Towards net zero: Australian Energy Council backs long-term carbon policy

Whilst we’ve been rightly focussed recently on the pandemic crisis, decarbonising the economy continues to be the biggest long-term challenge for our industry, as it has for over two decades and will continue to be so for another generation.

The Australian Energy Council (AEC) and its predecessors have throughout this century accepted the science and the need to decarbonise. We have consistently argued for well-designed, market-based, national, and most importantly, stable, environmental policy around which our members can competitively invest. We have also advocated support for research and development of immature technologies that can ease the cost of transition.

For a national consensus to be reached we require a long-term vision. An uncontested, long-term target could become the new starting point, and, having at least achieved that, we could work toward developing effective policy that would apply from today.

The AEC has observed many state governments, corporations and associations, including those representing energy-consuming industry, taking outspoken positions on specific long-term carbon targets. At the same time, we note the Commonwealth’s efforts in supporting transformational technologies that will come to fruition only decades after this term of government. These are positive signs that consensus could emerge around the long-term objective.

In recent months, the AEC has considered its own position on long-term targets and the Government’s Technology Roadmap. We discuss our thoughts below.

The Paris Agreement

The Paris Agreement[i] has almost uncontested support in the Australian polity. This Agreement allows for countries to pledge to each other National Determined Contributions (NDCs) and it is hoped, through peer-group pressure rather than legal obligation, they will each voluntarily ratchet up their long-term ambitions.

The adequacy of Australia’s short-term NDC (a 26-28 per cent reduction in 2005 emissions by 2030), and its accounting, is contested domestically. But this contest misses the elephant in the room – the Paris Agreement’s long-term temperature goal at Article 2(1)(a):

Holding the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels, recognising that this would significantly reduce the risks and impacts of climate change;

Adding up the existing pledges gets the world nowhere near this temperature goal. Without further ratcheting it is predicted global temperature could rise to around 4°C above pre-industrial levels by 2100, with devastating consequences.

To reach the Paris Agreement’s temperature goals, we need ambitious long-term targets, i.e. we need to think about the second half of this century as article 4(1) states:

….to achieve a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of this century on the basis of equity, and in the context of sustainable development and efforts to eradicate poverty;

More recently the Intergovernmental Panel on Climate Change (IPCC) Special Report on Global Warming of 1.5°C assesses_[ii] that global net zero would be required by around 2070 to hold temperature increases below 2°C; and by around 2050 for below 1.5°C.

And as can be seen in the references to equity and poverty, the Paris Agreement anticipates rich countries acting on these long-term goals first.

Consistent with the international negotiations from whence it came, the Paris Agreement text is often qualified and unspecific. Nevertheless, drawing from these statements above, it seems unavoidable that Australia, as a rich nation, is expected to achieve net zero emissions by 2050 and thereafter as part of its Paris Agreement obligations.

Like many similar organisations, the AEC considers that the Australian economy is better served if it now explicitly recognises this inevitability, i.e. it should name the elephant so it can get started on eating it.

What does “net zero” mean?

The “net” in “net zero” is crucial. There are many opportunities to sequester carbon from the atmosphere, particularly in the land sector: planting trees being the simplest. Broadening the role of the carbon units already trading under the climate solutions fund[iii] could see many more of these exploited. As every tonne sequestered would allow another tonne to be emitted, comprehensive trading can find an optimal balance between positive and negative emissions. And this trading can extend internationally to other countries with trustworthy schemes.

This means that no sector need achieve absolute zero emissions. However, any positive emission will have to come with a price sufficient to buy a negative emission. This price will both cause emissions to dramatically fall at their source, although not to zero, whilst also dramatically increasing sequestration opportunities.

Electricity

Therefore electricity in a net zero economy need not be entirely renewable or nuclear. Whilst in Australia wind and solar energy are already the cheapest new source of bulk energy, their variability needs backup. Storage, such as pumped hydro and batteries, as well as demand-management can play a role, but as entire weeks of low sun and wind do occur, we will still need to occasionally fall back on gas-fired generation. The “net” in “net zero” allows this.

It is admittedly difficult to see a role for coal-fired generation without carbon-capture and storage in a net zero economy, as its high emissions and low flexibility would make its operation commercially difficult. However Australian coal-fired generation is, like it is in most developed countries, already in decline as plants close due to age and economics. By 2050 Australia’s youngest coal plant, the 416MW Bluewaters in Western Australia, will be 41 years old. Thus, a net zero 2050 target for electricity generation is not necessarily dramatically different to what is already underway.

Other sectors

When we discuss decarbonisation, commentators tend to leap to electricity. However, electricity’s emissions are only one-third of Australia’s emissions, and rapidly falling. The other two-thirds represent another ignored elephant that will prove the main challenge.

The emitting sectors of transport, agriculture, direct-combustion (gas-fired heat), industrial processes (feedstock, steel and cement) and resources all have theoretical options to reduce emissions, but large technological and commercial challenges lay ahead of them.

For light transport and heat sources, electricity is a readily feasible direct substitute. Heavy transport and industrial processes will require hydrogen, most likely produced from electrolysis[iv]. Therefore, the economy will become even more dependent on the electricity sector in a net zero world, but fortunately many of these large new electricity loads are controllable in timing and are well suited to variable renewable energy.

These parts of the economy desperately need technological advancement to reduce emissions economically. This is why the Federal Government’s Technology Roadmap is so important[v]. It correctly focusses on how to increase research investment in hydrogen, electrification and the capturing of fugitive emissions in resource extraction.

An emerging consensus

The AEC is far from the first mover in this area. All Australian states and territories, regardless of party affiliation, have announced intentions to achieve net zero in their own emissions by 2050[vi].

Major corporations such as Microsoft, Qantas, Nestle, BHP, Telstra, Atlassian, Woodside and Rio Tinto have each adopted variations of net zero by 2050 policies for themselves. Similarly for the AEC’s three largest members[vii].

Late last year the Australian Industry Group[viii], representing manufacturing, and Australia’s peak business lobby, the Business Council of Australia[ix], endorsed policies of net zero Australian emissions by 2050. The AEC is also a member of the Australian Climate Roundtable[x], and acknowledges its partners’ assistance in informing the AEC’s adoption of a net zero by 2050 policy.

All these parties have realised it is inevitable that the world needs to ultimately balance carbon between emissions and sequestration, and that 2050 is an appropriate target for this goal in Australia. And, once we get consensus around this goal, we can begin the great challenge of achieving it.

[i]https://unfccc.int/files/meetings/paris_nov_2015/application/pdf/paris_agreement_english_.pdf

[ii] See IPCC SR1.5 Summary for Policy Makers para C.1. https://www.ipcc.ch/sr15/chapter/spm/

[iii] https://publications.industry.gov.au/publications/climate-change/climate-change/government/emissions-reduction-fund.html

[iv] Grattan Institute, Start with steel, May 2020

[v] Australian Government, Technology Investment Roadmap Discussion Paper, May 2020

[vi] NSW: https://www.environment.nsw.gov.au/-/media/OEH/Corporate-Site/Documents/Climate-change/nsw-climate-change-policy-framework-160618.pdf Qld: https://www.qld.gov.au/__data/assets/pdf_file/0026/67283/qld-climate-transition-strategy.pdf SA: http://ysa-v2-katalyst-com-au.s3.amazonaws.com/production/2015/11/30/01/33/39/498ce396-6788-4d4e-b364-1c35a37a7e88/sa-climate-change-strategy-2015-2050-towards-low-carbon-economy.pdf Tas: http://www.dpac.tas.gov.au/divisions/climatechange/Climate_Change_Priorities/reducing_emissions NT: https://haveyoursay.nt.gov.au/49504/documents/116108

[vii] Origin: Net Zero for Electricity Sector https://www.originenergy.com.au/content/dam/origin/about/investors-media/AGM%202017/Scenario%20Analysis%20FY2017.pdf AGL: Close coal by 2050 https://www.agl.com.au/about-agl/who-we-are/our-company Energy Australia: Carbon neutral by 2050 https://www.energyaustralia.com.au/sites/default/files/2020-01/Carbon-Neutral-by-2050_v2.pdf

[viii] https://www.aigroup.com.au/policy-and-research/mediacentre/releases/labor-emissions-target-21Feb/

[ix]https://d3n8a8pro7vhmx.cloudfront.net/bca/pages/5085/attachments/original/1581309292/BCA_Climate_and_Energy_Policy_-_Scoping_paper_-_January_2020.pdf?1581309292

[x] https://www.australianclimateroundtable.org.au/