Weak emissions target kicks coal can down the road

The government yesterday announced Australia’s starting point for the Paris negotiations on global post-2020 emission reduction. Australia’s initial offer is to cut national emissions by 26-28 per cent  below 2005 levels by 2030.

Measured against key standards, this is very weak: it is far less than what the science tells us is needed; it would see Australia remain the most pollution-intensive country among developed economies; and it will prevent investment in the unavoidable transition to a zero-emission economy, making the eventual transformation unnecessarily expensive.

From a scientific point of view, this target is very far from a fair contribution to the goal, agreed by 190 countries worldwide including Australia, of limiting warming to less than 2° Celsius. The Climate Institute has calculated that a fair contribution to the 2°C goal would require Australia to reduce emissions by around 65 per cent below 2005 levels by 2030.

The government’s target is consistent with a 3-4°C rise in global temperatures. In essence, the target implies either that the Australian government doesn’t care about the global goal, or the destructive effects of significant climate change, or that it expects Australia to spend the coming decades freeloading off other countries’ actions.

When comparing Australia’s negotiating offer with those of other countries, it’s necessary to look beyond the headline numbers, which rarely allow apples-to-apples comparisons.

Australia’s target offers one of the slowest rates of emission reduction among advanced economies (just 1.6 per cent per year, compared with 2.6 per cent for the European Union and 2.3 per cent for the United States), and would leave us with the most pollution-intensive economy and the highest per capita emissions in the developed world by 2030.

And as an investment signal, the target offers no foundation on which to efficiently clean up the national economy at lowest cost. The biggest flaw in the argument for low-ambition targets is that it simply puts off today’s hard work and creates an even tougher task for tomorrow.

For this reason, a low target is simply not credible in the long term – eventually the pressures of other countries’ actions, let alone the physical impacts of climate change itself, will force Australia to aim higher. Putting off this point simply magnifies the costs and risks, already significant, of keeping Australia’s high-carbon economy competitive in a carbon-cutting world.

What are those costs and risks? Firstly, carbon-heavy investments (think coal production infrastructure or high-carbon power generation) risk being stranded either by newer cleaner technologies or by new abroad or at home. The impacts of China’s efforts to improve air quality and modernise its industry are a case in point.

Secondly, the opportunity costs of forfeiting Australia’s natural advantages in renewable energy. Capital that should be building solar plants here will be spent overseas instead. And finally, the high costs of catching up later, when we will have to reduce our emissions even more and in a shorter time.

There are two bright spots. One is that the announced target is Australia’s starting position for negotiation, not its final offer. The target will not be finalised until Australia ratifies the Paris outcomes, which is likely to take a few years. This gives us ample opportunity to raise our game.

The other bright spot is that even the weak initial target will require transformation in the electricity sector, and the government can no longer avoid this. Businesses are increasingly concerned that the current policy settings are untenable.The national conversation will inevitably turn to a program to manage coal plant replacement.

Modelling of the electricity sector for the Climate Change Authority offers an illustration of how the electricity sector would look if the government’s target were to be achieved using only domestic emission reduction. Brown coal would exit before 2025 and black coal would
lose 80 per cent of its market share by 2030. Renewable energy would grow to supply 70 per cent of power demand.

The oversupply of capacity in the National Energy Market is having particular impact on Victoria’s generators. Several closures were recently announced, some unexpected, and even power companies themselves are calling for a plan to manage closures. This also has strong public support: recent polling found nearly three out of four Australians want a government plan to should to ensure the orderly closure of old coal plants and their replacement with clean energy.

With even this feeble target adding another straw to the camel’s back, the question for the government, the power sector and the public is no longer whether to replace aging power stations, but how. Coming straight after failing the credibility test on climate, the government may find the coal power question even harder.