45% + 50% = 20% – Federal ALP emissions policy
Federal ALP has several separate emission policies
ALP’s 50% renewable electricity policy was released in December. Its an excellent policy that reveals how much work Mark Butler has put in. Electricity is responsible for about 32% of Australia’s carbon emissions and the policy would/will reduce those emissions by about 60 mt
The new element of the policy is a sketch of the 45% emissions reduction target by 2030. If the EITE sector is excused from making any contribution then we will be surprised if the total of all ALP policies can bring about more than 100 mt of emission reduction.
ALP policy 45% is really less than 20%
Moving from 20% to 50% renewable
No clear target
Figure 1 Adding up emissions targets. Source: ALP, CER, Aust. Govt., ITK
We get a less than 20% carbon reduction from the announced policy. Actually we only add up 15% but electric vehicles and changes in land clearing could assist as well.
Of course the big issue is EITE business. Our table is calculated on the basis of total exemption, but clearly if the world is going to decarbonize rapidly, and it is, the EITE sector cannot escape decarbonization requirements for ever. ALP policy is for doing the same as international competitors in this sector. The truth is that aiming at the average tends to lead to the average not moving.
This note proceeds by quickly looking at emissions by source, then the recent announcements on the 45% announcement and a brief reminder at the previously announced electricity policy.
Once more unto the emissions breach dear friends, once more
This graph or some equivalent should eventually be imprinted into consciousness
Figure 2 Australian carbon emissions, redline is cumulative contribution. Source: Australian Govt.
45% emissions reduction policy
Only a few points have really ben released about the 45% emissions reduction policy.
The plan covers non electricity facilities emitting more that 25 Kt and those facilities will have to reduce emissions by 45%
Emissions intensive, trade exposed industries [EITE] will have “tailored” policies that conceptually allow them to face comparable impacts as international competitors. Good luck with that but management in those industries will see it as being the thin end of the inevitable wedge. It is not a blanket exemption but in the short term it probably will be seen as such.
Elements of cap and trade
To meet the obligations facilities can
Buy permits from facilities that have reduced below their baseline;
Buy international permits
Buy ACCUs (these are basically carbon farming permits);
Potentially buy generation offsets. This is the most important leg as it will connect the electricity sector back to the broader emissions target and allow extra achievement in electricity to be properly rewarded. Of course there is no detail.
How much CO2 do covered facilities emit
According to the National Greenhouse Accounts, there were 291 facilities with emissions over 25 Kt and totaling about 335 mt.
Based on our general knowledge of the name of the facility and its business we classified the top 100 of these facilities into electricity sector, EITE or other. Its really only the “other” sector that faces the certainty of being required to cut by 45%
Figure 3 Whats covered: Source: ITK analysis of CER data
The top ten potentially EITE exempt are:
Top ten Potentially EITE exposed
CHEVRON AUSTRALIA HOLDINGS PTY LTD
WOODSIDE PETROLEUM LTD.
RIO TINTO LIMITED
GLENCORE HOLDINGS PTY LIMITED
BLUESCOPE STEEL LIMITED
ALCOA AUSTRALIAN HOLDINGS PTY LTD
ANGLO AMERICAN AUSTRALIA LIMITED
CONOCOPHILLIPS AUSTRALIA GAS HOLDINGS PTY LTD
And the top ten that might be covered might be:
Might be covered top ten
QANTAS AIRWAYS LIMITED
VIRGIN AUSTRALIA HOLDINGS LIMITED
CK WILLIAM AUSTRALIA HOLDINGS PTY LTD
INCITEC PIVOT LIMITED
YARA AUSTRALIA PTY LTD
SIMEC (AUSTRALIA) MINING PTY LTD
APT PIPELINES LIMITED
CITIC PACIFIC MINING MANAGEMENT PTY LTD
VIVA ENERGY AUSTRALIA GROUP PTY LTD
Excellent electricity policy, but its only a 1/3 reduction in carbon output from today’s level
ALP’s 50% renewable electricity in the NEM by 2030 is, in our view, a well thought out, clearly achievable policy that will lock in reasonably rapid decarbonization of electricity generation and assist in building a “fit for purpose” 21st century grid.
The electricity policy works through an existing institution the CEFC, has clearly been developed with an eye to progressing AEMO’s ISP and to overcoming difficulties in building out a 21st century transmission system.
The electricity policy as a reminder includes
$10 bn to the CEFC over the period to 2025 to fund:
reverse auctions for wind, solar and storage projects;
Support the ALP’s proposed household battery program via concessional loans (100,000 households can get a $2000 grant). 2025 target of 1 mn households. Lets be honest household batteries are not taking off right now. Prices have gone up in the past two years and who cares why. Car battery prices are down, utility scale battery prices are down but house battery prices are up or at best flat.
Boost energy efficiency
Establish an “Energy Security Fund” with $5 bn of capital which will explicitly use the Integrated System Plan [ISP] as its base to develop transmission infrastructure including into Renewable Energy Zones. Its becoming clearer and clearer that this is the most important element of the policy or at least as important as the reverse auctions.
Here at ITK we are 100% supportive of this policy suite. Here at ITK we suggested in 2016 in a Reneweconomy note using the CEFC to run reverse auctions. As far as we know this was the first public call for using the CEFC to do this. Its now likely to become Government policy. We believe reverse auctions provide a low touch way for Federal policy to guide investment without owning or controlling it or gaining day to day operational management. The auctions incentivize competition, provide visibility and this together with the revenue guarantee drives downs costs to consumers. It will certainly require the CEFC to be efficiently run. Reverse auctions have disadvantages, increasing the influence of Government ownership but on balance we like them.
We’ve also written several articles over the years jumping up and down about the need to develop transmission and how getting transmission done in Texas made development of wind and now solar much quicker. The slowness in developing transmission is the single biggest factor holding back 50% renewables in Australia. In 2016 we were promoting a Sth Australia – NSW interconnector. As an indication of long it takes, that project is still to satisfy all the regulatory tests.
ALP’s target of 1 mn household batteries by 2025 will need to be linked to other policy to ensure those batteries benefit the system as much as the individual household but broadly will increase resilience of the distribution grid, increase consumer control and help to reduce the need for utility scale daily peakers. Batteries at the boundary of the grid, that is behind the meter are broadly more valuable to consumers and to the system than those located at the other end of transmission lines.
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