At the weekend, the Gillard government unveiled the details of the long-anticipated carbon-pricing scheme it negotiated with The Greens and lower house independents Rob Oakshott and Tony Windsor. Reports indicate that The Greens used their leverage in negotiations to secure billions of dollars for renewable energy projects administered by two new statutory bodies—the Australian Renewable Energy Agency (ARENA) and the Clean Energy Finance Corporation (CEFC).
Throughout the carbon price debate Labor politicians propagated the myth that a carbon price alone will decarbonise the economy. Addressing the Committee for Economic Development of Australia earlier in the year, the Prime Minister claimed “a carbon price will drive another sweeping technological revolution like Information Technology did in the 1980s and 90s.” As I have argued previously, when it comes to clean technology innovation and deployment, carbon price is no silver bullet. Now, with the Greens urging the creation of ARENA and the CEFC, the government was forced to accept that reality.
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Modeling by the Australian Energy Market Operator (PDF) shows that even under a ‘high’ carbon price scenarios ($90 per tonne), the Renewable Energy Target would be the prime driver of deployment over the next decade. That’s right: additional ‘complementary measures’ would do the heavy lifting when it comes to renewable deployment for the simple reason that the carbon price mechanism benefits the cheapest and less carbon intensive energy sources. Although solar thermal, photovoltaics and wind technologies are quickly coming down the cost curve, gas-fired electricity generation is now the most cost-effective option.
While gas may be less carbon-intensive than coal (excluding the full life-cycle climate impacts), it is still a fossil fuel. Expanding its use in the stationary energy sector will result in billions of tonnes worth of greenhouse gas emissions over the operating life of such installations. Encouraging gas-electricity generation should be discouraged where possible.
The increased focus on gas has prompted the International Energy Agency to warn that it is ‘no panacea’ for climate change. IEA modelling on ‘high gas’ scenarios show that reliance on the fuel would lead to warming of 3.5 degrees—far in excess of the 2-degree target nations agreed to in Cancun last year. Futhermore, executive director of the IEA Nobuo Tanaka cautions that the increased use of gas could ‘muscle out low-carbon fuels such as renewables.’
The limits of the carbon price and threat of increased gas use underscore the importance the independent investment-centred bodies for driving renewable energy research, development, demonstration and deployment. ARENA and CEFC will be a crucial stopgap that helps prevent gas from muscling renewable energy out of investment dollars.
There appears to be two additional weaknesses in the carbon price package that have the potential to constrain renewable energy investment. The decision to exclude Carbon Capture and Storage from receiving CEFC funding is an eminently sensible, yet the prospect of fossil-fuelled electricity generators receiving funding remains. Half of the CEFC’s funding—$5 billion—is quarantined for renewable energy, the government has not explicitly stated whether hybrid solar thermal/gas plants and renewable energy additions to existing fossil energy installations will qualify for funding.
Similarly, the retirement of 2000MW of the Australia’s most inefficient and carbon-intensive coal plants by 2020 is an important measure (and big win for climate campaigners I might add). Unless there are guarantees that outdated coal infrastructure will be replaced by renewables, the move may become boon for gas generation in the near term.
Fortunately the Gillard government, The Greens and independents can amend the Clean Energy Finance Corporation’s mandate to guarantee that scarce investment dollars don’t flow to fossil fuels. Such investments would undermine the desired objective of accelerating decarbonisation of the electricity sector.
The new independent renewable energy bodies have an important contingent benefit for the Australian economy. They will provide a much-needed driver for the development of a domestic renewable energy and cleantech industry. As the world decarbonises the massive export revenue currently generated by coal will decline and Australia will need new export industries to fill the void. Projected to be worth at least $1.7 trillion over the next decade (The Pew Charitable Trust, PDF), there’s no better opportunity than the global renewable energy market. Measures that help develop renewable energy manufacturing and expertise are in the national interest.
Australia will face fierce competition to capture a share of lucrative renewable energy and cleantech markets. As climate and energy commentator Giles Parkinson pointed out recently:
‘[South Korea] released an energy plan…that aims to increase its share of the global renewable energy market from 1.2 per cent now, to 18 per cent by 2030 – an achievement it says will deliver $300 billion in export sales and 1.5 million jobs.’
Nations that have taken the long view such as South Korea have a head start when it comes to building competitive cleantech industries. Australia will more likely than not need to develop a comprehensive industry policy to support the new funding bodies.
It would take a Herculean effort for Australia to become major producer of photovoltaic modules and wind turbines, however Australia can harness its natural advantages to be a player in concentrating solar thermal (CST) which can provide baseload generation. By directing investment towards enabling infrastructure and deployment Australia can be an attractive place for CST firms to set up shop. This targeted approach will help Australia to catch up with the early leaders in CST, the United States and Spain.
Ultimately, time will tell how effective the ARENA and CEFC are when it comes to advancing renewable energy. From where Australia stands today, these measures are undoubtedly a step in the right direction.