Flying blind on climate policy
Many centuries ago, a traveller in Egypt came across some men slowly cutting large blocks of stone. The traveller asked the men what they were doing and one of them angrily replied, "We are cutting rocks, can't you see? Now move on!".
Later in the same day, the traveller came across another group of men eagerly cutting stone. The traveller asked the same question as before, to which one of the men jumped up, beamed and proudly answered, "We are part of the team building the pyramid!"
As we try to digest the myriad initiatives and ideas that are on the table to address our emissions impact and climate change, we need leadership that will give us the vision we all need to pull this together as a team – as the Egyptians did so long ago.
Last week there was a long awaited development here in Australia, with another announcement on a climate change policy: We are to have a carbon price by July, 2012 – well, at least, to have discussions, with a view to launching a carbon price by then.
But already the gloves are off for this discussion, with the federal opposition indicating they would repeal any carbon tax if elected.
So, perhaps it is time to stop and think – exactly what problem are we trying to solve with the carbon tax announcement?
Are we trying to migrate our electricity supply portfolio so as to increase the proportion of renewable, no/low emission capacity by certain target dates?
Or, are we trying to reduce demand for electricity and gasoline to somehow reduce emissions generated from the supply (and use) of these products?
Finally, what exactly are the results we can expect the carbon price policy to achieve by 2020 and can we be sure this will actually happen?
As I have said on Climate Spectator before on this topic, the carbon price required to move our electricity supply side from coal-fired to gas-fired would need a substantive carbon price – in the order of $60/tonne or more. Without complementary measures or direct action, a price of $100/tonne or higher would be required to stimulate investment in deploying new capacity using renewable technologies to produce power.
A nominal carbon price of say $20/tonne will simply increase the cost of power to all users – and open up Pandora’s box for everyone that feels the need to be compensated for their claimed losses as a result of the new tax. It should be noted that a $20/tonne carbon price at the wholesale level will likely grow to multiple tens of dollars per MWh at the retail price point as the carbon price cost is passed through and uplifted along the supply chain.
Then there is the argument that a higher electricity price, as a result of the carbon tax, will reduce demand. While this may be economically true, there will be limits to what reductions consumers will actually achieve, and such reductions may or may not lead to a reduction in baseload power consumption – the cheapest of our power supplies and the one mostly generated by the highest emitting sources.
Energy efficiency programs are, of course, a vital initiative with considerable benefits, but there is more to it than just raising energy prices for it to be successful and not have an adverse impact on the economy. In fact, we are already experiencing numerousprice rises in our electricity rates, so there is plenty of motivation right now to reduce demand for those who can.
While it is certain that our electricity prices will increase from the proposed carbon price levels, there is absolutely no certainty that there will be any meaningful change in our generation portfolio mix towards renewable energy, nor is there certainty that price-driven demand reductions will actually reduce emissions in meaningful quantities.
Further, there is no current commitment or plan to spend any of the funds raised by the carbon tax policy on programs that would drive new investment in no/low emission generation capacity or shut down existing facilities that produce excessive emissions. Rather, the funds will be consumed in various compensatory programs.
We run the risk of introducing a carbon price that increases costs of living, does not motivate new generation investment and does not raise funds for clean economy transition programs because the taxes raised are redistributed for compensation.
Again, we must ask – what problem are we solving here?
To move forward, what we need is leadership and the vision for where we want Australia to be in the future, as a low carbon emitting and sustainable economy, and the plan for how we will get there from here.
Simply putting in place an array of market mechanisms and hoping that they may, in turn, yield a set of behaviours that will change our situation is a very big a leap of faith. That is not leadership. Rather, it is gamesmanship – betting that a numbers only-based strategy will yield a change for the better.
Worse, there is no evidence or “business case” that has been tabled that demonstrates how the proposed market mechanisms will lead to achieving stated targets and portfolio changes by 2020.
As suggested in a Climate Spectator commentary I wrote last December on long-term planning, we need to, as an example, pull together a comprehensive plan for our energy supply side for 2020 and beyond. This vision and plan should articulate, as precisely as we can forecast today, what needs to be built, what needs to be shut down and what Australia's energy infrastructure will look like by various milestone dates in our future.
Our Danish colleagues have achieved this in recent times with a plan that has transformed their power generation from a centralised, fossil fuel-dependent generation portfolio, to one that is distributed and renewable.
With such a plan, you can have a meaningful discussion about the mechanisms and funding required to ensure we deliver on the desired plan and vision.
Once a proper plan has been worked up, my educated guess is that it will become clear that a carbon price is not the mechanism for driving change. It may well be a steady state measure to help level the future cost playing field over the long term but, alone, cannot drive change unless the carbon price quantum is extraordinary and too large for the broader economy to swallow.
So, what is the alternative to where we are at presently? The following is a simple, but practical approach to identifying the problem to solve and the leadership required to achieve the solution:
1. Be clear about the problem we are trying to solve here. For example, we may want to achieve an agreed target reduction in emissions per capita (or some other benchmark) by 2020 and beyond. The problem statement needs to be crystal clear with defined targets and timelines. This drives everything else. There are a number of well-researched targets that can be embodied in an appropriate problem statement.
2. Detail the various options for solving the stated problem. For example: reducing our reliance on coal-fired power generation; reducing vehicle emissions; reducing other industrial emissions, etc, and then prioritising the quantified options based on parameters such as cost to implement, ease of implementation, timeframes, and so on.
3. Make the choices about which options should be implemented by when. Not easy, but this is where leadership becomes key.
4. With the chosen options as the foundations, paint the picture of the vision for our new 2020 and beyond landscape and why Australia will be a better and more sustainable place as a result. This will be our modern day "pyramid" to rally the entire community.
5. Develop and define the detailed programs that need to be implemented so as to facilitate the implementation of the options selected in 3) and achieve the vision.
6. Last, but not least, enact the funding mechanisms to raise the funds needed for the programs defined above. At this point, there should be a clear view on what quantum of funding is required to facilitate the transitions. Raise only those funds that are actually needed. In the case of funding for, say, changes to the electricity generation sector, these funds could be raised through a simple electricity retail levy – likely a much lower cost option for all than a wholesale carbon price. But, a carbon price will certainly raise plenty of funds that can be directed to these programs if that is the decision of government.
We are running out of opportunities to get this right, and it gets harder the longer we wait. Let’s make sure we are putting in place a comprehensive program that will actually address the real problems and lead us to success by 2020.
Don’t get me wrong – a carbon price will certainly have a place in enabling a future level playing field and can more than help fund 'the plan'. But let’s not fall into the trap of thinking that a nominal carbon price will solve the major climate change and emissions issues by itself. We need leadership for our new "pyramid" now. A great start would be a well defined vision for 2020.
Andrew Dyer, a former McKinsey & Co consultant, has worked extensively in the energy and utilities industries in Europe, the US, Asia and Australia. He is now a Company Director.
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Read the Critique as well
Chris Wright
As well as reading the ZCA report, I suggest you also read the critique that I joint wrote last August:
http://www.energyinachangingclimate.info/eiacc%202010_008.htm
Beyond Zero Emissions Report
Olga,
Thanks for the reference to the University of Melbourne's Energy Institute Beyond Zero Emissions Report - I hadn't seen this - looks like a plan that needs to be brought to the attention of our politicians!
Thermal Coal Exports
"Be clear about the problem we are trying to solve here."
Well it should be about phasing-out our most polluting contribution: thermal coal exports. taxing them to help pay to transition ourselves from this filth and to assist poorer countries addicted to it - but it's not. Then we can move onto the challenges of steel-making (coking) coal.
Instead it's about our addressing a small chunk of our domestic emissions with a price too low and compensation too high.
Meanwhile we still provide $12 billion a year in fossil fuel subsidies/tax-breaks.
renewables
Thank you Andrew for distilling the reasons behind the inertia on energy policy. You are spot on when you say: "Simply putting in place an array of market mechanismas and hoping that they may in turn yield a set of behaviours that will change our situation is a very big leap of faith. That is not leadership. Rather, it is gamesmanship - betting that a numbers only-based strategy will yield a change for the better.'' - And I can't believe that politicians actually believe that such a formula will be effective in reducing emissions. Your call for a plan to be put in place to "solve the problem" needs to be echoed, and loudly. But there is no need to go back to the drawing board with your 6-point list to identify the problem and write a plan. The plan, or at least a crucial plank of the plan, has already been written. It was launched last year by the University of Melbourne's Energy Institute and Beyond Zero Emissions - http://bit.ly/gzMjWt - since then it has been widely acclaimed here and overseas by the most eminent and respected energy experts. What are we waiting for. Seize the day. It won't be cheap, but it will be just what the planet needs. Ironically, the renewable technology detailed in the BZE plan - http://www.energy.unimelb.edu.au/uploads/ZCA2020_Stationary_Energy_Repor... - concentrated solar power (CSP), had its pre-World War One genesis in the Egyptian desert from which you so poignantly suggest we should draw inspiration when solving Australia's energy dilemma - http://bit.ly/ept52S.
renewables
Thank you Andrew for distilling the reasons behind the inertia on energy policy. You are spot on when you say: "Simply putting in place an array of market mechanismas and hoping that they may in turn yield a set of behaviours that will change our situation is a very big leap of faith. That is not leadership. Rather, it is gamesmanship - betting that a numbers only-based strategy will yield a change for the better.'' - And I can't believe that politicians actually believe that such a formula will be effective in reducing emissions. Your call for a plan to be put in place to "solve the problem" needs to be echoed, and loudly. But there is no need to go back to the drawing board with your 6-point list to identify the problem and write a plan. The plan, or at least a crucial plank of the plan, has already been written. It was launched last year by the University of Melbourne's Energy Institute and Beyond Zero Emissions - http://bit.ly/gzMjWt - since then it has been widely acclaimed here and overseas by the most eminent and respected energy experts. What are we waiting for. Seize the day. It won't be cheap, but it will be just what the planet needs. Ironically, the renewable technology detailed in the BZE plan - http://www.energy.unimelb.edu.au/uploads/ZCA2020_Stationary_Energy_Repor... - concentrated solar power (CSP), had its pre-World War One genesis in the Egyptian desert from which you so poignantly suggest we should draw inspiration when solving Australia's energy dilemma - http://bit.ly/ept52S.
The need for a Silver Bullet
@Bruce Armstrong - yes the oil shock when it comes will be like an earthquake. We need a big gun to fix it. Right now renewable energy doesn't look like it's got the fire power needed. We need a silver bullet.
You are wrong however when you imply that uranium is finite in the way fossil fuels are finite - within this century. We already have the technology to extract sufficient energy from the existing mined uranium and stored uranium "waste" to provide our energy needs for centuries. The Chinese, Japanese and Indians are already building it. Before long the Americans will rediscover it too.
The only energy source we have with sufficient energy density to realistically replace all our fossil fuels is that silver metal - uranium and maybe thorium. As Tom Biegler says, the politicians don't want to hear it - yet. Practicality will dawn eventually.
A dinosaur named Tony
I completely agree that we need a vision in additon to a carbon price.
I thought it was worth watching the film 'A crude Awakening' again, to remind me of the nature of some of the less-discussed issues around the subject.
The storm brewing will occur on two fronts;
First, the coming inexorable oil shortage is like an earthquake. We know that it is certain, but the timing isn't and probably won't be known until after it has occurred.
The prevailing projections (excluding exxon) is for it to occur in 1011 or 2012 (or did it occur in 2007?).
Coal is also a fossil fuel and finite, but more likely to last to 2040 or so. THis will depend on how much our dependency is moved to coal.
Uranium is also finit, so dependency on that may not be a wise path to follow.
The second is the insidious (greenhouse) legacy we are leaving future generations in coming centuries. The science is clear, with some issues as to magnitude and timing, again. One thing that is becomig obvious is that burning all of the available coal will likely put the atmospehere into the same state as it was 65Million years ago when the arctic oceans were tepid and anoxic.
I see oil shock being the most pressing issue and likely to cause economic chaos long before the effects of CO2 concentration and climate disruption do.
What is abudently clear is that coal and oil are such enormous energy sources that replacing them is going to be very difficult.
Most repondents talk in terms of single solutions which are demonstrably incapable on their own.
We need a broad policy that tackles the problem from all angles.
I feel that out polticians are incapable of doing this before a crisis (oil) unites them, at which time it will be too late to make the necessary changes without a lot of pain.
A plan to reduce emissions
Ignoring the purely political question of Australia's singular role in reducing global emissions, all of the information to create a 'Dyer plan' is presently available, but not to everybody's satisfaction. There are disagreements on costs, projected cost curves, projected feasibility of emerging technologies like CCS and geothermal, capability of intermittent renewables to provide baseload power, acceptability of nuclear power to the community, and the impact of higher energy costs on living standards. That's why there is no plan. If switching from coal to natural gas and from SUVs to minis is all that's required, fine, and a plan can be constructed and implemented now. Will it make voters happy? I doubt it. Will it meet the deep cuts needed to reach IPCC targets? No. What's more, if a real plan were to be constructed from the current hard information, it would horrify the punters. The politicians won't like that.
Danish wind ineffectual
@rod hall, the point is that apart from being something completely different to what Andrew Dyer implied, "20% or so of their electricity production comes from wind" even if replicated globally, will make nowhere near enough difference to the climate. Danish CO2 emissions per kWh of electricity are anywhere from four to seven times those of France. It's the latter level we need to attain, to avoid dangerous climate change.
A Simpler Vision
You are correct however you over-complicate the solution. Simply, the vision can be to reward reduction and elimination of carbon emissions funded, as the cost of the rewards rise, by a tax on all carbon mined and extracted from Australia (Including carbon for export) plus tax on carbon imports. The carbon consuming "market" will decide how the emission reductions are achieved based on the optimum carbon-reward/investment-cost ratio. Tax to fund rewards should not be on emissions but on carbon extraction that eventually results in carbon emissions. Tax only ramps-up after emission reductions are achieved. The goal is to acheive emission reductions by 2020. The vision above is the method to do it.
Denmark Is Actually A Very Good Example To Use
The big commitment in Denmark was to Wind Turbines and especially the more effective off shore variety. 20% or so of their electricity production comes from wind.
This was built via government commitments including 30% of capital costs in the first years and high feed in tariffs.
This was linked with a real commitment to building a wind turbine industry within Denmark.
Hugely successful and a role model for all countries that really want to do something significant. Positive incentives to build wind farms off shore.
The Rudd/Guillard Carbon Tax to ETS is a completely different approach. In fact the very successful Danish model looks a lot more like the Abbot Coalition policy.
Clear vision
Thank you Andrew for some rational and informed discussion on this debate. As much of our current strategy on this subject seems to have been written on the back of a drinks coaster (if its been written down at all) it is refreshing to see questions that should have been asked at the very beginning. No business could exist making decisions the way government does, but then businesses don't have inexhaustable tax payer funding to waste.
They're good at fairytales in Denmark
So the Danes could turn off all their coal-fired power stations tomorrow, could they? No? Well then, that would make "...transformed their power generation from a centralised, fossil fuel-dependent generation portfolio, to one that is distributed and renewable" misleading garbage, wouldn't it?
Indeed we need a plan, but let's use one that's demonstrably worked - like France's - rather than one that demonstrably hasn't, like Denmark's.