It’s now urgent: Australia needs carbon price and policy to phase out coal

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After ten years of turbulence in climate and energy policy Australia is entering a crucial 18-month period.

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After ten years of turbulence in climate and energy policy Australia is entering a crucial 18-month period. For the electricity sector, the need for a stable policy framework has become urgent. But policy stability isn’t just dependent on bipartisan support, welcome though this would be.
The sectoral transformation implied by Australia’s commitments under the Paris Agreement is best delivered by a policy package that sets a clear pathway to net zero emission power by mid-century.
Recognition of this endpoint is starting to enter the mainstream. The Prime Minister and the Leader of the Opposition have both articulated the need for climate policy to achieve net zero emissions (although they have not yet agreed on the date by which this must happen).
Peak associations representing business, welfare, unions and the environment joined together to support this goal last year.
Next Friday, Australia will be among the 130 countries signing the Paris Agreement, in which we and the rest of the world have committed to limit global warming to 1.5-2°C above pre-industrial levels. This temperature range requires net zero energy emissions by 2050. The next government will have a lot of work to do to deliver on these commitments.
Both parties have indicated they will be conducting major reviews of energy policy within 12 months of the election. To have any chance of ending policy instability, these reviews must address the long-term task of decarbonising our power supply.
How should this be done? The Climate Institute’s report, A Switch in Time, out today, argues that the sort of carbon price that might eventually emerge with bipartisan support will be far too weak to do the job on its own.
A modest carbon price that reaches $40 per tonne by 2030 might help achieve the government’s current 2030 target, but would also blow 98 per cent of the sector’s thirty-year carbon budget and cause another slump in clean energy investment (this is the Weak Start Carbon Price scenario in the graph below).
After a decade of stagnation, the emission reduction effort that would be required thereafter is massive: 80 per cent of existing coal stations would have to be closed in five years and clean energy construction would have to abruptly scale up four-fold. This switch would impose huge shocks on the power system and the economy, not to mention coal station regions. But this is completely avoidable.
Figure 1. How well can different policy packages keep electricity emissions within a 2C carbon budget?
Figure 1. How well can different policy packages keep electricity emissions within a 2C carbon budget?

There is no politically realistic scenario where a carbon price can drive the necessary change alone (the price would need to be $70-100 per tonne). Even if this may emerge as a possibility, investors are unlikely to have enough faith in its durability to bank on it.

Fortunately there are plenty of other options, and we examine some under consideration.
One essential component is an orderly phase-out of existing high-carbon generators. Predictable, gradual retirement of coal generators is far more desirable than waiting around for one or more to go bust – or being forced to close them all at once when the climate constraints become impossible to ignore (as Figure 2 indicates). The difficulties facing the communities of Port Augusta and Leigh Creek in South Australia should serve as a warning to all governments that preparation is far better than scrambling for a plan after the fact.
We also need to make sure that the generation coming in to replace coal-fired power is clean enough to meet our emission commitments – and that enough of it is built to make the switch from dirty to clean as smooth as possible. And we still need a carbon price, even if it is a low one. Prices and limits on emissions remain essential to ensure polluters take responsibility for their pollution.
Figure 2. Annual coal generator retirements under different policy scenarios.
Figure 2. Annual coal generator retirements under different policy scenarios.
Such measures combine in our Clean In Carbon Out scenario. This adds on top of the weak carbon price a 50 per cent Clean Energy Target by 2030 (essentially an expanded RET) and a 45-year lifetime limit on operating coal-fired power stations.  This policy package reduces by half the gap between the weak carbon price and a <2°C pathway.
It achieves roughly a 45 per cent reduction in electricity emissions by 2030. This is in line with the Climate Change Authority’s recommended minimum national 2030 target, which is under consideration by the ALP. However, this still uses up 79 per cent of the sector’s thirty-year carbon budget by 2030.
The Low Demand version of the same policy package shows how important energy efficiency could be in achieving our emissions goals (and, importantly, minimising costs for everyone). But the impact of low demand on the wholesale electricity market – essentially, increasing the risk of surplus capacity – could deter clean energy investment, so the interaction of these energy efficiency and clean energy must be recognised and managed.
We can manage this transition in ways that provide for communities and workers, support the sustained growth of our clean energy industries, and minimise the risk of economic shocks across the board. Australians deserve no less.
But this research underscores the need for a fully stocked policy toolkit. We need policies that start gradually phasing out all existing coal stations by 2035; that replace coal generation with zero or near-zero emission energy, provide a well-funded and well-planned structural adjustment package for communities affected by generator closure; strategically deploy energy efficiency policies to minimise costs to energy users and further reduce emissions; and include a carbon pricing mechanism that is capable of scaling up over time to provide a bankable signal for investment consistent with net zero emissions by mid-century.
This package may not be as elegant as a strong, reliable carbon price. But it’s a lot more realistic. And at this point, realistic, practical policy is what the electricity system desperately needs to get on its journey to net zero emissions.
The Climate Institute’s A Switch in Time report was released this morning.
Olivia Kember is National Policy and Research Manager at The Climate Institute.
 
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11 Comments
  1. suthnsun 3 years ago

    If this reflects political reality we urgently need to change the politic. We already have less than zero budget for coal..
    http://www.bitsofscience.org/real-global-temperature-trend-1point5-degrees-target-emissions-budget-7057/

  2. juxx0r 3 years ago

    y’know one could take the revenue from a carbon tax and use it to build carbon free infrastructure, thus getting twice the impact from the funds.

    • Peter Campbell 3 years ago

      Yep. That is what we were doing. Till the vandals got in.

  3. Liam 3 years ago

    The costs assumed for solar PV in the Jacobs modelling are extraordinarily high ~$3000/kWac sent out. The recent ARENA around had prices around two thirds of this. So all of the subsidy scenarios probably have large overestimates of resource cost.

    Also worthwhile noting that the cheapest scenario is low energy demand with closure (i.e. no subsidies for clean energy or carbon price). This result appears to have been lost in the main report…

    • david_fta 3 years ago

      low energy demand with closure

      What would Australia’s energy use look like if there were no coal mines?

      • Ronald Brakels 3 years ago

        You can look at South Australia for an example of what happens when there are no cheap and convenient deposits of coal. Wind and solar generate electricity equal to more than 41% of the state’s consumption and it is possible this will rise to 50% by the end of the year. This was achieved with a Renewable Energy Target (RET) which has been estimated to be equal to a carbon price of about $40 a tonne. However, the RET does not have the same effect as a carbon price, which is to encourage existing existing coal power stations to either shut down or operate at a lower capacity. And so we badly need a carbon price to reduce the number of deaths from coal generation as quickly as possible.

        • david_fta 3 years ago

          Carbon price could also be used for Budget Repair or tax relief – maybe even for creating a Sovereign Wealth Fund to bankroll the CEFC?

          • Ronald Brakels 3 years ago

            Yes, we could use revenue from a carbon price to repair the damage done to the budget by the Coal-ition removing our carbon price. I’m afraid I trust those nongs with our environment and economy about as much as I’d trust a dingo in a maternity ward.

          • Peter Campbell 3 years ago

            Using the carbon price to fund clean energy investment? Like we were doing already till Abbott’s vandals got in? Great idea. Was then. Still is.

  4. david_fta 3 years ago

    After ten years of turbulence in climate and energy policy

    the Clownshoes ascendancy, you mean?

  5. Farmer Dave 3 years ago

    This sounds like a valuable report, and I look forward to reading it. It is interesting that the Climate Institute makes a case for a significant amount of planned government intervention in the economy as the most efficient and cost-effective way to bring about a rapid phase-out of fossil fuels. The most recent Quarterly Essay by George Megalogenis argues that we are now in a period in which more active government intervention in the economy is necessary, and George’s argument does not rely on the need to make an energy transition. The fact that several streams of thought are independently pointing away from mindlessly leaving it to “the market” gives me some hope that some serious attention will be paid to such ideas. Quite simply, the sooner the neoliberal economic ideology is dead, buried and cremated, the better.

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