI industries • Some activities exempt • A local market based trading scheme for emission permits (2015 to 2020) • Unilateral with compensation. • Access to international credits (CDMs, etc.) • Part of an integrated global scheme (2020 onwards) 4
“Clean Energy Future” • Around 60 per cent of Australia’s emissions to be covered by a carbon price: • electricity generation, stationary energy, some business transport, waste, industrial processes, and fugitive emissions. • Price will not apply to agriculture or light on-road vehicles, until after 2020 • Price will be fixed for the first three years, starting at $23. • Scope for linking to international carbon markets and local land abatement programs after 2015 5
“Clean Energy Future” • Revenue directed towards: • Assistance to households • Negotiated closure of around 2000 MW of coal-electricity • Support for renewable generation • Assistance to land managers to pursue climate change action. • Regulation measures to improve energy efficiency 6
Public Forum : Clim ate change policy - May 20 12 Public Forum : Transform ing Data into Votes - May 20 12 Key implications 1. Securing a Clean Energy Future reduces real GDP Negligible long-run employment effects Increased real cost of capital means less capital Costly abatement technologies 0.0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 -0.2 % deviations from Reference values -0.4 -0.6 -0.8 -1.0 -1.2 7 -1.4 Real GDP
Public Forum : Clim ate change policy - May 20 12 Public Forum : Transform ing Data into Votes - May 20 12 Key implications 2. Real income falls by more than real GDP Permits purchased from overseas Terms of trade fall 0.0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 -0.5 % deviations from Reference values -1.0 -1.5 -2.0 -2.5 -3.0 8 -3.5 Real GDP Real household consumption
Public Forum : Clim ate change policy - May 20 12 Public Forum : Transform ing Data into Votes - May 20 12 Large reductions in emissions (80 per cent below 2000 levels by 2050) at moderate economic cost. Does it make sense? Currently, electricity sector contributes 36 per cent of emissions, but only 3 per cent of GDP Action reduces electricity sector in size by about 12% and re-shapes Relatively cheap abatement available in waste and industrial process sectors, and from forestry sequestration Access to international credits – nearly 50 per cent of “abatement” 9
Public Forum : Clim ate change policy - May 20 12 Public Forum : Transform ing Data into Votes - May 20 12 Key implications 3. Securing a Clean Energy Future reduces production in some industries, increases productions in others Changes in global demand Altered exchange-rate structures and competitiveness Shifts to low-emission technologies Differences in emission intensities Changes in domestic demand 10
Public Forum : Clim ate change policy - May 20 12 Public Forum : Transform ing Data into Votes - May 20 12 Examples of industries affected significantly (% deviations from no-policy projection, Production) 5.0 0.0 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 -5.0 -10.0 -15.0 -20.0 -25.0 Cement Iron and steel Aluminium -30.0 11 Refinery Coal mining
Public Forum : Clim ate change policy - May 20 12 Public Forum : Transform ing Data into Votes - May 20 12 Re-shaped Mix of Electricity generation TWh TWh 400 400 350 350 300 300 250 250 200 200 150 150 100 100 50 50 0 0 12 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Black coal Brow n coal Coal CCS Gas Gas CCS Oil Renew ables
Public Forum : Clim ate change policy - May 20 12 Public Forum : Transform ing Data into Votes - May 20 12 Re-shaped Mix of Transport delivery PJ PJ 1,400 1,400 1,200 1,200 1,000 1,000 800 800 600 600 400 400 200 200 0 0 2006 2010 2014 2018 2022 2026 2030 2034 2038 2042 2046 2050 13 Petrol Ethanol Diesel (oil based) B20 Biodiesel LPG Compressed natural gas Hydrogen Gas to liquids Coal to liquids Electricity
Public Forum : Clim ate change policy - May 20 12 Public Forum : Transform ing Data into Votes - May 20 12 Conclusions • Taking action on greenhouse has an economic cost. Cost depends on: • Amount of abatement and level of permit price • Efficiency of policy designed to achieve abatement • Especially its ability to encourage the cheapest low-emissions technologies • Economy will grow strongly even with stringent targets • Some industries lose output, others gain • Output down for conventional coal generators • Mitigated by introduction of new clean coal technologies • Output gains for renewable generation • Output gains for forestry industries 14 • Mixed story for industries implies a mixed story for regions
Modelling concerns • Economic modelling measures only the gross cost of action, not the net benefits which includes the potential gains from reduced emissions. • Integrated Assessment Modelling • But the “potential gains” have significant regional and structural dimensions 15
The Climate Change Problem 16 Key hotspots for Australia
Modelling concerns • Modelling often ignores the shorter-run adjustment (transition) costs • Persons moving between jobs. • People moving residential location. • Re-training and infrastructure needs, etc. • Uncertainty of technological aspects • Significant uncertainties still surround the costs and abatement possibilities associated with new, less emissions-intensive technologies • CCS! • “No-regrets” options 17
Keys to good modelling • Policy-relevant detail • Often not necessary for the headline macroeconomic results (effects on real GDP) • But critical for credibility and micro-outcomes • Linking is the key • Specialised electricity supply model • Specialised land-use change model • Specialised land and air transport model • Specialised water-use model (irrigated agriculture) • Documentation • Data and theory complete • Explanation • So that policy makers with some economic training understand 18 without knowledge of underlying theory and data
Keys to good modelling • Relevance for policy makers, social scientists, general public (“Humanising”) • Regional • Relevant time scale • Detailed industrial detail • Income distribution and policy-related measures • Skills and training needs 19
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