Laggards or Leaders Global Energy Security, Affordability and Sustainability Grant King, Managing Director, Origin Energy AmCham Address, Sydney, 5 December 2014
As the world grows.... so does demand for energy and global emissions Cumulative Energy CO2 Emissions The IEA states that energy use accounts for 83% of carbon emissions that result from human activity. Source: IEA WEO 2014 New Policies Scenario, November 2014 Over the period 2012 to 2040 IEA models growth in population of 28%, GDP of 150%, energy demand of 37% and carbon emissions of 20% 2
The Kyoto Protocol signed in 1997 established the architecture we have today that has resulted in progressive carbon emissions reduction targets out to 2020 Source: WEO 2014 and Origin analysis Country Estimated 2020 Base Year Binding or pledged Targets 1990 2000 2005 /Region Targets MtCO2e Target Australia 5% below 2000 levels by 2020 557 -5% -5.0% -5.0% -12.3% 17% below 2005 by 2020 US 5,165 -17% -4.4% -19.5% -17.0% Japan 3.8% below 2005 by 2020 1,157 -3.8% 9.3% -0.8% -3.8% Canada 17% below 2005 level by 2020 823 -17% 36.7% 15.2% -17.0% European 20% below 1990 levels by 2020 3,410 -20% -20% -18% -18% Union (28) Germany 40% below 1990 level by 2020 734 -40% -40% -28% -27% UK 28% below 1990 level by 2017 532 -30% -32% -23% -21% Russia 15% below 1990 levels by 2020 2,688 -15% -15% 15% 21% 40-45 percent cut to 2005 China na na na na emissions intensity level by 2020 McKibbin’s 2010 modelling of the Copenhagen Accord commitments compare country targets to Business as Usual projections; he calculated Australia at -35%, the US at -33%, Europe at -36%, China at -22% and the World average at -17.5% 2020 is now close and further changes to policies currently implemented are likely to have little impact on 2020 outcomes; the focus is now moving to post 2020 targets 3
The carbon price and the RET were interdependent policy instruments established to help Australia achieve its 2020 target Carbon Pricing Mechanism • The carbon pricing mechanism obligated electricity generators and other large emitters to pay a certain price for every tonne of carbon dioxide equivalent emitted. • The price was initially fixed at $23 per tonne as part of a three year transition period to a floating Emissions Trading Scheme. • The revenue was largely recycled into the economy through compensation payments to households and emissions intensive trade exposed industry. Renewable Energy Target (RET) • The RET requires electricity retailers to acquit a certain amount of renewable electricity, on behalf of their customers. • Retailers fulfil this obligation by building their own projects, entering into contracts that underwrite projects (PPAs) or by purchasing certificates on the market. Interdependent policies • Renewable energy projects are underpinned by the combined electricity price (“black”) and the RET price (“green”). • The carbon price is embedded in the black price and was expected to increase over time. Source: MMA 2009 and Origin analysis • As the carbon price increased, the RET price would fall – as shown in the graph – to the point where the RET was no longer required. That is, the RET was a transitionary policy. These instruments have been dismantled or are failing with a new architecture set to get us to 2020 4
The initial carbon price implemented by the last government was insufficient to cause any material fuel switching Source: Origin analysis Source: NEMSight, Origin analysis SRMC - Average Fuel Costs Generation Energy Supply (July 2011 to June 2014) LRMC 200 6.0 6.7 Other 13.4 8.6 17.6 $/MWh 17.8 23.3 24.2 Wind Generation Output (TWh) 24.2 150 $/MWh SRMC 55.0 48.1 Hydro 46.6 Black Coal CCGT Wind Solar PV No Carbon $23/t Carbon 100 Gas Brown Coal 50 105.3 101.1 96.0 Black Coal 0 FY12 FY13 FY14 VIC Brown QLD Black NSW Black CCGT OCGT No Carbon $23/t Carbon Carbon emissions in the NEM fell by ~18Mt from FY12 to FY14 • ~8Mt was attributable to falling demand (~1.5Mt of which is increased rooftop solar PV) • ~4Mt was due to increased hydrology and ~2Mt due to increased wind • ~4Mt due to lower coal generation, particularly the closure of Tarong and Yallourn outage By the last election both sides of politics determined that an appropriate carbon price was zero or near zero and this ensured that the carbon pricing scheme would make little difference to carbon emissions from power generation 5 |
Because of constant fiddling with the scheme since 2009 the RET is failing to meet its objectives of supporting new renewable technology and driving down the cost of carbon abatement Source: CER, ACIL, AEMO, Origin analysis RET target, supplies and estimated REC bank depletion 45,000 40,000 35,000 Each year the target uses 30,000 existing supply and then Target (GWh) 25,000 draws from the bank 20,000 15,000 10,000 5,000 0 Existing Supply Committed Target 41 TWh REC bank Historical and forecast new wind and solar to meet the exisint RET target Forecast SRET - 3,000 Effective abatement cost Residential Wind Capacity Installation (MW) Solar LGC / emission reduction through $/tonne replacing various fossil fuels 100 2,000 90 Based on average 2011-15 LRET - Based on average 2011 – 15 80 Wind or LGC price at $35.4 LGC price of $35.40 70 utility solar 1,000 60 50 40 30 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 20 10 Operating - Wind Under Construction - Wind 0 Required Build - Wind Operating - Utility Solar Construction - Utlity PV Operating - Residential Solar VIC Brown NSW Black QLD Black CCGT Forecast New Residential Solar Solar Hot Water / Heat Pump Source: REC Registry, AEMO and Origin Analysis Absent any material carbon price the true cost of reducing carbon through the RET scheme is excessive 6
With changes in forecast demand for energy the 2020 target is significantly lower than previously anticipated Source: Energetics, October 2013 There are a range Direct Action approaches to • reducing emissions in other countries including China closing smaller, older coal plant • primarily to improve air quality • The US placing Emissions Performance Standards on new electricity generation Japan’s Joint Crediting Mechanism • Sweden’s Clean Development Mechanism • Norway’s Carbon Procurement Facility • Alberta’s Specified Greenhouse Gas • Emitters Regulation California’s Compliance Offset Scheme • A September 2014 research note published by • A range of regulation that improves Frontier Economics estimated that cumulative efficiency of vehicles and appliances reductions by 2020 with a reduced true 20% RET are in the range 264 MtCO2e to 336 MtCO2e. Source: Emissions Reduction Fund White Paper, April 2014 and other Direct Action is replacing prior schemes and is as likely as the schemes it replaced to help Australia meet its 2020 objectives 7
We have allowed our progress to be measured against emissions per capita, which makes us look like a laggard, but this fails to understand the true nature of the Australian economy Australia is 0.3% of the world’s population, 1.5% of global carbon emissions and 2% of global GDP: 10 th largest country by GDP per capita • 12 th largest country by GDP at USD1.6 trillion • 15 th largest carbon emissions at 600 MtCO2e • 51 st largest country by population with 23.4 million people • But we are a major global provider of energy and resources: largest exporter of iron ore • largest exporter of coking coal • second largest exporter of thermal coal • third largest exporter of Uranium • largest producer of bauxite, second largest producer of • alumina and fifth largest producer of aluminium one of the largest producers and exporters of Copper, • Nickel and Zinc second largest exporter of wheat and two thirds of • Australia’s agriculture is exported. projected to be the largest exporter of LNG by 2018 • Source: EDGAR, Trends In Global CO2 Emissions 2013 Source: DFAT Statistics and Origin Analysis As one of the world’s major agriculture and resource exporters we need a measure that better reflects how efficiently Australia converts carbon to GDP and how we compare with other countries 8
A better measure of progress is carbon emissions to GDP When measured on consumption not production the UK’s emissions are 46% higher, Italy 25% higher, France 43% higher, Germany 28% higher and Australia 2% lower Source: Research referenced in the Deloitte Report Source: IEA data, Deloitte analysis, November 2014 (updated December 2014) This shows Australia is better than the average and better than most at efficiently converting carbon to GDP, by this measure Australia looks more like a leader 9
Deloitte has updated its analysis for energy related carbon emissions with data from WEO 2014 Source: IEA data, Deloitte analysis, December 2014 It shows that the line is moving in the right direction with the average falling by 1% from 0.57 ktCO2e per GDP (millions) to 0.56 ktCO2e per GDP (millions) 10
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