Our priceless dilemma
A colleague of mine has come up with an analogy that neatly sums up the predicament facing the Australian energy sector as it ponders investment decisions in the absence of a price on carbon.
“It’s like playing cricket,” he says. “You hit the ball and you head off to run a single when suddenly, half way down the pitch, you realise that you’re stuck: you’re going to get run out if you head for the bowler’s end, and you’re going to get run out if you go back to the striker’s end.
“It’s the same when it comes to investing in new baseload generation: you can’t invest in gas-fired baseload because, while you know there will be a price on carbon, you don’t know what it will be or when it will start; and you can’t invest in coal-fired baseload because, while you know there isn’t a price on carbon today, you’re pretty sure there will be one in the future.
“We’re stranded half-way down the pitch.”
It’s a good analogy because it explains, in simple terms, the position in which the energy sector finds itself in the absence of climate change policy settings that give business the certainty it needs to make investment decisions for the long term.
We appear to have arrived at this no-man’s land partly because some people still question whether we need to be concerned about transforming our economy for a low carbon future. These people ask whether we need to be concerned about climate change at all.
They also ask whether what we are doing today, in terms of injecting millions of tonnes of greenhouse gases into the atmosphere, is okay.
I would answer these questions with another question: Do you think the community would accept 1,000 oil wells leaking at the same rate as BP’s Gulf of Mexico Deepwater Horizon well every day into our oceans for the next 40 years? Would the community accept the damage this would cause to marine environments? Would society regard this as an acceptable outcome?
The answer to all of these questions is clearly a resounding “no”.
Yet every single day, we emit the equivalent greenhouse gases into the atmosphere of not 1,000 BP Deepwater wells, but more than 9,000.
Community expectations are changing and the energy industry will need to change with them.
For anyone who still questions the science and whether we need to act, I would ask them to consider these facts:
The global atmospheric concentration of carbon dioxide has increased from a pre-industrial era range of between 180 and 300 parts per million over the past 650,000 years, to around 390 parts per million today.
The primary source of the increased concentration of carbon dioxide in our atmosphere is fossil fuel use for the production of energy. Under a business-as-usual scenario, global emissions related to energy production and consumption will increase by a third to more than 36 gigatonnes a year by 2020.
The Intergovernmental Panel on Climate Change has stated that there is a 9 out of 10 chance that observed warming of the earth’s atmosphere is due to anthropogenic emissions of carbon dioxide and other greenhouse gases.
In most industries, if there is a 9 out of 10 chance that something is occurring which can cause significant damage to your interests, you act to deal with it. It is simply prudent risk management.
The issue of climate change should be no different. We should be taking prudent, sensible and measured action today to ensure that the risks associated with climate change are managed properly. Given the risks, we would be failing as business and community leaders to ignore the quantitative evidence. It is a long-term issue that requires long-term solutions.
It is clear that all industries, including the energy sector, require a clear policy framework if we are to make that transformation to a low carbon future with as little disruption to the economy as possible.
There certainly appears to be a consensus around “community concern” over climate change when you consider that the Climate Institute and Auspoll recently found that 83 per cent of people are concerned that greenhouse gas emissions are making climate change worse.
However, there is not yet consensus among political, business and community leaders around the policy frameworks we need to establish to achieve the cuts required to manage the risks associated with greenhouse emissions.
Our government has agreed to a minimum 5 per cent reduction in emissions by 2020, relative to 2000 levels, or to a 2 per cent cut if countries collectively reduce emissions to achieve the objective of keeping temperature rises below 2 degrees Celsius.
If we take the midpoint – a 15 per cent reduction on 2000 levels – that would require a 29 per cent reduction in business-as-usual emissions, or about 190 million tonnes. Policy makers around the world believe the three main policy tools to address climate change are emissions trading, renewable energy targets and energy efficiency programs.
Australia’s 20 per cent renewable energy target can potentially achieve around 40 million tonnes of abatement. If energy efficiency measures manage to maintain a constant consumption of energy to 2020, it would save another 40 million tonnes.
This leaves a gap of 110 million tonnes still to cut. And this is where emissions trading, universally regarded as the least-cost way to reduce greenhouse gas emissions and a policy which had bipartisan support at the 2007 federal election, comes into play.
Reducing emissions is an economy-wide exercise. A market based solution will deliver a lower cost outcome. It is my firm view that a broad-based cap and trade emissions trading scheme is the best way to deliver least cost solutions for reducing emissions.
Emissions trading can achieve all of the abatement we would need to achieve our midpoint target of 15 per cent.
What is very clear, however, is that if we don’t put a price on carbon, as well as implement additional policy mechanisms, we won’t see the investment necessary to meet such a target.
We need a broad-based emissions trading scheme and the government should implement such a scheme as soon as a consensus can be achieved. But we don’t have much time.
The transition to a lower carbon economy is likely to take decades; but the earlier we begin, the greater the benefits and the lower the costs – a point that has been highlighted by the Climate Institute’s new report, which concludes that the lack of a price on carbon will cost Australian households an extra $2 billion a year in higher electricity prices by 2020.
Michael Fraser is managing director and CEO of AGL Energy Limited
Comments on this article
climate is changing or not
Regardless whether IPCC's report is correct or not, regardless whether there is actual climate change or not and that we have actual data to prove it or not, isn't it obvious that we are pulling out resources everyday out of the earth's bed changing its form to make it more consumable for human being. From a layman's point of view we are changing the form of the resources and making them into usable resources. This is obviously releasing some form of elements which were previously not present in the atmosphere, and agreed that this has been happening for 1000's of years but also remember that for those 1000's of years there was no life on earth because life couldn't exist. The people who are opposing climate change are opposing for logical reasons and logical reasons need fact behind it, however even if we forget about climate change shouldn't we argue that the resources on earth are limited and that their transformation is limited, so in order to drive current consumption pattern we will be depleting the resources at some point of time thus leaving nothing for the generation. Now in process of making our life more sustainable and recycable we are actually addressing climate change and its attributes that incude use of renewable energy to reduce carbon etc.
So for people who argue against climate change, the arguement is that it is imminent that we change the way we consume which in a way will lead our economy to a low carbon economy and thus curb climate change.
10 out of 10
What the IPCC failed to mention, is the 10 out of 10 chance that the Sun is the main driver of climate change?
The Sun is approximately a million times bigger than the Earth and our CO2 emissions are about a millionth of our atmosphere give or take a zero (depending on whether you're talking World or Australia).
There's not too many solar experts over at the IPCC, not too many geologists (they know too much) and I'm guessing, not many mathemeticians.
Intersting take...
We "have no idea whether the planet is warmer or cooler than it "should be"."
How about we put aside the concept that the planet has some "normal" temperature and concentrate on whether the planet is getting warmer than we want it to be?
Would you want to live in a place where the summer heat waves of today would be considered 'just a normal summer day' and summer heat waves would be significantly hotter and longer? We're talking melting your skivies hot.
Screw up the climate we enjoy and that much hotter place will be your present neighborhood. And ~98% of the top climate scientists say that we are screwing up our climate.
Get sick and 98 out of the 100 doctors you visit tell you that if you don't have corrective surgery right now you will die a miserable life much too soon.
Do you have the surgery?
Do we risk the future of our children and grandchildren just because a few people don't believe the data?
Michael Frazer's Cricket Analogy.
What a desperate attempt to make a simple concept totally obscure !
Copenhagen failed because it had no merit, was based on fallacies and deserved to fail !
After centuries of the Earth locked in an "ice age" , global warming recommenced about 20,000 years ago and continued until about 10,000 years ago , leaving the polar regions,glaciers and ice-sheets we recognise today. There is seasonal (summer) thawing and subsequent (winter) re-freezing of these areas each year. We are shown film-footage of the annual summer melt of glaciers and their retreat , ice-shelves collapsing and calving and rivers and water-courses drying up in an alarmist way as though this was an ongoing and irreversible process to oblivion; whereas it is a normal cycle which reverses in winter when everything returns back to it's natural cycle to simply occur again next year.
The "thaw" was NOT caused by an increase in CO2 or (so called) greenhouse gases but by a warmer cycle of the sun ( where ALL our surface warmth comes from)
Had this thaw NOT occurred then our civilization would never have arisen. My ancestral homeland, Scotland, would have remained buried beneath about 2 kilometres of ice and depressed deep into the earth. Useless for any form of vegetation or habitation! Likewise for most of the northern hemisphere land masses.
We exist in a geologically warm period, a "window of opportunity" inside an ice-age. I think we should enjoy the warmth, grow our crops and live-stock , breathe the air and thank our lucky stars that we exist at this most fortunate time of climate and development !
We DO NOT UNDERSTAND our climate despite our best attempts and "computer modelling" hasn't helped much.Try running one of these "models" in reverse and look at it's predictions ! They ALL fail miserably ! If it was "true" then we could unlock our past and be able to predict our future climate, but without "tricks" and "fudging". As the world warmed BEFORE mankind was so numerous or had the industries of today then it is BLATANTLY obvious that the presence or absence of a small amount of atmospheric CO2 has NO BEARING on global warming and indeed is a total red-herring !
Plants , through photosynthesis ,use CO2 and water and sunlight to make sugars and starches and cellulose etc and give off the excess oxygen produced into the atmosphere which allows aerobic animals (like us ) to breathe and exist. Therefore , CO2 is a VITAL COMPONENT of the atmosphere which plants MUST HAVE to function. The atmosphere now contains about 16 % oxygen and the remainder is mostly nitrogen. When we breathe in air we inhale some CO2, about 0.04% (400 ppm) and when we breathe out we discharge much , much more CO2 in our breath, about 4% (40,000 ppm ). In a crowded room the CO2 level can reach 1000 ppm or more and while "stuffy" it is far from lethal.So we are able to tolerate a wide range of CO2 levels without being harmed. In fact , CO2 levels are deliberately elevated in "greenhouses" ( glasshouses) because it is BENEFICIAL to stimulate the growth of plants and increase the production of food .
So , since CO2 is a vital part of the air , DOESN'T CAUSE global warming , has increased only very slightly recently (PARTLY due to our utilisation of carbon fuels ) which is probably beneficial for plants, is vital for our food production ...............what is all the fuss about ??????
It is all about MONEY !
Many people , including Government bureaucrats and "speculators" want to impose and entrench a WEALTH CREATION SCHEME they can exploit . As oil is being depleted (and in many countries , coal and other energy sources) the vast taxation collection is at risk ( along with THEIR jobs and prospects). For far-from- honourable purposes an "alternative energy industry" is proposed and a "scientific basis" is required to justify the "planet saving " change, although this "science" was exposed as "tweaked science" at Copenhagen. This should have caused them to "take their cricket bat and go home " but they have so little honour ( when it concerns money) that they have persisted in pushing their purile and empty "science" in collaboration with ,and encouragement by , many governmental agencies worldwide , which stand to realise vast wealth (grants , prizes , professorships) should they succeed.
Please think long and hard about this issue.
Once "accepted" and legislated it will be impossible to reverse. That you were deceived and that you will have democratically "done it to yourself" will NOT make it right or easier to live with. ASK QUESTIONS and don't fall for "cricket analogies" or any other gobbledy-gook which is currently being foisted upon us all. The "science of anthropological ,carbon dioxide induced climate change" is not science at all. It has more to do with religion and a belief system than science,and is designed to deliver YOUR MONEY into the pockets of others. regardless of the effect upon you.
Think it out for yourself Be aware of the consequences and be careful to whom you give your VOTE in any election.
Reality of the emissions targets
85% of year 2000 emissions is what got us into this position in the first place. The enormity of the reductions required to stabilise and start reducing atmospheric CO2 is beyond cap-and-trade. Putting a tax on carbon big enough to force reduction in demand, and using the revenue to finance low-carbon energy production to compete with the likes of AGL is the way to go. Taxes have an advantage that they can be readily adjusted without the AGL's of the world crying foul the way they would if a cap-and-trade regime was adjusted. However, Governments have never been able to handle the size of such a revenue stream honestly or effectively, so it won't be easy.
Our Priceless Dilemma
Missing in this debate is the vital issue of EROEI- Energy Return on Energy Invested- that is, are we getting more energy out of our new energy sources as we are putting in?
Despite the claims of most energy producers and conservers- solar, nuclear, insulation etc, we simply don't know the net energy situation. There are simplistic estimates around, but the full life-cycle and value chain energy embodiment analyses have not been done. Work on this subject pretty well ceased 30 years ago.
At present, everything we make or do is about 90% fossil fuel- used either here or imported. Solar panels are "congealed fossil fuels" as are nuclear power stations and pink batts. It is therefore essential that if we use these systems, that they save more carbon than they use, otherwise it is a pointless exercise.
We (ie OECD countries) have been tracking at about 1-2% improvements in energy efficiency per dollar of GNP per year for many years. Unfortunately, we have been re-investing the savings in increased consumption and increased population.
It is unlikely that we will make improvements on this rate without either decreasing the population or decreasing our GNP- neither of which is likely.
Great to hear from a smart business leader
This is an excellent overview of the arguments for Australia to move forwards on climate in ways that will benefit our economy. People always resist change and one way of doing so is to deny the argument for it. But the laws of physics will overcome this resistance in due course and then we will on the road. The sooner we get going the stronger our economy and society will be. Thanks for your boldness AGL!
Getting it bass-ackwards
More correctly your hypothetical batsman is not moving his feet or attempting to play any shots.
Sooner or later a politician is going to ask the question of what is the precise base temperature expected for the planet against which we are measuring carbon's increase and they are going to find we can not calculate it -- because we don't have an average measure for the amount of incoming solar energy reflected (albedo) we don't know how much is absorbed, can't calculate any actual change in feedback (greenhouse effect) and have no idea whether the planet is warmer or cooler than it "should be".
As soon as that happens carbon demonisation will collapse and carbon's true value as an element to combine with oxygen to release the energy bound during photosynthesis will be restored.
Globally, support for punitive carbon pricing is collapsing as politicians realise consumers will not tolerate energy rationing or restrictive pricing.
The only real guessing game is how long before consumers demand big investment in practical, reliable and affordable coal-fired baseload power generation.
The correct response for energy companies is to tell government point blanc that Australia has abundant coal reserves and if people want affordable electricity that is the fuel that will deliver it.
Don't just stand in the crease. Play a shot, man!