Australia’s long-term emissions reduction opportunities are much smaller than previously estimated, with climate policy uncertainty over the last five leaving the economy with fewer options to cut domestic emissions, and a much higher cost of action.
RepuTex has forecast the emissions reduction potential of the Australian economy in 2020 and 2030, analysing 88 separate opportunities to reduce emissions across six key sectors – power, forestry, industry, buildings, agriculture and transport – identifying actions to reduce emissions, the barriers to their implementation and their relative cost.
The report is the first to forecast at Australia’s marginal cost of abatement through to 2030 since research by McKinsey & Company, undertaken in 2008. Our analysis takes account of changes in gas and electricity prices, electricity demand and policy, including the repeal of the carbon tax.
The report shows that the Australian economy will be able to cut domestic greenhouse gas emissions by just 15 per cent on 2000 levels by 2030 – or 300 million tonnes of CO2e – at a cost of A$10.6 billion.
The findings are a significant decrease on the 2008 estimates, which found that Australia could reduce emissions by up to 60 per cent by 2030.
The fall in emissions reduction potential through to 2030 is due to a lack of clear climate policy, which has delayed investment in long-term emissions reductions over the past five years, and extended the economic lifespan for more carbon-intensive technologies.
The new data indicates that a significant portion of Australia’s earlier 2030 emissions reduction potential has been lost due to delayed investment, due largely to policy uncertainty around the carbon tax, and more recently, the renewable energy target.
In the absence of strong, continual climate policy, investment in clean electricity generation, forest protection, and energy efficiency has not been as strong as it could have been, meaning that existing carbon-intensive assets are able to continue to compete against new technologies rather than being phased out, locking in emissions growth in the near-term.
This can be seen with the return of coal generation to Australia’s fuel mix and the slowdown in renewable energy investment, along with lower investment in building energy efficiency and sequestration projects.
The government is expected to announce its 2030 emissions reduction target in the upcoming months, and is under pressure to announce a 40-60 per cent cut in emissions by 2030, leveraging both domestic and international emissions reductions.
By 2030 the forestry, industry and power sectors are likely to provide the largest share of abatement across the Australian economy, contributing approximately 75 per cent of all emissions reductions.
Energy efficiency activities will play the largest role in Australia’s emissions reductions, contributing over one third of all abatement through to 2030, with many projects to be ‘negative cost’- therefore saving money over the life of the project.
COST OF MEETING 2020 TARGET CONTINUES TO GROW
The report follows the release of figures by the government showing that national emissions fell 1.4 per cent over the 12 months to June 2014, driven by a combination of lower electricity demand and the carbon tax – which was repealed by the Coalition with support from the Senate crossbench.
While Environment Minister Greg Hunt remains confident that Australia will meet its 2020 emissions reduction target, electricity emissions have begun to increase after the repeal of the carbon tax, while the cost for industry to implement abatement activities has also increased following the repeal of the carbon compliance market.
Findings indicate that Australia will be able to achieve a 5 per cent reduction in domestic emissions by 2020, however, the cost of these cuts is forecast to be $5.3 billion, more than double the $2.55 billion allocated to the government’s Emissions Reduction Fund.
Without a strong safeguard scheme that is able to work with the Emissions Reduction Fund to drive more emissions cuts, meeting Australia’s 2020 emissions target through domestic emission reductions will be both extremely challenging and expensive.
The first auction under the new Emissions Reduction Fund will take place in mid-March.
Hugh Grossman is head of research at Reputex. This article is drawn from his new report issued today.