September 27, 2017

Australia Needs 75% Renewables by 2030 to Meet Paris Targets, Cut Costs

Less than one year after the Australian government agreed to ratify the Paris Agreement on climate change, a new report has warned that Australia risks falling short of its own national emissions targets  without significantly ramping up the electricity sector’s shift to renewable energy.

The report, the first major publication from The Australia Institute’s new Climate & Energy Program, finds that to meet Australia’s unambitious 26-28 per cent by 2030 Paris commitment – and to do so for the least cost to the economy and other key sectors like manufacturing – electricity sector emissions would need to be cut by between 40-55 per cent below 2005 levels by 2030.

The good news, is that this “least cost” emissions reduction approach is eminently doable. The bad news – at least for the Turnbull government and its right-wing anti-renewables rump – is that it will mean building a great deal more renewable energy generation between now and then, and framing policy to support that build-out.

According to the TAI – which uses the summarised results of a number of separate government commissioned analyses to support its findings – using an abatement cost approach to electricity sector targets, and a policy like the Clean Energy Target recommended by the Finkel Review, would lead to as much as 75 per cent renewables by 2030.

“This analysis of the economic modelling demonstrates meeting (40-55% emissions reduction) targets for the electricity sector with a policy like the clean energy target is likely to require 66-75 per cent of electricity to be supplied by renewables,” said Ben Oquist, TAI’s executive director, in comments on Monday.

“If Australia adopts a weak clean energy target which does not provide a strong signal for renewables, we risk turning Australia’s moderate Paris targets into an extremely expensive task.”

Indeed, the findings echo modelling done by the Finkel Review which showed that – if a CET was to match the Paris climate goals, rather than Australia’s downpayment, then a renewable energy share of around 70 per cent by 2030 would be required.

The report’s findings come at a critical time for the Turnbull government, which appears to be stuck in a dangerous no-man’s land on both climate and renewable energy policy, while under attack from within.

Leading that internal attack is former PM Tony Abbott, who last week declared he would cross the floor and vote against anything remotely resembling a climate change policy, or the smallest subsidy for renewable energy.

As Giles Parkinson put it in this piece last week, Abbott’s declaration of war on everything not only wedges Malcolm Turnbull in a highly uncomfortable policy position, but returns Australian industry and the energy sector to the miserable realisation that nothing much has changed, in terms of investment certainty.

And it reminds us of the uncomfortable reality – highlighted in the report – that the very climate targets we risk failing to meet were set by the same man who now seeks to undermine them: Tony Abbott.

“If Australia is to achieve the Abbott government’s climate targets new energy policies will be required,” report author and TAI director of research Rod Campbell writes.

“Both issues are of high current policy interest. The Australian government is currently considering whether to implement the proposed CET and what targets it might set for the electricity sector as part of its 2017 Climate Policy Review.

“The Opposition has signalled ‘in principle’ support for a CET and has committed to a 50 per cent renewable energy target by 2030, which has been ridiculed by the government and conservative commenters.”

For those who remain confused, Campbell carefully explains why a mechanism like the Clean Energy Target remains so important for Australia, even as large-scale solar and wind farm development are starting to take off. And why any form of policy uncertainty remains so damaging – in particular for electricity prices.

“Electricity generation assets have long economic lives. This means investors need to consider both existing and future carbon-energy policy settings. The apparent incongruity between Australia’s 2030 mitigation targets and the long-term commitments embodied in the Paris Agreement create uncertainty,” the report says.

“Investors do not know whether the unambitious approach embodied in the 2030 targets will persist, or whether policy settings will be modified to give effect to the Paris Agreement’s commitments.

“As the hypothetical scenarios in Figure 9 illustrate, the post-2030 policy settings could remain unambitious, which might translate into a gradual decline in electricity sector emissions under the CET through to 2050 and beyond.

“Alternatively, there may be a rapid increase in the level of ambition, requiring a sharp drop in electricity sector emissions in the 2030s and zero emissions by 2050.

“The uncertainty about post-2030 policy settings could deter investment and increase the cost of capital, with flow on effects for the price of electricity in the market.”

Figure 10 shows how a long-term investment signal approach avoids this uncertainty by setting emissions targets in line with the long-term objective of decarbonisation at or before 2050.

“Rather than facing the prospect of abrupt future changes in emissions, investors face a long-term emission path that provides them with certainty about policy settings over coming decades.”

The report also reminds readers that under almost any scenario modelled on “reasonable” carbon abatement targets, the vast bulk of Australia’s electricity generation mix is renewable from the mid-2020s on, while coal-fired generation is phased out in the early 2030s. Indeed, coal fares the best under the CET.

“The overall message from the Jacobs modelling for the CCA is clear – a CET-like policy is likely to bring in the largest share of renewables. This would come particularly at the expense of gas, with coal-fired generation also lasting longest under a CET,” the report says.

“The government has been consistent in its commitments to Australia’s international emissions targets,” said TAI’s Oquist. “It remains to be seen if we choose to meet those Paris commitments the easy way, or the hard way.

“Unless energy and climate policy are integrated we will have neither reliability nor affordability, let alone the ability to meet our international commitments,” Oquist said.


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