The global energy context, climate change & Australia s response. Fossil fuel reserves & distribution (Govt. of France, 2006)

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1 Inconsistent with the peak-oil scenario Total primary energy supply projected to 2030 by fuel type & by region (IEA, WEO 2004) The global energy context, climate change & Australia s response CEEM 2006 Note that fossil fuels account for almost 90% of IEA forecast growth to 2030 & that most supply comes from non-oecd countries 2 Fossil fuel reserves & distribution (Govt. of France, 2006) The peak oil scenario (Mushalik, 2006) Global oil production rate may plateau around 2010 QuickTime and a TIFF (Uncompressed) decompressor are needed to see this picture. 3 4

2 Oil is projected to be the most traded fossil fuel, followed by natural gas (IEA, WEO 2004) Prices for energy commodities (BP 2005) Inconsistent with the peak-oil scenario Consistent with the peak-oil scenario 5 6 International coal trade (Mt, 2002 & 2030) Global energy-related CO2 emissions by region & trends in growth rate (IEA, WEO 2004) Note that CO2 intensity is projected to increase & that developing country emissions are projected to exceed OECD emissions around 2020 Inconsistent with a reduction in global CO2 emissions by 50% by 2050 Australia: the largest exporter of coal 7 8

3 Alternative lowemission scenario (IEA, WEO 2004) Note importance of end-use efficiency & renewable energy in this scenario OECD emissions 9 10 Recent trends in GH gas concentrations (WMO, 2006) 11 12

4 Radiative forcing due to GH gases (warming effect) (WMO, 2006) The highest global surface temperature in more than a century of instrumental data was recorded in the 2005 calendar year in the GISS annual analysis. However, the error bar on the data implies that 2005 is practically in a dead heat with 1998, the warmest previous year. ( QuickTime and a TIFF (Uncompressed) decompressor are needed to see this picture BAU trend for CO2 in the atmosphere (Climate Action Group, 2004; WMO, 2006) (Nature, 26/1/06) Note: at 2% pa annual growth, doubling time ~ 35 years implying 700ppm reached at about 2050 rather than

5 Climate change might disrupt thermohaline circulation (IPCC COP7, 2001) Climate-change ethical challenge: high emissions now cause impacts later ( Biosphere sequestration may fail due to climate change (Hadley Centre, 2005) Climate change carbon-cycle risk ( Area under curve represents allowable cumulative emissions 19 20

6 Per-capita electricity consumption & energy-related CO 2 e emissions in 2004 (IEA, 2006) 25 Climate change emissions (Tonnes C per capita, Grubb 2006) MWH/capita TCO2/capita TCO2/TOE 5 0 World OECD Aust USA China Sustainability context for the electricity industry (IPCC COP7) Must also achieve resource adequacy: Short & long-term system security (availability & quality of supply) Status of RE technologies: hardware perspective (IEA, 2006) 23 24

7 Renewable energy & coal comparison for Europe (IEA, 2006) Aust. non-hydro RE market shares (%) Coal-fired power station approx 35 /MWh Low-emission generation cost trends for Australia (MMA, 2006) Bagasse Expected climate change impacts on Australia (Senate Environment Committee, 2000) Australia probably very negatively affected : Large size, long coastline, soil salinity, exposure to cyclones & El Nino/La Nina cycle, economic dependence on agriculture & tourism Likely changes in next 50 years: Higher temperatures, more frequent extreme weather events, reduced available water resources, reduced area of arable land, reduced crop & livestock yield & quality, severe damage to coral reefs Trends in mean temperature, (Climate Action Group, 2004) 27 28

8 Climate Change Science, (AGO, 2006) Ave days over 35 0 C Snowy & Tasmanian hydro inflows near record lows 29 (Climate Action Group, 2004) 30 The climate change challenge (BCSE, 2003) Issues for Australia (Turton, Australia Institute DP66, June 04) Drivers for high per-capita emissions: Reliance on coal for electricity generation Subsidised aluminium production Reliance on cars instead of public transport Comparison of country CO 2 equivalent emissions: Australia emits more than France & Italy and is only 20% lower than the UK 31 32

9 Australian electricity industry emissions scenarios to 2030 (Beyond Kyoto, PMSEIC Report, 2002) Options for carbon sequestration Zero emissions coal: carbon capture & storage (CCS) Leave fossil fuels in the ground Nature s sequestration - proven over millions of years & still available for future generations to use Biosphere sequestration: Plant matter & carbon in soils - not safely sequestered Implications of these scenarios: Essential to improve end-use efficiency Avoid new coal power stations unless zero emission CCGT only a transition technology unless zero emission Geosequestration: Burn fossil fuels, then capture & geo-sequester CO2 An irreversible process How safe is it for future generations (inter-generational equity)? CCS does not mean zero emissions Key findings of IPCC CCS report ( 2005) IGCC with geosequestration will still have CO2 emissions Energy and cost tradeoff in CO2 capture from flue / gasifier stream; also energy for transport and pumping underground A portfolio of mitigation measures will be needed (CCS alone not sufficient) Large-scale CCS power plant don t yet exist By 2050, 20-40% of fossil fuel CO 2 technically suitable for CCS at cost of 13 to 67 A$/MWh Deployment needs CO 2 price of US$/MWh CCS might contribute 15-44% of cumulative mitigation effort to 2100, limited beyond that (identified storage sites would then be full) Coal IGCC with CO2 capture emits approx. 40% of standard CCGT (without capture) IEA (2001) 35 36

10 Scenarios of CCS contribution to 2100 (IPCC CCS report, ) CCS would decline beyond 2100 Ethical considerations for CCS Prudent avoidance: Choose lowest-risk option unless very expensive Informed consent: Consult those affected prior to implementation Neither principle favours CCS: Risks of human geosequestration are considerable and fall on future generations: Proponents want government to carry this risk Fossil fuels are a safer form of geosequestration A more balanced response Approaches to environmental regulation Increased demand-side participation: End-use efficiency, frugality, flexibility Importance of information & decision making Address problems of multiple decision makers Low emission generation: Renewables, zero emission coal, nuclear, No magic bullet Importance of appropriate innovation Command & control : Direct regulation of environmental impacts Eg, prohibition of the use of CFCs Economic instruments (some examples): Taxes on pollutants, e.g: Load-based licencing by NSW EPA Tradeable permits, e.g : Hunter River salinity scheme Tradeable credits, e.g : MRET scheme Renewable Energy Certificates 39 40

11 Methods to internalise environmental impacts Environmental taxes: Determine cost to pollute Tradeable environmental permits: Only permit-holders can pollute Caps amount of pollution & should find its highest value Grandfathering permits may reduce scheme effectiveness Hybrid tax & tradeable permit: Permit price cap limits the cost burden on the polluter Pollution baseline & credit: Polluter earns credit if pollution below agreed baseline Baseline hard to set in objective manner 41 Hybrid industry development & climate change response schemes Non-polluting technologies can be granted credits For example, renewable energy technologies Such schemes are hybrid schemes: Pollution reduction eg climate change emissions from electricity generation Industry development: Promotes the development of clean technologies Cost is likely to be higher than pollution reduction alone however, industry development adds additional value Australia was an early adopter of a renewable energy credit scheme 42 Emission trading scheme design options Cap & trade: Regulated entity (RE) must surrender permits equal to its emissions in each reporting period: Permits should be auctioned but are often grandfathered Constraining cap on total emission permits: Permit trading identifies cheapest way to comply Baseline & credit: RE credits = (assigned baseline) - (emissions) Credits can be sold to non-complying RE s Penalty for non-compliance in either case: Emission tax > the permit market-price Key issues in regulating by tradeable environmental instruments Relationship to the physical phenomenon: Each instrument is an abstraction from reality Design of trading arrangements: Markets in the instruments & their derivatives Effectiveness of the regulatory mechanism: Measured by attributable changes in operation & construction of assets Some important issues: Abstraction errors (including overlap), trading efficiency, compliance 43 44

12 Climate change policy recommendations Coherent innovation strategy involving many options Coal electricity + Geosequestration: An important area of R&D but not ready for deployment Early in demonstration phase (eg. US Clean Coal) IEA: best applications may not be in electricity Renewable energy: Ready now but needs deployment support plus R&D eg. expanded MRET, PVRP Energy efficiency: Ready now but needs deployment support plus R&D: eg. support for end-user decision-making Emission tax or cap & trade with permit auctions 45 Many of our publications are available at: 46