As the 2020 Renewable Energy Target nears, the doubters are beginning to look a little smug. Will we make it to 33,000GWh of clean energy, or 23% of generation, in three years’ time? It won’t be easy. But a report from Melbourne-based carbon consultancy RepuTex has found Australia can bank on the states, not the Capital, to get the job done when it comes to switching to renewables.
If Queensland, South Australia, Victoria and the ACT persevere in reaching their renewable energy targets – set higher than the federal benchmark – then 55 Terrawatt hours of new renewable capacity will be in place by 2030, equivalent to increasing the federal RET to 35% by 2030, up from about 23% by 2020.
“It’s not so much the idea that the states are supporting the RET, but almost the other way around,” says RepuTex executive director of energy and carbon markets Hugh Grossman. “It’s that the states, through their own renewable energy targets, are actually now beginning to support the federal emissions target.”
Whatever happened to the EIS?
Until late last year fans of green energy were holding out for the emissions intensity scheme as a policy tool to control wayward polluters, especially those in the electricity sector.
The emissions intensity scheme, or EIS, was initially proposed by Malcolm Turnbull as leader of the Opposition in 2009, working with independent senator Nick Xenophon and Danny Price from Frontier Economics. The idea grew: it was proposed by Climate Change Authority for use in Australia’s policy toolkit, supported by Finkel Review in its interim report and proposed by the Australian Energy Market Commission it in its most recent report.
“Every major energy review that’s been supported by the government or proposed by the government has put forward the idea of an emissions intensity scheme to bring some regulatory direction to the market,” Grossman says.
But the government squashed the EIS late last year when the terms of reference for its climate policy were released. “That’s why there’s been a lot of backlash, I suppose, from most market stakeholders about the very quick ruling out of an EIS even before the review takes place,” Grossman says. “Most people view it as quite a logical mechanism by which to bring downward pressure on prices and the orderly transition towards cleaner fuels in the NEM.”
Described simply, the EIS was a baseline and credit scheme running against a benchmark. If you pump out lower emissions than the benchmark you earn credits; if you pollute more than is deemed appropriate you’ll have to buy credits. “It’s certainly a de facto way of putting a price on carbon,” he says. “And that would have led the transition to renewables.”
The safeguard mechanism
Policing pollution sounds like an almost impossible task. What makes it all the more curious is that the electricity sector is the nation’s largest-emitting industry. “It’s probably the source of the cheapest emissions reductions,” Grossman says.
Another source of cheap emissions reduction is found in every home, office and factory, of course, with energy efficiency measures that are as simple as replacing lighting and adopting a more moderate approach to air-conditioning units.
Australia’s emissions reduction target of 26-28% by 2030 is about equivalent to an abatement task of 990 million tonnes between 2020 and 2030. What’s needed now, Grossman says, are policy mechanisms to divide out that task into achievable chunks. “If we take an EIS for the power sector off the table, the government has a more limited number of policies it can use to cut up that pie.”
One of those policies is the Emissions Reduction Fund (ERF), and RepuTex’s modelling includes an additional $2.5 billion for the fund additional to its original – and nearly depleted – $2.5 billion.
The Emissions Reduction Fund is “a good mechanism”, he says, although it hasn’t been enough to reduce Australia’s emissions. On the one hand, the Emissions Reduction Fund rewards those who cut their polluting activities; on the other, it’s “safeguard mechanism” (another policy tool) limits the abilities of dirty participants to buy cheap credits and accelerate their emissions.
“The basic design is … an incentive mechanism to trigger emissions reductions, but it would be a waste of money if industry emissions grew, because it would wipe out the gains made by the Emissions Reduction Fund.”
RepuTex has about 150 customers in Australia and the Asia-Pacific region, including government organisations and agencies, high-emitting industrial companies and renewable energy companies.
What goes where any why
If the efforts of three states and a territory can help Australia achieve its clean energy target then you wonder why the rest of the country, especially NSW and Western Australia, can’t set their sights a little higher than the federal benchmark.
After all, there’s plenty of money and lots of jobs at stake.
“It’s really is an arms race for investment between the states that we’re seeing now,” Grossman says.
South Australian may cop flak for its high renewables target of 50% by 2025 and current penetration of 41% but Grossman says renewable energy assets have been planted there not because of overenthusiasm on behalf of the state government but because the federal RET determined they should be built in optimal locations – where the wind blows.
“If you deleted the South Australian target you would still have the same renewables investment in South Australia, and that’s been driven by the federal RET,” he says. “That’s because South Australia has the best geography for wind facilities, and therefore investment has gone there first.”