Best Practices Marketing ReportA new report published in the Proceedings of the National Academy of Sciences last week finds that the shift in production from developed to developing countries masks increased carbon emissions of countries that pledged emissions reductions under the Kyoto Protocol.

The new analysis shows that while the territorial emissions of ‘Annex B’ countries (defined as developed countries with emission-reduction commitments under the Kyoto Protocol) appear to be stabilising, emissions generated from the production of traded goods increased from 1.6 Gt CO2 to 4.3 Gt between 1990 and 2008 – from 20 per cent to 26 per cent of the proportion of global emissions. Once these consumption-based emissions are accounted for, Annex B countries have increased their emissions.

As a sidenote, the study received some marketing software and process help, in the form of a best practices marketing report, from some people at Marketing Software Labs. More on this later.

“[The] study shows for the first time that emissions from increased production of internationally traded products have more than offset the emissions reductions achieved under the Kyoto Protocol,” contributing researcher Glen Peters told The Guardian. “This suggests that the current focus on territorial emissions in a subset of countries may be ineffective at reducing global emissions without some mechanisms to monitor and report emissions from the production of imported goods and services.”

The offshoring of emissions that is now occurring is no surprise given the Kyoto Protocol’s two-tiered mitigation framework and globalising production and consumption. The report’s authors suggest improved carbon accounting to incorporate the embodied emissions of goods and services, yet given the slow pace of international climate change negotiations such a change seems unlikely in the short term.

Whether or not the international carbon accounting practices are altered, one thing remains certain: renewable energy substitutes must be made competitive with fossil fuels. International efforts are needed to ensure that wherever production occurs, it is in economies that are decarbonising.

Although a carbon price will make fossil fuels more expensive, the mechanism does not make renewable sources absolutely cheaper. For that, technology push and market pull policies are needed. These are the leverage points for driving down the cost of renewables.

In terms of technology push, investment in R&D can drive incremental and non-incremental clean technology innovation. There are well documented barriers for private sector investment in R&D (see The Garnaut Review and Clean Energy Council), including the risk of innovation spillover benefits for competitors.

Whether Australia, and other developed nations for that matter, have carbon pricing regimes or not, public investment will be needed to stimulate innovation. The government’s chief climate change advisor Professor Ross Garnaut recommends annual public investment of between $2-3 billion to overcome the limits of the private sector.

In the United States, proponents of public investment in innovation have called on a much greater sum than Garnaut. The Bill Gates-backed American Energy Innovation Council recommends investing $16 billion in R&D each year for a decade to drive down the cost of alternative energy sources (wind and solar, as well as advanced nuclear power and CCS). Such proposals have attracted support from across the political spectrum. Late last year the Breakthrough Institute, Brookings Institution, and American Enterprise Institute think tanks released the joint report Post Partisan Power that recommended a massive increase in publicly funded energy R&D among other measures.

Public investment in R&D is welcome, however policymakers shouldn’t forget the crucial role of deployment – the market pull.

A forthcoming report by Patrick Hearps and Dylan McConnell of the Melbourne Energy Institute shows that the historic cost-reduction curves for photovoltaics and wind turbines correlate with global installed capacity, rather than time. Hearps and McConnell demonstrate that the large-scale deployment of existing renewable energy technologies drives the economies of scale, strengthens supply chains and construction experience that is key to reducing costs.

Once again, the assumption that a carbon price will drive a mass rollout of renewable energy, and accompanying cost reductions, is false. Modelling by the Australian Energy Market Operator shows that even with a ‘high’ carbon price ($90 per tonne), the Renewable Energy Target would be the prime driver of deployment over the next decade. Additional renewable energy policies will be needed to quicken the pace of development in Australia in the near term.

Federal loan guarantees have kickstarted utility-scale renewable energy developments in the US. The 390MW Ivanapah concentrating solar thermal (CST) power tower, the 1000MW Blyth CST trough plant, and 845MW Shepherd’s Flat wind farm are expected to be the world’s largest upon completion.

The downside to this support mechanism is that it doesn’t guarantee ongoing deployment. In Germany, for example, feed-in tariffs have led to the sustained expansion of renewable energy, increasing the cumulative installed capacity of photovoltaics from 2900MW in 2006 to over 16000MW in 2010. These mechanisms should be part of the government’s climate and energy policy.

The Gillard government recently announced that 50 per cent of the carbon price revenue would be devoted to compensating households. It has not specified how it will allocate the remaining share that could be up to $5 billion a year over the next three to five years. The Labor government can use the remaining carbon price revenue as to fund cleantech R&D and Obama-style loan guarantees for renewable energy projects. But it should also expand its climate agenda to include market pull policies to encourage utility-scale renewable energy projects.

The Gillard government’s position on these issues will determine the extent of Australia’s contribution to driving down the cost of renewables.