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A carbon price won’t bring zero emissions

If Australia is truly serious about avoiding climate catastrophe we are going to need to move towards a zero-emissions economy. A price on carbon emissions is an important component of climate protection…

Is Australia waiting for other countries to do all the hard work on renewables? Torresol Energy

If Australia is truly serious about avoiding climate catastrophe we are going to need to move towards a zero-emissions economy.

A price on carbon emissions is an important component of climate protection policies, but a carbon price alone probably won’t do much to reduce emissions.

Modelling and history suggests we should be looking at incentives for renewable power instead.

An unacceptable risk

Everything we hear about climate science is headed in the wrong direction. It’s more likely than not that the 25-40% by 2020 reduction target originally recommended by the IPCC — watered down to 5-25% by the Australian government — is too conservative.

Analysis from the Potsdam Institute found a high-per-capita emitting country like Australia needs to reduce emissions to zero by 2020 to give us a 67% chance of staying below two degrees of warming. This target is also more likely to be revised down than up.

Any engineering risk analysis would consider these unacceptable odds, but somehow we have decide it’s OK to take these kinds of risks for our entire society.

If we go for an interim solution like a carbon pricing scheme we are assuming our emissions target will not increase: that’s a big gamble.

What’s the point of a carbon price?

The Labor government has restated their commitment to legislating a national carbon pricing mechanism. At this stage of negotiation, it looks like Australia will initially get a fixed carbon price for three to five years, before switching to a market-based trading scheme.

But will a carbon price really drive a renewable energy revolution, as it is often argued (or assumed)? What policies will actually reduce carbon emissions at the scale and timeframe we need?

Carbon pricing is a nice way to help Australia achieve a mid-range emissions target, such as a reduction of 5-25% by 2020, but it is not going to drive the deep, rapid changes required to meet long-term emissions goals.

Look internationally, and you won’t find any good examples of carbon pricing leading to significant investments in renewable energy. History has shown that specific technology policies - feed-in tariffs, mandatory renewable energy targets and directed government programs - are the way to get growth and investment in renewables.

Analyses from the Australian Energy Market Operator (AEMO) and Melbourne Energy Institute numbers show that if carbon costs around $25-70/tonne the electricity sector will switch from coal to gas-fired power, and would not drive any extra investment in renewables beyond the Mandatory Renewable Energy Target.

It’s time to act on renewables

So why is this considered a more desirable outcome than building zero-emissions renewable energy infrastructure right now, even if the initial cost is slightly higher to start with? By deploying technologies earlier, creating larger, more efficient supply chains and gaining industrial experience, future costs can be reduced faster.

The cost of renewable technologies will go down as other countries innovate and deploy, while Australia waits around until the heavy lifting is done. This means those other countries will reduce their emissions earlier and gain the economic benefits from developing the technology and intellectual property.

The ‘cost of abatement’ shouldn’t be as important as we’re making it. Replacing coal with gas might seem like a cheaper option per tonne of abatement, requiring a carbon price of only $25-30/tonne compared to wind power’s $70/tonne.

But this fails to take into account two factors: burning gas still emits carbon, and renewable energy gets cheaper with scale, investment, industry knowledge and time.

The cost of a PV module has dropped from $5.8/Watt to $2.2/Watt over the past ten years. Where today’s solar panels might require a carbon price of $200/tonne to be feasible, a future rollout may only need a price of $50/tonne or less - if it hits grid parity, nothing.

Encouraging the transition to zero emissions

The key question to ask is not, “How high should the price on carbon be?” but, “How do we put in place zero-emissions power sources as quickly and effectively as possible?”.

To look to our past domestic climate policies for an answer would be myopic: Australia doesn’t have much of a history when it comes to carbon emissions abatement. For innovative and responsible climate policy, we must instead focus our attention internationally.

For the past two decades, wind and solar photovoltaic industries have grown exponentially. Feed-in-tariffs in continental Europe, mandatory renewable energy targets in countries with liberalised electricity markets like the UK, US and Australia, and direct government investment in renewables in places like China have encouraged investment.

These direct incentives have led to the innovation and economies of scale that have reduced the costs of the technologies.

If Australia wants to take a more effective approach, we need policies that encourage a range of renewable energy technologies.

Renewable energy: diversifying the field

A feed-in-tariff (FiT) would be a good place to start. Across a range of scenarios, a FiT can deliver more renewable energy than a carbon price that costs consumers about the same, but would only encourage gas.

The German Feed-in-Tariff (FiT) is a good model. This ensures that new renewable power plants receive a guaranteed rate of return over their economic lifetime. Extra payments per MWh of electricity are paid; these differ depending on the technology.

The Australian Mandatory Renewable Energy Target (RET) really only offers an incentive to whichever technology is cheapest. For large-scale renewables, this is currently wind power.

While wind power is important, cheap and mature, it requires other sources to balance and firm its power, for example concentrating solar thermal and hydro.

With a FiT giving differentiated payments to different technologies, a truly level playing field is created and technologies can be deployed in parallel.

The money to finance the FiT is raised by a small levy on electricity prices, just like the Australian RET. The relative increase in power prices is small compared to the existing charges for transmission, distribution and retail margins: it would add about as much as a carbon price.

It is vital that we look beyond a carbon price, beyond our borders, and beyond the next decade if we are to create responsible climate change policy.