Australia s emissions and the economy

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1 8 Australia s emissions and the economy Key points Australia s per capita emissions are the highest in the OECD and among the highest in the world. Emissions from the energy sector would be the main component of an expected quadrupling of emissions by 2100 without mitigation. Australia s energy sector emissions grew rapidly between 1990 and Total emissions growth was moderated, and kept more or less within our Kyoto Protocol target, by a one-off reduction in land clearing. Relative to other OECD countries, Australia s high emissions are mainly the result of the high emissions intensity of energy use, rather than the high energy intensity of the economy or exceptionally high per capita income. The high emissions intensity of Australian energy use is mainly the result of our reliance on coal for electricity. This is a recent phenomenon: Australian and OECD average emissions intensity of primary energy supply were similar in Australia s emissions profile and international comparisons In 2005 Australia s net greenhouse gas emissions were million tonnes (Mt) carbon dioxide equivalent using Kyoto Protocol accounting provisions (DCC 2008b). From 1990 to 2005, Australia s net emissions increased by 2.2 per cent (11.9 Mt). Australia s per capita greenhouse gas emissions are the highest of any OECD country and are among the highest in the world. Only five countries in the world rank higher Bahrain, Bolivia, Brunei, Kuwait and Qatar. In 2005 Australia s per capita emissions were nearly twice the OECD average and more than four times the world average (see Figure 8.1).

2 Garnaut Climate Change Review DRAFT REPORT For the calculation of per capita greenhouse gas emissions the data sources used for Australia were the Department of Climate Change and the Australian Bureau of Statistics, while the International Energy Agency was the source used for all other countries. Other data sources, such as the United Nations Framework Convention on Climate Change (UNFCCC) and relevant national agencies, exist for emissions by developed countries and there is some variation between emissions estimates by those sources. However, regardless of which of these sources is used for other countries emissions, Australia s per capita greenhouse gas emissions in 2005 were higher than any other developed country. Figure 8.1 Per capita greenhouse gas emissions, 2005 Australia OECD average World average Source: DCC (2008b) and IEA (2007a). Tonnes CO 2 -e per person per year Recent growth trends in Australia s emissions The growth in Australia s emissions profile is dominated by the energy sector. This comprises stationary energy electricity generation, fuel combustion in the manufacturing industries, metals production, plastics production and construction and fugitive emissions and transport. Emissions for 1990 and 2005 by sector are illustrated in Figure 8.2. Energy sector emissions increased by about 36 per cent between 1990 and Over the same period there was a substantial reduction (about 74 per cent) in emissions from land use, land-use change and forestry. Growth in emissions from the stationary energy sector is largely driven by the structure and growth of Australia s economy, the fuel mix used in electricity generation and energy efficiency improvements across the economy. 200

3 Australia s emissions and the economy 8 Emissions arising from land use change depend on the area of forest cover removal, the method of forest conversion and land development. The estimates rely on the amount of carbon sequestered in biomass and soils, which differ by vegetation type, geography and climate (DCC 2008a). Reductions in the rate of forest cover removal since 1990 have been the main source of the reduction in emissions from land use, land-use change and forestry. Figure 8.2 Greenhouse gas emissions trends by sector, 1990 and emissions 2005 emissions Mt CO 2 -e Stationary energy Transport Fugitive emissions Land use, land-use change and forestry Industrial processes Agriculture Waste Source: DCC (2008b) Future emissions growth in Australia The Review s reference case for emissions growth in the absence of new policy measures and the assumptions underlying the modelling are outlined in Chapter 9. Figure 8.3 presents expectations of future emissions under the Garnaut Treasury reference case. In the absence of measures to reduce greenhouse gas emissions, energy-related emissions are expected to grow rapidly and to increase their share of the total. 201

4 Garnaut Climate Change Review DRAFT REPORT Figure 8.3 Greenhouse gas emissions by sector: 1990, 2005 and reference case scenarios 1990 emissions 2005 emissions 2020 Reference case 2050 Reference case 2075 Reference case 2100 Reference case Mt CO 2 -e Stationary energy Transport Fugitive emissions Land use, land-use change and forestry Industrial processes Agriculture Note: 1990 and 2005 emissions are from the most recent National Greenhouse Gas Inventory (DCC 2008b) projections are from MMRF. Waste Why are Australia s per capita emissions so high? As discussed in Chapter 4, energy-associated per capita emissions are the product of per capita GDP, the energy intensity (of the economy) and emissions intensity (of energy) as follows: CO 2 per capita = GDP per capita Energy/GDP CO 2 /Energy The energy intensity of an economy is a measure of the amount of energy used per unit of economic activity generated. The emissions intensity of energy is a measure of the amount of greenhouse gases emitted per unit of energy used. Figure 8.4 illustrates the factors underlying a country s per capita emissions and compares those factors for Australia, the OECD average and the world average. 202

5 Australia s emissions and the economy 8 Figure 8.4 Factors underlying per capita emissions, 2005 GDP per person ( 000s US$) Energy intensity of economy (PJ/US$ billion) Emissions intensity of primary energy supply (t CO 2 /TJ) Australia OECD average World average Note: All financial values are measured in 2000 US$ and using purchasing power parities. Source: IEA (2007a) Australian incomes relative to those in other developed countries Australia s GDP per capita in 2005 was about 16 per cent higher than the OECD average (IEA 2007a). While this contributes to Australia s comparatively high per capita greenhouse gas emissions, it does not explain why they are more than twice the OECD average. In 2005, Australia s per capita GDP in purchasing power parity terms was the 11th highest among OECD countries and moderately above the OECD average Relative energy intensity of Australia s economy Australia s economy is the 8th most energy-intensive among OECD countries. It is about 5 per cent less energy-intensive than the world average and about 8 per cent more energy-intensive than the OECD average. The aggregate energy intensity of the Australian economy, measured as total primary energy consumption per dollar of GDP, remained broadly stable over the 1970s and 1980s, and then fell by an average of 1.1 per cent a year during the 1990s (Syed et al. 2007). The energy intensity of Australia s economy does not account for our extremely high per capita greenhouse gas emissions. 203

6 Garnaut Climate Change Review DRAFT REPORT Why is the emissions intensity of Australia s energy so high? The emissions intensity of Australia s primary energy supply is the second highest among OECD countries. It is more than 30 per cent higher than both the OECD average and the world average. There are only five countries in the world with a more emissions-intensive energy supply than Australia s Bosnia Herzegovina, the Democratic People s Republic of Korea, Estonia, Mongolia and Poland. Fossil fuels play a dominant role in Australia s primary energy consumption. More than 40 per cent of Australia s total primary energy supply is derived from coal. This is a much higher proportion than in other OECD, countries as illustrated in Figure 8.5. Figure 8.5 Fuel mix contributing to total primary energy supply, 2005 Australia OECD total Per cent Coal Petroleum Gas Nuclear Hydro Geothermal and solar Combustible renewables Source: IEA (2007b). The exceptional emissions intensity of Australia s primary energy supply has only emerged in recent decades. Figure 8.6 shows the trends in Australia s average emissions intensity of primary energy supply compared with those in all OECD countries. The Australian average was similar to that of the OECD in The increasing emissions intensity of Australia s primary energy supply is largely due to its increasing reliance on coal for electricity generation, at a time when other developed countries have shifted significantly to lower-emissions sources. In , 54 per cent of electricity was generated from black coal, 21 per cent from brown coal, 15 per cent from natural gas, 2 per cent from oil and 8 per cent from renewable sources (Syed et al. 2007). 204

7 Australia s emissions and the economy 8 Figure 8.6 Trends in average emissions intensity of primary energy supply, Australia and OECD t CO 2 /TJ OECD average Australia Source: IEA (2007a). The carbon dioxide emissions intensity of Australia s electricity supply is the highest of any OECD country. It is 98 per cent higher than the OECD average, and 74 per cent higher than the world average (see Figure 8.7). There are only eight countries in the world with an electricity system that is more emissions intensive than Australia s. Those countries are Bahrain, Botswana, Cambodia, Cuba, India, Kazakhstan, Libya and Malta. Figure 8.7 Carbon dioxide emissions intensity of electricity production, 2005 Australia OECD average World average Source: IEA (2007a) kg CO 2 per MWh 205

8 Garnaut Climate Change Review DRAFT REPORT 8.2 Emissions profiles of Australian industries How do Australian industries contribute to emissions and GDP? Figure 8.8 shows the total emissions attributable to each Australian industry, derived by summing a sector s direct emissions, and the indirect emissions attributable to its electricity consumption. Emissions due to transport have not been attributed in the same way, due to lack of suitable data. Industry accounts for about 81 per cent of Australia s total emissions, with the remainder attributable to the residential sector. The agriculture, mining and manufacturing industries are responsible for large amounts of greenhouse gas emissions relative to their shares of GDP. Figure 8.8 Emissions attributable to Australian industry by sector, 2005 Agriculture, forestry & fishing 28.5% Manufacture 28.4% Mining 13.2% Commercial services 12.7% Transport & storage 9% Electricity, gas, water 7.9% Construction 0.4% Source: DCC (2008b) and ABS (2007) Which industries would be most affected by a price on emissions? The industries whose competitiveness is most likely to be adversely affected by a price on greenhouse gas emissions are those that are exposed to international trade and that have either a high degree of energy intensity or a high level of direct greenhouse gas emissions. The Review sought to identify the industries that might be most affected in their international competitiveness by a price on greenhouse gas emissions. It considered data on trade, direct emissions, and indirect emissions attributable 206

9 Australia s emissions and the economy 8 to electricity consumption. It used the 1993 Australian and New Zealand Standard Industrial Classification (ANZSIC) as a guide to industry classification, and selected the following industries for analysis of the impact of an emissions price on international competitiveness: agriculture, forestry and fishing petroleum refining coal mining petroleum and coal products oil and gas extraction (including basic chemicals liquefied natural gas (LNG) production) mining (non-energy) food, beverage and tobacco manufacturing textile, clothing, footwear and leather manufacturing pulp, paper and printing cement, lime, plaster and concrete iron and steel basic non-ferrous metals and products (including aluminium production) machinery and equipment manufacturing. The contribution of the sum of direct and indirect emissions for each of these sectors as a proportion of total emissions attributable to industry is illustrated in Figure 8.9. Figure 8.9 Emissions attributable to Australian industry by sector, with the manufacturing sector disaggregated, 2005 Agriculture, forestry & fishing 28.5% Coal mining 5.5% Oil and gas extraction 3.2% Other mining 4.4% Food, beverage & tobacco 1.8% Textile, clothing, footware & leather 0.3% Wood, paper & printing 1.3% Basic chemicals 2.8% Iron & steel 4.1% Non-ferrous metals & products 11.9% Refining, petroleum & coal products 1.7% Cement, lime, plaster & concrete 2.1% Machinery & equipment manufacture 0.6% Other manufacturing 1.8% Electricity, gas & water 7.9% Construction 0.4% Commercial services 12.7% Transport & storage 9% Source: DCC (2008b) and ABS (2007). 207

10 Garnaut Climate Change Review DRAFT REPORT In order to gauge the potential impact of a price being placed on greenhouse gas emissions, the Review examined the effect of a permit price of $10, $20 and $40 per tonne of carbon dioxide equivalent and assumed that there would be 100 per cent pass-through of emissions costs to energy consumers. The latter is a worst-case scenario from the perspective of energy-intensive industries. If this were too high, the analysis that follows would overestimate the additional costs accruing to energy-intensive industries as a result of a price being placed on emissions. Figure 8.10 Ratio of permit costs to value of production, 2005 Agriculture, forestry & fishing Coal mining Oil & gas extraction (includes LNG) Mining, non-energy Food, beverage & tobacco Textile, clothing, footwear & leather manufacturing $40 permit cost/value of production $20 permit cost/value of production $10 permit cost/value of production Wood, paper & printing Petroleum refining, petroleum & coal products Basic chemicals Cement, lime, plaster & concrete Iron & steel Basic non-ferrous metals & products (includes aluminium) Machinery & equipment manufacturing Per cent 208 Note: Production is largely composed of sales revenue but also includes production for own final use. Source: DCC (2008b) and ABS (2008).

11 Australia s emissions and the economy 8 Under these assumptions, the ratio of greenhouse gas emission costs to the value of production is as shown in Figure Recent and projected increases in commodity prices reduce the ratio of greenhouse gas emissions to the value of production. For example, it is estimated that projected increases in the price for coal exports would reduce the ratio of greenhouse gas emissions costs to the value of production for coal mining to about one-third of that shown in figure Does our industry emissions profile make Australia a special case? For the OECD countries considered those that are parties to Annex I of the UNFCCC the direct and indirect emissions attributable to the agriculture, mining and manufacturing industries were calculated. These are the main emissions-intensive, trade-exposed sectors. The emissions attributable to the mining and manufacturing industries accounted for about 34 per cent of Australia s total greenhouse gas emissions in This was the 10th highest proportion among the OECD countries considered. Across all the OECD countries considered, 33 per cent of greenhouse gas emissions were attributable to the mining and manufacturing industries (see Figure 8.12). The emissions attributable to the agriculture, mining and manufacturing industries accounted for about 57 per cent of Australia s total greenhouse gas emissions in This was the fourth-highest proportion among the OECD countries, exceeded only by Finland, Norway and New Zealand. Across all the OECD countries, 42 per cent of greenhouse gas emissions were attributable to the agriculture, mining and manufacturing industries. The proportion of total emissions attributable to Australia s mining and manufacturing industries (34 per cent) is not high in comparison with the average of the OECD countries considered (33 per cent). If the emissions intensity of Australia s electricity supply were reduced to the OECD average then only about 28 per cent of Australia s total emissions in 2005 would have been attributable to the mining and manufacturing industries. The unusually large agricultural sector contributes exceptionally to Australia s unusually high emissions profile. The mining and manufacturing sectors contribute high levels of emissions per capita, but no more than the rest of the economy It is the emissions intensity of Australian energy supply, more than the industrial structure of the Australian economy that accounts for the fact that the proportion of emissions attributable to the mining and manufacturing industries in Australia is above average in comparison with that of other OECD countries. 209

12 Garnaut Climate Change Review DRAFT REPORT Figure 8.11 Direct and indirect emissions attributable to the mining and manufacturing industries as a proportion of total emissions, Australia and OECD, 2005 Australia Australia assuming OECD average for emissions intensity of electricity OECD average Source: IEA (2007b) and UNFCCC (2008) Per cent Conclusions There are several sectors of Australian industry that are responsible for a relatively large amount of greenhouse gases in proportion to their contribution to economic activity notably aluminium production and some forms of agriculture. Overall, the contribution of the agriculture sector to Australia s greenhouse gas emissions is relatively large. The contribution by our manufacturing and mining sectors is in line with the OECD average. Australia s high level of per capita greenhouse gas emissions is not due to an unusually large contribution by energy-intensive industries nor is it due to relatively inefficient use of energy. It is largely due to the emissions intensity of energy used in Australia and our reliance upon coal as a source of primary energy. 210

13 Australia s emissions and the economy 8 References ABARE (Australian Bureau of Agricultural and Resource Economics) 2007, Australian Commodity Statistics 2007, ABARE, Canberra. ABS (Australian Bureau of Statistics) 2007, Australian System of National Accounts, , cat. no , ABS, Canberra. ABS 2008, Australian National Accounts: Input Output, (preliminary), cat. no , ABS, Canberra. DCC (Department of Climate Change) 2008a, Tracking to the Kyoto Target 2007: Australia s greenhouse emissions trends 1990 to and 2020, DCC, Canberra. DCC 2008b, Australia s National Greenhouse Accounts, Australian Greenhouse Emissions Information System, < accessed 26 May IEA (International Energy Agency) 2007a, CO 2 Emissions from Fuel Combustion: , IEA, Paris. IEA 2007b, Energy Balances of OECD Countries: , IEA, Paris. Syed, A., Wilson, R., Sandu, S., Cuevas-Cubria, C. & Clarke, A. 2007, Australian Energy: National and state projections to , ABARE research report 07.24, prepared for the Australian Government Department of Resources, Energy and Tourism, Canberra. UNFCCC (United Nations Framework Convention on Climate Change) 2008, 2008 Annex I Inventory Submissions, < accessed 5 June

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