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

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.

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.