5% target or investment at risk?

In Tuesday’s AFR, Origin Energy expressing concern regarding the attainability of Australia’s 5% greenhouse gas reduction target without an emissions trading scheme.

Orgin’s CEO Grant King spoke about a “huge, huge task” to reach this target given the expected energy demand increase in Australia. We have already made several comments on the weak and insufficient 5% commitment of Australia, but let’s have another look a the figures to properly understand the challenge ahead:

• 5% below 2000 levels (Australia is committed to a 5% reduction): In 2000, Australia reported a total of 552.7 Gt CO2-e under the Kyoto Protocol (including LULUCF in accordance with Article 3.7 of the Kyoto Protocol).  For Australia to achieve its target, emissions would have to be reduced by 5% to about 525 Mt CO2-e by 2020;
• Kyoto Protocol target* (108% of 1990 levels between 2008 and 2012): 1990 = 547.7 MT CO2-e, 108% = 591.5 Mt CO2-e by 2012.* It is important to understand that the approach to preparing inventories and emissions projections under the Kyoto Protocol differs from the UNFCCC accounting approach in relation to LULUCF. Under UNFCCC accounting, the 1990 baseline is significantly lower than the level used for analysing progress towards the Kyoto Protocol target. Both, UNFCCC and Kyoto Protocol emissions estimates totals and projections, are commonly used for reports, communications and in the media. It is absolutely essential to understand the difference and the resulting implications from these approaches when assessing different sources of information;

• In 2007, emissions were estimated at 597.2 Mt  CO2-e;
• Australia’s emissions are projected to reach an average of 581 Mt CO2-e per year between 2008-2012, which is 106% of 1990 levels (Kyoto Protocol accounting); and
• Projected emissions for 2020: 669 Mt CO2-e or 121% of 2000 levels – without an ETS.

The challenge ahead – the Australian Government uses the term “abatement challenge” – is the emission reduction required to achieve the target. The abatement challenge under the 5% scenario therefore is minus 144 Mt CO2-e by 2020 (almost 200 Mt CO2-e under the 15% scenario). How can industry and business deal with this challenge? According to Origin, the absence of an ETS does not provide sufficient incentives to invest in “cleaner” gas-fired plants.

Malicious tongues might say that an “incentive” is lacking because there will no longer be any government support in form of Electricity Sector Enhancement Scheme or the Coal Sector Adjustment Scheme for heavy emitters of greenhouse gases. An interesting question is what will happen to the Queensland’s Gas Scheme. Designed to increase the uptake of gas-fired electricity generation (currently, energy retailers have to source 13% (option for an 18% target by 2020) of their electricity from eligible gas fuels), it was intended for the Scheme to be transitioned into the CPRS. Could this Scheme now be the blueprint for other states and territories? While gas still is a fossil fuel, it is not as polluting as coal-fired generation. Since the Scheme’s commencement in 2005,  greenhouse gas emissions in Queensland have been reduced by 8.4 million tonnes.

And let us not forget the 20% Renewable Energy Target…  It promotes the generation of electricity from renewable energy sources…

What remains is the challenge posed by the IPCC’s 4th Assessment Report: Emission reductions by 25-40% by 2020… For Australia, -25% would require a reduction of 255 Mt CO2-e by 2020. Are the policies in place sufficient? Is the ‘commitment’ by business sufficient? What would business require to make those investments into cleaner energy sources?