Australian greenhouse emissions are officially projected to rise steeply, making existing and new emissions targets look like a big stretch – and suggesting enormous burdens on industry will be involved. But ‘business as usual’ projections need a very big disclaimer: relying on them is likely to lead you astray.
This year, most countries are likely to make new commitments to reduce emissions in the lead up to the Paris climate conference. Sometime in the next couple of months Australia will put forward its own post-2020 target, to follow on from the current bipartisan goal to cut emissions to 5% below their 2000 level by 2020.
Most groups have been reticent to suggest a specific number for Australia, though the Climate Change Authority is recommending 30% below 2000 by 2025 and 40-60% below by 2030. The new target will feed in to the ongoing debate about Australian policies to reduce emissions, including how to minimise the costs – and who should bear them.
Meanwhile, a team at the federal Department of the Environment has released the latest update to the official projections of Australia’s future emissions. The projection incorporates a cut-back Renewable Energy Target and does not include the potential effects of the Emissions Reduction Fund policy. The chart below depicts their projection, the 2020 target and indicative options for future targets.
Yikes. Based on the official projection, any plausible target – even just holding steady at the 5% reduction – constitutes a huge cut from ‘business as usual’ (the no-new-policies scenario). The cuts are so big you might ask how we could possibly achieve them – or afford them.
Yet Environment Minister Greg Hunt is on record as saying that Australia will easily achieve its 2020 target and has a strong ability to achieve deeper targets post 2020. Why is he so confident?
One answer is probably that the official projections are too high – and therefore the gap to any target is significantly smaller than it looks.
As the departmental chart below shows, the latest projections for 2020 are a lot lower than the last lot, and are heavily reduced from those made when the old Rudd Government emissions trading scheme was being designed in 2008.
The old forecast was based on robust energy demand growth met with black coal, continued growth in heavy industry output and not a lot of change elsewhere in the economy. Instead, we had a significant loss of heavy-energy-using industry in response to factors like the high dollar, and a vast turnaround in overall electricity demand in response to prices, policies and more.
The chart below shows the electricity demand forecasts that government has relied on, and how wrong they have been every year since 2009. It’s only recently that the energy market operator has adjusted to the new reality.
The latest revisions incorporate the new demand projections. But if you look closer, the coming jump in emissions looks variously questionable or relatively simple to avoid.
The overall projection breaks down by sector as follows (LULUCF stands for Land Use, Land Use Change and Forestry – basically emissions from clearing land, minus sequestration from regrowing forests):
The biggest contributors to the projected growth in emissions from today to 2020 and 2030 are as follows:
So for each sector we should ask whether the projection looks plausible, and how easy it might be to do better (or worse). Focussing on the big fish:
Land use: This is the biggest factor in projected emissions growth. Land clearing is assumed to resume, big time, following the loosening of restrictions in Queensland and potentially New South Wales. This could well happen. But it depends on policy decisions that are not set in stone. The Queensland government may tighten restrictions (though not hastily). And the re-elected NSW government has said its new laws will not reinstate broad-scale land clearing. What we do know is that regulation has reduced clearing dramatically in the past – though not without cost to landholders. Most of the activity paid for so far through the Emissions Reduction Fund (and the previous Carbon Farming Initiative) is avoided deforestation and land management. It will not be hard to do much better than the projection here.
Electricity: This is the second biggest source of emissions growth and the projection looks pretty shaky. There are three problems: First, it assumes the Renewable Energy Target is set at a ‘real 20%’ level of around 25-27 terawatt hours in 2020, but the deal that was ultimately done looks set to enshrine a 33 TWh target instead. That probably reduces emissions by 10-15 million tonnes to 2020, and much more to 2030.
Second, it assumes that electricity demand growth returns eventually. This may be true, but increasing efficiency and the spread of embedded generation and storage – which can act to satisfy an increasing amount of demand outside the visible electricity market – could easily produce a different story. On a less positive note, Australia could also experience a further loss of major industrial energy users due to scale, cost and global market issues.
Third, the underlying assumption appears to remain that new electricity generation capacity will be provided by black coal plants without carbon capture and storage (CCS). In a thought experiment scenario without any expectation of future emissions policies this may well make sense. But in practice it looks unlikely that anybody will build such a plant in Australia again – the regulatory, political and commercial risks are too high to make such a project bankable.
So we already know we will do better than the projection for electricity, and we could do a lot better – even without considering more costly or controversial scenarios like the electricity sector’s proposals for an orderly shutdown of existing high-emissions facilities.
Direct combustion, fugitives, industrial processes: These are different emissions categories, but the projected growth in each of them is based on expected growth in the resources sector – particularly coal and gas. This could easily happen. But the rapid softening in China’s appetite for coal (particularly imported coal) and apparent seriousness about slowing, peaking and reducing its emissions could well mean that Australian coal production is weaker than projected. More broadly, resources-related emissions are going to be heavily shaped by other countries’ emissions policies, which will impact demand and prices. Deeper and more serious commitments are likely to hit coal (unless CCS really takes off – if CCS were cost competitive with other future options, it could actually increase coal demand and exports, since the parasitic load of capturing and storing the CO2 requires 20-30% more coal to be burned per megawatt-hour of electricity sent out). Gas demand could increase, particularly in the medium term, as economies switch away from unconstrained coal.
The bottom line is that these projections look a bit too high to 2020, and in the longer term much of the projected emissions growth could simply evaporate as a result of other countries’ policies.
Transport: Passenger vehicles account for just under half of emissions; some of the growth story will also be around other transport modes (including more growth linked to resources exports). It’s a complex scene. But if we focus on private light vehicles, the projections assume that relatively low oil prices averaging around $85USD per barrel to 2035 inhibit efficiency and the attractiveness of alternatives. Let’s set aside the prospects of electric vehicles (or hydrogen fuel cells, for that matter), which are exciting but wide open to speculation. The projections assume not much progress on the fuel- and emissions-efficiency of existing vehicles.
Under current policy that may be right. But there have been suggestions that Australia adopt similar light vehicle efficiency standards to those in the United States, Europe or China (currently we have no standards at all). The Government has hinted, in the Energy White Paper and elsewhere, that it may consider this, especially given the looming end of the domestic car assembly industry and associated concerns about the impact of standards on local manufacturers.
Such standards could not have any significant emissions impact before 2020. But they would make a growing difference thereafter.
So overall the big areas of projected future emissions growth look either shaky or relatively simple to change. The yawning gap between projected emissions and future targets is misleading. And the minimum costs of emissions reduction targets are therefore less than they appear. This is particularly important to industry, which has borne much of the cost of past emissions policies and is most affected by future policies.
The projections have been framed in good faith and with defensible practices – but they rapidly fall out of date, or fall prey to the dangerous assumption that past performance is a guide to future returns. Most of all, we mislead ourselves if we forget that ‘business as usual’ is not a guide to ‘what will really happen’, but a constructed scenario doomed to remain always hypothetical.
Of course, the costs and benefits of the emissions reduction options considered above require analysis and debate, no matter how ‘simple’ they are. And while it appears certain that emissions will fall well short of the latest projections, the truly deep reductions implied by a global goal to keep climate change to less than 2°C will still be very challenging – a mountainous task.
But a closer look shows it is more Kosciuszko than Everest.
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