Department of Premier and Cabinet Understanding the Potential To

Department of Premier and Cabinet

Understanding the Potential to Reduce Victoria’s Greenhouse Gas Emissions

December 2007

This publication may be of assistance to you but the State of Victoria and its employees do not guarantee that the publication is without flaw of any kind or is wholly appropriate for your particular purposes and therefore disclaims all liability for any error, loss or other consequence which may arise from you relying on any information in this publication.

THINKING DOING LEADING

Understanding the potential to reduce Victoria’s greenhouse gas emissions

Contents 1 Executive summary...... 5 1.1 Project purpose...... 5 1.2 The approach...... 5 1.3 The reference case ...... 5 1.4 The wedges ...... 7 1.4.1 Stationary energy sector ...... 7 1.4.2 Transport...... 8 1.4.3 Agriculture...... 8 1.4.4 Land use and land use change ...... 8 1.4.5 Waste...... 8 1.4.6 Industrial processes ...... 8 1.4.7 Other opportunities...... 9 1.5 Conclusions ...... 9 2 Introduction...... 11 2.1 Policy context...... 11 2.2 Project scope, terms of reference and objectives ...... 13 2.3 The methodology adopted for the project ...... 14 2.3.1 Methodology overview...... 14 2.3.2 Brief summary of the model...... 14 3 Reference case...... 17 3.1 Scope of the reference case ...... 17 3.2 Reference case methodology...... 18 3.2.1 Modelling methodology ...... 18 3.2.2 Assumptions validation...... 19 3.3 Reference case discussion ...... 19 3.4 Key risks inherent in the reference case...... 21 4 The wedges by sector...... 23 4.1 Introduction ...... 23 4.1.1 Selection of wedges ...... 24

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4.1.2 Understanding the wedges...... 25 4.2 Stationary energy...... 27 4.2.1 The energy sector in Victoria...... 27 4.2.2 Reference case emissions for the stationary energy sector...... 31 4.2.3 Stationary energy - wedge descriptions...... 35 4.2.4 Stationary energy sector summary – themes...... 58 4.3 Transport...... 65 4.3.1 Transport in Victoria ...... 65 4.3.2 Reference case emissions for the transport sector...... 66 4.3.3 Transport - wedge descriptions ...... 68 4.3.4 Transport sector summary - themes...... 77 4.4 Agriculture...... 79 4.4.1 The agriculture sector in Victoria ...... 79 4.4.2 Reference case emissions for the agriculture sector ...... 82 4.4.3 Agriculture - wedge descriptions...... 83 4.4.4 Agriculture sector summary - themes ...... 88 4.5 Land use, land use change and forestry (LULUCF)...... 89 4.5.1 LULUCF in Victoria...... 89 4.5.2 Reference case emissions for the LULUCF sector ...... 90 4.5.3 LULUCF wedge descriptions...... 91 4.5.4 LULUCF sector summary - themes ...... 96 4.6 Waste...... 97 4.6.1 The waste sector in Victoria ...... 97 4.6.2 Reference case emissions for the waste sector...... 99 4.6.3 Waste sector wedge description...... 100 4.6.4 Waste sector summary - themes...... 103 4.7 Industrial processes ...... 104 4.7.1 Industrial process emissions in Victoria...... 104 4.7.2 Reference case emissions for the industrial processes sector...... 105 4.7.3 Industrial processes wedge description...... 106

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4.7.4 Industrial processes summary - themes ...... 109 5 Emissions reduction wedges: analysis ...... 110 5.1 Introduction ...... 110 5.2 Wedges summary ...... 112 5.3 Wedges analysis: early and deep cuts ...... 114 5.4 Wedges analysis: cost effectiveness...... 116 5.5 Wedges analysis: confidence level...... 119 5.6 Wedges analysis: sensitivity to a carbon price ...... 122 5.7 Wedges analysis: summary...... 124 6 Key Themes and Further Work ...... 126 6.1 The overall picture...... 126 6.1.1 Total emissions pathway ...... 126 6.1.2 Emissions trading and a carbon price...... 127 6.1.3 Importance of the energy sector...... 128 6.1.4 Innovation central to the future ...... 128 6.1.5 Further work in the transport sector...... 129 6.2 Risks...... 129 6.2.1 Technical risks associated with the wedges ...... 129 6.2.2 Risks related to the Reference Case and any Target ...... 130 Appendix A Model and wedges description ...... 131

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1 Executive summary

1.1 Project purpose This project explores the potential for reductions in Victoria’s greenhouse gas emissions in the period to 2050. It provides a basis for further policy and program development by the Victorian Government by broadly identifying the potential scope for greenhouse emissions reductions across all major classes of emission sources. It serves as a precursor to more detailed analysis of policy options and approaches to emissions reduction and the linkages that exist between them.

1.2 The approach The project applies a modified Princeton Wedges 1 analysis to Victoria’s greenhouse gas emissions. The project comprised two major phases: 1. Construction of the model: A comprehensive and scalable model was constructed with capability to model a wide range of possible future greenhouse gas emission profiles. The model was constructed using simple but robust principles designed to provide clear insights into the drivers of emissions reduction effects of potential initiatives. 2. Modelling of scenarios: Both a reference case and a wide range of possible wedges were modelled. In each case, the model was populated with the best available data drawn from existing analyses and collective professional judgement of a range of recognised experts. A project team of senior consultants and analysts from The Nous Group (Nous) and Sinclair Knight Merz (SKM) was supported by an expert panel drawn from the best sectoral and policy expertise available on greenhouse gas emissions. This project was undertaken for the Department of Premier and Cabinet in Victoria, and supported by a whole-of-government process of input and review which assisted in ensuring the overall robustness of the results.

1.3 The reference case A reference case for Victoria’s emissions to 2050 was constructed to provide a basis for assessment of the scale and impact of the wedges over time. The reference case represents an indicative scenario of future greenhouse gas emissions from the State of Victoria that experts believe is plausible in the absence of policy and other initiatives modelled by the wedges. Considerable uncertainties exist in the reference case. In essence, it reflects a projection of ‘more of the same’ over many decades. However, major innovations and emerging industries that are unforeseen at this time would almost certainly lead to significant change in Victoria’s emissions profile, particularly beyond 2020. Long term prediction of energy prices, industry

1 The term ‘wedge’ is derived from the shape of the area on a chart showing Victoria’s forward emissions profiles between curves with and without a particular emissions reduction initiative. This graphic portrayal of emission reduction opportunities first gained prominence in research at Princeton University’s Princeton Environment Initiative, hence the term ‘Princeton wedge analysis’. In this project, wedges reflect greenhouse gas emissions reductions due to changes in behaviour and technology and combinations of both.

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structures and population trends was beyond the scope of this project and it must be recognised that movements in these variables could see Victoria’s emissions deviate considerably from the reference case scenario modelled in this project. The reference case includes past values and future projections, annually out to 2050, for the State as a whole and for the six major emissions-producing sectors: stationary energy, transport, agriculture, land use (including land use change and forestry), waste and industrial processes. Under the reference case assumptions, annual greenhouse emissions trend upwards towards 2 2050, reaching 168 Mt of CO 2-e in that year. The biggest contributor to emissions is the stationary energy sector, which is also the major driver of emissions growth out to 2050. A brief downward trend in emissions between 2014 and 2020 reflects the impact of the Victorian and NSW Renewable Energy Target (VRET and NRET) initiatives.3 Beyond 2020, the economic advantages of brown coal for electricity generation dominate and growth in emissions resumes. Growth in emissions from other sectors is largely driven by strong GSP growth. Even though efficiency improvements and behavioural change reduce emissions on a per-unit basis, overall emissions still increase as more goods and services are produced and consumed as the economy and population grow.

Emissions projections for Victoria Reference case 180000

Waste 160000

140000 Industrial processes

120000

Agriculture 100000

80000 Transport

60000

000s tonnes CO2e tonnes 000s Stationary energy 40000

20000 Land use, land use change and forestry

0 0 5 5 0 0 5 5 0 0 9 9 0 1 2 2 3 4 5 9 9 0 0 0 0 0 0 0 1 1 2000 2 2 2015 2 2 2030 2 2 2045 2 -20000

2 CO 2 equivalent, or CO 2-e, is a measure of greenhouse gas emissions across all greenhouse gases, normalised to the impact of the equivalent amount of carbon dioxide CO 2. Each greenhouse gas (for example methane, nitrous oxide or sulphur hexafluoride) is accorded a global warming potential which measures the lifetime impact of one atom of that gas emitted. Methane, for example, has a global warming potential of 21 which means that each methane atom emitted is equivalent to 21 atoms of carbon dioxide.

3 The NRET scheme affects Victorian emissions because the underlying modelling of electricity generation assumes that renewable energy certificates generated in Victoria would be valid in NSW. This is consistent with the policy detail announced by the NSW Government in 2006.

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1.4 The wedges Twenty-one wedges were selected and prioritised on the basis of specific criteria, including:

• Environmental effect • Economic cost • Technical feasibility • Social effect. The 21 wedges selected for modelling are listed in Table 1:

No Title No Title 1 Carbon capture and storage 12 Travel Demand Management 2 Coal drying 13 Shift away from private transport 3 Cogeneration 14 Improved fuel and vehicle efficiency 4 Renewable energy 15 Increased vehicle occupancy 5 New gas (fuel switching) 16 Livestock efficiency 6 Waste to energy 17 Soil management 7 Lighting (commercial) 18 Accelerate afforestation – harvestable plantations 8 Building envelope and HVAC equipment 19 Accelerate afforestation - revegetation 9 Equipment efficiency improvement 20 Avoiding landfill 10 On-site and off-site renewables 21 Cement extenders, geopolymer cements 11 Industrial energy efficiency Table 1: Emissions reduction wedges modelled The assumptions and data used to model the wedges were derived in discussion between members of the project’s expert panel, Nous and SKM staff and government officers. An element of collective judgement was applied where necessary – assumptions are conservative and considered robust under a range of likely futures. The advantage of the model is that data, parameters and assumptions can be easily amended as new and better estimates become available. In summary, modelling of the six major emissions producing sectors showed the following results:

1.4.1 Stationary energy sector Stationary energy production in Victoria contributed 59% of Victoria’s greenhouse gas emissions in 2005, mainly from combustion of coal for electricity generation, the low cost of which has underpinned the historical strength of Victoria’s manufacturing industry. Emissions reduction wedges modelled for this sector improve the efficiency of fossil fuel based energy supply, reduce energy demand through energy efficiency improvements, or increase the presence of distributed generation and low emissions sources including renewable energy. The greatest impact (when considered in the absence of other actions) came from carbon capture and storage and coal drying which together offered savings of up to 64 Mt by 2050 through progressive application of these technologies across the energy supply sector. Energy efficiency offered substantial low cost emissions reduction across industry, commerce and the residential sector, with a portfolio of improvements providing savings of 23 Mt in 2050. Alternative forms of energy generation (renewable energy, cogeneration, energy from waste)

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offer emissions reduction at a range of costs and uptake of these wedges depends strongly on energy and carbon price.

1.4.2 Transport The transport sector in Victoria is a source of significant greenhouse gas emissions. Growing demand for transport, driven by population and economic growth, can be offset by a range of approaches to reducing travel demand – from travel demand programs through to efficient urban design. Transport sector emissions are also driven by vehicle size and efficiency and have proved somewhat price elastic. The most significant wedge modelled in the transport sector considered the emissions efficiency of vehicles and offered reduction in emissions of 19 Mt in 2050. Other wedges modelled involved reduction in travel demand, increased vehicle occupancy and reduced private transport use.

1.4.3 Agriculture Agriculture in Victoria is a significant contributor to Victoria’s overall economy and is particularly important as a source of non-CO 2 greenhouse gas emissions – methane and nitrous oxide – from livestock grazing and cropping. These industries are highly sensitive to climate and the availability of water for irrigation in particular. Two wedges were modelled for the agriculture sector: Soil management and livestock efficiency. These wedges both require technology development and commercialisation to achieve emissions reductions.

1.4.4 Land use and land use change Land use and land use change, including consideration of Victoria’s forest industries, provides both a source of and a sink for greenhouse gases. In this sector, emissions from land clearing will be more than offset by take up of CO 2 by forestry plantations and revegetation until at least 2020. Two wedges were modelled examining accelerated afforestation through plantations and through permanent conservation plantings. Investment in both of these would be advantaged by plantation related offsets available through an emissions trading (or similar) scheme.

1.4.5 Waste The waste sector raises two quite separate issues: First, organic wastes (both liquid and solid) decay to create greenhouse gases, and second, many forms of waste incorporate embodied greenhouse gas emissions, from the energy used in production of materials. If this material is recovered, its recycling can avoid energy use for production of virgin materials. A wedge was modelled for the waste sector which considered an 80% reduction in emissions from waste in landfill by 2035, based on a continued approach by the Victorian Government of the form of the Towards Zero Waste model.

1.4.6 Industrial processes Industrial process emissions are not large and are likely to be sensitive to a carbon price through an emissions trading scheme. A wedge was modelled examining the use of cement extenders to reduce emissions from the cement manufacturing industry.

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1.4.7 Other opportunities There are a considerable number of emissions reduction opportunities which were not modelled in this project, in most cases because they were assessed as contributing relatively smaller reductions in emissions. There are undoubtedly also a number of emissions reduction opportunities which would be “unearthed” by a carbon price signal which are not represented here. The study’s assumptions on technology feasibility led to the exclusion of speculative and potentially transformative technologies (for example hydrogen as an energy medium), which may have potential to reduce emissions from the stationary energy and transport sectors. Additionally, most of the wedges modelled might be accelerated or their effect strengthened under more aggressive policy settings – examples include coal drying and industrial energy efficiency.

1.5 Conclusions The model developed for this project has proven robust, flexible, scalable and useful as a source of insights into emissions reduction options. The model is capable of supporting further analysis of greenhouse gas emission reduction options and of delivering further insights into the potential effects of policy initiatives, technology development, behaviour changes and other variables. The initial modelling of the 21 selected wedges in this project has provided some useful insights into relativities and potential priorities. The modelling indicates that the biggest emissions reductions come at a relatively higher economic cost, and require earlier action. All options lead to a reduction in emissions but an inverse relationship is indicated between, on the one hand, emissions reduction potential, and on the other, economic cost, timing and risk. In addition, much effective emissions-reduction potential may require more than simply the imposition of a price for carbon alone. To allow policy makers to consider a range of broader options, the wedges were re-examined under four scenarios; the provision of early and deep cuts to emissions; the lowest cost wedges; the highest confidence wedges; and the wedges most likely to be achieved through a carbon price such as an emissions trading scheme. Looking at these four scenarios, emissions in 2005, 2020, 2030 and 2050 would be as follows 4:

2005 2020 2030 2050 Reference case 124 120 134 168 Early & deep 124 83 60 64 Cost effectiveness 124 85 68 73 Risk 124 83 70 78 Carbon price 124 96 82 92 Table 2: emissions under a range of scenarios The overall conclusion which can be drawn from this modelling is that, noting the reasonable but conservative assumptions underlying the project, there is considerable potential to reduce greenhouse gas emissions from Victoria in the short, medium and long term. For example, the

4 It should be noted that the confidence accorded to these figures will be greater for 2020 and 2030 than for 2050. Passed 2030, the combination of continued growth in emissions drivers (such as population and GSP), no new technologies and other uncertainties inherent in long term projections means that these results should be interpreted with caution. This is discussed further in chapter five.

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ten wedges aggregated in consideration of early and deep cuts offer a 47% reduction against 2000 levels by 2050, and it should be remembered that these are based on conservative assumptions. An important message coming from this initial modelling and analysis is that while the energy sector is extremely important in delivering emissions reductions, and while a carbon price is important in realising improvements across several sectors, no single sector and no single initiative will offer the scale of emissions reductions which some are advocating by 2050. Further, ongoing innovation will be important to ensure that reductions continue to be fully effective to 2050. Structure of this Report Beyond this Executive Summary (chapter one) the report is structured into five chapters:

• Chapter two provides an introduction to the project, outlining the overall policy context against which the project has been undertaken and the scope and methodology of the project • Chapter three outlines the reference case and the methodology underpinning it • Chapter four introduces and discusses the wedges on a sector by sector basis • Chapter five provides further analysis of the wedges by viewing them through a number of lenses • Chapter six draws out some key themes of the analysis An appendix provides additional detail in regard to the model and the data included in it, as well as offering a worked example of how the model can be used in future to alter a wedge

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2 Introduction

2.1 Policy context

The purpose of this project was to apply a Princeton Wedges -style approach to identify the potential level of greenhouse gas emissions abatement that is achievable in Victoria over different timeframes. The project is designed to act as a precursor to more detailed analysis of potential policies and approaches to emissions reduction options and the linkages that exist between them, and will provide a basis for further policy and program development by the Victorian Government by broadly identifying the potential for emissions reduction across a range of sectors.

Human induced climate change resulting from the enhanced greenhouse effect represents the most compelling and difficult challenge facing society in the twenty first century. As noted in the Fourth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC): “Global atmospheric concentrations of carbon dioxide, methane and nitrous oxide have increased markedly as a result of human activities since 1750 and now far exceed pre- industrial values ..” 5. In 2006 Sir Nicholas Stern, on behalf of the UK Government, undertook a wide-ranging review of climate change and noted that “if we don’t act, the overall costs and risks of climate change will be equivalent to losing at least 5% of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20% of GDP or more. In contrast, the costs of action – reducing greenhouse gas emissions to avoid the worst impacts of climate change – can be limited to around 1% of global GDP each year.” 6 The Stern Review noted that policy making in respect to climate change was necessarily dynamic, and needed to take account of considerable and challenging issues of risk and uncertainty. The Review also concluded that there was a considerable benefit in strong and early action on emissions. The complex and difficult question of reducing greenhouse gas emissions to a level that will avoid dangerous interference with the climate system, while continuing to allow economic development and prosperity, has attracted considerable attention from policy makers since the 1980s. The State of Victoria, with substantial competitive advantages accruing through its abundant reserves of readily accessible brown coal as a source of comparatively low priced electricity, has invested extensive policy effort in this direction. Documents such as the Victorian Greenhouse Strategy (2002) , the Greenhouse Challenge for Energy (2004) and Our Environment, Our Future (2006) have mapped out an extensive body of policy, program and action to reduce emissions and respond to climate change.

On 30 April 2007 State and Territory Governments commissioned the Garnaut Climate Change Review 7, to examine the impacts of climate change on the Australian economy, and

5 Fourth Assessment Report, Working Group I Report: The Physical Science Basis, Intergovernmental Panel on Climate Change February 2007

6 The Economics of Climate Change , Stern Review, United Kingdom Government October 2006

7 Garnaut Climate Change Review Homepage: http://www.dpc.vic.gov.au/CA256D8000265E1A/page/Listing-None- The+Garnaut+Climate+Change+Review+-+Homepage!OpenDocument&1=~&2=~&3=~

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recommend medium to long-term policies and policy frameworks to improve the prospects for sustainable prosperity.

Against this background the Victorian Government announced a commitment to an aspirational target of a 60% reduction in emissions against a 2000 base 8, in line with similar targets which have been established by other jurisdictions in Australia and overseas.

In July 2007 the Department of Premier and Cabinet sought advice on the potential for reduction of greenhouse gas emissions from the State of Victoria. The purpose of this project was to apply a Princeton Wedges -style approach 9 to identify the potential level of greenhouse gas emissions abatement that is achievable in Victoria over different timeframes.

In this approach the term ‘wedge’ is derived from the shape of the area on a chart showing Victoria’s forward emissions profiles between curves with and without a particular emissions reduction initiative. This graphic portrayal of emission reduction opportunities first gained prominence in research at Princeton University’s Princeton Environment Initiative, hence the term ‘Princeton wedge analysis’. In this project, wedges reflect greenhouse gas emissions reductions due to changes in behaviour and technology and combinations of both. The project is designed to act as a precursor to more detailed analysis of potential policies and approaches to emissions reduction options and the linkages that exist between them, and will provide a basis for further policy and program development by the Victorian Government, by broadly identifying the potential for emissions reduction across a range of sectors. Further work could involve deeper investigation through greater disaggregation of the emissions sectors modelled, or through supplementing the outputs of this project with further studies – for example examinations of potential tools of government and the impacts of such tools in mitigation, or macro- or micro- economic analyses of the impacts of climate change and climate change mitigation, at the regional, sectoral or industry level. The value of the approach adopted by the Nous Group and Sinclair Knight Merz (SKM) for this study is that it allows for a range of sector-based emissions mitigation approaches to be studies on a comparable basis and over a lengthy analytical time horizon. This means that the sequencing of potential areas of intervention by Government to reduce emissions can be examined, as can the trajectory for any emissions reduction pathway Government might seek. The model adopted is one which allows for greater depth of analysis should this be desired, by adopting a greater level of disaggregation of emissions sources. The approach adopted has drawn as much as possible on published data, particularly to establish the reference case against which to measure emissions reduction potential, and on the knowledge of team members from SKM and an expert panel established specifically for the project. The detailed and thorough knowledge of the various sectoral mitigation opportunities which the expert panel and SKM offered allowed a realistic estimation of such opportunities.

8 Victorian Energy Efficiency Target Scheme: Issues Paper , Department of Sustainability and Environment and Department of Primary Industries, March 2007

9 Stabilisation Wedges: Solving the Climate Problem for the Next 50 Years With Current Technologies , Pacala and Socolow, Science, August 2004

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Further, the model itself will allow government to vary any of the parameters which have been utilised– for example, the rate at which particular emissions reduction approaches reach their full impact, or the depth of emissions reduction – as more data becomes available over time.

2.2 Project scope, terms of reference and objectives To objectives of the project as established by the Department of Premier and Cabinet were to: 1. Develop a baseline scenario for Victoria’s net greenhouse gas emissions from all sources over time frames to 2020, 2030 and 2050: − including the impact on emissions of existing and committed policies and measures but excluding any new policies and measures; and − with a scenario and methodology able to be used and expanded on in future government analyses. 2. Identify activities (eg. technologies, changes in practices such as energy efficiency and land management) across all sectors (including energy, transport, agriculture, waste, industrial processes and forestry/land management) and at 3 points in time (2020, 2030 and 2050) that have the potential to reduce Victoria’s greenhouse gas emissions ; and quantify and represent this potential using a Princeton Wedges -style approach. [It is recognised that there will be increasing uncertainty over longer timeframes] 3. Discuss how emissions reductions might best be pursued over time, for example: − some activities will have a logical sequence over time – e.g. commercialisation of coal drying before carbon capture and storage − deployment of a particular technology to achieve emissions reduction in 2020 may make it more difficult or costly to achieve longer term emissions 4. Provide a broad estimate of costs of the ‘Abatement Wedges’ for 2020, 2030 and 2050.

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2.3 The methodology adopted for the project

2.3.1 Methodology overview The overall approach undertaken in this project was the development of a robust methodology which could model a number of emissions reduction wedges and contextualise these against a reference case, and the population of this model with the best available data based on available analyses and professional judgement.

The project team included senior consulting staff and technical experts from the Nous Group and SKM. The model was developed by the Nous Group in consultation with SKM; data for the reference case were sourced by SKM and tested with the expert panel established specifically for the project. The expert panel included a range of analysts and researchers who brought both sectoral and broader experience to the project:

Panel Member Organisation/Affiliation

Mr John Apelbaum Apelbaum Consulting

Professor Snow Barlow University of Melbourne

Dr Peter Christoff University of Melbourne

Adjunct Professor Alan Pears RMIT and Sustainable Solutions

Mr Alan Tate Cambiar

Mr Mike Waller Heuris Partners

Table 3: Expert panel membership The project team also consulted directly and through a number of workshops with Government officers who provided considerable and invaluable expertise and advice in regard to all aspects of the project, from design through to model inputs and wedge construction.

2.3.2 Brief summary of the model The model involved establishment of a reference case for Victoria’s emissions to 2050 against which a series of wedges – measures of emissions reduction potential based on technical potential bounded by economic and policy reality – could be viewed.

The model used to deliver this project has two main components: output forecasts and emissions efficiency profiles for these outputs. The product of these two components yields emissions production. The following figure shows a stylised representation of the main model components.

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1. Output ××× 2. Emissions 3. Emissions efficiency = production scenario

• Shows output of goods and services • Shows the level of greenhouse gas • Shows total emissions from a given associated with emissions production emissions per unit of output for output profile and assumptions about available – and potential – emissions efficiency of existing and • Output to be recorded on a sufficiently technologies potential technologies disaggregated level (for example, using the National Inventory greenhouse gas • Requires significant technical input on accounting framework; to be determined potential future technological with DPC) innovation • Scale of output will be determined by • Emissions efficiency will be influenced drivers of demand and supply including by: Description -- consumer choice behaviour -- consumer choice behaviour -- market structure -- use of abatement and storage alternatives -- costs, prices and expenditure -- costs, prices and expenditure -- technology -- technological development

Base case Base case Base case

Fuel use in electricity generation (PJ) Unit CO2 emissions (Gg CO2/ PJ) Total CO2 emissions (Tg CO2)

Stationary Black Brown Natural Stationary Black Brown Natural Stationary Black Brown Natural Energy coal coal gas Energy coal coal gas Energy coal coal gas

Example 2008 4500 1000 1500 2000 2008 79 90 95 52 2008 356 90 143 104 2009 4950 1100 1650 2200 2009 79 90 95 52 2009 391 99 157 114 2010 5445 1210 1815 2420 2010 77 88 92 50 2010 417 106 167 121 2011 5990 1331 1997 2662 2011 77 88 92 50 2011 459 117 184 133

• Existing efficiencies, and projections of • Output forecasts • Product of 1. and 2. Inputs efficiency improvements Figure 1: Model schematic To ensure compatibility with other analyses, the methodology focuses attention around the six source sectors of Australia’s National Greenhouse Gas Inventory (NGGI) 10 – stationary energy, transport, agriculture, land use, land use change and forestry, waste and industrial processes. For each sector a number of wedges (which are essentially a measure of emissions reduction potential) were developed and modelled. Given the nature of the greenhouse gas emission reduction options being considered, output and emissions efficiency were modelled at a more disaggregated level. The most appropriate level of disaggregation – balancing the accommodation of specific emissions reduction options with the desire to produce an effective model in a relatively short timeframe, as well as allowing comparison with other studies – was provided by the next level of the NGGI accounting framework – with the sectors being disaggregated to the sub-sector level. An added attraction of this approach was that existing demands and emissions efficiencies at the sub-sector level are produced in NGGI Reports, providing a means to determine starting points for the reference case.

2.3.2.1 Reference case The reference case was developed to provide a backdrop to the study and a stronger understanding of the scale of the wedges, and to allow assessment against any long or short term targets of emissions reductions which might be considered by Governments.

10 http://www.greenhouse.gov.au/inventory/ Australian Greenhouse Office, in the C’wealth Department of Environment and Water Resources, Australia’s National Greenhouse Gas Accounts homepage

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Constructing the reference case involved sourcing or generating forecasts of output and of emissions efficiencies across the sub-sectors out to 2050. Output forecasts were generated by combining estimated regression parameters, forecasts of Victoria’s population sourced from the Australian Bureau of Statistics, consultation with experts such as the Department of Treasury and Finance about Victoria’s economic outlook, and appropriate judgements by SKM and the expert panel. Expectations around future emissions efficiencies were informed by a number of sources. Where projections existed (for example the work which had already been completed on behalf of the States and Territories’ National Emissions Trading Taskforce) these were adopted. Alternatively, emissions efficiencies were forecast using historical information about growth rates. These estimates were then tested with the expert panel members likely to have information about emerging technologies and efficiency enhancements that historical information would not reflect. One important point to note is that the confidence which can be accorded to the reference case is greater in early years and significantly diminishes over time. The impact of substantial changes to Victoria’s economic structure and activities, of transformational changes in the energy supply sector, of major shifts in demand for resources, are difficult to predict over the longer term.

2.3.2.2 Emissions reduction wedges Emission reduction wedges represent reductions in greenhouse gas emissions from the reference case scenario. To estimate the size, scale and timing of the wedges, Nous, SKM and expert panel members combined to estimate the drivers of output and emissions efficiencies made possible with specific interventions.

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3 Reference case The purpose of the reference case is to provide a basis for assessment of the scale and impact of the wedges over time: it is not intended as a prediction of future greenhouse gas emissions from the State of Victoria. The reference case includes past values and future projections, annually out to 2050, for the State as a whole and for the six emissions-producing sectors: stationary energy, transport, agriculture, land use (including land use change and forestry), and industrial processes.

The reference case includes an assessment of past and future greenhouse gas emissions in Victoria extending from 1990 to 2050. For the purpose at hand, past observations of emissions levels are useful for calibration: we can see the extent to which individual actions have affected emissions levels in the past as an indicator of the potential for future success. Future observations provide the benchmark against which reductions can be achieved. It is therefore important that the reference case reflects a good understanding of how emissions levels will track over time. This significance is reinforced when set against Victoria’s objective to reduce greenhouse gas emissions by 60 percent below 2000 levels by 2050: for example, emissions levels reflected in the reference case have a direct relationship to our understanding today of the effort required to meet a 2050 target. The reference case is not a prediction of Victoria’s emissions to 2050 per se ; rather, it was developed to provide a basis for assessment of the scale and impact of the wedges over time. It represents a reasonable and likely scenario of future greenhouse gas emissions from the State of Victoria.

3.1 Scope of the reference case The reference case represents an assessment of Victoria’s future emissions, informed by the opinions of industry and academic experts, departmental authorities, and existing research about the past and future greenhouse gas emissions levels for Victoria. Importantly, the reference case excluded conjectures about government policies, technical developments, economic movements and behavioural changes that did not have a high level of certainty attached to them. This creates the space for the task at hand: to determine which initiatives – technical, economic and behavioural – can support reductions in emissions. Parameters within which the reference case was constructed included: Sectors The reference case includes past values and future projections, annually out to 2050, for the State as a whole and for the six emissions-producing sectors: stationary energy, transport, agriculture, land use (including land use change and forestry), and industrial processes. Disaggregation of these sectors was required to the extent that it permitted the definition and measurement of initiative-specific emissions-reducing wedges.

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Historical emissions Historical values for emissions were sourced from the National Greenhouse Gas Inventory. Future emissions projections Existing and committed policy : only those policies in effect, or certain to be implemented, were included in the reference case forecasts. Where policies are clearly subject to government intent but have no formal agreement or implementation program, for example an emissions trading scheme, these were excluded 1112 . Technology : technological improvement, especially that related to emissions reduction, was considered to the extent that it was already in effect or was certain to be adopted. Technologies such as carbon capture and storage were excluded from the reference case (but included as a wedge). Economics : Resource demand and supply, and resulting prices, were constrained to reflect known or certain developments. Carbon prices arising from an emissions trading scheme were excluded. Behaviours : Consumers and producers of goods and services have increasingly adopted production processes and consumption patterns that reduce emissions below what they otherwise would have been. The reference case assumes these behaviours continue, however excluding any further changes in behaviour from current trends.

3.2 Reference case methodology In this sub-section the reference case is introduced at a high level. Detail on each of the sectors including sector summaries, sector-specific modelling methodology (including levels of disaggregation), data sources and forecasting methods are discussed in the respective sector treatments in chapter four.

3.2.1 Modelling methodology The general functional form for the model was determined according to the following criteria:

• Sector definitions were determined in accordance with the National Greenhouse Gas Inventory • Sectors were disaggregated to the extent that permitted modelling specific emissions- reduction initiatives • Where appropriate, sector (and sub-sector) emissions were modelled as the product of two series: output and emissions factor (emissions per unit of output). This accommodated the modelling of wedges that applied separately to the level of output (for example, the number of kilometres traversed by privately owned cars in the State), and those that

11 Note that the impact of an emissions trading scheme as a driver of the wedges is considered in chapter five

12 The dynamic nature of the climate change policy environment means that a number of new and developing commitments have been left out of the reference case as policy implementation arrangements have not yet been fully specified for these commitments. Examples include the Victorian Government’s Victorian Energy Efficiency target (VEET) and the potential expansion of the Mandatory Renewable Energy Target by the Australian Government. These initiatives would clearly facilitate a considerable number of the wedges.

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applied to the per unit level of emissions (for example, the average amount of greenhouse gas emitted for each kilometre traversed by privately owned cars in the State). Output, in turn, was modelled in differing ways across contributing sub-sectors in each sector, described in the sectoral discussions below. • A special case concerns the treatment of the stationary energy sector. Demands on stationary energy production, and subsequent levels of emissions production from the sector, are themselves related to energy consumption. Energy consumption is modelled explicitly for the residential and commercial sectors. For the industrial sector, energy consumption is itself decomposed into sub-sector production (for example, the amount of aluminium produced), and energy demands per unit or production.

3.2.2 Assumptions validation Sector assumptions were tested at numerous stages in the modelling process with various groups and according to selected benchmarks. These included:

• The expert panel • Victorian Government authorities • Expertise at Nous and SKM • Specialists in the Australian Greenhouse Office • The National Emissions Trading Scheme input and output data

3.3 Reference case discussion Under the reference case assumptions, greenhouse emissions are expected broadly to trend upwards towards 2050, reaching 168 Mt of CO 2-e. The biggest contributor to emissions, by far, is the stationary energy sector, which is also the source of the majority of emissions growth out to 2050. A downward trend in emissions between 2014 and 2020 reflects the impact of the Victorian and NSW Renewable Energy Target initiatives (VRET and NRET); beyond 2020 the economics of brown coal in electricity generation dominate. For the other sectors, growth in reference case emissions is largely driven by strong GSP growth: even when efficiencies and behavioural change reduce emissions on a per-unit basis, emissions still increase as more is produced and consumed in support of economic growth.

The following chart shows projected greenhouse gas emissions for Victoria from 1990 to 2050, for all sectors modelled, based on the reference case assumptions:

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Emissions projections for Victoria Reference case 180000

Waste 160000

140000 Industrial processes

120000

Agriculture 100000

80000 Transport

60000

000s tonnes CO2e tonnes 000s Stationary energy 40000

20000 Land use, land use change and forestry

0 0 3 1990 1995 2000 2005 2010 2015 2020 2025 20 2035 2040 2045 2050 -20000

Figure 2: Reference case emissions Under the reference case assumptions, greenhouse emissions are expected broadly to trend upwards towards 2050. Across all the sectors modelled, the biggest contributor to emissions, by far, is the stationary energy sector. Indeed, this sector is responsible for the majority of emissions growth out to 2050. Underpinning this expectation is Victoria’s continued reliance on cheap and available brown coal used in electricity generation. The downward trend in emissions between 2014 and 2020 reflects the impact of the VRET and NRET initiatives in which renewable power generation is favoured over continued investment in brown coal generation. 13 Beyond 2020 the attractive economics of brown coal in electricity generation dominate once again, displacing further development of renewable power. Notably, only the development post 2020 of combined cycle gas generation in this scenario prevents this growth in brown coal generation from pushing emissions even higher. For the other sectors, growth in reference case emissions is largely driven by two complementary effects: strong State GSP growth and reluctance on behalf of economic agents (people and firms) in embracing emissions reducing technologies, processes, products and behaviours. The importance of the growth assumption and its modelled link to greenhouse gas emissions is manifest: even when efficiencies and behavioural change reduce

13 See footnote 3 on page 6

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emissions on a per-unit basis, emissions still increase as more is produced and consumed in support of economic growth. Behavioural change is not expected to lead significantly to reductions in emissions in the reference case scenario. For example, in transport, people are expected to continue favouring private vehicle use and road freight over alternatives associated with lower emissions. In energy demand, firms and people will be attracted to products and processes that lower costs – and, in most cases, lower emissions – but the increase in use of appliances, in lighting, in the building stock and in population growth will substantially outweigh this potential. Only in agriculture will emissions remain relatively constant over the forecast period in the reference case scenario due, primarily, to non- increasing stocks of livestock.

3.4 Key risks inherent in the reference case The reference case forecasts come with associated levels of uncertainty and risk. These can be grouped in four categories: measurement error, omissions, the length of the time horizon considered, and modelling assumptions. General data measurement and forecasting error : Any forecasting method is subject to data measurement error. In this project, forecasts have been generated from expectations about sector outputs, emissions factors, State GSP growth, State population growth, and various other inputs. Each is associated with measurement error, potentially compromising forecasts. The best efforts have been made to minimise this potential through two considerations: only the most reputable data was used – generated by the ABS, ABARE, Victoria’s Department of Treasury and Finance, the Australian Greenhouse Office, and refereed academic work; and, at every stage feasible, competing data was used for corroboration of forecasts. In addition, industry experts have commented on the veracity of reference case forecasts and adjustments have been made where necessary. Omissions : Some sources of emissions have been omitted. One major category is emissions from bushfires, omitted because of the near-impossible capacity to predict their location and frequency, as well as their absence from the NGGI methodology. Another is emissions from sea freight, also difficult to attribute at the state level. Other sources have been omitted because of the relatively negligible amounts of emissions generated, for example state-based emissions from aircraft. Uncertainty over length of time horizon : Technology develops rapidly and at an increasing rate. Bringing together expert and industry knowledge, the best efforts have been made to predict rates and areas of technological progress. However, the variance on these expectations widens substantially as we move further into the future; 42 years represents a significant time period over which to make predictions and, as such, the forecasts extending out to 2050 are recognised as being speculative. On this basis the upward trend in emissions that emerges from 2035 in the reference case should be treated carefully. It is very likely that a range of new technologies and social patterns will emerge over that time period, while economies of scale and ‘learning by doing’ will reduce the costs of many existing and emerging technologies while improving their performance. Modelling assumptions used : This project has generated substantial debate over the assumptions underpinning the reference case. Assumptions have been discussed by experts and government representatives. Notwithstanding this, however, the project team needed to settle on one set of assumptions and associated drivers for each time-series considered, to

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the exclusion of other, possibly valid, assumptions. Nevertheless, over time these assumptions should be reviewed and validated – for example, projections of increasing transport fuel use can be related to the amount of road space that would be needed, and the cost and feasibility of providing it in urban areas.

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4 The wedges by sector

4.1 Introduction Twenty-one wedges were selected and prioritised on the basis of criteria including a measurable and substantial greenhouse gas emission reduction impact (more than 50,000 tonnes per annum of CO 2-e); technical feasibility (availability prior to 2020); a reasonable cost (less than $100 per tonne of CO 2-e) and minimal social cost. The data underlying the modelling of the wedges was the subject of discussion between members of the project’s expert panel, Nous and SKM staff and government officers, and an element of subjective judgement was applied where necessary – numbers are conservative but are judged to be robust under a range of likely futures. The advantage of the wedges model is that data, parameters and assumptions can be amended as new and better estimates become available.

As noted above, this project adopts a Princeton Wedges -style approach to identify the potential level of greenhouse gas emissions abatement that is achievable in Victoria over different timeframes, and is designed to act as a precursor to more detailed analysis of policies and programs that apply to specific emissions reduction options, and the linkages that exist between them. The approach adopted has drawn as much as possible on published data and on the knowledge of SKM and the expert panel. The detailed and thorough knowledge of the various sectoral mitigation opportunities which the expert panel and SKM offered allowed a realistic estimation of such opportunities in the development of the wedges. The model itself allows government to vary any of the parameters which have been utilised in the model – for example, the speed with which particular mitigation approaches occur, or the depth of emissions reduction – as more data becomes available over time. Where differences have emerged over particular issues, parameters or expectations, or where published data has not been able to be sourced within the context and timeline of this project, the project team applied the best possible subjective judgement in consultation with the various parties. This chapter provides a sector by sector outline of the twenty-one wedges which have been modelled, in each case contextualised with the reference case against which the wedges were framed and against which their impact should be measured. For each sector – stationary energy, transport, agriculture, land-use, land-use change and forestry, waste and industrial processes – the following are provided: 1. An introduction to the sector, discussing (where relevant) issues such as the underlying nature of the emitting sector, industry structure and history, patterns of historical investment, and any other matters of useful background to the sector; 2. A description of the reference case for that sector, including discussion of the drivers of emissions as modelled in the reference case (noting that more detail on the reference case is contained in the appendices), and a graphical representation of the reference case emissions for the sector; 3. For each wedge (and there are from one to eleven wedges per sector) an outline of the wedge (discussed below);

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4. A description of the overall themes emerging for the sector, looking at the impact(s) of the wedges individually and collectively where appropriate, and building in other reflections provided through the project.

4.1.1 Selection of wedges The list of wedges modelled was developed through a series of workshops, conversations and iterations between Nous and SKM staff and the expert panel, as well as through discussion and interaction with appropriate Victorian Government officers through the Department of Premier and Cabinet. While the project did not include the undertaking of detailed economic modelling of initiatives, nor the identification of detailed and specific policy implementation tools and processes, it was intended that all initiatives proposed will be “reasonable” across the time frame under consideration. 14 The following criteria were used as an initial “rule of thumb” guidance in selecting and prioritising wedges:

Criterion Measure Environmental Initiatives must achieve an outcome in terms of greenhouse gas Impact emission reductions from Victoria in the short (5 year), medium (2020 and 2030) or long term (2040 and 2050). These reductions should be measurable in terms of the Victorian component of the National Greenhouse Gas Inventory.

A minimum reduction of 50,000 tonnes of CO 2-e per annum was regarded as a general threshold for individual initiatives. Technical Any technology driven initiatives should be based on technologies Feasibility that are reasonably expected to be proven to the demonstration stage (i.e. both technically and commercially viable and available) by 2020. Economic Impact Any initiatives should generally either have a positive return to the Victorian economy or be shown to have an indicative emission reduction cost less than $100/tonne (2007, CPI adjusted) Social Impact Initiatives which are likely to either increase social disadvantage or require substantial structural or regional adjustment in their wake will be less favoured Table 4: Initial guidance for selection of wedges

14 One potential direction which was not examined as a wedge was the development of nuclear electricity generation. Construction of a nuclear facility is specifically prohibited in Victoria under the Nuclear Activities (Prohibitions) Act 1983, and on this basis nuclear power was not further considered in this study.

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4.1.2 Understanding the wedges Each wedge is characterised most importantly by its start date, ramp up and steady state – the parameters which define the wedge in the model. These parameters can be understood as follows: The start date is the year at which the wedge is modelled as commencing to have an impact; the choice of this year is conditioned by a range of considerations including availability of technology (for example wedge one, carbon capture and storage, has a start date of 2020 based on expectations around this technology), or relationship to pre-existing schemes (for example wedge four, renewable energy, which starts in 2015 to match the likely completion of activity under VRET). The ramp up time (in years) represents the time taken for the wedge to reach its full impact. Values selected for this parameter are conditioned by judgements around turnover of capital stock (for example 20 years for building, plant and equipment in wedge eight), market penetration or consumer response (for example a ten year period of response to programs related to vehicle occupancy in wedge 19). The steady state is the impact the wedge has when it reaches its full potential – this is not (purely) a technical potential for emissions reduction; rather it is a technical potential conditioned by expert judgements around likely eventual take up rates for the wedge. The steady state generally takes a conservative view of technology development, focussing on present or near term technology and performance. Further, for each wedge the following is provided:

• Descriptions of the changes which would need to occur as part of the wedge – for example improvements to physical plant and equipment or changes in behaviour; • A summary of the basis for the assumptions underlying the wedge: what data, comparisons and judgements were used as the basis for quantifying the wedge; • Discussion of expectations around the likely cost of the wedge; • A confidence figure from Low to High (discussed further below); • An assessment of the likely sensitivity of the wedge to a future carbon price, based on the expert opinions available in the project; and • A chart showing the impact of the wedge on reference case emissions from the sector. The chart is overlaid with a number showing absolute emissions reduction in 2050 from the wedge, with this number also as a percentage of total Victorian emissions in 2000 by way of context. In all cases, the data underlying the reference case and the selection of parameters to underlie the modelling of the wedges was the subject of discussion between members of the project’s expert panel, Nous and SKM staff and government officers. The diversity of views which were apparent in these discussions required an element of subjective judgement to be applied for this project, and numbers have been used in all cases which are conservative but are judged to be robust under a range of likely futures.

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The advantage of the wedges model which has been developed and used here is that these data, parameters and assumptions can be amended as new and better estimates are provided or become available. In terms of the confidence level assigned to the wedges, analysts and experts involved in this project were asked to consider levels of ‘confidence’ associated with wedges, and assigned wedges the following confidence ratings:

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4.2 Stationary energy

4.2.1 The energy sector in Victoria The stationary energy sector in Victoria contributed 59% of Victoria’s greenhouse gas emissions in 2005, the bulk of this from the combustion of coal for the generation of electricity, which has underpinned historical strength in Victoria’s manufacturing industry. Natural gas and renewable energy provide important and increasing contributions to energy demand, which has been driven by strong economic and population growth.

The role of energy in all aspects of modern lifestyles sees the production, consumption and distribution of energy providing a critical input (along with technology) to fundamental and essential services for all Victorians. Electricity, in particular, is central to most of society’s needs: across the residential sector, the commercial and industrial sectors and for transport (fixed rail and tram systems). While energy is such a critical input this does not mean that large quantities of energy are essential to these services: the amount of energy required is very sensitive to the nature of services desired, how they are provided, and the quantity of services delivered. Emissions from the stationary energy sector made up 59% of Victoria’s greenhouse gas emissions in 2005 – 72 Mt of CO 2 out of Victoria’s total emissions of 122 Mt of CO 2.

Stationary energy, 2005 CO2e emissions

0% 6% 15% Coal Natural gas Renewable Other energy 79%

Figure 3: Emissions from the stationary energy sector, 2005

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Over recent years overall electricity demand has grown at around 1.3% per annum while peak demand has grown at roughly 2% per annum 15 , with domestic air conditioning a major driver. Of the order of ninety percent of Victoria’s electricity is generated by the brown coal generators in the Latrobe Valley 16 , with gas fired electricity generation and renewable energy historically playing a less significant role – gas generation being generally for peaking power which is becoming relatively more important. Natural gas is reticulated across the main cities and towns of Victoria, and serves as a major fuel for industrial processes and in the commercial and residential sectors for heating, cooking and hot water. Renewable energy in Victoria has historically been provided by hydro-electricity (through the Snowy and Kiewa, Dartmouth and Eildon Hydro schemes) and more recently through development of a considerable wind power capacity. The Victorian Government recently passed legislation (the Victorian Renewable Energy Target) 17 to require 10% of the State’s electricity to be sourced from renewable energy sources by 2016.

4.2.1.1 Energy supply Victoria’s current pattern of energy supply reflects the underlying resource endowment of very large, low cost deposits of brown coal on which the State’s electricity supply has been based, and large relatively cheap gas resources. This low cost energy supply has underpinned Victoria’s substantial competitive advantage in manufacturing and energy intensive industries such as aluminium, pulp and paper, cement and petrochemicals. Based on published reserves and annual use, Victoria’s cheap gas resources will be approaching their limits within a couple of decades, so that more expensive gas from smaller fields and interstate is likely to increase its share of gas supply. At the same time, brown coal is two thirds water and its low fuel energy density in untreated form means that it is a highly greenhouse gas intensive source of electricity generation, and that it has a very limited opportunity value in alternative uses to in situ power generation, at least insofar as conventional technologies are concerned. This is not necessarily so in future, as alternative uses for coal – such as production of diesel fuel - are under detailed consideration. The physical and cost characteristics of Victoria’s coal, using historically applied technologies, 18 make for higher greenhouse gas emissions per MWh (typically 1.2-1.45 tonne CO 2) and, because of a consequent need for larger boiler sizes and other elements of plant design which produces a relatively fixed-cost structure, generally preclude Victorian brown coal power stations from operating other than at base load, encouraging maximum continuous energy production. These physical operating imperatives have historically been overlain by ownership and behavioural issues. The generating assets were developed and (prior to the 1990s) operated by a government owned, vertically integrated entity (State Electricity Commission of Victoria or

15 Electricity, an Essential Service, Department of Primary Industries, February 2007

16 Not including imports such as Snowy Hydro and black coal from NSW

17 See http://www.dpi.vic.gov.au/dpi/dpinenergy.nsf/childdocs/-3f827e74c37e0836ca25729d00101eb0- 866b51f390263ba1ca2572b2001634f9-2d9b7b1f0df350aeca2572b2001974e2?open

18 The Greenhouse Challenge for Energy, Report to Victorian Department of Infrastructure and Department of Sustainability and Environment by The Allen Consulting Group, September 2004

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SECV) pursuing a range of Government objectives well beyond profit maximisation - notably employment creation and maintenance in the Latrobe Valley, industry and rural development, and a range of community service obligations. In this environment, long distance transmission and distribution systems were developed and electricity prices set without sole regard to true economic costs, with a degree of underpricing and cross subsidisation from urban commercial (and to some extent residential) customers and taxpayers (in the form of sub-economic return on assets) to rural and large scale industrial users and to off-peak electricity consumption. Prior to the introduction of the National Electricity Market (NEM) at the end of the 1990s, there was little interstate electricity flow. This, combined with the lack of flexibility of brown coal plant also led to aggressive strategies to increase overnight power usage, including the provision of low off-peak electricity tariffs to customers. The provision of cheap brown coal based electricity transported over long distances increased emissions (via transmission and distribution losses) and constrained adoption of alternative, higher priced, distributed energy technologies (such as co-generation, wind, biomass etc). The very low off-peak prices increased electricity use overnight and on weekends and undermined the economics of alternatives such as solar hot water. The development of Bass Strait oil and gas resources from the mid/late 1960s broadened electricity/energy supply options. This encouraged fuel switching from electricity to direct use of natural gas in residential, commercial and industrial sectors, thus reducing the emissions intensity of these sectors below what they otherwise would have been. More rapid growth in gas fired electricity supply was slowed, however, by industry structure, views on the longer term direction of gas prices, and emerging environmental activism which disrupted the first major metropolitan gas fired generation project in the 1970s (at Newport). Driven essentially by the national competition policy initiatives of the early 1990s, electricity and gas market reforms began to change the ownership and competitive landscape of energy supply from the mid 1990s. As a result, highly efficient cogeneration and combined cycle gas turbine generation for intermediate and some base load generation has become a more attractive option, aided by increased size and thermal efficiencies of later generations of plant and concerns about future carbon pricing. Increased interconnection of grids has also reduced pressure to find local uses for off-peak electricity, improved plant utilisation and helped supply peak demand. But significant challenges remain, for example: 1. The physical longevity of brown coal plants makes rapid adjustment of emissions intensity problematic since this potentially involves large scale capital stranding (a challenge which only grew stronger with changes in ownership of the generation assets in the mid 1990s – changes that effectively increased the service life, availability and production capability of these facilities); and 2. The existing approach to intra-region electricity transmission and distribution pricing does not provide a strong financial signal for innovation in distributed generation. A variety of other barriers has limited adoption of demand-side and distributed generation measures. These and other challenges have led to the implementation of a range of Victorian (and other Federal and State) schemes to overcome barriers by providing subsidies and support for renewables, distributed and low emission electricity supply – for example: the Victorian Renewable Energy Target (VRET), and Victoria’s Energy Technology Innovation Strategy (ETIS) which provided capital support for demonstration of brown coal gasification and coal drying.

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The impact of emissions trading and carbon pricing on both short and long term emissions from the sector is as yet unclear in the absence of clear specification of coverage, targets and the regulatory attitude to pass through of carbon charges to end users. That said, it is expected that once these issues are resolved, the energy supply sector will respond strongly to any but the weakest of carbon price signals. Carbon capture and storage remains a prospective but unproven approach at this stage, although one for which Victoria looks to be well placed, particularly compared to NSW and Queensland where the economically feasible carbon sequestration opportunities are less clear.

4.2.1.2 Energy demand Central among the underlying drivers of energy demand are Victoria’s population and economic growth, and these have pushed a considerable rate of growth for some years, as noted above. There have been a number of changes to the underlying societal and industry expectations with regard to energy demand and the role of energy use in society, and these have served to offset this steady population and GSP driven growth 19 . The oil crises of the 1970s provided the original trigger for action on renewable and sustainable energy around the world, including in Victoria, and saw the commencement of work on demand management within Government and the SECV. In the late 1970s (and ongoing) there was a substantial focus on energy-intensive industry as a development strategy, including a focus on brown coal and natural gas as key drivers of economic development in Victoria. This approach saw the establishment of much today’s electricity generation infrastructure. In the 1990s, energy market reform saw a number of issues emerge in regard to energy demand, for example:

• Much public investment and policy action in energy efficiency was cut back, while public investment in technology research, development and demonstration was also reduced; • Reductions in electricity prices reduced immediate incentives for investment in energy efficiency for many businesses; • Renewable energy development and investment slowed (for example government support for a wind farm development was reduced); and • Incentives to drive investment in energy efficiency and demand side management (DSM) fell away (for example gas distributors would lose money if households saved gas; cogeneration faced serious barriers; market signals did not support efficient streetlighting). To reduce energy demand, Victoria and NSW introduced appliance energy labelling in 1986- 87. The star rating concept, which has been very powerful, was a Victorian initiative. This transformed appliance energy efficiency, and has formed the basis for a national program. The rating scheme was followed by the introduction nationally of Minimum Energy Performance

19 Factors affecting the electricity demand in the NEM, a report for the NEMMCo by the National Institute of Economic and Industry Research, June 2007

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Standards (MEPS) in the late 1990s. 20 While these programs have operated for some time, their impact on electricity demand levels has been delayed by the slow turnover of equipment. In the next few years the impact of these programs will increase significantly, in particular that of the national MEPS program which has recently been considerably expanded. A very important intervention prior to energy market reform was the State Electricity Commission Demand Management Action Plan (1991-1994). Under this program the SECV was spending $30m each year developing and implementing Australia’s most ambitious (and cost-effective) demand side management program. Detailed analysis showed it delivered net benefits of $10m pa 21 . This program was not continued through the privatisation transition. The SECV also operated a “Cogeneration and Renewables Incentive Scheme” which saw generators offered a specific and contracted price for their output. 22 A number of other Government programs followed on over the next decade, for example Victoria led Australia in introducing dwelling insulation regulations in 1991 (after they had originally been proposed an earlier Parliamentary Inquiry 23 ). This underpinned development of national regulations as well as the transition to 5-star regulations (in 1990 when they were announced they were described as ‘3-star’ and a commitment was made to introduce 5-star regulations in 1993).

4.2.2 Reference case emissions for the stationary energy sector In the case of the stationary energy sector, the model generally adopted for the reference case was amended to allow more effective treatment of stationary energy supply and demand, and to take into account the detailed modelling which had already been undertaken for the Victorian Government. This therefore reflects current Australian Bureau of Agriculture and Resource Economics (ABARE) and National Emissions Trading Secretariat (NETS) modelling of coal and gas prices used in electricity generation which assume broadly flat coal prices and a modest upward trend in gas prices over the period to 2030. Demand for energy production, and subsequent levels of emissions from the sector, are related to energy consumption which is modelled explicitly for the residential and commercial sectors. For the industrial sector, energy consumption is itself decomposed into sub-sector production (for example, the amount of aluminium produced), and energy demands per unit or production. For electricity, Victorian demand for electricity is modelled on a sector-by-sector basis, then aggregated to generate total domestic (i.e. Victorian) electricity demand. This figure is then revised according to expectations about Victorian exports of electricity; the result is a forecast of demands on Victorian electricity producers. This demand figure is then allocated across fuel types – brown coal, natural gas, and renewables – yielding Victorian generation by fuel. In turn, these forecasts are subjected to fuel-specific generation efficiencies (low for coal, higher

20 The MEPS and Energy Labeling process in Australia and New Zealand , overview document September 2006, and Achievements 2006: Equipment Energy Efficiency Program March 07, http://www.energyrating.gov.au/meps1.html

21 Policy Options for Energy Efficiency in Australia Alan Pears, Deni Greene, January 2003

22 A Review of the Viability of Cogeneration in Australia , Commonwealth Department of Industry, Science and Resources, by Sinclair Knight Merz, October2001

23 Parliament of Victoria, Environment and Natural Resources Committee, “Electricity Supply and demand Options Beyond the Mid 1990s”, 1988

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for natural gas and 100% for renewables) to determine the amount of fuel used in generation. These forecasts are augmented by sector-specific forecasts of non-electricity fuel consumption used for combustion (coal, natural gas and other non-transport combustion fuels) to generate total Victorian consumption of combustible fuels. Finally, these figures are then subjected to an emissions factor to generate fuel-specific emissions. Figure four below shows the sectoral breakdown of electricity consumption in 2005, while figure five shows electricity production by fuel type in the reference case.

Electricity consumption in Victoria by sector, 2005 (MWhr)

27% 21% Aluminium smelting Other industrial Commercial Residential 28% 24%

Figure 4: electricity consumption in Victoria by sector, 2005

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Electricity production, by fuel

90000

80000

70000

60000

50000 Renewable Natural gas MWhr 40000 brown coal

30000

20000

10000

1 3 9 1 7 9 07 09 25 27 45 005 019 021 023 037 039 041 043 2 20 20 201 201 2015 2017 2 2 2 20 20 202 203 2033 2035 2 2 2 2 20 204 204

Figure 5: electricity production by fuel type, reference case The principal sources of stationary energy and stationary energy related emissions data for the reference case have been the modelling already undertaken on behalf of the Victorian Government through the National Emissions Trading Secretariat, which used MMA’s existing energy market model and the general equilibrium model for the overall functioning of the economy used by Monash Centre of Policy Studies (COPS) and draws on ABARE forecasts of demand. 24 25 The following chart shows projected greenhouse gas emissions for Victoria in the stationary energy sector based on these reference case assumptions:

24 McLennan Magasanik Associates “Report to National Emissions Trading Taskforce - Impacts of a National Emissions Trading Scheme on Australia’s Energy Markets” July 2007

25 The future path of east coast gas prices is an important source of uncertainty: the current modelling assumes these prices are largely insulated from world LNG prices which are increasingly priced off crude oil. The proposed construction of LNG export terminals drawing on Queensland coal seam methane supplies would potentially, however, begin to forge a link between domestic and world gas prices, putting upward pressure on domestic gas prices.

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Stationary energy emissions Reference case

120,000

100,000

80,000

Other energy 60,000 Natural gas Coal 000s tonnes CO2e tonnes 000s

40,000

20,000

0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050

Figure 6: Reference case emissions – stationary energy sector

The vast bulk of emissions from the stationary energy sector in Victoria for the reference case are produced by the coal sub-sector – 62 Mt in 2005 ranging to 70 Mt in 2050, a growth of 14% over that period. Emissions from the coal sub-sector grow under the reference case assumptions to 2013 (peaking at 64 Mt) before dropping to 52 Mt in 2019 and rising to 2050. The downward trend in emissions in the stationary energy sector between 2014 and 2020 occurs because the VRET initiative results in reasonably aggressive substitution of renewable production for brown coal production. Once this initiative plays out, it is assumed that new generation is met by the cheapest alternative (even with carbon constraints) – brown coal. Emissions from natural gas increase steadily over the period of the reference case, from 17 Mt in 2005 to 36 Mt in 2050, as new gas fired generation comes on line.

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4.2.3 Stationary energy - wedge descriptions Given the key drivers of future energy supply and demand, and the specific sub-sectoral areas of growth in demand and in emissions, a total of eleven wedges were modelled to examine the potential for reduction in emissions from the stationary energy sector: Wedge Title Description 1 Carbon capture and storage 80% emissions efficiency improvement in coal & gas electricity production by 2040 2 Coal drying 25% emissions efficiency improvement from brown coal electricity production by 2028 3 Cogeneration 20% reduction in electricity demand by 2030 4 Renewable energy 20% reduction in coal and gas electricity generation by 2035 5 New gas (fuel switching) 15% alteration in fuel mix – from coal to natural gas – in electricity generation by 2035 6 Waste to energy 10% reduction in electricity production by 2020 7 Lighting (commercial) 15% reduction in electricity use in the commercial sector by 2030 8 Building envelope and HVAC equipment 25% reduction in electricity consumption in the commercial sector by 2035 9 Equipment efficiency improvement 10% improvement in electricity efficiency in the commercial and residential sectors by 2025 10 On-site and off-site renewables 20% reduction in consumption of coal and gas-fired electricity in the residential sector by 2035 11 Industrial energy efficiency 10% reduction in electricity use in the industrial sector, rising to 15% by 2030 and 20% by 2040 Table 5: Stationary energy sector - wedges These wedges was selected based on the impact, cost-effectiveness and feasibility criteria described above, and parameters for modelling their impact were developed within that context.

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Wedge 1. Carbon capture and storage (CCS) Sector: Stationary energy (supply) CCS technology provides deep cuts but requires substantial incentive Confidence: Low - Medium

Assumptions Start date Ramp-up (years) Steady-state 2020 20 80% emissions efficiency improvement in coal & gas electricity production

Stationary energy, wedges

120,000

100,000

80,000

Stat. en. Wedge 60,000 Stat. en. Residual 000s tonnes CO2e tonnes 000s 40,000

20,000 2050 CO2e reduction: 61 Mt (36% of Vic total)

0 4 0 2 4 2 6 4 6 8 8 2 6 0 9 0 1 2 2 4 5 99 00 00 01 03 04 19 1992 1 1996 1998 2 20 2 2006 2008 2010 20 2014 2 2018 2020 2022 20 202 20 2030 2032 2034 2036 2 2040 2 2044 20 2048 20 Descriptions of changes required to achieve the wedge: This wedge envisages the progressive implementation of carbon capture and storage technology across the Victorian (fossil fuel) energy supply sector. Achievement of this wedge would require a range of interventions such as an investment incentive scheme, tax depreciation allowances, and a carbon price.

Assumption basis: The assumptions used in the model are based on extensive research in Australia and internationally seeking cost-effective approaches to CCS for both new coal fired electricity generation technologies, and for existing plants. 2020 was chosen as the start date because substantial additional demonstration is required. A steady state emissions efficiency improvement of 80% (on new and existing plants) reflects the fact that energy is needed to operate CCS technology (requiring a 25% parasitic load) and it is unlikely to be cost effective to capture 100% of emissions. The ramp-up time of 20 years is based on the likely pattern of half-life re-fits for existing stations, particularly the newer ones (Loy Yang A & B).

Cost: Expectations around CCS costs range from $30 - $70 per tonne of CO 2-e for new plants and $40 - $80 for existing plants. For electricity generation, this translates into a cost increase of about 2-10 cents per kWh.

Sensitivity to carbon price: A price for carbon is essential for CCS development in the absence of other incentives. A carbon price sufficient to generate the forecast savings would need to cover CCS costs. DPI estimates of the break-even cost of CCS range from $28 per tonne of CO 2-e avoided for new coal, to $44 for new intermediate gas plants.

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Basis for the wedge:

Carbon capture & storage (CCS) is a 3-step process including 1) CO 2 capture from power plants, industrial sources, and natural gas wells with high CO 2 content; 2) transportation (usually via pipelines) to the storage site; and 3) geological storage in deep saline formations, depleted oil/gas fields, unmineable coal seams, and enhanced oil or gas recovery sites. In combustion processes, CO 2 can be captured either in pre-combustion mode (by fossil fuel treatment) or in post-combustion mode (from flue gas or by oxyfuel). For Victoria, likely storage options include the emptying fields of natural gas underneath Bass Strait. CCS has the potential to contribute significantly to reducing Victorian greenhouse gas emissions whilst reducing the carbon cost of the use of Victoria’s abundant and relatively inexpensive brown coal for electricity generation. Implementation issues/ barriers: There remain a number of as yet unresolved issues in regard to the implementation of CCS, related to cost, the elements of the technology itself, and acceptance of the technology – both at a wider community level and in a regulatory sense. Depending on the approach to and rate of implementation, and the manner in which electricity price systems respond to costs, CCS could add substantially to the cost of electricity generation. It will not be adopted readily without an appropriate carbon price. Research, development and demonstration of all elements of CCS technology – capture, transportation and storage - is progressing, but further exploration and testing is likely to take some years. Community acceptance of CCS remains uncertain at this stage, with strong views being expressed by a number of community groups (a comment reflected by members of the project’s Advisory Panel). At the same time, robust and certain regulatory frameworks for transportation and storage of carbon (at Commonwealth and State levels) are a necessary precursor to the use of this technology and are still under development. These will be needed to establish access, property and risk frameworks. Infrastructure needs for widespread roll-out of CCS will be considerable, with extensive pipeline systems required. Additionally, as far as access to depleted oil wells is concerned, this may depend on relationships with the existing petroleum industry; location of appropriate alternative geological structures may be required. Comment: Considerable international attention is being given to carbon capture and storage; Victoria has the opportunity to become a “fast follower” if not leader in this technology.

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Wedge 2. Coal drying Sector: Stationary energy (supply) Coal drying reduces emissions substantially, but requires a carbon price incentive Confidence: Medium

Assumptions Start date Ramp-up (years) Steady-state 2013 15 25% emissions efficiency improvement from brown coal electricity production

Stationary energy, wedges

120,000

100,000

80,000

Stat. en. Wedge 60,000 Stat. en. Residual 000s tonnes CO2e tonnes 000s 40,000

20,000 2050 CO2e reduction: 17 Mt (11% of Vic total)

0 2 4 6 8 0 6 8 0 2 4 6 8 0 2 4 6 4 6 8 0 2 4 6 9 9 9 9 9 0 0 1 1 1 2 2 2 2 3 3 3 4 4 4 4 9 9 9 9 9 0 0 0 0 0 0 0 0 0 1 1 1 1 1 2 2002 2004 20 200 201 201 2 2 2 2 20 20 20 2028 2030 2032 2 2 2 2 20 20 20 2048 2050

Descriptions of changes required to achieve the wedge: This wedge is based on the implementation of coal drying technology (for example steam fluidised bed drying (SFD)) to existing and new brown coal power stations in Victoria. This wedge is likely to require incentives such as an investment incentive scheme, tax depreciation allowances, and a carbon price.

Assumption basis: Assumptions are based on implementation of supercritical fluidised coal bed drying through retrofits, a model developed by DSE. It is assumed that all new and existing stations are retrofitted over a fifteen year period. The start date of 2013 is based on likely availability of the technology in a demonstrated form.

Cost: It is expected that the costs to implement coal drying will result in an implied price of around $16 per tonne of CO 2-e in Victoria. For electricity this translates into a cost increase of about 1-2 cents per kWh.

Sensitivity to carbon price: A price for carbon is essential for coal drying development in the absence of other incentives. A carbon price sufficient to generate the forecast savings would need to cover coal drying technology costs (expected to be between $10 and $30 per tonne of CO 2-e avoided).

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Basis for the wedge: Coal drying has been examined extensively in Victoria by government, the energy industry and the research community for many years. Drying of coal is central to the reduction of emissions from energy supply in Victoria; while beneficial if costly in retrofits to existing plant, in new plant it can form part of a broader technical approach (for example integrated drying and gasification combined cycle IDGCC) which produces gases for combustion and can facilitate carbon capture and storage. A supercritical, or ultra-supercritical boiler fuelled by steam fluidised bed coal drying represents only of a number of possible one coal drying technologies, albeit the one currently closest to commercialisation. A number of technologies have been developed and are close to the demonstration stage, and it is not yet clear which will be adopted first: a possible outcome is that several of these technologies will be applied at different stations, with potentially different technologies applied to new and existing plant. Drying technologies fall into two key categories – stand alone drying units such as SFD and integrated drying such as IDGCC. The conclusion as to which will prove the most economic for new build will become apparent in the next five years. Implementation issues/ barriers: Investment in coal drying will add to the cost of electricity generation, at least for existing plant (where boiler upgrades will potentially be needed). It will not be adopted quickly without an appropriate carbon price. Availability of incentives such as NSW Greenhouse Abatement Certificates, or the rapid introduction of an emissions trading scheme would increase commercial drivers for including drying as part of plant retrofit cycles. Comment: This wedge could be accelerated from a technological perspective at a higher cost (that is, the ramp up time could be shortened), if earlier and deeper reductions in emissions were required. Technologies for coal drying, where developed in Victoria, offer considerable technology and skills export potential.

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Wedge 3. Cogeneration Sector: Stationary energy (supply) Increases the thermal efficiency of energy production and use by using waste heat and avoiding transmission losses Confidence: Medium

Assumptions Start date Ramp-up (years) Steady-state 2015 15 20% reduction in electricity demand

Stationary energy, wedges

120,000

100,000

80,000

Stat. en. Wedge 60,000 Stat. en. Residual 000s tonnes CO2e tonnes 000s

40,000

20,000 2050 CO2e reduction: 19 Mt (12% of Vic total)

0 0 2 0 4 6 8 0 4 6 8 0 00 01 199 199 1994 1996 1998 2 2002 2004 2006 2008 2010 2012 2 201 201 202 2022 2024 2026 2028 2030 2032 203 203 203 204 2042 2044 2046 2048 2050 Descriptions of changes required to achieve the wedge: This wedge envisages a considerable growth in the use of cogeneration, through application across a large number of industrial sites and industrial parks. Greater use of cogeneration delivers improved thermal efficiency through use of excess heat for processes/heating or cooling and localised electricity generation also leading to reduced transmission/distribution losses .

Assumption basis : Assumptions are based on achieved ramp-up rates and the electricity reduction potential of cogeneration demonstrated in Europe (in particular, Denmark; this figure accounts for the relatively higher demand for heat energy in Europe)

Cost: As illustrated in Europe, cogeneration has an impressive pay-back period (potentially less than 5 years) with appropriate transmission and distribution regulation and market prices

Sensitivity to carbon price: A price for carbon would provide an incentive for large electricity users to consider alternate sources of power, like cogeneration. This effect would be reinforced with appropriate changes to regulation and market access for producers of low emissions-emitting power from cogeneration.

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Basis for the wedge: Cogeneration involves using heat generated in one part of a production process in other parts (for example, to heat buildings or to generate on-site electricity). Excess electricity can then also be exported to the wider electricity market. Greater use of cogeneration delivers improved thermal efficiency through use of excess heat for processes/heating or cooling and localised electricity generation also leading to reduced transmission and distribution losses. Unrealised potential for development of cogeneration in Victoria has been assessed as being more than 1050MW in the manufacturing and commercial building sectors alone (Redding Energy Management, Potential of Cogeneration in Victoria, Report produced for the Sustainable Energy Authority, 2001). Cogeneration has the added advantage of potentially reducing greenhouse gas emissions further because of the lower emissions associated with using natural gas/biomass/waste. Implementation issues/ barriers: There are currently a number of disincentives for cogeneration in the electricity market in the form of large transmission augmentation charges (cables and substations) and a disadvantageous electricity sales rate. Specific action could be undertaken in:

• More aggressive implementation of Ministerial Council for Energy proposals in relation to facilitation of embedded generation (including a code of practice for distributors, and improvements to grid accessibility) • Establishing a program to support proponents of renewable and distributed generation facilities to build understanding of the commercial and regulatory environment of the NEM • A more liberal interpretation of rules governing recovery of claimed network augmentation costs associated with embedded generation. • More location based transmission pricing (that is, a move away from averaged/postage stamp pricing). There is a difficulty in valuing the economic and other benefits of distributed generation to the network in terms of reduced system losses and deferred network augmentation. Embedded generators face challenges in negotiating network connection agreements and costs. The Australian Energy Regulator is currently reviewing the incentives and regulatory structures experienced by electricity distributors with a view to removing any barriers to the take up of economically feasible cogeneration opportunities. The widespread use of cogeneration in commercial/residential situations may raise air quality issues (NO X/SO X) depending on the airshed in which the generation occurs. Comment: Cogeneration is a mature technology which is extremely cost effective in specific instances, and can form part of an innovative approach to industrial development – for example in the establishment of industry clusters where one party’s waste heat is captured by other parties. The European Union’s Combined Heat and Power Directive of 2004 is now providing a powerful incentive for growth in cogeneration in EU member states.

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Wedge 4. Renewable energy Sector: Stationary energy (supply) Renewable energy is an attractive alternative to high emissions power sources, but infrastructure changes are necessary to ensure it is a competitive alternative Confidence: Medium

Assumptions Start date Ramp-up (years) Steady-state 2015 20 20% reduction in coal and gas electricity generation

Stationary energy, wedges

120,000

100,000

80,000

Stat. en. Wedge 60,000 Stat. en. Residual 000s tonnes CO2e tonnes 000s 40,000

20,000 2050 CO2e reduction: 19 Mt (12% of Vic total)

0 0 2 4 6 8 2 4 6 8 0 2 6 8 0 2 4 6 0 2 6 8 0 4 6 0 9 9 9 9 9 0 0 0 0 1 1 14 1 1 2 2 2 2 28 3 3 3 3 4 42 4 4 5 9 0 0 0 0 0 0 0 0 0 0 19 19 1 19 19 2000 20 20 20 2 20 20 2 2 20 20 2 20 20 2 2 20 2034 2 20 20 2 2 20 2048 2 Descriptions of changes required to achieve the wedge: This wedge envisages a continued growth in large scale renewable energy (wind farms, biomass, geothermal) beyond the VRET target to levels similar to those targeted in Europe.

Assumption basis: Modelling was based on an assumption that Victoria broadly adopts the same renewable energy targets as those employed currently in Europe: between 20% and 30% reliance on renewable energy production by 2030. The start date of 2015 coincides with the likely falling away of investment under VRET, and the twenty year ramp up reflects the difficulty in speedy establishment of new facilities.

Cost: Some large-scale renewable energy production is viable under the VRET and MRET schemes, through it remains relatively cost uncompetitive compared to conventional power generation. Unless electricity prices rose, or substantial incentives were made available, pay-back periods for the large infrastructure investment needed would be prohibitively long.

Sensitivity to carbon price: A high price for carbon is practically a pre-requisite for large-scale renewable energy production in the absence of substantial alternative incentives

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Basis for the wedge: This wedge would require development of the capacity to deliver of the order of 13,500 GWh per annum of renewable energy by 2035, roughly a fourfold growth on that required under VRET. This would certainly require continuing development of wind power, but would also require maturing and further development of large scale solar and geothermal systems. The economics of renewable energy production suggest that its viability will be greatly enhanced by additional infrastructure developments. These could include, for example, the construction of high voltage DC (HVDC) transmission lines to minimise long-distance transmission losses, or energy storage, that help to overcome the spatial and intermittency problems of renewable energy production. In general terms, the viability of renewable energy production would increase if electricity prices rose, through the establishment of a NETS, and/ or if MRET/ VRET were extended (renewable energy currency has risen with the announcement of the Australian Government’s Clean Energy Target) Implementation issues/ barriers: The contribution of wind power to meeting baseload requirements is arguably constrained by both the intermittency of generation and locations remote from major demand nodes. Geothermal resources are also remote from major loads. HVDC transmission overcomes these problems because transmission losses beyond about 30km are virtually two thirds those of high voltage AC (HVAC) lines. US and European research 26 suggests the cost of wind serving more than a third of demand, accounting for the remoteness and intermittency of wind resources, is similar to the cost of other carbon mitigating technologies in the electricity sector. There remain issues in regard to public response to further expansion of wind farm activity in Victoria. Construction of a HVDC transmission network to minimise long distance transmission losses and overcome spatial and intermittency problems with renewables would support this measure; it is noted that the capital costs of such expansion would be about 10% above HVAC because of need for inverters.

Additionally, compressed air energy storage (CAES), pumped hydro and potentially H 2 storage are technologies that offer sufficiently low storage specific capital costs suitable for use in conjunction with large wind farms, this reducing the carbon intensity in the installation’s energy and transport usage. Because pumped hydro requires two bodies of water at different elevations located in close proximity to each other, its application is limited. By contract CAES and H 2 are broadly applicable since suitable geological and/or physical storage is feasible. Comment: Economies of scale and technology development offer significant potential to reduce the costs of most renewable energy options.

26 Scott, Mark, “Wind Power’s a Breeze in Europe” Business Week Online , 20 Sep 2007 Plume, Janet, “A Big Wind” Journal of Commerce , 29 March 2007 “Where the wind blows” Economist , Vol 384, Iss 8539, 28 Jul 2007

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Wedge 5: New gas Sector: Stationary energy (supply) As an alternative to brown coal, natural gas yields significantly less emissions but its viability will depend on future gas availability and price Confidence: Low

Assumptions Start date Ramp-up (years) Steady-state 2015 20 15% alteration in fuel mix – from coal to natural gas – in electricity generation

Stationary energy, wedges

120,000

100,000

80,000

Stat. en. Wedge 60,000 Stat. en. Residual 000s tonnes CO2e tonnes 000s

40,000

20,000 2050 CO2e reduction: 8 Mt (5% of Vic total)

0 0 2 6 8 0 6 4 6 2 4 6 0 9 9 9 9 0 0 3 3 4 4 4 5 9 9 9 9 0 0 014 022 024 028 030 032 0 0 038 040 0 0 0 0 1 1 1994 1 1 2 2002 2004 2 2008 2010 2012 2 2016 2018 2020 2 2 2026 2 2 2 2 2 2 2 2 2 2 2048 2 Descriptions of changes required to achieve the wedge: Notwithstanding both the high price of natural gas relative to brown coal and expected decline in gas reserves available to Victoria, encouraging natural gas electricity generation at the expense of brown coal in new plants would reduce emissions significantly. Facilitating this transition would require substantial incentive in the form of government assistance or parity between coal and gas prices potentially brought about by a carbon price.

Assumption basis: It is assumed that existing generators meet demand until new capacity is required (2015). From this point, Victoria works towards an objective similar to the one targeted by Queensland through its Gas Scheme (which has an 18% target, albeit by 2020).

Cost: The cost of a transition from coal to natural gas for electricity generation is potentially substantial. Anticipated declining reserves will place upward pressure on gas prices while prices for the likely alternative, brown coal, will remain low.

Sensitivity to carbon price: In the absence of large incentives provided by government, the viability of this wedge hinges critically on a strong carbon price.

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Basis for the wedge: Gas fired electricity plant has been a feature of Victoria’s electricity supply system since the late 1970s (with construction of the Jeeralang and Newport stations which total almost 1000MW of capacity); there has been particular growth in construction of gas fired peaking plant since 2000. Combined cycle gas turbine (CCGT) plant operates at a considerably lower greenhouse intensity than brown coal fired power generation. This wedge envisages a growth in gas fired generation, to 15% of Victoria’s needs by 2035. This would involve investment in around 1500MW of new gas plant in addition to that already planned and built into the reference case, which includes one new 1000 MW baseload gas fired power station. Implementation issues/ barriers: The main implementation barriers relate to gas price and availability, both absolute and relative (in terms of ongoing long run marginal cost compared to coal fired generation). Gas availability is a topic of considerable debate in the industry, and likely prices once pipelines to Victoria are constructed are also unclear. A strong carbon price would certainly provide a major driver for this wedge. The risk associated with investment in gas plant is lower than that for coal plant. By comparison with brown coal fired generation plant, gas plant is simple and modular, and it can potentially be relocated or sold. The lower capital cost of gas plant is also attractive in situations where discount rates are high. Comment: Gas fired generation of electricity is already viable and economic for peak and intermediate power generation. Only issues related to long term availability and price of gas stand in the way of full implementation of this wedge.

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Wedge 6. Waste to energy Sector: Stationary energy Waste can be used for electricity generation, reducing stationary energy and waste emissions Confidence: Medium

Assumptions Start date Ramp-up (years) Steady-state 2010 10 10% reduction in electricity production

Stationary energy, wedges

120,000

100,000

80,000

Stat. en. Wedge 60,000 Stat. en. Residual 000s tonnes CO2e tonnes 000s

40,000

20,000 2050 CO2e reduction: 10 Mt (6% of Vic total)

0 0 2 4 6 8 0 2 4 6 8 0 2 8 0 2 8 0 2 4 6 8 0 2 4 6 8 0 9 0 0 0 0 1 1 1 2 4 5 99 99 99 99 00 02 02 03 03 03 03 03 04 04 04 04 1 1 19 1 1 2 20 20 20 20 20 20 2014 2016 20 20 2 2024 2026 2 2 2 2 2 2 2 2 2 2 20 20 Descriptions of changes required to achieve the wedge : In this wedge, biomass waste, landfill waste and waste from sewage plants are converted into energy, displacing traditional electricity and gas generation, and reducing emissions from waste.

Assumption basis: Converting waste to energy on a large scale can begin relatively soon. A 10 year ramp-up reflects plant construction time and the implementation of waste collection and delivery mechanisms. Consistent with VRET, waste-generated electricity could replace up to 10% of electricity production from traditional gas and brown coal plants.

Cost : Power generation from landfill gas and sewage plants is becoming commercially viable at present (for example, methane from the Carrum sewage plant will be used to generate electricity, and technology is in use at Rocky Point in Queensland to convert sugar cane waste to electricity). It may be more profitable to use rural wastes and materials for transport fuel production rather than in stationary energy production.

Sensitivity to carbon price : A carbon price of around $30/tonne CO 2-e would push brown coal generation in the State to $60 - $85/MWh, making waste-generated energy competitive.

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Basis for the wedge: The Business Council for Sustainable Energy identified more than 100MW of existing waste to energy projects in Victoria Potential (Waste to Energy A Guide for Local Authorities, May 2005). The Australian Institute of Energy recently reflected on the capacity for this to be at least doubled from existing landfill sites. Further, biomass for energy generation can be sourced via existing waste collection infrastructure (for example, green waste collections and council and energy distributor tree trimming), and new collection methods (including rural crop and plantation waste, successfully pioneered in California). Implementation issues/ barriers: The cost of waste to energy projects is highly variable, however power generation from landfill gas and sewage plants is becoming viable now. A recent draft CSIRO study puts the cost of rural biomass at 2025 at $80-$105/MWh. If the avoided transmission losses are considered, this could form a cost competitive source of waste. The report puts landfill gas at $50-60/MWh in 2025. Urban biomass using material already being collected is likely to fall somewhere between these two estimates. Increasing prices and standards for effluent disposal and landfill of wastes with energy content will help viability – especially if long term signals are sent, likewise emissions credits for avoiding and capturing methane production from wastes would improve economics (for example in NSW, these projects gain both NSW greenhouse abatement certificates (NGACs) and renewable energy certificates (RECs) under MRET). Changes to energy market rules to allow an industry to export electricity and heat within a limited distance without having to deal with energy distributors or energy market would enhance viability of joint projects. Government supported demonstration projects (including rural crop waste to energy) will have an important role in reducing perceptions of risk. There are some community concerns about energy from waste – with responses relating to the possibility that conversion of waste to energy will undermining a recycling/responsible use ethic. Comment: Processing urban organic wastes (especially via biogas generation) may be more feasible than composting, as both processes end up with CO 2 and soil conditioners, but energy from waste also provides energy. Generation of waste from energy offers co-benefits in terms of significant potential to build rural economies, and is suited to cogeneration if suitably located (higher overall efficiency).

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Wedge 7. Lighting (commercial) Sector: Stationary energy (demand side) The commercial sector is “sticky” on savings from lighting; assistance is required to realise emissions-reduction potential Confidence: Medium - High

Assumptions Start date Ramp-up (years) Steady-state 2010 20 15% reduction in electricity use in the commercial sector

Stationary energy, wedges

120,000

100,000

80,000

Stat. en. Wedge 60,000 Stat. en. Residual 000s tonnes CO2e tonnes 000s 40,000

20,000 2050 CO2e reduction: 6 Mt (3% of Vic total)

0 2 8 0 4 2 4 8 0 2 4 6 8 0 4 6 96 06 42 50 994 002 004 012 048 199 199 1 19 199 200 2 2 20 2008 2010 2 201 2016 2018 2020 202 202 2026 202 203 203 203 203 203 204 20 204 204 2 20 Descriptions of changes required to achieve the wedge: Commercial lighting continues to contribute about 25 percent to commercial non-wages costs (and greenhouse gas emissions) and, as so, remains a main focus of innovation in energy-efficiency. This wedge is based on 60% reduction in overall lighting energy use. Best practice is delivering more than this already, and some innovations, like laser cut panels and solatubes, are nearing commercialisation, while green building credentials place emphasis on daylight for indoor environment quality

Assumption basis: Widespread improvement in lighting efficiency can be achieved relatively soon. A ramp-up time of 20 years is consistent with the average life length of artificial light sources, and expectations about the rate of new building in the state and refurbishments. Lighting currently represents 30% of commercial energy consumption; emerging technologies can potentially reduce this by half to 15%.

Cost: Economising on lighting is especially cost effective. Improving lighting efficiency can raise capital costs for firms by 1-3 percent, recoverable through energy consumption reductions in 1-7 years. Savings in lighting energy reduce the amount of heat generated inside buildings, potentially reducing cooling energy requirements and cooling capacity costs.

Sensitivity to carbon price: Firms have demonstrated some reluctance in installing newer and cheaper lighting alternatives, choosing to avoid the relatively higher costs and disruption of purchasing and installing more efficient options as they emerge. Given this existing insensitivity, only carbon prices of substantial magnitude will have a noticeable impact in this area

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Basis for the wedge: The technologies to achieve the savings in this wedge are well developed and have been implemented in a number of commercial scenarios around the world. Sustainability Victoria advises that the installation of Smart controls can achieve 8-10% of savings within a year of installation. Recognizing the rate of lighting stock turn-over and changes in leases of commercial buildings, it is thought that achieving firm efficiency improvements in 10% of commercial buildings a year is feasible. Commercial lighting can be economised through:

• Smart controls, including switching on as people approach and dimming in daylight (savings 2-6% of commercial sector emissions) • Better design efficiency to avoid over-lighting (up to 5% savings) • Reducing display lighting indoors and outdoors (up to 2% savings) • Integrating daylight and artificial light, including use of Laser cut panels and light shelves (up to 5% savings) • Substitution of solid state lighting for incandescent and halogen lighting (up to 5% savings) • Ongoing improvements in fluorescent lamp and luminaire efficiency (up to 5% savings) Implementation issues/ barriers: Rising energy prices will reduce barriers to innovation in this field. The Building Code of Australia’s Building Regulations 2006 energy requirements have sparked major innovation already, and this wedge could be driven by a mix of incentives and regulation. The response of the commercial building sector to energy pricing will be mixed; in some cases tenant/landlord split incentives have blurred responses to price signals in the past. Recent introduction of retrofit kits to replace traditional (T8) fluorescent tubes with best available technology (T5) tubes without requiring an electrician will accelerate adoption and reflects the kind of innovation that will continue Considerable policy success in this area has been achieved to date through reliance on a combination of standards or mandatory audits with strong awareness campaigns. Comment: Dealing with commercial lighting could be achieved using State-based policy levers. As other energy efficiency improvements apply to the commercial sector, possible synergies may exist in running resource efficiency programs. Raising awareness in this area could also boost the momentum behind procurement of greenhouse friendly products. Like all energy efficiency measures, significant savings in this area reduce the burden of supply side emissions reduction, and delay the need for new energy generation. Previous attempts to achieve wide-spread commercial lighting efficiencies have had mixed results. While lighting costs are a significant part of commercial operating costs, it has often been difficult to raise adequate awareness and motivation to achieve the potential savings.

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Wedge 8. Building envelope and HVAC equipment Sector: Stationary energy (demand side) The improvement in energy efficiency through building envelope advancements will be matched by improvements in cost efficiency. Confidence: High

Assumptions Start date Ramp-up (years) Steady-state 2010 25 25% reduction in electricity consumption in the commercial sector

Stationary energy, wedges

120,000

100,000

80,000

Stat. en. Wedge 60,000 Stat. en. Residual 000s tonnes CO2e tonnes 000s

40,000

20,000 2050 CO2e reduction: 6 Mt (3% of Vic total)

6 8 94 96 98 0 2 30 32 990 992 000 014 016 018 022 024 026 048 050 1 1 19 19 19 2 2002 2004 20 2008 2010 2012 2 2 2 2020 2 2 2 20 20 20 2034 2036 2038 2040 2042 2044 2046 2 2

Descriptions of changes required to achieve the wedge: Heating, ventilation and cooling is believed to comprise up to 50% of commercial sector greenhouse gas emissions. These emissions can be reduced – along with operating costs – by improving building envelope thermal performance and by improving the efficiency of heating, ventilation and cooling (HVAC) systems. These measures interact with each other so that total savings will be less than the simple sum of savings. For example, if the building envelope halves heating and cooling requirements then potential savings from improved plant and equipment are halved.

Assumptions basis: Large scale energy efficient building envelope and HVAC equipment technologies are available now; roll-out, however, is constrained by the long turn-over of building and equipment stock (up to 20 years). It is assumed that improvements can reduced HVAC costs (currently at 50% of total commercial electricity costs) by half based on experience in similar programs in California.

Cost: All of these initiatives result in energy cost savings (some substantial).

Sensitivity to carbon price: With increasing energy prices and foreshadowed impact of emissions trading on energy prices, there is substantial scope for widespread adoption of the above measures within cost-effective limits.

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Basis for the wedge: Development in building envelope efficiency and HVAC equipment has accelerated in recent times. Many of the initiatives listed are already commercial or in pre-commercial development. Improved building envelope thermal performance can be achieved through:

• Installing advanced glazing systems (up to 10% savings in commercial sector electricity) • Greater use of shading devices and internal blinds (up to 5% savings) • Greater use of insulation and improved insulation materials such as evacuated panel insulation (2-4 times as effective) and aerogels (up to 5% savings) • Reduction of air leakage from buildings through improved construction techniques, air- locks, improved door seals, etc (up to 5% savings) Improved energy efficiency of heating, ventilation and cooling systems through:

• Installing high efficiency pumps and fans, and optimising the design of pipes ducts, and system controls (up to 10% savings) • Installing high efficiency chillers and air conditioners (up to 10% savings) • Heat and coolth recovery from exhaust air (up to 2% savings) • Use of natural heat (for example, solar pre-heated air) and cool (for example, economy cycles that use outside air in cool weather) (up to 5% savings) • Improved management of environmental conditions in buildings (for example, local controls and a wider band of acceptable temperatures) (up to 5% savings) • Use of thermal air conditioning systems using solar heat and/or gas (for example, absorption or dessicant cooling systems) (up to 10% reduction in emissions, but possible increase in end-use energy consumption) Implementation issues/ barriers: Energy savings should be weighed against research and construction costs, the latter likely to decline substantially as techniques are commercialised and economies of scale are captured. Construction costs of a 6-star building are presently about $100/ sqm above an average building; cost recovery on this amount is about 9 years. The BCA regulations introduced in 2006 improved performance by 20% over existing practices (probably much more over existing stock) and were estimated to have a benefit:cost ratio of 4.6 to 1. Few barriers exist given advantageous financial fundamentals including reductions in envelope improvement costs and rising energy prices. However, lack of expertise within the HVAC industry, developer-landlord-tenant barriers and short time horizons of some building developers and investors are threats to action. A potential threat to improved performance may relate to heavy emphasis on large quantities of outdoor air under environmental rating schemes. Further research and measurement is needed in this area. New techniques to cheaply upgrade the thermal performance of building envelopes during renovation or as retrofit projects are needed. This will require RD&D investment and might be done via formal RD&D projects, competitions or with university/TAFE students.

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Wedge 9. Equipment efficiency improvement in commercial and residential sector Sector: Stationary energy (demand side) Firms and households should be responsive to reductions in capital costs – and emissions – through equipment efficiencies Confidence: Medium - High

Assumptions Start date Ramp-up (years) Steady-state 2010 15 10% improvement in electricity efficiency in the commercial and residential sectors

Stationary energy, wedges

120,000

100,000

80,000

Stat. en. Wedge 60,000 Stat. en. Residual 000s tonnes CO2e tonnes 000s

40,000

20,000 2050 CO2e reduction: 5 Mt (3% of Vic total)

4 6 8 9 9 9 00 14 16 18 20 34 36 38 990 992 008 010 012 028 030 032 040 1 1 19 19 19 20 2002 2004 2006 2 2 2 20 20 20 20 2022 2024 2026 2 2 2 20 20 20 2 2042 2044 2046 2048 2050

Descriptions of changes required to achieve the wedge: Victoria is already a part of Australia’s well- established appliance and equipment energy efficiency program. Acceleration and expansion of this program to cover a wider range of items will have a considerable impact. Innovation rates are fairly rapid, and in many areas, simply replacing existing stock with best available product would deliver large savings. The size of the wedge is conservative to reflect the reality that ownership of some energy- intensive equipment (eg plasma TVs) is increasing.

Assumptions basis : If not already available now, much of the technology to improve equipment efficiency is in the research or pre-commercialisation phase, suggesting a start date for acceleration of adoption of 2010 is potentially achievable. A short ramp-up reflects the relative ease with which equipment can be replaced.

Cost : To date, cost of appliance and equipment efficiency programs in Australia have been very low – from negative $23 to negative $43/tonne of CO 2-e avoided. With ongoing innovation, there is no reason to see why costs would increase significantly. E3 studies for introduction of 1-watt standby requirements and other measures all show low costs and short payback periods. Cost of solar HWS is the one significant item, with additional costs quite significant. Anecdotal advice suggests some large volume builders are buying solar HWS a lot cheaper than most people can buy them. There are significant costs in installation (often a crane is needed), while economies of scale do not yet seem to have brought down prices.

Sensitivity to carbon price: Demand for equipment is considered inelastic. Only a high carbon price will see significant accelerated movement toward equipment efficiency.

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Basis for the wedge: Emissions related to equipment use make up about 20 percent of commercial sector emissions. Initiatives to reduce these include high efficiency computers with effective power management, high efficiency data centres (including servers and dedicated air conditioning), high efficiency commercial refrigeration equipment, minimisation of standby power consumption of all equipment, use of high efficiency commercial cooking and catering/display equipment as well as savings in miscellaneous equipment including local hot water services, and security systems. Reducing the impact of this equipment on commercial and residential emissions from 20% to 10% is based on research conducted by the American Council for an Energy-Efficient Economy 27 . In the residential sector, equipment use is responsible for the production of about 15 M tonnes of CO 2-e per annum. Emissions-reduction initiatives here include the reduction of standby power use of household appliances and equipment, replacement of electric hot water services with gas, solar or electric heat pump systems, installation of highest efficiency reverse cycle air-conditioners (twice as efficient as present stock) and high efficiency gas central heating systems (including ductwork), the use of water-efficient taps, showers and hot water consuming appliances, and replacement of refrigerator stock with high efficiency models. Additional areas for savings include the use of the most efficient TVs, computers, home stereos – noting that the current trend is towards higher usage, so this may offset growth. Implementation issues/ barriers: Appliance and equipment standards and labelling schemes are best delivered through national and even international cooperative processes, which can be slow to progress. However, there is potential for a State to carry out independent testing and measurement, making that information available to the community (as ‘Choice’ magazine does). For many items in the commercial sector (for example food display equipment and commercial ovens), there is little or no energy consumption information available to buyers, so there is a serious market failure that could be addressed to some extent by an information program. Especially in the commercial sector, and in residential heating and cooling, there is substantial opportunity to assist with innovation in design of locally manufactured equipment and development of guidelines for equipment selection and installation. Training of tradespeople, designers and sales people is another area of potential importance. There is some evidence that programs aimed at removing old, inefficient equipment from the stock can deliver rapid and significant energy savings. An example is the Moreland Energy Foundation Phoenix Fridge program which is successfully removing old, inefficient refrigerators. Comment: The decline in public profile of energy labelling over the past decade has meant that community interest in the scheme seems to have declined. A revamped campaign may be needed – but some labelling issues will need to be dealt with before this can be done. For example, many air conditioners are ‘off the scale’, while dishwasher performance improvement seems to have stalled.

27 For example see “Leading the Way: Continued Opportunities for New State Appliance and Equipment Efficiency Standards”, ACEEE, March 2006, http://www.aceee.org/pubs/a062.htm

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Wedge 10. On-site and off-site renewables for the residential sector Sector: Stationary energy (demand side) A cultural shift toward on-site renewables (like solar panels) and off-site renewables (like municipal ownership of wind farms) can provide substantial residential emissions savings Confidence: Low - Medium

Assumptions Start date Ramp-up (years) Steady-state 2010 25 20% reduction in electricity consumption in the residential sector

Stationary energy, wedges

120,000

100,000

80,000

Stat. en. Wedge 60,000 Stat. en. Residual 000s tonnes CO2e tonnes 000s 40,000

20,000 2050 CO2e reduction: 6 Mt (3% of Vic total)

0 2 8 0 6 8 0 4 6 8 0 1 1 2 03 03 03 199 199 1994 1996 1998 2000 2002 2004 2006 200 201 2012 2014 20 20 20 2022 2024 2026 2028 2030 2032 2 2 2 204 2042 2044 2046 2048 2050

Descriptions of changes required to achieve the wedge: This wedge envisages a considerable growth in uptake of small scale renewable energy sources, for example household solar hot water systems or solar panels or small scale municipal renewable energy generators.

Assumptions basis: Implementation of renewable energy alternatives can begin relatively soon, given the development and existing extent of use of technologies such as solar hot water heating. The ramp- up to steady-state, however, is expected to be lengthy given the phase in time of options like medium- scale local wind electricity generation. A 20% target is supported by initiatives like those undertaken as part of Germany’s Million Roofs program.

Cost: Solar hot water is cost-effective for families, but is less so for small households. However, purchase of lifetime emission offsets provides a mechanism for achieving emission targets more cost- effectively. This issue is being addressed under present plans for review of the building regulations. On- site photovoltaic (PV) systems have traditionally been very expensive. However, government rebates, technology development and economies of scale, combined with conventional energy price increases, could make PV financially viable within the next few years. Indeed, for small households, PV can be more cost-effective abatement than solar HW already.

Sensitivity to carbon price: The potential for large electricity end-user price increases through a carbon price makes alternative sources of power including on-site renewable generation attractive.

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Basis for the wedge: Hot water contributes around 20% of residential sector greenhouse gas emissions, and while only around 25% of hot water service units are electric, these are responsible for around 3 Mt of CO 2-e per annum. A typical 1kW photovoltaic system avoids around 1200-1500 kWh of grid electricity each year. This is about 20% of an average Victorian household’s electricity. Specific initiatives include:

• Promotion of solar hot water or equivalent lifetime offsets (eg purchase of RECs) for all new domestic HWS units (up to 12% saving on residential electricity) • Promotion of purchase of Green Power (in theory up to 100% saving, but more likely up to 10 or 20% adoption) • Promotion of on-site photovoltaic systems (10% adoption of 1 kW systems would cut residential electricity use by 2%) • Promotion of cooperative ownership of major renewable energy facilities such as windfarms or rural biomass generation plants (unknown but potentially significant) Implementation issues/ barriers: Community awareness and commitment combined with government support will be key factors in the success of this wedge. Training of tradespeople (for example plumbers and electricians) may also be a critical issue if the large numbers of installations are to be managed. Innovation towards modular systems that can be installed by DIY hobbyists, and integration with other building elements would reduce dependence on training and industry capacity while also reducing system costs. Streamlining of planning requirements related to rooftop systems will also assist in achievement of this wedge. Comment: While this wedge offers challenges, it may also reflect a shift in the fundamental model for energy, from centralised supply to more dispersed and varied systems. At the same time, seeing the costs of these options may encourage greater focus by consumers on energy efficiency measures that are actually cheaper. Nevertheless, even these options look very cheap compared with the amounts of money Victorians routinely invest in renovation of kitchens and bathrooms, or that they spend on buying new cars.

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Wedge 11. Industrial energy efficiency Sector: Stationary energy (demand side) Efficiency improvements in the aluminium industry are key to emissions reductions in the industrial sector Confidence: High

Assumptions Start date Ramp-up (years) Steady-state 2010 10, then 10, then 10 10% reduction in electricity use in the industrial sector, rising to 15% by 2030 and 20% by 2040

Stationary energy, wedges

120,000

100,000

80,000

Stat. en. Wedge 60,000 Stat. en. Residual 000s tonnes CO2e tonnes 000s 40,000

20,000 2050 CO2e reduction: 9 Mt (5% of Vic total)

0 2 2 4 6 2 4 6 4 6 8 0 199 199 1994 1996 1998 2000 200 200 200 2008 2010 2012 2014 2016 2018 2020 202 202 202 2028 2030 2032 203 203 203 204 2042 2044 2046 2048 2050

Descriptions of changes required to achieve the wedge: Considerable potential for reduction in energy consumption in industrial processes exists in Victoria. Metals production accounts for 64 percent of electricity consumption in this industry and is the obvious focus of efficiency improvements

Assumptions basis : Innovation in energy savings devices and practices is at an advanced level currently and could be accelerated in pursuit of early implementation. The step-pattern to ramp-up time reflects the rate at which new processes are adopted across industry generally. Steady-state reductions in electricity use, slowing over time, reflect the short term improvements possible in technologies such as electric motors, tempered by the slower adoption of improvements in large energy consumption sectors like the metals industry.

Cost: The cost of industrial energy efficiency improvement is very sensitive to when changes are made. If they are linked to replacements, refurbishments or new construction, costs are much lower. A study by Energetics for the National Framework for Energy Efficiency (NFEE) found that, using fairly restrictive criteria, around 7% energy savings could be captured across Australian by 2020 – at a time when energy prices were much lower than are now projected. With regard to process developments, improvements in efficiency in these areas are often critical to the ongoing competitiveness of plants as they upgrade.

Sensitivity to carbon price: Energy intensive industries, such as many of those represented here, are more likely to respond to a carbon price than other groups.

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Basis for the wedge: The combination of specific technology improvements with emerging process and technological developments forms the basis of this wedge. Examples of specific initiatives include:

• Electric motor system efficiency, compressed air efficiency and lubrication/maintenance using advanced monitoring systems to identify maintenance requirements early (up to 3% medium term and 6% long term) • Aluminium smelting efficiency improvement (drained cathodes, possibly inert anodes, improved fan efficiency, etc) (savings up to 10%) • Wood and paper industry conversion to gasification of black liquor and gas turbines, combined with overall electricity and heat efficiency improvement so they can be net exporters of green electricity (up to 8% savings medium term – and possibly net exporters) • Petroleum and chemicals industry efficiency improvement in the short term involves improved motor, pump and pipe flow efficiencies, reduced heat loss, heat recovery and improved catalysts and processes (up to 3% savings) • Food processing improvement, related improvements to motors, pipe design, lubrication and maintenance, as well as improved insulation of refrigeration equipment and heat delivery systems (up to 3% savings) • In the mining industry, wider use of explosives in carefully controlled ways to break up rock using much less energy than crushing, as well as switching from electric motors driving crushers to gas engines or micro-turbines (whose waste heat can be used for process heat or cogeneration) (up to 2% savings) Implementation Issues/Barriers: A key challenge for industry with regard to innovation is the risk to production of making changes. Small scale pilot testing facilities at universities or other institutions could reduce this risk. Demonstrations and training of technical staff in techniques such as sizing equipment and pre-emptive maintenance would also underpin this wedge.

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4.2.4 Stationary energy sector summary – themes Emissions reduction wedges modelled for the stationary sector related to the efficiency of fossil fuel based energy supply, reductions in demand through energy efficiency improvements, and growth in distributed generation and low emissions sources including renewable energy. The greatest impact came from wedges one and two – carbon capture and storage and coal drying – which together offered savings of up to 64 Mt by 2050 with progressive application of these technologies across the energy supply sector. Energy efficiency offered substantial low cost emissions reduction across industry, commerce and the residential sector, with a portfolio of improvements providing savings of 24 Mt in 2050 (wedges seven through eleven). Alternative forms of energy generation (renewable energy, cogeneration, energy from waste) offer emissions reduction at variable cost and depend heavily on price signals and technology development paths.

4.2.4.1 Overall comments The wedges modelled for the stationary energy sector fall into three main categories: 1. Improvements to the emission-efficiency of existing energy supply 2. Reductions in energy demand through energy efficiency improvements 3. Increases in low emissions sources: Renewable energy, embedded and small scale generation. These wedges are in many cases not additive: For example an enhanced shift to gas-fired generation (wedge five) and increased penetration of co-generation (wedge three) would both draw on east coast gas supplies with potential knock on consequences on price/competitiveness. In most cases below the discussion of the individual wedges considers each wedge in isolation.

4.2.4.2 Energy Supply The wedges with greatest potential impact in the stationary energy sector are those related to fossil fuel based energy supply, i.e. wedges one, two and five. The issues surrounding these approaches and technologies have been the subject of considerable investment by state and federal Governments over quite some years, with investment in research, development and demonstration of low emissions coal technologies having been a flagship policy for both Victorian and Australian Governments for some time. Carbon capture and storage (wedge one), considered here in terms of a retrofit to Victoria’s existing power plants over a twenty year period from 2020, offers by a considerable margin the greatest potential for emissions reduction of any of the wedges – 61 Mt in 2050 with considerable reductions as early as 2035 – when considered in the absence of other wedges 28 . The low-medium confidence level accorded to this wedge reflects the fact that all

28 The size of this wedge is less if other wedges – such as energy efficiency and renewable energy wedges – are implemented first. This is discussed in chapter five.

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three segments of the carbon capture and storage approach (CO 2 capture, transportation and storage) potentially face technical, regulatory or community acceptance risk 29 . A carbon price will clearly accelerate both the proving of this technology and the implementation of the technology for new plant and for retrofitting to existing plant (currently much more problematic technically and commercially). Continuation of investment in carbon capture and storage technologies, and development of effective regulatory regimes which will improve (among other things) community acceptance of this technology, are crucial in underpinning the commercial incentive of carbon pricing for carbon capture and storage. Coal drying, both in new plant and for potential retrofit to existing plant, has also been an area of considerable long term investment by industry and government. Wedge two models this as a 25% improvement in efficiency of existing plant over fifteen years from 2013. Using the steam fluidised bed technology as an example (there are several alternatives still under development), this wedge has a medium confidence level. Like carbon capture and storage, attainment of the savings modelled in this wedge will be greatly enhanced by a carbon price signal such as an emissions trading scheme, and by continued support for development and demonstration of coal drying technologies. This wedge offers a potential emissions reduction of 17 Mt by 2050. In combination, wedges one and two represent the strongest possible outcome for reduction of emissions from the existing energy supply system if demand for electricity continues to grow at past rates. If applied together, emissions reductions of 64 Mt (or 53% of Victoria’s 2000 emissions total) would be expected by 2050, as shown below.

29 Carbon Capture and Storage – Report to Australian Greenhouse Office on Property Rights and Associated Liability Issues by Minter Ellison, 2005, http://www.greenhouse.gov.au/ccs/index.html . See also IPCC Special Report on Carbon Dioxide Capture and Storage: Summary for Policy Makers 2005

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CCS and coal drying

180,000

160,000

140,000

120,000

100,000 CCS Coal Drying 80,000 Residual 000s tonnes 000s CO2e 60,000

40,000

20,000

2 4 6 8 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 9 9 9 9 0 0 0 0 1 1 2 2 3 3 3 4 4 4 9 9 0 0 0 0 0 0 0 0 0 0 1990 1 19 1 19 2000 2 20 2 20 201 20 201 2 201 202 20 202 2 202 2 203 2 203 2 2 204 2 204 2 205 Figure 7: Combination of wedges one and two – “clean coal”

Another option for reduction in emissions from the energy supply sector is greater fuel switching from brown coal to gas fired power stations. This is modelled in wedge five, although given that considerable commitments to future investment in gas fired electricity generation have already been made (and are reflected in the reference case), and that debate around future gas pricing and gas reserves continues, the achievement of additional gas fired generation beyond that predicted in the reference case is assigned a low confidence level.

4.2.4.3 Energy demand reductions – energy efficiency Considerable greenhouse gas emission reductions are available at very low cost on the energy demand side (wedges seven through eleven). This area of potential greenhouse gas mitigation has been the subject of considerable analysis from a technical perspective 30 , and an economic and policy perspective 31 . The richness of this analysis presents both a challenge

30 For example: EMET consultants, for Sustainability Victoria: Energy efficiency improvement in the commercial sub-sectors February 2004, Energy efficiency improvement in the residential sector April 2004, The Impact of commercial and residential sectors’ energy efficiency improvement on electricity demand April 2004

31 An example of the nature of and perspectives reflected in this debate can be found by reference to the 2005 report of the Productivity Commission and subsequent Government responses: The Private Cost-Effectiveness of Improving Energy Efficiency , Productivity Commission, October 2005; Victorian Government Response To The Productivity Commission Draft Report On Energy Efficiency , May 2005, http://www.pc.gov.au/inquiry/energy/subs/subdr125.pdf , Government Response to PC Report into Energy Efficiency , Australian Government (joint media release of the Minister for the Environment and Heritage and the Minister for Industry, Tourism and Resources) http://www.deh.gov.au/minister/env/2006/mr28feb06.html

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and an opportunity – perspectives offered in all of these analyses have been considered and weighted in reaching conclusions on the parameters used for these wedges. In the commercial building sector, improvements in lighting, heating, ventilation and air- conditioning (HVAC), as well as building envelope improvements, offer up to 8 Mt emissions reduction in 2050 (wedges seven and eight). These wedges are each made up of a range of improvements across all building classes, the greatest savings from which will flow from improvements in new construction as building stock turns over. The confidence level estimated for these wedges was generally high, and the savings will generally accrue using existing technologies. Crucial to the achievement of these wedges are effective policies to ensure the highest possible energy performance of new buildings. Building improvements and lighting and HVAC efficiency are expected to respond to some extent to a carbon price signal, as energy prices respond to an emissions trading scheme, but previous experience in the commercial construction market suggests that significant complementary measures would be needed to fully realise these wedges due to the variety of barriers (such as landlord-tenant split incentives and a more general lack of technical expertise). In both the residential and commercial sectors there is substantial potential to further reduce emissions through the greater penetration of efficient energy using equipment – for example refrigeration and cooking equipment in the commercial sector. Reduction in standby power (a feature of activity by the Australian Government over recent years) will also considerably reduce emissions. Market distortions may also mean that a price on carbon emissions will have limited influence on emissions from these activities, as manufacturers, importers and installers do not pay ongoing energy bills, while purchasers are faced with complex decision criteria. In the industrial sector, there exists considerable potential for reductions in energy demand across all sub-sectors 32 . Improvements in aluminium smelting efficiency, gasification of black liquor in the pulp and paper industry, motor and pumping efficiency and reduction in heat loss across a range of industries, and improvement in the efficiency of electric arc furnaces are all examples of the considerable opportunities which exist. Wedge eleven models this as a 10% improvement in efficiency by 2010, rising to 20% by 2040, with a high degree of confidence. These savings are likely to be very sensitive to a carbon price, as many of the industries are likely to either be directly exposed to a carbon emissions trading scheme, or to existing high energy costs. A carbon price will make what are often already highly cost-effective process improvements even more so. All of the energy demand and energy efficiency related wedges rely on demonstrated technology and are capable of having an immediate impact but show a much greater impact over time – with turnover in buildings or capital stock for example. The various interventions Government might wish to undertake in support of these wedges could commence rapidly and have an immediate impact, conversely if these were delayed these wedges would contribute considerably less reduction in 2050.

Further discussion can be found in “The Economic impacts of a national energy efficiency target”, Allen Consulting Group for NFEE, 2004

32 Substantial savings from EPA Victoria regulatory programs in this area have been reported: EPA program reduces industry emissions, saves money , Media Release, Minister for Environment and Climate Change, Spetember 2007

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If considered as an overarching “energy efficiency wedge”, the total impact of wedges seven to eleven would be a reduction of 24 Mt in 2050, and is shown in the chart below.

Energy efficiency wedge

180,000

160,000

140,000

120,000

Industrial 100,000 Small renewables Equipment Envelope & HVAC

000s CO2e 000s 80,000 Lighting (commercial) Residual 60,000

40,000

20,000

0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050

Figure 8: Combination of energy efficiency wedges There is significant potential for greater energy efficiency savings than these to be achieved, as technology is changing fast and, if the ‘least cost’ greenhouse response path is pursued, energy efficiency will gain higher priority in policy. For example, the Property Council of Australia’s recent calls for ‘green’ accelerated depreciation 33 reflects research findings that show stronger energy efficiency measures in the buildings sector will deliver society-wide reductions in carbon prices for a given level of abatement. The uncertainty relates to the extent of policy support, how households and business will respond, to what extent energy market reform supports demand side action, and to the effectiveness of the energy efficiency services industry. Given the complexity and uncertainty of this situation, failure to explore the potential further could leave the energy supply sector seriously exposed to risk of stranded assets due to rapid change on the demand side. For example, a rapid roll-out of LED lighting to replace low voltage halogen lamps, a high efficiency large screen TV technology (rumoured to be very

33 “Tackling Existing Buildings the key to Green Cities - Call for carbon trading scheme and tax incentives” Media Release Green Building Council of Australia April 2007

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close) or a new low cost retrofit technique for double glazing could redefine energy demand very quickly.

4.2.4.4 Renewable, small scale and distributed generation A number of wedges have been modelled to examine the potential for smaller scale and distributed generation – which will either reduce demand (wedge ten) or increase low emissions energy supply (wedges three, four and six). The Victorian Government has already made substantial commitments to the development of the renewable energy sector in Victoria, and these, including the legislated targets in the VRET program are built into the Reference Case. Wedge four models a growth from 2015 (when the VRET target is essentially attained and investment would drop away) to 20% or 30% of electricity produced from renewables by 2050 (comparable to some European targets) would reduce emissions by 15 Mt at that point. 34 Attainment of this wedge would require either a relatively high carbon price or an ongoing commitment by the Victorian Government to a renewable energy portfolio standard such as VRET or an aggressive innovation and adoption strategy. Changes to energy market rules and policy signals would also be important in achieving this level of additional renewable energy capacity. Either way, given the time required for implementation of new large scale renewable energy production, some form of signals will need to reach investment markets well before 2015 35 . Cogeneration and energy from waste have also been modelled as separate energy supply wedges (wedges three and six) – both are close to cost competitive in the energy market as it stands, and would be much more attractive with either a carbon price and/or a greater locational signal in transmission pricing. Low cost support for these two energy generation sectors could also come in the form of industry support and facilitation programs (with the Government acting as a lead adopter in its own estate, e.g. for major new hospital developments) or price incentives and/or facilitating partnerships between industries with complementary energy needs for heat and power. A medium level of confidence was accorded to both of these wedges, reflecting the maturity of the technology and the need for appropriate economic signals to bring the technologies effectively and assuredly to market. Smaller scale renewable energy and distributed generation systems in the residential sector have been modelled as a demand reduction in wedge ten. This wedge represents a range of approaches across the residential sector from greater penetration of household photovoltaic panels and solar hot water systems, through to larger scale approaches such as local government investment in small scale wind farms and the encouragement of combined heating/cooling and power supply options for large apartment blocks. Given the considerable intervention already made in this sector by State and Federal Governments the potential savings available here are less than they would otherwise have been, and this wedge has been accorded a low-medium confidence level; a carbon price signal will impact on the attractiveness of residential renewable energy but it is possible that a

34 Note that wedge 4 and wedge 10 are intended to be separate and additive by considering renewable energy at the larger supply end (wedge 4) and in small scale distributed applications (wedge 10)

35 The Sustainable Energy Challenge, Sustainable Energy Authority, Sustainability Victoria, 2005. Also see http://www.sv.sustainability.vic.gov.au/sustainable_energy_challenge/barriers.asp

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greater impact will flow from other economic signals such as rebates and feed-in tariffs 36 . Economies of scale through mass production of some technologies will be critical in driving costs down and improving convenience of utilisation. As with energy efficiency, failure to consider the potential for this area to grow in non-linear ways driven by consumer behaviour could leave the conventional energy supply sector exposed to significant risk of stranded assets.

36 Feed-in Tariff Forum , Dept of Primary Industries, presentation by John Krbaleski, 28 Sept 2007

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4.3 Transport

4.3.1 Transport in Victoria The transport sector in Victoria, passenger and freight, is a source of significant greenhouse gas emissions. Growing demand for transport, driven by population and economic growth, can be offset by a range of approaches to reducing travel demand – from travel demand programs through to efficient urban design. Transport sector emissions are also driven by vehicle size and efficiency and have proved only somewhat price elastic.

The transport sector in Victoria is dominated by passenger transport (road and fixed rail) and freight transport by road. This sector has developed on the basis of a recent historical preference for private vehicles, rather than mass transit, coupled with urban growth (principally in Melbourne) that has extended beyond the reach of mass transit systems.

Transport, 2005 CO2e emissions

1% Private transport - road 34% Public transport - road Public transport - rail 0% 63% Freight - road 2% Freight - rail

Figure 9: Emissions from the transport sector, 2005

Between 1971 and 2001, the fraction of Melbourne’s employment in the CBD fell from 30% to 19% 37 . Jobs are now more widely dispersed throughout the suburbs, generating new demand for cross-town commuting. Continued strong growth in corridors on Melbourne’s fringe, influenced by the directions of Melbourne 2030 , is also creating new travel patterns across the metropolitan area, with many Melburnians now making more trips between major suburban centres, instead of to the CBD. As residential and work patterns change across Melbourne, the radial, heavy rail system will still be essential to movements to and from the CBD, but it is less

37 Melbourne city suburbs Economic and Demographic profile , City of Melbourne, August 2005

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able to meet the travel requirements of the growing number of Melburnians who need to travel between points outside the CBD. Additionally, Victoria’s ageing population will create new transport needs, both in terms of nature of trips and mobility requirements 38 . The contribution of transport to Victoria’s GSP (on a per capita basis) is not as significant as other major Australian States/Territories 39 . There is very little ancillary freight rail because the relatively short distances of most freight demands make road freight more viable, so rail contributes a lower share of Victorian transport emissions than the national average. At the same time, the contribution of rail to the State’s passenger kilometre task (proportionally) is greater than the weighted national average 40 . Recent drivers which have impacted on the transport sector in Victoria have included the strong growth in population and economic activity coupled with the impact of fuel price on personal travel choices, resulting in increased urban public transport demand. On the other hand, we have also seen reduced car occupancy rates arising from decreasing average household size, dispersed spatial patterns and growing car ownership. There has been an increased demand for passenger and freight transport within a growing domestic and international economy, and in many cases the least emissions-efficient freight modes (i.e. road freight transport) have been best placed in the short term to service the requirements of the Australian freight market (through just-in-time (JIT) and door-to–door services).

4.3.2 Reference case emissions for the transport sector In the reference case, transport modes modelled included personal transport (modelled in the categories of tram, train, bus, car and motorcycle, all split between regional and metropolitan) and freight transport (road and rail). For the purpose of the forward projections in the reference case, freight transport demand was predicted to increase in line with GSP growth. Personal transport demand was projected to grow in line with population growth (regional or metropolitan) and the shares of each mode (car, public transport etc) were projected in line with expected outcomes of present government policy directions. Given the comments above, it should be recognised that these reference case projections are necessarily based on a relatively simple set of assumptions, as in many cases the future impact on transport behaviours of several competing drivers is very difficult to model. Consideration was given to the inclusion of maritime and domestic aviation emissions in the transport analysis, but the emissions associated with these sub-sectors were not sufficiently large to warrant inclusion. Furthermore, although there is a case for modelling emissions from the aviation sector on the location of fuel take-up (fuel is of course supplied at all airports in the state), the demand for aviation activity in the future, and the structure of the industry, are difficult to predict.

38 Melbourne 2030: Planning for Sustainable Growth strategy, Department of Planning and Community Development, Victoria, http://www.dse.vic.gov.au/melbourne2030online/

39 ABS 5220.0 Australian National Accounts: State Accounts , 2007 ABS 5220.0.55.002 Information Paper – Gross State Product using the Production approach GSP(P), Aus tralia, 2007

40 Australian Rail Transport Facts 2007 Apelbaum Consulting Group Pty Ltd, April 2007

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The following chart shows projected greenhouse gas emissions for Victoria in the transport sector based on reference case assumptions:

Transport emissions Reference case

35,000

30,000

25,000

Freight - rail 20,000 Freight - road Public transport - rail Public transport - road 15,000 Private transport - road 000s tonnes CO2e tonnes 000s

10,000

5,000

0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050

Figure 10: Reference case emissions – transport sector

The vast majority of transport sector emissions are in the road transport categories – noting that emissions related to the operation of electric fixed rail public transport appear in the National Greenhouse Gas Inventory methodology under electricity generation. Total greenhouse gas emissions in the sector were 17 Mt in 2005, and will grow under reference case assumptions to 32 Mt in 2050. The bulk of this emissions growth occurs in the road freight sub sectors (rural and metro), where strong GSP growth sees emissions triple by 2050, from 5.8 Mt in 2005 to 17 Mt in 2050. Over the same period emissions from private car transport grow from 11 Mt (2005) to 14 Mt (2050). A critical uncertainty here is the oil price. The reference case reflects ABARE assumptions of a long term price of some US$40/bbl, compared with the recently revised IEA assumption of

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US$60/bbl 41 . Clearly, a major shift in expectations about the direction of longer term fuel prices could significantly accelerate a shift towards more fuel efficient vehicles (particularly if buttressed by government policy measures, such as taxation on ownership/use). Carbon pricing would enhance such a shift but only to a limited degree unless the carbon price rose well above currently debated levels for Australia.

4.3.3 Transport - wedge descriptions Given the key drivers of future transport demand and emissions profiles, and the specific sub- sectoral areas of growth, four wedges were modelled to examine the potential reduction in growth of emissions from the transport sector: Wedge Number Title Description 12 Travel Demand Management 10% reduction in underlying demand for personal travel 13 Shift away from private Substitution of 10% of private passenger transport to rail; transport 1% shift in road freight to rail freight 14 Improved fuel and vehicle 30 percent improvement in fuel efficiency achieved between efficiency 2010 and 2022, improving to 60 percent between 2022 and 2034 15 Increased vehicle occupancy 10 percent reduction in private vehicle use for passenger transport Table 6: Transport sector - wedges These wedges was selected based on the impact, cost-effectiveness and feasibility criteria described above, and parameters for modelling their impact were developed within that context.

41 Noting that even this latter figure now appears conservative, “The visible hand on the tap” , Economist , vol 384, Iss 8538, 21 Jul 07 Bahree, Bhushan, “IEA Forecast Underlines Oil, gas Supply Worries” in Wall Street Journal – Eastern Edition , Vol 250, Iss 7, 10 Jul 2007

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Wedge 12. Travel demand management Sector: Transport Reducing travel demand lowers emissions, may generate savings in the form of lower capital costs (fewer cars purchased) and relieves traffic congestion Confidence: Low - Medium

Assumptions Start date Ramp-up (years) Steady-state 2010 10 10% reduction in underlying demand for travel

Transport, wedges

35,000

30,000

25,000

20,000 Trans. Wedge Trans. Residual 15,000 000s tonnes CO2e tonnes 000s

10,000 2050 CO2e reduction: 3 Mt (2% of Vic total) 5,000

4 6 4 6 2 4 6 3 1990 1992 1994 1996 1998 2000 2002 200 200 2008 2010 2012 2014 2016 2018 2020 2022 202 202 2028 2030 20 2034 2036 2038 2040 2042 204 204 2048 2050

Descriptions of changes required to achieve the wedge: Current demand for travel is estimated at about 3.7 trips per head of population per weekday. Reducing this to about 3.2 would achieve the targeted 10% reduction in travel demand. Initiatives that can help achieve this outcome include targeted behaviour change programs (like TravelSmart), general awareness/education programs and increased transport pricing. Similar efforts in freight would involve pricing and other incentives or regulations.

Assumptions basis: The ramp-up time of 10 years is consistent with the response rate of motorists to demand initiatives. A steady state of 10% is a conservative estimate.

Cost: Single-intervention behaviour change programs typically cost about $120 per head of population, to which should be added the cost of more general awareness/education and ongoing reinforcement, giving an estimated cost of under $3/tonne of CO 2-e saved. Increased transport pricing can take a number of forms and would result in increased revenue at state or federal level, thus reducing the cost of the initiative overall. Some forms of pricing – especially variable pricing for freight vehicles – will also involve significant set-up costs.

Sensitivity to carbon price: Rigid elasticities around car use and purchasing suggest that the impact of a carbon price on travel demand will be muted to the extent it is conveyed through increasing fuel prices. Other initiatives – like marketing, education and congestion penalties – are likely to be more effective

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Basis for the wedge: Travel demand has grown strongly but a significant amount of that growth has, in recent years, been in non-essential or discretionary travel activities. Experience with TravelSmart programs to date has been to see a reduction in car travel (or greenhouse gas producing trips) of between 5 and 15%; it would be expected that the impact of these programs if extended broadly would not reach these levels of impact. Overseas research suggests that road pricing can reduce peak period travel on congested roads by up to 20%. 42 If this was to apply to (say) Victorian roads accounting for 30% of vehicle kilometres travelled then a reduction of 3-6% may be feasible. TravelSmart programs have achieved increases of up to 30% in public transport usage in those areas where the programs have been implemented 43 . Again assuming widespread application in Victoria (say 40%) a statewide reduction of passenger vehicle travel of 4-8% per cent could be achieved. Car pooling and similar programs have achieved reductions in vehicle kilometres travelled of 10-30 % and if applied to 30% of passenger vehicles, statewide travel by these vehicles may reduce by say 3-9%. The impact of congestion taxes in urban areas has varied by location and the nature of the tax. In London, CBD car trips have reduced by 26% with an emission reduction of 15% 44 . However, in Norway, the tax induced a 10% decline in CBD travel during toll hours with an overall decline in traffic of 4% in traffic (increasing PT by 7%). 45 Implementation issues/ barriers: Behaviour change programs have been extensively trialled in metropolitan areas but used little in regional areas. Also whilst research suggests the changes are long-lasting they have not been tested for long enough; it is expected that some form of repeat or reinforcement activity might be needed at regular intervals. Changes to transport pricing are slated for action at a national level and progress in this area would assist in achieving the outcomes of this wedge. Reaction to different approaches (for example pricing and TravelSmart type programs) will vary greatly depending on elasticity of specific travel demands. Further research would be needed to determine the effectiveness of the supporting initiatives in the Victorian context and the appropriate mix of education/awareness (carrot) and pricing (stick) measures. Supporting actions related to road freight demand would also assist greatly in the achievement of the savings suggested in this wedge: encouragement of more efficient approaches to freight logistics - such as freight management approaches which facilitate freight vehicle “backloading” 46 - being an example.

42 “Road Pricing - Congestion Pricing, Value Pricing, Toll Roads and HOT Lanes” in TDM Encyclopedia Victoria Transport Policy Institute, September 2007

43 Various references from http://www.travelsmart.vic.gov.au/

44 Impacts monitoring - Fourth Annual Report Overview (PDF). Transport for London (June 2006).

45 Congestion charging in Bergen and Trondheim - an alternative 20 years ahead? Institute of Transport Economics, Norway

46 Backloading refers to the situation when empty tucks returning from their destination are filled on their return journey – increasing vehicle utilization (tones per kilometer) and therefore decreasing emissions per tonne transported

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Wedge 13. Mode shift away from private transport Sector: Transport Cultural and other barriers must be overcome if vehicle users are to switch to public transport Confidence: Low - Medium

Assumptions Start date Ramp-up (years) Steady-state 2010 40 Substitution of 10% of private passenger transport to rail; 1% shift in road freight to rail freight

Transport, wedges

35,000

30,000

25,000

20,000 Trans. Wedge Trans. Residual 15,000 000s tonnes CO2e tonnes 000s

10,000

5,000 2050 CO2e reduction: 1.5 Mt (1% of Vic total)

4 6 8 0 2 4 6 8 0 9 9 0 1 1 24 26 3 3 4 5 9 9 004 006 0 0 0 018 020 022 0 0 0 0 044 046 0 0 1990 1992 1 1 1998 2000 2002 2 2 2 2 2 2014 2016 2 2 2 2 2 2028 2030 2032 2 2 2038 2040 2042 2 2 2 2

Descriptions of changes required to achieve the wedge: Continued heavy investment in public transport infrastructure and services is required to provide the capacity for this mode shift, but it may also require measures to reduce the attractiveness of private (car and truck) transport, including transport pricing and changes to taxation settings. Emissions savings in freight are modest because the attractiveness of rail as a freight alternative would require very large behavioural shifts and substantial investment in the rail network to provide realistic alternatives for the freight task.

Assumptions basis: Incentives to promote substitution of public transport for private passenger transport are relatively easy to implement initially (like a cheapening of public transport or road transit charges). The 40 year ramp up reflects longer-term considerations like extension of the rail network and an improvement in public transport (non-road) capacity. A steady-state goal of 10% is consistent with the more successful initiatives overseas, like London’s congestion tax. The low rate of substitution of road freight with rail reflects a lack of immediate substitutability – longer term change would require a greater range of rail freight options.

Cost: Capital and recurrent costs are not fully calculated as part of this review. MOTC contains $10.5 billion that will probably achieve less than half the 20/2020 target (from the present starting point), given that MOTC involves expenditure on private transport facilities as well.

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Basis for the wedge: This wedge envisages the ongoing transfer of people and goods to more sustainable modes of transport (rail, bus, tram and walking/cycling) in line with Victorian Government targets, and continued into the future. Central to this wedge is long term investment to provide fast, reliable, convenient and accessible forms of public transport. Implementation issues/ barriers: There are various approaches available to improving the usage of the existing public transport network, for example through better differentiation of peak and off-peak pricing to enhance the attractiveness of off-peak public transport use. Key barriers here remain the capital costs and complications of expanding the public transport (especially rail) system. On the rail freight front there remains the possibility of accessing Auslink funding to support improvements to rail freight infrastructure. Supporting initiatives include increasing public transport’s share of people movement and rail’s share of goods movement, supported by initiatives like Meeting Our Transport Challenges . Comment: On going major investment is required in public transport and freight rail to achieve the targeted changes. The overall economic benefit of such investment is substantial in terms of travel time savings (congestion relief), safety and operating efficiencies, as well as social and environmental benefits.

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Wedge 14. Improved fuel and vehicle efficiency Sector: Transport Improving fuel efficiency is easily the most effective way to reduce emissions from transport; overcoming cultural barriers, however, is difficult Confidence: Medium

Assumptions Start date Ramp-up (years) Steady-state 2010 12, then 12 30% improvement in fuel efficiency achieved between 2010 and 2022, improving to 60 percent between 2022 and 2034

Transport, wedges

35,000

30,000

25,000

20,000 Trans. Wedge Trans. Residual 15,000 000s tonnes CO2e tonnes 000s

10,000

5,000 2050 CO2e reduction: 17.5 Mt (10% of Vic total)

0 8 0 2 8 0 2 8 0 2 4 6 4 6 0 1 1 2 2 99 00 01 04 04 199 1992 1994 1996 1 2 200 2004 2006 20 20 2 2014 2016 20 20 20 2024 2026 2028 2030 2032 203 203 2038 2040 2042 2 2 2048 2050

Descriptions of changes required to achieve the wedge: This wedge is based on the gradual replacement of old and less efficient vehicles with more efficient vehicles. Australia has a comparatively old vehicle fleet (average age is 12 years) so replacement of the entire fleet will take some time. Overall fuel efficiency of the fleet is strongly influenced by the number of older, less fuel efficient vehicles. Vehicle engines in general are becoming more fuel efficient although, in recent years, much of that improvement has been taken up in more complex ancillary systems, and larger and faster cars with greater towing capacity.

Assumptions basis: Vehicle fuel efficiency has improved substantially in recent years, and acceleration of this trend is achievable in the short term. A ramp-up of 12 years is consistent with the average age of vehicles in Australia. The net efficiency improvement assumed here is 30% by 2022, and 60% by 2034.

Cost: Improvements in vehicle efficiency and, therefore, reducing household petrol costs as vehicles become more efficient, is unlikely to provide enough incentive for the majority of vehicle owners to switch to more fuel efficient technologies. Promotion and support for fuel efficiency beyond price/ cost levers is likely to require investment in information dissemination and marketing effort, potentially along with increasing use of vehicle fuel efficiency standards.

Sensitivity to carbon price: Changes in the price of vehicles and fuel result in some added adoption of fuel efficient transport modes; other complimentary methods are needed.

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Basis for the wedge: Vehicle engines in general are becoming more fuel efficient although in recent years, much of that improvement has been taken up in more complex ancillary systems and larger cars. Significant room for improvement now exists. Overseas analysis suggests possible improvements in passenger fleet wide efficiency of 25% (achievable using existing technology) to 60% (substantial technological advance, investment and widespread adoption) 47 . However there is a potential rebound effect where a reduction in the unit cost for passenger vehicle travel can increase travel in response to a reduction in travel cost. The net effect, assumed here, is a 30% improvement till 2022, and 60% by 2034. Implementation issues/ barriers: Given uncertainty about the price elasticity of vehicle choice, a variety of approaches including behavioural change to alter preferences towards more fuel-efficient vehicles, and removal of inappropriate taxation/tariff assymetries would be required – examples include FBT and tariff arrangements which favour four wheel drive vehicles, and stamp duty arrangements favouring larger cars. Support for alternative fueled and hybrid vehicles would also assist in the achievement of this wedge. Any of the above measures relating to accelerated replacement of older vehicles would need to consider a range of social equity impacts. Other technologies - for example low rolling resistance tyres – could be considered in support of this wedge. Comment: Australian vehicles will benefit from the ongoing improvements in vehicle efficiency standards overseas.

47 See for example http://www.pewclimate.org/policy_center/policy_reports_and_analysis/brief_us_transportation/vehicles.cfm

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Wedge 15. Increased vehicle occupancy Sector: Transport Overcoming trends is the major barrier toward emissions savings from increased vehicle utilisation Confidence: Low-Medium

Assumptions Start date Ramp-up (years) Steady-state 2010 10 10% reduction in private vehicle use for passenger transport

Transport, wedges

35,000

30,000

25,000

20,000 Trans. Wedge Trans. Residual 15,000 000s tonnes CO2e tonnes 000s

10,000

5,000 2050 CO2e reduction: 1.4 Mt (1% of Vic total)

0 2 4 8 0 4 0 6 8 2 4 8 0 2 4 0 6 8 0 2 3 4 99 01 02 04 1990 199 1 1996 199 20 2002 200 2006 2008 201 2012 2014 201 2 2020 2 20 2026 202 20 203 203 2036 2038 204 2042 2044 2 20 2050 Descriptions of changes required to achieve the wedge: This wedge envisages a gradual increase in vehicle occupancy through approaches such as car pooling encouraged by transit lanes and information/education Assumptions basis: Increasing vehicle occupancy is relatively inexpensive, suggesting an early start date is possible for initiatives. The 10 year ramp-up rate is consistent with empirical evidence on the rate of response of such initiatives overseas. The 10% reduction steady- state target is consistent with the goal of the Los Angeles Transport Authority through its combined carpool lanes/ toll roads/ education initiative. Cost: Cost may be relatively low (installation of high-occupancy vehicle lanes involve signage and road markings, other initiatives may have some ongoing operating costs attached). Changes to pricing, regulation and/or taxation regimes may involves some costs but may also change revenue streams. Sensitivity to carbon price: Car occupancy has been declining while congestion has been increasing; more is needed to change this behavioural pattern beyond price signals.

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Basis for the wedge: Average occupancy for passenger vehicles is low and can be improved to some degree through a range of initiatives 48 . Initiatives to increase vehicle occupancy include:

• Installation of high-occupancy vehicle lanes on key freeways and arterials • Education/encouragement/incentives for car pooling initiatives • Technology improvements (eg. GPS, supply chain management techniques, intelligent vehicle and transport systems) Implementation issues/ barriers: Car occupancy has been slowly but steadily declining in recent years (whilst road occupancy by vehicles has been increasing). Attitudinal barriers exist to car pooling and sharing. Mismatching of trip timing and purposes may be an underlying issue. Comment: Some of the initiatives to implement higher vehicle utilisation will also impact on other wedges (especially fuel efficiency and mode shift). It should also be noted that the structure/scope of the transport model does not readily lend itself to an assessment of more “micro” transport initiatives (eg vehicle/fleet strategies).

48 Whelan, Michelle and Diamantopoulou, Kathy, Establishing a benchmarck of safety on Melbourne Roads , Monash University Accident Research Centre Port #198 – 2003, http://www.monash.edu.au/muarc/reports/muarc198.html

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4.3.4 Transport sector summary - themes The most significant wedge modelled in the transport sector was wedge 14, which considered the emissions efficiency of vehicles and offered reduction in emissions of 19 Mt in 2050. Other wedges related to reduction in travel demand, vehicle occupancy and private transport use.

Of all of the sectors examined in this report, the transport sector was the subject of greatest divergence of views amongst those who provided comment and input. This divergence was particularly strong in regard to the wedges which reduced or shifted demand for travel, and emerges at least in part from the relative newness of such programs. Conservative judgements have been applied to generate the parameters used in the wedges, and it is suggested that greater experience and research over time should lead to a refinement of these. Examining the reference case and the modelled wedges, and in particular the significance of growth in the road freight sector, leads to a particular focus on wedge 14, which considers improvements in fuel efficiency of vehicles: based on an estimated fleet turnover period of twelve years and European experience and expectation of vehicle efficiency, this wedge models an efficiency improvement of 60% by 2050 (an emissions reduction of 19 Mt of CO 2) 49 . The key initiatives underpinning this wedge will be those that serve to either retire older vehicles or accelerate the introduction of newer vehicles, and those that accelerate the availability of new, low or zero-emission vehicle technologies. While it is likely that a carbon price signal will have some impact on vehicle choice over time, it is also clear that vehicle and fleet turnover will need to be considerably enhanced to achieve the savings modelled in this wedge: complementary measures such as information programs, incentives for lower emission vehicles (or removal of disincentives such as Fringe Benefits tax and tariff arrangements favouring larger four wheel drive vehicles), and support for commercialisation of technologies will be important. Policies will also have to consider the market failure between new and used cars. For a new car buyer, fuel efficiency offers small percentage cost savings, as costs are dominated by depreciation and interest costs. Three-quarters of household car purchases are, however, second-hand cars, and for a given vehicle, at least ¾ of its lifetime kilometres are travelled by second or later owners, for whom fuel is a larger proportion of total costs. However, used car buyers can only choose from the limited range of vehicles available, determined by new car buyers, who apply quite different criteria to their decisions. While over time, resale value will change, this has a significant lag time and also suffers from heavy discounting of future costs and benefits, as is typical of demand-side decision-making. The maturity of many of these technologies, and the fact that a higher fuel efficiency in vehicles has already been achieved overseas (for example in Europe), balanced against the need for a strong mixture of actions to achieve the potential savings, sees this wedge given a medium level of confidence. Wedges 12, 13 and 15 all model shifts in behaviour by travellers. Wedges 12 and 15 examine the impacts of travel demand management and increased vehicle occupancy respectively, each of which potentially is modelling as offering an emissions reduction of 3 Mt CO 2 in 2050.

49 Lewin, Tony, “Not Your Typical Transmissions” Automotive News Europe , vol 12, Iss 14, 7 September 2007

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Travel demand management programs have now been employed with considerable success in Victoria and other jurisdictions - the TravelSmart program has been considerably expanded on the basis of pilot projects which have typically saved up to 15% of car use, mainly by substitution of other means of travel (including walking and cycling) and reduction or reorganisation of discretionary journeys 50 . The capacity for these savings to be achieved more broadly is yet to be fully assessed. A range of views were held by commentators and experts and the savings and time periods for achievement of savings on which wedge 12 is based are a conservative but realistic estimate. Increased vehicle occupancy offers the potential for a considerable reduction in the rate of greenhouse gas emissions, but is unlikely to be particularly sensitive to a carbon price. In the past, programs encouraging car pooling coupled with initiatives such as freeway transit and high-occupancy vehicle lanes, have had an impact in this area. Wedge 13 models the impact of a continued incremental move away from private transport. The Victorian Government has invested considerable effort in encouraging greater public transport patronage, targeting its publicly articulated “20/2020” vision 51 ; substantial further infrastructure, rolling stock and operating cost expenditure (beyond that currently committed), active encouragement of public transport use and active discouragement of car use (through pricing and other means) will be needed to achieve the savings envisaged in this wedge – they are accorded a low-medium confidence level. 52

50 The Development of the Victorian Travelsmart Program , Phil Harbutt of Dept of Infrastructure Vic and David Meiklejohn of the Sustainable Energy Authority Victoria, 2003

51 Department of Sustainability and Environment: http://www.dse.vic.gov.au/melbourne2030online/content/strategic_framework/03h_transport.html

52 It is important to note that the modelling framework allocates the impact of initiatives pertaining to urban passenger rail (train and tram) to the stationary energy sector

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4.4 Agriculture

4.4.1 The agriculture sector in Victoria Agriculture in Victoria is a significant contributor to Victoria’s overall economy and is particularly important as a source of non-CO 2 greenhouse gas emissions – methane and nitrous oxide – from livestock and cropping. These industries are highly sensitive to climate and the availability of water for irrigation in particular. Two wedges were modelled for the agriculture sector, relating to soil management and livestock efficiency. These wedges both require technology development and commercialisation to achieve emissions reductions.

The agriculture sector in Victoria is centred on industries producing broadacre grain crops (such as wheat and barley), livestock grazing – beef cattle, dairy, and sheep for meat and fine wool, and the strategically important fruit industries. A total of 13.9 million hectares (61% of the State) was devoted to agricultural production in 2005. The State’s Gross Farm Product was $6.4 billion in 2004-05, almost 3% of Gross State Product 53 .

Emissions from the agriculture sector are not in the main CO 2 but are predominantly in the form of methane (from livestock, manure management and cultivation) and nitrous oxide (from cultivation and fertiliser application); the sector also contributes to stationary energy emissions (through buildings and plant) and transport emissions (tractor usage and transportation) and these emissions are considered under those sectors. Victoria was largely settled in the 19 th Century and much of the State’s relatively fertile land was cleared for agriculture, both grazing and cropping, from this date. Approximately 60 to 70 percent of the pre colonial forest was cleared by about the 1920’s, representing a significant land use change. There has been little further clearing for agricultural use since then, with much of the remaining forested land now in state forests and national parks. While agricultural industries have changed over time, for example the gradual decline of the wool industry, replaced by dairy, beef and lamb meat and broadacre cropping, the fundamental land use (agriculture) has remained the same. A major and continuing change over the past century was the development of Victoria’s water resources for irrigation - the Murray at Mildura in the 1880s onwards, then the Goulburn Broken from the 1930s. Future developments and patterns of water use and availability are still unclear, but will become clearer as government and industry responses to drought and expected future climate change emerge. Further reduction in water availability (either through climate impacts or diversion for other uses) is likely to see changes in agricultural industry activity across the board, with greatest impact in water intensive sectors such as horticulture and dairy. In these sectors there will be a shift of water to higher value usages which will result in the maintenance of wealth generation in the face of reduced water availability. At the same time, the dairy industry expansion will face significant constraints in relation to water availability and may be forced to rely more heavily on grain from cropping. Despite the pressures of climate change the demand for cropping land for food and biofuels will increase leading to a shift in cropping to currently wetter pasture zones.

53 7123.2.55.001 Agricultural State Profile, Victoria , 2004-05 from the Australian Bureau of Statistics, 10 August 2006

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Technology and innovation continue to drive the development of the agriculture sector, but to date these have only had minor implications for non-CO2 emissions from the sector. At the same time, the continued and inexorable move to larger scale agriculture has few non-CO 2 emissions implications, although leads to increased energy demand for agribusiness. The demand of an increasingly affluent world for animal protein (meat and dairy products) will drive greenhouse emissions in this sector, as will an increased move to cropping to feed these animals. Finally, the overall socioeconomic and demographic changes across rural Victoria have continued to have a major impact on rural lifestyles and employment patterns. Growth of renewable energy and carbon sequestration, along with population shifts in response to high urban house prices and an ageing population, could change past trends. In the National Greenhouse Gas Inventory, agricultural emissions are disaggregated into the following classes, in order of significance:

• Enteric fermentation - methane emissions from ruminant grazing livestock; • Agricultural soils – nitrous oxide emissions associated with cultivation and management of agricultural soils; • Manure management – mainly methane and nitrous oxide emissions from the management of manure generated from grazing livestock and intensive animal operations; • Burning of agricultural crop residues - mainly methane and nitrous oxide emissions produced from burning of crop residues; • Prescribed burning of temperate grasslands - mainly methane and nitrous oxide emissions from deliberate burning of pastures and managed native grasslands; • Rice cultivation – methane emissions associated with cultivation of rice. The latter three are of minor importance and accounted for ~0.3% of Victoria’s agricultural greenhouse gas (GHG) emissions in 2005 and have not been given further detailed consideration in this study. Furthermore the continued adoption of conservation farming resulting in less burning will result in these small emissions decreasing rather than increasing in projection period.

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Agriculture, 2005 CO2e emissions

19% Enteric fermentation Manure management 19% 62% Agricultural soils

Figure 11: Emissions from the agriculture sector, 2005

Other greenhouse gas emissions from the sector are accounted for under stationary energy (for example farm and agricultural building emissions) and transport (tractor use and food transport vehicles).

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4.4.2 Reference case emissions for the agriculture sector The following chart shows projected greenhouse gas emissions for Victoria in the agriculture sector based on the reference case assumptions:

Agriculture Reference case

20,000

18,000

16,000

14,000

12,000 Agricultural soils 10,000 Manure management Enteric fermentation

000s tonnes CO2e tonnes 000s 8,000

6,000

4,000

2,000

0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050

Figure 12: Reference case emissions – agriculture sector

Total emissions from the agriculture sector were 18 Mt in 2005 and grow to 19 Mt in 2050 under the assumptions underlying the reference case. Enteric fermentation has historically been the dominant source of emissions and is projected to continue to be so – in the reference case dairy herd size was projected to grow in line with historical rates of about 20% of GSP while beef cattle and sheep numbers were projected to decrease slightly which result in these emissions reducing slightly from 11 Mt in 2005 to 10 Mt in 2050. Emissions from agricultural soils were estimated by correlation with estimates of future crop area and grow from 3.8 Mt in 2005 to 4.8 Mt in 2050. Emissions generated through manure management were estimated using Australian Greenhouse Office estimates of herd sizes and remain the only other significant source of agricultural emissions in Victoria. This is expected to remain the case under current trends and policy settings.

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The combination of the drivers of emissions discussed above - demand for agricultural production, changes in industry structure balanced with long term climate impacts and socioeconomic changes - mean that non CO 2 emissions growth in the agriculture sector will be modest to 2050. As a consequence, the fraction of Victoria’s emissions apportioned to that sector will decrease from 15% to 11%. The key drivers of agriculture sector emissions will remain the grazing (predominantly dairy and beef) industries and the cultivation and management of agricultural soils.

4.4.3 Agriculture - wedge descriptions Given the key drivers of future agricultural activity, two wedges were modelled to examine the potential reduction in emissions from the agriculture sector: Wedge Number Title Description 16 Livestock efficiency 40% reduction in per-unit emissions from enteric fermentation 17 Soil management 10% improvement in emissions efficiency from manure management and agricultural soils Table 7: Agriculture sector - wedges These wedges were selected based on the impact, cost-effectiveness and feasibility criteria described above, and parameters for modelling their impact were developed within that context.

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Wedge 16. Livestock efficiency Sector: Agriculture Reducing methane from enteric fermentation results in substantial yield improvements Confidence: High

Assumptions Start date Ramp-up (years) Steady-state 2010 10 40% reduction in per-unit emissions from enteric fermentation

Agriculture, wedges

25,000

20,000

15,000

Ag. Wedge Ag. Residual

10,000 000s tonnes CO2e tonnes 000s

5,000 2050 CO2e reduction: 4.2 Mt (2% of Vic total)

0 0 2 0 6 8 0 4 6 4 0 2 6 8 0 6 0 1 2 3 00 03 04 199 199 1994 1996 1998 20 2002 2004 200 2 20 2012 201 201 2018 2020 2022 20 2026 2028 2 20 2034 203 203 2 2042 2044 204 2048 2050 Descriptions of changes required to achieve the wedge: This wedge includes a 40% reduction in agriculture emissions through initiatives targeting enteric methane control, developed by the University of Melbourne and DPI. Assumption basis: Much of the technology needed to support this wedge is in the precommercialisation phase, suggesting potential early intervention. A ramp-up time of 10 years is usual for the adoption of new technologies and work practises in the agriculture sector. The 40% reduction figure was sourced from research conducted by the University of Melbourne in conjunction with DPI. Cost: Methane interventions improve both emissions outcomes and production efficiency (less energy is wasted by livestock in the production of gas). Subject to full commercialisation of the appropriate technologies, the payback period could be as low as 1 year, especially if water scarcity (and feedlot scarcity) is an issue. Sensitivity to carbon price: The agriculture industry is unlikely to be subject directly to a carbon price. Rather, water scarcity is likely to be the driver here.

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Basis for the wedge: In Victoria about 75% of agricultural emissions are methane from ruminant animals, cattle and sheep. This methane arises from ruminant digestion where about 20% of the ingested carbon is lost as methane. This represents a significant production inefficiency to the animal as well as having greenhouse gas implications. This wedge seeks to deliver a 40% reduction in agriculture emissions through a 50% reduction in methane emissions through a number initiatives targeting enteric methane emissions which will also deliver productivity gains to the industry University of Melbourne and DPI research has demonstrated that these emission reductions are possible through the simultaneous implementation of 3 mutually synergistic strategies:

• Animal breeding utilizing genomics and breeding/ selection to increase feed conversion efficiency and decrease methane emission • Improved farm management strategies to extend lactation and improve pasture & grazing management to maintain production with fewer animals and lower methane emissions • The introduction of new dietary strategies including oil, enzyme and tannin supplements and improvements to diet quality to reduce methane emissions. • These initiatives can be supported through strategies like alternative livestock systems and “Designer Forages”, and through collaborative efforts with AgResearch & Drexel(NZ), Agriculture and Agri-Food Canada, and interstate work. Implementation issues: Take up of these strategies will require a range of supporting initiatives to ensure that impact is made, including:

• Continuation and enhancement of extension, information and education programs such as those run already by the Department of Primary Industries and a range of industry bodies • Ongoing support for technology development through agricultural research facilities such as those operated by the Department of Primary Industries, Universities and industry associations This wedge would be supported by further effort in research and development, potentially in collaboration with the New Zealand Government, pooling strategies and technologies that will come on stream at different times to maximize impact.

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Wedge 17. Soil management Sector: Agriculture Reducing nitrous oxide emissions from agricultural soils can reduce agriculture emissions by 10% Confidence: Medium

Assumptions Start date Ramp-up (years) Steady-state 2010 10 10% improvement in emissions efficiency from manure management and agricultural soils

Agriculture, wedges

25,000

20,000

15,000

Ag. Wedge Ag. Residual

10,000 000s tonnes CO2e tonnes 000s

5,000 2050 CO2e reduction: 0.9 Mt (1% of Vic total)

90 92 94 96 98 02 04 08 10 14 16 22 28 30 34 36 42 48 50 9 9 9 0 0 0 0 0 0 0 0 0 1 19 1 1 19 2000 2 2 2006 2 2 2012 2 2 2018 2020 2 2024 2026 2 20 2032 2 20 2038 2040 20 2044 2046 20 20

Descriptions of changes required to achieve the wedge: This wedge includes a 10% reduction in agriculture emissions through initiatives targeting nitrous oxide. University of Melbourne and DPI has illustrated this potential through:

• Animal (urine) strategies including chemical interventions, physical interventions, breeding and dietary interventions • Soil strategies including improvements in waterlogging and drainage, irrigation, compaction/ pugging, minimum tillage and genetic engineering of soil microbes Assumption basis: Much of the technology needed to support this wedge is in the precommercialisation phase, suggesting potential early intervention. A ramp-up time of 10 years is usual for the adoption of new technologies and work practises in the agriculture sector. The 10% reduction figure was sourced from research conducted by the University of Melbourne in conjunction with DPI.

Cost: Improvements to soil practices (for example, better drainage and more effective irrigation) have some dividends in addition to emissions reduction, though these are not as large as enteric fermentation initiatives. If improvements lower costs and increase yields, payback could occur in about five years.

Sensitivity to carbon price : The agriculture industry is unlikely to be subject directly to a carbon price. Rather, water scarcity is likely to be the driver here.

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Basis for the wedge: Emissions of Nitrous Oxide from agricultural operations largely result from the environmental conditions surrounding the transformation of the nitrogenous components of fertilizers and animal urine in the soil. This wedge seeks to achieve a 10% reduction in agriculture emissions through initiatives targeting of the emission of Nitrous Oxide during these transformations. The following strategies are based on current research by the University of Melbourne and DPI and global activity in this area. The strategies to reduce Nitrous Oxide emissions outlined below will cover both grazing and cropping activities and include:

• Chemical interventions using inhibitors to reduce the rate of nitrification • Biological intervention to alter soil micro flora including genetic modification • Soil, crop , pasture and irrigation management strategies to avoid water logging and compaction • Improved cropping technologies involving the timing and placement of fertilizers including no tillage and minimum tillage Implementation issues/ barriers: Take up of these strategies will require a range of supporting initiatives to ensure that impact is made, including:

• Continuation and enhancement of extension, information and education programs such as those run already by the Department of Primary Industries and a range of industry bodies • Ongoing support for technology development through agricultural research facilities such as those operated by the Department of Primary Industries, Universities and industry associations Comment These strategies have an excellent likelihood of early adoption because they represent an increase in the efficiency of utilization of nitrogen, one of the major input costs, within agricultural ecosystems. Fertilizer Nitrogen is a petrochemical by-product and therefore its price is likely to increase further creating very strong economic incentives to adopt these strategies.

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4.4.4 Agriculture sector summary - themes The agriculture sector will remain an important contributor to Victoria’s greenhouse gas emissions to 2050. The major (non CO 2) emissions sources will remain enteric fermentation and manure management (mainly methane (CH 4) emissions related to livestock industries) and nitrous oxide emissions related to the cultivation and management of agricultural soils. The greatest potential for emissions reduction from this sector (wedge 16) relates to the development and deployment of technological approaches to reduce emissions from the livestock industries – for example enzyme additives for livestock to reduce enteric fermentation emissions, improved genetics of livestock and improved grazing management. It is estimated that, at reasonable cost, emissions from enteric fermentation could be reduced by 40% per animal by 2020 using such technologies. Wedge 17 reflects the further availability (at a precommercial stage) of a range of technologies and management techniques which could reduce nitrous oxide emissions a further 10% through a variety of interventions targeting emissions from soil. Implementation of these approaches will depend on a number of factors, in particular the availability of technologies, requiring ongoing support for research, development and demonstration by governments, academic institutions and industry research and development bodies. Deployment of technologies will occur considerably more expeditiously if a carbon price signal emerges for non CO 2 emissions through an emissions trading scheme – although this is not a feature of current proposals (either the NETS proposal or the Prime Minister’s Emissions Trading Taskforce) at this stage. Alternative supporting measures, such as information programs and the extension and awareness activities employed by Governments and industry bodies, will go some way to meeting this need. Ongoing and underpinning structural change in Victoria’s agricultural industries, responding in particular to changed water availability, will need to be considered in developing any programs or policies to encourage emissions reduction. Further changes in emphasis away from livestock to cropping activities, for instance, will need to be taken into account in any future policy approaches by government.

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4.5 Land use, land use change and forestry (LULUCF)

4.5.1 LULUCF in Victoria Land use and land use change, including consideration of Victoria’s forest industries, provides both a source of and a sink for greenhouse gases. In this sector, emissions from land clearing will be more than offset by take up of CO 2 by forestry plantations and revegetation until at least 2020. Two wedges were modelled examining an acceleration in afforestation through plantations and through permanent environmental plantings, investment in both of which would be advantaged by plantation related offsets through an emissions trading or similar scheme.

Victoria’s forest industries – including both plantation forestry and native forests – support a hardwood and softwood processing industry with turnover of the order of $4 billion per annum 54 . The area of forestry plantations across the State was 385,000 hectares in 2005 (a modest growth from 383 thousand hectares in 2003), compared with 7.9 million hectares of native forest 55 . As noted above, much land clearing in Victoria was completed by the 1920’s, and there has been little further clearing for agricultural use since then. Clearing for urban development has continued, although its impact has been considerably reduced by policy and legislative interventions such as the Government’s ‘net gain’ requirements. The major change in land use over the past 20-30 years has been growth in plantation forestry for both pulp (wood chips) and timber. In general these plantations have occupied former grazing land in the higher rainfall zones 56 . This change has been driven in part by a range of government policy settings, for example specific support for this industry and favourable taxation arrangements to encourage investment in plantation forestry. These policies were underpinned by

• An increasing domestic and global demand for wood and paper products • The conservation of native forests resulting in reduced areas of forest available for timber production and the need to supplement the reduced wood flow from them with plantation grown wood • Land management concerns relating to rising water tables and dryland salinity and the use of trees to lower these water tables Expectations by private investors around potential additional economic returns through the availability of future credits for carbon offsets also underpinned

54 See for example http://www.nafi.com.au/news/view.php3?id=73 . Also figures from Victorian Association of Forest Industries quoted in http://1.1.1.1/272238708/272965560T071201230219.txt.binXMysM0dapplication/pdfXsysM0dhttp://www.vafi.org.au/v afi-forest-media/documents/SustainableDevelopmentCEDACoplandPrograme22Sept06.pdf

55 Victoria’s State of the Forests Report 2005, for the Department of Sustainability and Environment:. See also DSE website: http://www.dse.vic.gov.au

56 Forestry in the Agricultural Landscape , Dept of Primary Industries Victoria, Oct 2004

www.nousgroup.com.au The Nous Group Page 89 Understanding the potential to reduce Victoria’s greenhouse gas emissions considerable speculation in potential investment in plantations for carbon credits through the 1990s, although this speculation was muted following Australia’s decision not to ratify the Kyoto Protocol. Emissions in the LULUCF sector are divided into two main sub-sectors in the National Greenhouse Gas Inventory, afforestation-reforestation and deforestation. The former is largely associated with establishment of ‘new forests’ – new commercial or environmental plantings. The latter is largely associated with the loss of native vegetation for urban, industrial and other developments.

4.5.2 Reference case emissions for the LULUCF sector The assumptions underlying the reference case were that afforestation emissions will grow linearly with plantation growth; data on new plantation development was sourced from the Bureau of Resource Sciences and the Victorian target for new plantations under the Australian Government’s “Plantations 2020” vision. Emissions from deforestation are estimated in line with Victoria’s modest land clearing rates and projected to decline to 2020. The following chart shows projected greenhouse gas emissions for Victoria in the land use, land use change and forestry sector based on reference case assumptions:

Land use, land use change and forestry emissions Land use, land use change and forestry emissions Reference case Reference case Afforestation only Deforestation only

0 3,500 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050

3,000 -1,000

2,500

-2,000 2,000

Deforestation

1,500 -3,000 Afforestation 000s tonnes CO2e tonnes 000s 000s tonnes CO2e tonnes 000s 1,000 -4,000

500

-5,000 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050

-6,000

Land use, land use change and forestry emissions Reference case

1,000

0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050

-1,000

-2,000 Deforestation Afforestation -3,000 000s tonnes CO2e tonnes 000s

-4,000

-5,000

-6,000

Figure 13: Reference case emissions – LULUCF sector

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The LULUCF sector changed from a net source of greenhouse gas emissions in the 1990s to a significant net sink from 2000. Under the reference case assumptions, emissions from deforestation will fall from 3.2 Mt in 2005 to zero by 2020. At the same time, emissions from reafforestation will alter by -2.8 Mt in 2005 to a peak of - 4.9 Mt in 2015 and then dwindle to 2050. This will see the total LULUCF sink “peak” at -3.9 Mt CO 2-e in 2015, reducing from about 2030-2040, and potentially again becoming neutral or even a net source of greenhouse gas emissions by 2050. Given the modest impact of land clearing emissions for Victoria the most significant drivers of this sector’s contribution are the ongoing development of (in particular) plantation forestry activity and the continued restraint of land clearing for agriculture and urban development.

4.5.3 LULUCF wedge descriptions Given the key drivers of future land use, land use change and forestry activity and emissions profiles, two wedges were modelled to examine the potential reduction in growth of this sector: Wedge Number Title Description 18 Accelerate Afforestation – 30% increase in rate of afforestation new harvestable plantations 19 Accelerate Afforestation – 10% increase in rate of afforestation revegetation Table 8: LULUCF sector - wedges These wedges was selected based on the impact, cost-effectiveness and feasibility criteria described above, and parameters for modelling their impact were developed within that context.

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Wedge 18. Accelerate Afforestation – new harvestable plantations Sector: Land use, land use change and forestry Afforestation produces emissions savings as livestock-related emissions are reduced and a carbon sink is created Confidence: Medium

Assumptions Start date Ramp-up (years) Steady-state 2010 10 30% increase in afforestation

LULUCF, wedges

1,000

94 00 06 12 48 990 992 9 996 0 002 0 0 018 024 028 030 034 036 038 040 042 044 046 0 050 1 1 1 1 1998 2 2 2004 2 2008 2010 2 2014 2016 2 2020 2022 2 2026 2 2 2032 2 2 2 2 2 2 2 2 2

-1,000

-2,000 LULUCF Wedge LULUCF residual -3,000 000s tonnes CO2e tonnes 000s

-4,000 2050 CO2e reduction: 0 Mt (0% of Vic total) -5,000 -6,000

Agriculture, wedges

25,000

20,000

15,000

Ag. Wedge Ag. Residual

10,000 000s tonnes CO2e tonnes 000s 2050 CO2e reduction: 4 Mt (3% of Vic total) 5,000

0 2 4 6 8 0 2 4 6 8 0 4 6 8 4 6 8 0 2 4 6 8 0 4 6 8 0 9 0 1 1 3 3 4 4 00 00 00 01 02 03 03 03 04 1990 19 199 199 199 2 2 200 20 2 2 2012 20 20 201 2020 2022 2 202 202 2 2 2 20 20 2 2042 20 20 204 205 Descriptions of changes required to achieve the wedge: In this wedge, land used previously for livestock cultivation is sown with harvestable plantations. This is assumed to reduce emissions in two ways: a reduction in livestock-related emissions and the increase in carbon sink capacity generated by the new plantations. The former effect reduces emissions in perpetuity. In the latter effect emissions are reduced initially, but carbon is assumed to return to the atmosphere once the plantation is harvested.

Assumption basis: The technology to realise the fuel generating potential of wood biomass is well-developed in Europe, suggesting that this wedge could be implemented earlier (around 2010). A ramp-up time of 10 years is usual for the adoption of new technologies and work practises in the agriculture sector. The 30% increase in the rate of afforestation is consistent with the Victorian component of the Australian Government’s 2020 vision of 750,000 hectares of new plantation in Victoria (expected to be about 550,000 hectares in the reference case)

Cost: Technologies to increase the yield from plantations are at advanced stages of development in Europe and the United States and would require little additional investment in Australia

Sensitivity to carbon price: A carbon price can provide the incentives for investment in the carbon offset potential of plantations (possibly at the expense of livestock production). Subjecting transport to carbon penalties would also encourage lignocellulose and, consequently, plantation development. Both are conditional on the price of water.

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Basis for the wedge: This wedge involves the afforestation of land previously used for agriculture, predominantly livestock grazing, to forestry plantations. This land use change will reduce emissions in two ways: a reduction in livestock-related emissions and the increase in carbon sink capacity generated by the new plantations. The former effect reduces emissions in perpetuity. In the latter effect emissions are reduced initially during the group of the plantation but depending on the destination of the wood products, the sequestered carbon is assumed to return to the atmosphere in various timeframes once the plantation is harvested. In the interim more sophisticated carbon accounting rules clearly differentiating between wood end-uses would enhance the sequestration potential of this wedge. Implementation issues/ barriers: The implementation of this wedge will be very dependent on four interdependent issues:

• Carbon trading influencing economic returns from plantation • Carbon accounting rules nationally and internationally • Government policy towards water use by plantations and catchment management • Support for science and technology towards the economic production of biofuels from lignocellulose The first three of these issues are readily addressable by policy initiatives with the fourth (research driven) issue less certain despite large international efforts. Given the continuing favourable tax treatment of investments in this area there are excellent prospects of achieving this wedge within the stated timeframes This wedge involves environmental afforestation of currently agricultural land for the purposes of conservation, and as such the relative returns to livestock and vegetation are less of an issue than for wedge 19. Land availability for forestry activities is an important issue for this wedge; further, it should also be noted that climate change will potentially change the locations in which particular species can effectively be grown. Comment: Should the production of biofuels from wood biomass (lignocellulose) produced in these plantations become economically feasible their sequestration potential would become annual and continue in perpetuity. This technology is not currently mature enough to be included in this wedge, but remains a definite possibility within the timeframe of this project. 57 This area of land use change to forestry remains an attractive avenue of greenhouse gas abatement which has the potential to provide an ongoing source of renewable energy if the technology of biofuels from lignocelluloses becomes mature, and if a future emissions trading scheme change energy price relativities and offers carbon credits for biosequestration.

57 Another possibility is an expansion of the production of charcoal from trees, for example oil mallee plantations

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Wedge 19. Accelerate Afforestation – revegetation Sector: Land use, land use change and forestry Afforestation produces emissions savings in the short term but negligible savings in the long term Confidence: Low-Medium

Assumptions Start date Ramp-up (years) Steady-state 2010 10 10% increase in afforestation

LULUCF, wedges

1,000

0 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 -1,000

-2,000

-3,000 LULUCF wedge -4,000 LULUCF residual -5,000

-6,000 2050 CO2e reduction: 1.5 Mt (1% of Vic total) -7,000

-8,000

-9,000

Descriptions of changes required to achieve the wedge : This wedge is similar to the previous wedge (afforestation -- new harvestable plantations) except there exist no intentions to harvest the new vegetation. That is, this wedge involves afforestation for the purposes of conservation (not wood matter for harvesting and sale) in a carbon-constrained economy.

The relative returns from livestock and vegetation are less of an issue for this wedge in a carbon un constrained world. Only when there exist returns from conservation-based revegetation – that is, under a carbon price – would there exist a trade-off which would drive revegetation.

Revegetation is considered most attractive to owners of land that is not currently (that is, not presently pastoral land); it is assumed pastoral land is either used for livestock production or plantation cultivation. One of the main groups considered here comprises urban owners of rural land.

Assumption basis: This wedge uses the same assumption basis as the previous wedge, except the potential for revegetation is lowered to 10%. This figure represents an approximation of the land currently not used for pastoral purposes as a proportion of existing Victorian plantation use.

Cost: This wedge is potentially quite cost effective: the costs incurred include planting the vegetation, the initial cost of the plants and, potentially, costs of administering an offset system. These costs are likely to be small relative to other emissions-reduction methods.

Sensitivity to carbon price: This wedge is more consistent with a developed system of carbon credits (permitting land owners to profit from revegetation) than with a carbon tax (which is unlikely to impact directly here).

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Basis for the wedge: This wedge involves the afforestation with native vegetation of land zoned as agricultural land, for the purposes of conservation and landscape management. As such the economic drivers of this wedge are different from those for wedge 18. Revegetation is considered to be most attractive to owners of land that is currently used for grazing but is not suitable for intensive pasture production or plantation forestry because of soils and/or terrain. Much of this land is owned by absentee landlords or peri-urban land owners who frequently do not wish to farm intensively. Reafforestation offers an alternative way to manage the land. Much of the revegetation can be achieved naturally and therefore is very cost effective. The reduced intensity also suits many landowners who have off farm employment. Previous Victorian Government programs and policies, for example the BushTender program which sought to value and implement protection of remnant vegetation, have identified considerable potential for these re-afforestation activities. Implementation issues/ barriers: The success of this wedge will depend on:

• The introduction of an emissions trading scheme that puts a value on carbon • The development of affordable carbon accounting methodologies including on ground verification, remote modelling and acceptable remote sensed carbon accounting systems (such as the National Carbon Accounting System or NCAS) that are easily verifiable, afforable and acceptable to the market. • Supportive government policies that promote the identification and implementation of suitable land to be included in this wedge Significant government investment has been targeted to this area of activity through Landcare, the Natural Heritage Trust and other programs over the past twenty years. This wedge would be aided by detailed assessment of and consideration of the impact of these programs to date, to underpin future action. Comment: With well designed government policy intervention this wedge has the potential to deliver larger than the projected saving as lifestyles and land ownership continue to change in a 200 kilometer radius of Melbourne.

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4.5.4 LULUCF sector summary - themes The LULUCF sector potentially offers considerable emissions reduction potential and potentially ongoing negative emissions growth through the further development of plantation forestry and to a lesser but important extent non forestry or environmental plantings. Other benefits can flow from these developments, for example enhanced biodiversity outcomes (particularly from biodiverse, regionally appropriate, permanent replanting of areas previously used for agriculture). The sophistication of the economic and investment patterns underpinning these industries means that an accessible market for carbon credits through offsets may drive further land use change towards re-afforestation in some more mountainous parts of Victoria not well suited as dairy beef and sheep pastures. Proposed models currently under consideration for future emissions trading schemes have all offered the likelihood of plantation related offsets and this carbon driver is likely to see greater investment. Further incentives for investment in reafforestation include the development and implementation of more efficient technologies for conversion of forest biomass for fuel generation and biofuels, and policies and measures which offer non-carbon related incentives for permanent plantations. An extension of the existing bush tender program, with a permanent reafforestation focus, would be an example of one such policy. However, any tightening of tax incentives for tree planting may impact on the net outcome. The ongoing retention of policies and legislation reducing the impact of land clearing will potentially ensure that this sector remains a net sink for emissions for the foreseeable future.

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4.6 Waste

4.6.1 The waste sector in Victoria The waste sector raises two quite separate issues: first, organic wastes (both liquid and solid) decay to create greenhouse gases, and second, many forms of waste incorporate embodied greenhouse gas emissions, from the energy used in production of materials. If this material is recovered, its recycling can avoid energy use for production of virgin materials. A wedge was modelled for the waste sector which considered an 80% reduction in emissions from waste in landfill by 2035, based on a continued approach by government of the form of the Towards Zero Waste model.

Waste generation in Victoria falls into the two broad categories of solid and liquid waste. Solid waste is made up of municipal (household) wastes, commercial and industrial wastes, and prescribed wastes. In total, 9.9 million tonnes of solid waste was generated in 2004-05, of which 55% was reclaimed, recycled or recovered for energy generation 58 .

Waste, 2005 CO2e emissions

27% Solid waste disposal on land Wastewater handling

73%

Figure 14: Emissions from the waste sector, 2005

Municipal wastes are mainly generated by households and include food scraps, packaging and garden material. Municipal wastes are typically collected by local councils through kerbside collections, where some of the waste is recycled (such as paper, glass, plastics and green waste) and some disposed of to landfill. Commercial and industrial wastes are

58 Towards Zero Waste – Progress Report for 2004-05 , Sustainability Victoria, June 2007

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generated by industry and arise from commercial, industrial or trade activities, and include construction and demolition wastes. From a climate change perspective, there are two quite separate issues related to waste. First, organic wastes (both liquid and solid) may decay to create greenhouse gases. Second, many forms of waste incorporate embodied greenhouse gas emissions, from the energy used in production of materials. If this material is recovered, its recycling can avoid energy use for production of virgin materials.

Emissions from waste in landfills are in the form of methane (CH 4) produced by the biological breakdown of solid organic waste. The anaerobic decomposition of organic matter in a landfill is a complex process that requires several groups of micro-organisms to act in a synergistic manner under favourable conditions. The main products of anaerobic decomposition of 59 relevance to climate change policy are methane and CO 2 . Methane is not generated immediately upon disposal of waste on land but after a lag of about a year as the waste degrades to the stage at which methane generation commences. Over several decades, as the waste decays, methane is generated and passes through the landfill into the atmosphere. In sewered areas the domestic and commercial sectors discharge organic wastes directly to the sewer, and in unsewered areas some form of on-site treatment such as septic tanks is used. Methane gas is the principal by-product of anaerobic decomposition of organic matter in wastewater. Large quantities of methane are not usually found in wastewater due to the fact that even small amounts of oxygen are toxic to the anaerobic bacteria that produce the methane. In wastewater treatment plants, however, there are a number of processes that foster the growth of these organisms by providing anaerobic conditions. Some industries, such as food processing, also produce organic wastes. Organic wastes from animals and vegetation in agriculture are considered within the agriculture sector. Waste management has been a key part of the environmental policy agenda in Victoria since a 1988 Parliamentary inquiry 60 . Prior to this, kerbside recycling was trialled in Brunswick in 1982 and led over time to the development of comprehensive kerbside waste collection services across Victoria. Implementation of levies on the disposal of waste to landfill since the 1980s have also sent a financial signal for the consideration of alternatives to landfill, while provided a funding stream for government and community programs that raise awareness and provide waste collection infrastructure and support recycling and reprocessing of materials. Community action (for example Keep Australia Beautiful, Clean Up Australia Day, local, state and national environmental groups) has maintained pressure for improvement in this area. In 1999, a ‘buy recycled’ alliance was formed in response to a crisis in kerbside recycling. This became EcoBuy (originally under Municipal Association of Victoria, and now being established as an independent not-for-profit organisation). This emerged from recognition that demand for recycled materials was low, which in turn was undermining the economics of local recycling programs, and that Councils needed to drive increased demand for recycled materials.

59 AGO Factors and Methods Workbook , Dept of Environment and Heritage, Australian Greenhouse Office, Dec 2006

60 Parliament of Victoria, Environment and Natural Resources Committee, Inquiry into Waste Management in the Greater Melbourne Area , May 1990

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4.6.2 Reference case emissions for the waste sector Emissions from the waste sector were modelled in two parts: solid waste and wastewater. These emissions were disaggregated further into the following groups:

Solid waste Wastewater Municipal solid waste Domestic and commercial wastewater Commercial and industrial solid waste Industrial wastewater Construction and demolition solid waste

Solid waste figures were further broken down into waste types including food, paper and textiles, garden and green, wood and other. Historical solid waste figures were sourced from Sustainability Victoria. For forecasting, these amounts were grown by population to arrive at new waste stock. The amount of CO 2-e generated by the solid waste stock was calculated by determining, for each waste type, decomposition of degradable organic carbon (a function of existing and new waste stock). This was multiplied by a methane production factor and converted into CO 2-e. The stock of wastewater was generated by multiplying the state’s population by average per person water consumption. Emissions resulted from treatment of resulting waste at municipal wastewater plants, emissions from on-site systems, and additional nitrous oxide emissions from protein decomposition. The following chart shows projected greenhouse gas emissions for Victoria in the waste sector based on reference case assumptions:

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Waste emissions Reference case

6,000

5,000

4,000

Wastewater handling 3,000 Solid waste disposal on land 000s tonnes CO2e tonnes 000s

2,000

1,000

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044 2047 2050

Figure 15: Reference case emissions – waste sector

Under these assumptions, total waste sector emissions in the reference case rise from 3.4 Mt in 2005 to 4.9 Mt in 2050. This increase is relatively evenly distributed across the waste sub- sectors, with solid waste emissions rising from 2.5 Mt in 2005 to 3.3 Mt in 2050 in line with population increase, and wastewater emissions similarly rising from 0.9 Mt to 1.6 Mt over the same period.

4.6.3 Waste sector wedge description Given the key drivers of future waste production and emissions profiles, and the specific sub- sectoral areas of growth, one wedge was modelled to examine the potential reduction in growth of this sector: Wedge Number Title Description 20 Avoiding landfill 80% reduction in landfill Table 9: Waste sector - wedge This wedge was selected based on the impact, cost-effectiveness and feasibility criteria described above, and parameters for modelling its impact were developed within that context.

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Wedge 20. Avoiding landfill Sector: Waste Landfill has already significantly reduced in Victoria; accelerated improvement requires policy and technology innovation Confidence: Low - Medium

Assumptions Start date Ramp-up (years) Steady-state 2010 25 80% reduction in landfill

Waste, wedges

6,000

5,000

4,000

Waste Wedge 3,000 Waste Residual 000s tonnes CO2e tonnes 000s 2,000

1,000 2050 CO2e reduction: 3 Mt (2% of Vic total)

0 8 2 8 2 0 1 24 2 3 50 996 000 004 020 042 046 1990 1992 1994 1 1998 2 2002 2 2006 20 2010 20 2014 2016 2018 2 2022 20 2026 20 2030 20 2034 2036 2038 2040 2 2044 2 2048 20 Descriptions of changes required to achieve the wedge: The basis of this wedge is a continued and ongoing removal of organic waste from landfill, building on the successes already achieved by State and local governments under the Towards Zero Waste banner. Assumptions basis: Initiatives to reduce landfill could begin virtually immediately. Victoria has made significant progress in reducing landfill rates to date. Hence, it is assumed that further progress would be relatively slower (25 year ramp-up). Notwithstanding, reduction rates of up to 80% are being targeted in NSW. Cost: This wedge is unique in that economic returns can begin immediately: reducing waste is an economic benefit for individuals, businesses and for the economy. Pay-back from reductions in transportation of waste and in administration of landfill is between 5 and 7 years. Sensitivity to carbon price: A carbon price will support this wedge only indirectly, most likely as an avenue for carbon offset.

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Basis for the wedge: Disposal of organic waste to landfill results in direct GHG emissions and, through the withdrawal of recoverable materials from the economy, indirect emissions through embodied energy. This wedge focuses on direct emissions; emissions resulting from the breakdown of organic material in the landfill. Implementation issues/ barriers: Supporting initiatives here include processing of waste material prior to landfill disposal to separate any organic content (perhaps for capture of the organic fraction into an energy generation process), and/ or establishment of a regulatory system to divert organic material from landfill to resource recovery processes (eg a model similar to the UK Landfill Allocation Trading Scheme). Separation and processing of waste prior to landfill are approaches already being trialed in the treatment of waste in some parts of Victoria. Increased uptake of these approaches will depend on a combination of price signals, development of waste infrastructure and supporting education and other programs. The current prices for waste disposal to landfill do not provide a sufficient incentive to reduce material to landfill, and will not currently support the development of new technology for waste separation and processing. Technology development and commercialisation support would greatly enhance the potential for the savings under this wedge to be achieved.

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4.6.4 Waste sector summary - themes Emissions from the waste sector have been steady (even falling) but without further intervention are predicted to grow in line with population to 2050. Introduction of kerbside green waste collection schemes has diverted substantial amounts of green waste from landfill to centralised composting facilities, reducing greenhouse gas emissions. Some councils also allow household food scraps to be included in this scheme. This service could potentially provide fuel for regional biogas digestion, gasification or other energy from waste projects, as the cost of collection is effectively being covered – although many community groups have concerns that some of these solutions (especially incineration) could undermine kerbside recycling and other waste management programs while increasing pollution. Waste is such an obvious problem for every household and business that it is a high profile issue for all levels of government, while also being an obvious focus for environmental and social action. The emergence of ‘lifecycle thinking’ and ‘closing the loop’ as a way of improving the economics of waste management is slowly changing attitudes and practices regarding waste. The wedge modelled here is an extension of the implementation of programs under the umbrella of the Towards Zero Waste Strategy in Victoria – this Strategy has seen strong targets set for reduction in waste disposal to landfill, with the progressive development and implementation of programs, policies and measures to change consumer behaviours. The wedge estimates an 80% reduction in emissions from waste in landfill by 2035, taking account of likely changes in behaviour patterns and community expectations against a pattern of continued population and economic growth. The wedge has not included the potential greenhouse benefits from increasing the rate of recovery and processing of inorganic materials such as metals, plastics and glass. Given the global nature of trade in goods and materials (both virgin and recycled), it has not been possible to model this within the limited time available. Nevertheless, the potential is large. For example, each tonne of steel recycled generates around a quarter of the emissions of production of virgin steel. Recycling aluminium potentially generates around 90% less greenhouse gas. Strategies that increased the rate of capture and recycling of inorganic materials could potentially reduce Victoria’s greenhouse gas emissions by a significant amount, by avoiding the production of virgin materials. The industry and processes developed could potentially help reduce greenhouse gas emissions overseas as well 61 . This raises the broader issue of the potential for improved design for material minimisation, dematerialisation, shifting to low environmental impact materials within Victorian manufacturing, and design for disassembly and recycling to reduce Victoria’s greenhouse gas emissions while building potential export industries and businesses.

61 Reducing Greenhouse Emissions from Commercial and Industrial Buildings , Australian Greenhouse Office, Commonwealth Department of the Environment and Water Resources, February 2002

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4.7 Industrial processes

4.7.1 Industrial process emissions in Victoria Industrial process emissions are not large and are likely to be sensitive to a carbon price through an emissions trading scheme. A wedge was modelled examining the use of cement extenders to reduce emissions from the cement manufacturing industry.

The industrial processes sector includes emissions generated from a range of production processes involving the use of carbonates (ie limestone, dolomite and magnesite); carbon when used as a chemical reductant (eg iron and steel or aluminium production); chemical industry processes (eg ammonia and nitric acid production) and the production and use of synthetic gases such as halocarbons. Key categories include emissions from cement production, iron and steel production, aluminium production and the consumption of halocarbons 62 .

Industrial processes, 2005 CO2e emissions

13% 4% Mineral products Chemical industry 53% Metal production 30% HFC & SF6

Figure 16: Emissions from industrial processes, 2005

For some industries, for example the iron and steel industry, reported emissions are split between the industrial process sector and the energy sector depending on the type of process within the industry that generated the emissions.

62 AGO Factors and Methods Workbook , Dept of Environment and Heritage, Australian Greenhouse Office, Dec 2006

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The major sources of industrial process emissions in Victoria were minerals and metal production and the production of halocarbons and sulphur hexafluoride (SF 6) which largely emerges from air conditioning (driven by replacement of chlorofuorocarbons) and the electricity transmission system 63 .

4.7.2 Reference case emissions for the industrial processes sector Industrial process emissions were modelled as growing in line with industry production and GSP growth. Forward trends were estimated at 2% for mineral production, 9% for chemical, 2% for metal production and 4% for HFC and SF6. This was based on a combination of assumptions and data from the Australian Greenhouse Office. The following chart shows projected greenhouse gas emissions for Victoria in the industrial processes sector based on these assumptions:

Industrial processes emissions Reference case

10,000

9,000

8,000

7,000

6,000 Chemical industry Mineral products 5,000 Metal production HFC & SF6

000s tonnes CO2e tonnes 000s 4,000

3,000

2,000

1,000

0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050

Figure 17: Reference case emissions – industrial processes

63 Australian State of the Environment Report 2001, Dr. Peter Manins, CSIRO Atmospheric Research, published by CSIRO on behalf of the Commonwealth Department of Environment and Heritage

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Industrial process emissions will continue to grow in line with industry development (predominantly GSP related) in the specific sectors which underpin these emissions, but will remain a small fraction of Victoria’s overall emissions profile.

The predominant growth in this sector is in the production of hydrofluorocarbons and SF 6, largely as a result of the progressive replacement of chlorofluorocarbons in refrigeration, with growth from 2.1 Mt in 2005 to 4.5 Mt in 2050.

4.7.3 Industrial processes wedge description Given the key drivers of future industrial process emissions, and the range and scale of technologies applicable to this sector, one wedge was modelled to examine the potential reduction in emissions from this sector: Wedge Number Title Description 21 Cement extenders and/or 50% improvement in emissions efficiency in cement geopolymer cements production Table 10: Industrial processes sector - wedge This wedges was selected based on the impact, cost-effectiveness and feasibility criteria described above, and parameters for modelling its impact were developed within that context.

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Wedge 21. Cement extenders and / or geopolymer cements Sector: Industrial Processes Emissions savings in the industrial processes sector are small in Victoria Confidence: Medium

Assumptions

Start date Ramp-up (years) Steady-state

2010 5 50% improvement in emissions efficiency in cement production

Industrial processes, wedges

10,000

9,000

8,000

7,000

6,000

Ind. pcss. Wedge 5,000 Ind. pcss. Residual

4,000 000s tonnes CO2e tonnes 000s 2050 CO2e reduction: 0.4 Mt (0% of Vic total) 3,000

2,000

1,000

0 4 8 2 6 0 4 8 0 2 6 0 4 6 8 2 0 92 08 24 28 40 44 48 99 9 99 99 00 00 0 01 01 01 02 02 0 02 0 03 03 03 03 0 04 0 0 05 1 1 1 1996 1 2000 2 2004 2 2 2 2012 2 2016 2 2 2 2 2 2 2 2032 2 2 2 2 2 2 2046 2 2

Descriptions of changes required to achieve the wedge : Increased use of cement extenders (fly ash, ground blast furnace slag and other materials) allows the amount of cement used per tonne of concrete to be reduced. This dilution effect reduces the process emissions in proportion to the percentage of extender within the blend. Victorian concrete suppliers are providing blends of 30 to 85% cement extender. The average proportion of extenders has increased to around 20% in recent years, but there is substantial further scope.

Assumptions basis : Innovation in cement production is already in the early stages of commercialisation, suggesting near-term acceleration is possible. Given the small scale of production in Victoria, ramp-up is assumed short, at 5 years. 50% improvement in emissions efficiency has already been demonstrated.

Cost: Cement extenders are commonly re-used waste materials such as fly-ash and slag from the steel making process. As waste materials they have essentially no cost or emissions specifically due to their manufacture. The energy savings and lower construction time (up to ten times faster) of geopolymer cement compared to Portland cement are significant.

Sensitivity to carbon price:

This is an extremely price-sensitive industry and the response to any carbon price would be complex.

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Basis for the wedge: This wedge is based on the replacement of Portland cement with blends of blast furnace slag, fly ash and other proprietary substances, which avoid virtually all process emissions. This field is developing rapidly in Australia and around the world, and a pilot plant has been established near Melbourne. In Tasmania, a process called TecEco produces cementitious materials using magnesium- based materials. These are claimed to absorb as much CO 2 as they cure as they produce during production. The kilns run at a much lower temperature, so there is also potential for energy savings. TecEco has been used to make paving and concrete blocks for construction purposes 64 . A shift from Portland cement to alternatives provides a cost-effective option to reduce cement process emissions as well as cutting energy use within the industry. Large quantities of extenders are available in Australia, from coal power station wastes and blast furnace wastes. Magnesium carbonate for TecEco is also widely available. Implementation issues/ barriers: High extender cements are similar in cost to (and can be cheaper than) conventional cement. There have been teething issues regarding setting times and pumping, which can increase costs. However, this seems to be largely a matter of training and experience. Perceptions of risk and lack of familiarity with high extender cements and geopolymers are slowing their adoption. Documentation of past projects that have used these materials successfully, demonstration projects, and training are important. Green rating schemes for buildings such as the Green Star rating scheme are increasingly requiring greater use of high extender concretes, creating consumer pull. Comment: The cement industry is already positioning itself to move in this direction. There was significant representation of the cement industry at a recent conference called ‘Slag and Sustainability’, held in Sydney in May by the Australasian Slag Association. Enhancements in product quality through the use of extenders and geopolymer compounds combined with lowering costs are likely to reduce the need for direct government intervention to initialise the wedge. Although already being used in specialised applications (for example, by the US military to repair air runways during battle), costs have not been reduced to the extent that its use is economical in large-scale construction projects.

64 TecEco Pty Ltd website: http://www.tececo.com.au/products.philosophy.php Sayer, Luke, “Interest hots up in Tassie road design”, The Hobart Mercury , 19 Feb 2007

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4.7.4 Industrial processes summary - themes The industrial processes sector is a small component of Victoria’s overall emissions picture. Many of the industries which produce these emissions are also large energy users and will be examining emissions reduction opportunities under a potential emissions trading scheme, and it is quite possible that emissions in this sector will decline over time, although there is not sufficient certainty to include this in the Reference Case. The modelled wedge reflects a specific opportunity to support an innovative approach to emissions reduction – the impact is small though, given the size of the sector overall. Halocarbons are the biggest contributor to this sector, and are growing rapidly with increased air conditioner use. However, particularly in Europe and Asia, the use of natural refrigerants such as CO 2 and hydrocarbons is growing. There is potential to replace much of the projected halocarbon use with alternatives.

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5 Emissions reduction wedges: analysis To allow policy makers to consider a range of broader options, the wedges were re-examined through four lenses; the provision of early and deep cuts to emissions; the lowest cost wedges; the highest confidence wedges; and the wedges most likely to be achieved through a carbon price such as an emissions trading scheme. The biggest emissions-reduction returns come at a relatively larger cost, and require quicker action. All options lead to a reduction in emissions but, assessing initiatives relative to each other, there exists an inverse relationship between, on the one hand, emissions reduction potential, and on the other, cost, timing and risk. Importantly, in addition, much effective emissions-reduction potential rests beyond the imposition of a price for carbon alone.

5.1 Introduction The wedges defined in the previous chapter span six sectors, vary in expected feasibility, range from low or zero cost to very expensive, and require wide-ranging degrees of policy commitment. In this section the wedges are prioritised according to differing criteria to better understand their relative value. Relativity in this instance is important in two respects: the value of wedges relative to specific criteria, and the value of wedges relative to each other. In quantifying the relative value of wedges to each other, we need to acknowledge the extent of dependency that exists between sectors and wedges. When multiple wedge initiatives are undertaken there will be some instances where the emissions-reduction effects of some wedges are dependent on others. The obvious within-sector example of this is when wedges impact emissions production earlier in time in a given supply chain (like electricity demand wedges, including building and equipment efficiencies), reducing the emissions-reduction potential of initiatives that impact later in time in the supply chain (like electricity supply initiatives, including CCS and coal drying). An example of a cross-sector dependency is a reduction in petrol consumption in transport, reducing both emissions from the transport sector and emissions generated through reduced power consumption at petroleum refineries. In the following sections wedges are prioritised through various “policy lenses” while accommodating the dependencies that exist across sectors and wedges. A policy lens represents a set of criteria that might be employed by policy-makers thinking about how to reduce emissions. The policy lenses considered here include: Deep & early cuts: Wedges are prioritised according to their emissions-reduction impact by 2020. In this case, cost, technological feasibility and economic and social disruption associated with wedges are accorded a lower priority in favour of early and effective action. Cost : Approximate costs were detailed in the previous section. In this prioritisation exercise, wedges are sorted from lowest cost to highest cost. Indeed, some wedges have low implementation costs and short pay-back periods, resulting in economic dividends in addition to emissions-reduction potential. Costs are only approximate, however. Specifically, wedges are assigned either a low, medium or high cost according to the following key:

• 1-L: low cost. In this case, the initiative has a net positive economic benefit • 2-M: medium cost. This includes wedges for which the financial benefit is negligible or small, but where other economic disruption might be realised

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• 3-H: high cost: Wedges included here will incur a high financial and economic cost Wedges that were assigned similar costs are ranked further according to emissions-reduction potential by 2020. Confidence - technical feasibility and socio-economic disturbance: throughout consideration of wedges initiatives, Expert Panel members and SKM and Nous staff provided a broad ‘confidence’ assessment of wedges initiatives. These assessments are depicted in the description of the wedges in the previous section. Specifically, levels of confidence were assigned according to technical feasibility (for example, does the wedge involve the developmental acceleration of existing technology or wholesale new design and implementation), and the size of the trade-off between emissions-reduction potential and combined amount of social and economic change required to support the wedge. Wedges were assigned the following confidence ratings:

• 1 – High: relatively small technological development needed; short payback periods; high level of community acceptance • 2 – Medium-High: some technological development needed; longer payback periods, moderate level of community acceptance • 3 – Medium: technological development more speculative; longer ramp-up times; likely some resistance at the community level • 4 – Low-Medium: technology speculative; long ramp-up times; resistance at the community level • 5 – Low: highly technologically speculative; long ramp-up ties; high level of community resistance As was the in the cost analysis, wedges ascribed similar levels of confidence were sorted according to the depth of emissions-reduction by 2020. As was noted the in the cost analysis, wedges ascribed similar levels of confidence were sorted according to the depth of emissions-reduction by 2020. It should be noted that levels of confidence have implications in both directions: many wedges could deliver significantly higher or lower emission reductions, with quite different consequences for parts of the economy. Sensitivity to a carbon price: The creation of a market for carbon will alter the economics underpinning many of the wedges. In particular, a carbon price will have three complementary effects:

• Raising cost – costs will rise in carbon-intensive industries, like brown coal electricity generation, providing incentive for a production switch – and changes in research and development priorities – toward carbon alternatives • Raising price – In many cases, cost increases resulting from carbon prices will be passed down the supply chain to consumers, potentially altering consumption choices • Parallel industries – Groups affected by carbon prices are likely to seek out ways to mitigate their exposure to the adverse fiscal effects. This will provide incentive for development in carbon-reducing technologies and carbon offset industries. Wedges were assessed according to whether their feasibility would be impacted by a carbon price. Wedges were then sorted according to their 2020 emissions-reduction potential.

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After tabulating the results of each prioritisation effort, the top ten wedges (shaded in tables) are plotted together on a single chart, showing combined emissions-reduction potential and the residual emissions amount. In these charts the intra-sector and intra-sector independencies are accounted for. Hence, the wedges represent the net effects of emissions- reduction potential.

5.2 Wedges summary The following table contains a summary of the wedges modelled in the previous section. Note, the emissions-reduction potential associated with each wedge represents the extent to which the wedge reduces emissions if activated in isolation; they do not reflect any intra-sector or inter-sector dependencies. Hence, one cannot simply add emissions-reduction values across wedges to attain multi-wedge emissions-reduction potential.

Annual CO2e reductions (000s tonnes CO2e)

Ramp- Effective time Wedge # Wedge name Sector Description date (years) 2020 2030 2050 80% emissions reduction at coal electricity 1 Carbon Capture and Storage Stationary energy, supply 2020 20 2932 33870 60690 generation plants

25% emissions efficiency improvement from brown 2 Coal drying Stationary energy, supply 2013 15 7329 14433 18965 coal electricity production

3 Cogeneration Stationary energy, supply 20% reduction in electricity demand 2015 15 4157 12353 19498

20% reduction in embedded coal and gas 4 Renewable energy Stationary energy, supply 2015 20 4157 12353 19498 electricity generation

15% alteration in fuel mix -- from coal to natural 5 New gas Stationary energy, supply 2015 20 1829 4590 8134 gas -- in electricity generation

6 Waste to energy Stationary energy, supply 10% reduction in electricity production 2010 10 6929 7721 9749

Stationary energy, demand -- 25% reduction in electricity use in the commercial 7 Lighting (commercial) 2010 25 1822 3856 5857 commercial sector

Building envelope and HVAC Stationary energy, demand -- 25% reduction in electricity consumption in the 8 2010 25 1822 3856 5857 equipment commercial commercial sector Equipment efficiency Stationary energy, demand -- 10% improvement in energy efficiency in 9 improvement in commercial and 2010 15 2667 4062 5182 commercial commercial and residential sector residential sector On-site and off-site renewables Stationary energy, demand -- 20% reduction in consumption of coal and gas- 10 2010 25 1742 3739 5678 for the residential sector residential fired electricity in the residential sector

Stationary energy, demand -- 10% reduction in electricity use in the industrial 11 Industrial energy efficiency 2010 10 3457 5671 9135 industrial sector, rising to 15% by 2030 and 20% by 2040

12 Travel demand management Transport 10% reduction in demand for travel 2010 10 1433 2304 2932

Mode shift away from private Substitution of 10% of private passenger transport 13 Transport 2010 40 217 552 1292 transport to rail; 1% shift in road freight to rail freight 30 percent improvement in fuel efficiency achieved 14 Improved fuel efficiency Transport between 2010 and 2022, improving to 60 percent 2010 12 5092 11454 17506 between 2022 and 2034 10% reduction in private vehicle use for passenger 15 Increased vehicle occupancy Transport 2010 10 868 1299 1397 transport

40% improvement in emissions efficiency in 16 Livestock efficiency Agriculture 2010 10 4320 4265 4155 enteric fermentation

10% improvement in emissions efficiency in 17 Soil management Agriculture 2010 10 754 784 843 corpping

Accelerate afforestation -- new 18 LULUCF 30% increase in afforestation 2010 10 827 449 2 harvestable plantations

Accelerate afforestation -- 19 LULUCF 10% increase in afforestation 2010 10 276 276 276 revegetation

20 Avoiding landfill Waste 80% reduction in landfill 2010 25 474 1257 2664

Cement extenders and/ or 50% improvement in emissions efficiency in 21 Industrial processes 2010 5 258 309 430 geopolymer cements cement production Table 11: Full list of wedges

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A notable characteristic of many wedges concerns expectations on effective dates: Expert advice suggested that the majority can be implemented soon, and all by 2020. This reflects the belief across the experts that a key potential role of government is not necessarily to encourage new investment in novel emissions-reduction technology, but rather to accelerate the commercialisation and deployment of existing and emerging technology and behaviour.

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5.3 Wedges analysis: early and deep cuts The following table shows the list of wedges sorted according to the size of emissions- reductions deemed achievable by 2020 (again, totals are not additive):

Annual CO2e reductions (000s tonnes CO2e)

Ramp- Effective time Wedge # Wedge name Sector Description date (years) 2020 2030 2050 25% emissions efficiency improvement from 2 Coal drying Stationary energy, supply 2013 15 7329 14433 18965 brow n coal electricity production

6 Waste to energy Stationary energy, supply 10% reduction in electricity production 2010 10 6929 7721 9749

30 percent improvement in fuel efficiency 14 Improved fuel efficiency Transport achieved betw een 2010 and 2022, improving to 2010 12 5092 11454 17506 60 percent betw een 2022 and 2034 40% improvement in emissions efficiency in 16 Livestock efficiency Agriculture 2010 10 4320 4265 4155 enteric fermentation

3 Cogeneration Stationary energy, supply 20% reduction in electricity demand 2015 15 4157 12353 19498

20% reduction in embedded coal and gas 4 Renew able energy Stationary energy, supply 2015 20 4157 12353 19498 electricity generation 10% reduction in electricity use in the industrial Stationary energy, demand -- 11 Industrial energy efficiency sector, rising to 15% by 2030 and 20% by 2010 10 3457 5671 9135 industrial 2040 80% emissions reduction at coal electricity 1 Carbon Capture and Storage Stationary energy, supply 2020 20 2932 33870 60690 generation plants Equipment efficiency Stationary energy, demand -- 10% improvement in energy efficiency in 9 improvement in commercial and 2010 15 2667 4062 5182 commercial commercial and residential sector residential sector 15% alteration in fuel mix -- from coal to natural 5 New gas Stationary energy, supply 2015 20 1829 4590 8134 gas -- in electricity generation

Stationary energy, demand -- 25% reduction in electricity use in the 7 Lighting (commercial) 2010 25 1822 3856 5857 commercial commercial sector

Building envelope and HVAC Stationary energy, demand -- 25% reduction in electricity consumption in the 8 2010 25 1822 3856 5857 equipment commercial commercial sector On-site and off-site Stationary energy, demand -- 20% reduction in consumption of coal and gas- 10 renew ables for the residential 2010 25 1742 3739 5678 residential fired electricity in the residential sector sector

12 Travel demand management Transport 10% reduction in demand for travel 2010 10 1433 2304 2932

10% reduction in private vehicle use for 15 Increased vehicle occupancy Transport 2010 10 868 1299 1397 passenger transport

18 Accelerate afforestation -- 2010 10 827 449 2 new harvestable plantations LULUCF 30% increase in afforestation

17 Soil management Agriculture 10% improvement in emissions efficiency in 2010 10 754 784 843 corpping

20 2010 25 474 1257 2664 Avoiding landfill Waste 80% reduction in landfill

19 Accelerate afforestation -- 2010 10 276 276 276 revegetation LULUCF 10% increase in afforestation Substitution of 10% of private passenger Mode shift aw ay from private 13 Transport transport to rail; 1% shift in road freight to rail 2010 40 217 552 1292 transport freight

21 Cement extenders and/ or 50% improvement in emissions efficiency in 2010 5 168 201 279 geopolymer cements Industrial processes cement production Table 12: wedges – early and deep cuts The prioritisation above indicates that, independent of costs and other policy considerations, efforts to achieve early and deep cuts in emissions will centre on the stationary energy sector. This reflects the emissions-reduction potential associated with controls on Victoria’s largest emissions-producer: brown coal used in electricity generation. Only those demand-side measures with faster ramp-up times are included in the top ten; expert consensus was that demand-side ‘stickiness’ toward energy efficiency improvements meant their adoption would take a long time, possibly decades unless active measures to bring forward change (such as

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incentives to remove old appliances or cars from the stock) were implemented. The top transport (fuel efficiency) and agriculture (livestock efficiency) wedges make the top ten. Timing and interdependency : If deep reductions in emissions by 2020 is set as a goal by government, consideration of the timing of wedges implementation – and the interrelationships between them, is critical. The following table shows emissions-reduction potential by 2020, taking account of interrelationships between wedges:

Equipment Improved Industrial Carbon efficiency Waste to Livestock Renewable Coal drying fuel Cogeneration energy Capture and improvement in New gas energy efficiency energy efficiency efficiency Storage commercial and residential sector

Reference case (sequentially [1] 120,461 113,132 106,937 101,844 98,127 93,807 90,089 88,107 85,795 84,479 updated) Early & deep initiatives [2] 7,329 6,196 5,092 3,717 4,320 3,717 1,982 2,312 1,316 1,730 Difference [1] - [2] 113,132 106,937 101,844 98,127 93,807 90,089 88,107 85,795 84,479 82,749 Table 13: interdependency of wedges – early and deep cuts From this table we see that coal drying – a wedge that impacts at the first stages of the energy supply chain – reduces the impacts of other supply-side measures (relative to their base level). In particular, introducing a coal drying initiative reduces significantly the 2020 emissions- reduction potential of CCS, an expensive reduction option. Aggressively pushing coal drying, waste to energy and other initiatives early would reduce the risk associated with reliance on lower confidence wedges such as CCS. Measures not on the energy supply side are unaffected by supply side initiatives, increasing their attractiveness. Indeed, for a given target, demand-side measures reduce pressure for improvement on the supply side. The chart below shows the emissions-reduction potential of the top ten wedges, accounting for within-sector and across-sector dependencies:

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Total wedges impact Early & deep cuts

180,000

Equipment efficiency improvement in commercial 160,000 and residential sector New gas 140,000 Industrial energy efficiency

120,000 Carbon Capture and Storage

Renewable energy 100,000 Livestock efficiency

80,000 Cogeneration 000 tonnesCO2e 000 Improved fuel efficiency 60,000 Waste to energy 40,000 Coal drying

20,000 Residual

0 4 9 93 96 02 05 14 17 23 26 38 4 47 9 9 9 0 0 011 0 0 0 0 032 035 0 0 0 1 1 1 1999 2 2 2008 2 2 2 2020 2 2 2029 2 2 2 2041 2 2 2050

Figure 18: Total wedges impact: early and deep cuts The 2050 emissions level associated with early and deep cuts is 64 Mt. This represents 53% of 2000 emissions.

5.4 Wedges analysis: cost effectiveness Adding a further identifier to the list above facilitates the prioritisation of the wedges according to cost effectiveness. In the table presented below, wedges have been prioritised according to whether they are:

• 1-L: low cost: In this case, the initiative has a net positive economic benefit • 2-M: medium cost: This includes wedges for which the financial benefit is negligent or small, but where other economic disruption might be realised • 3-H: high cost: Wedges included here will incur a high financial and economic cost

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Annual CO2e reductions (000s tonnes CO2e) Ramp- Effective time Wedge # Wedge name Sector Description date (years) 2020 2030 2050 Rating 30 percent improvement in fuel efficiency 14 Improved fuel efficiency Transport achieved betw een 2010 and 2022, improving to 2010 12 5092 11454 17506 1-L 60 percent betw een 2022 and 2034 10% reduction in electricity use in the industrial Stationary energy, demand -- 11 Industrial energy efficiency sector, rising to 15% by 2030 and 20% by 2010 10 3457 5671 9135 1-L industrial 2040 Stationary energy, demand -- 25% reduction in electricity use in the 7 Lighting (commercial) 2010 25 1822 3856 5857 1-L commercial commercial sector On-site and off-site Stationary energy, demand -- 20% reduction in consumption of coal and gas- 10 renew ables for the residential 2010 25 1742 3739 5678 1-L residential fired electricity in the residential sector sector 10% reduction in private vehicle use for 15 Increased vehicle occupancy Transport 2010 10 868 1299 1397 1-L passenger transport

Cement extenders and/ or 50% improvement in emissions efficiency in 21 Industrial processes 2010 5 168 201 279 1-L geopolymer cements cement production

6 Waste to energy Stationary energy, supply 10% reduction in electricity production 2010 10 6929 7721 9749 2-M

40% improvement in emissions efficiency in 16 Livestock efficiency Agriculture 2010 10 4320 4265 4155 2-M enteric fermentation

3 Cogeneration Stationary energy, supply 20% reduction in electricity demand 2015 15 4157 12353 19498 2-M

20% reduction in embedded coal and gas 4 Renew able energy Stationary energy, supply 2015 20 4157 12353 19498 2-M electricity generation Equipment efficiency Stationary energy, demand -- 10% improvement in energy efficiency in 9 improvement in commercial and 2010 15 2667 4062 5182 2-M commercial commercial and residential sector residential sector Building envelope and HVAC Stationary energy, demand -- 25% reduction in electricity consumption in the 8 2010 25 1822 3856 5857 2-M equipment commercial commercial sector

Accelerate afforestation -- 18 LULUCF 30% increase in afforestation 2010 10 827 449 2 2-M new harvestable plantations

10% improvement in emissions efficiency in 17 Soil management Agriculture 2010 10 754 784 843 2-M corpping

20 Avoiding landfill Waste 80% reduction in landfill 2010 25 474 1257 2664 2-M

Substitution of 10% of private passenger Mode shift aw ay from private 13 Transport transport to rail; 1% shift in road freight to rail 2010 40 217 552 1292 2-M transport freight 25% emissions efficiency improvement from 2 Coal drying Stationary energy, supply 2013 15 7329 14433 18965 3-H brow n coal electricity production

80% emissions reduction at coal electricity 1 Carbon Capture and Storage Stationary energy, supply 2020 20 2932 33870 60690 3-H generation plants

15% alteration in fuel mix -- from coal to natural 5 New gas Stationary energy, supply 2015 20 1829 4590 8134 3-H gas -- in electricity generation

12 Travel demand management Transport 10% reduction in demand for travel 2010 10 1433 2304 2932 3-H

Accelerate afforestation -- 19 LULUCF 10% increase in afforestation 2010 10 276 276 276 3-H revegetation Table 14: wedges – cost effectiveness In notable contrast to the prioritisation of wedges by early and deep cuts, sorting wedges by cost yields fewer top ten energy supply wedges; those energy supply wedges included in the top ten concern alternative energy sources rather than (expensive) abatement technologies. In addition, more energy demand wedges are included, consistent with the short pay-back periods associated with energy use efficiencies. Transport initiatives are more prominent in this list because, in general, they imply less transport and fuel use, both with positive economic benefit. Improvements in livestock efficiency round out the list: reducing enteric methane is achieved through more efficient livestock ingestion, increasing productivity on farms. Timing and interdependency : In the absence of significant stationary energy supply-side wedges, stationary energy wedges are largely independent and additive. Combined with their cost effectiveness, the additive nature of these wedges suggests they are good candidates for early adoption. The non-energy wedges are additive also.

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The following chart shows the top ten wedges, accommodating intra- and inter-sector dependencies:

Total wedges impact Cost effectiveness

180,000

160,000

140,000 Livestock eff

120,000 Waste energy Industrial eff.

100,000 Big renewables Cogeneration

80,000 Cement Vehicle occ

60,000 Lighting (commercial)

000s tonnes CO2e tonnes 000s Small renewables

40,000 Fuel efficiency Residual

20,000

0 2 4 6 8 0 2 4 6 0 2 4 6 8 0 2 4 6 8 0 2 4 6 0 2 4 6 8 0 9 9 0 0 0 1 1 1 2 2 2 2 3 3 4 4 4 5 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 199 1 199 199 1 200 20 20 2 2008 2 2 201 2 201 2 2 202 2 2 203 20 2 203 2038 2 204 2 2 204 2

Figure 19: Total wedges impact: cost effectiveness

Approaching the task of lowering emissions by choosing only the low-cost options results in higher 2050 emissions: 2050 emissions represent 61% of 2000 emissions. If reducing emissions substantially is a priority for government, early and deep (but relatively more expensive) action may be preferable to the low-cost alternative. The following table shows compounded emissions reduction potential for each wedge to 2020:

On-site and off- Cement Improved Industrial Increased Lighting site renewables extenders and/ or Livestock Renewable fuel energy vehicle Waste to energy Cogeneration (commercial) for the geopolymer efficiency energy efficiency efficiency occupancy residential sector cements

Reference case [1] 120,461 115,369 111,912 110,089 104,457 103,805 103,638 97,237 93,397 89,077 (sequentially updated) Cost effectiveness 5,092 3,457 1,822 5,633 651 168 6,401 3,840 4,320 3,840 initiatives [2] Difference [1] - [2] 115,369 111,912 110,089 104,457 103,805 103,638 97,237 93,397 89,077 85,236

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5.5 Wedges analysis: confidence level Managing risk in forming an emissions-reduction strategy partners issues considered earlier in this section (depth of cuts, early adoption and cost effectiveness) with expectations around likely socio-economic disruption associated with wedges. In many respects, it represents the most balanced consideration of all alternatives on forming a strategy. Analysts on this project were asked to consider the level of ‘confidence’ associated with wedges, and discussed their choices in a specially-convened workshop. Experts assigned wedges the following confidence ratings:

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Annual CO2e reductions (000s tonnes CO2e) Ramp- Effective time Wedge # Wedge name Sector Description date (years) 2020 2030 2050 Rating 40% improvement in emissions efficiency in 16 Livestock efficiency Agriculture 2010 10 4320 4265 4155 1 enteric fermentation 10% reduction in electricity use in the industrial Stationary energy, demand -- 11 Industrial energy efficiency sector, rising to 15% by 2030 and 20% by 2010 10 3457 5671 9135 1 industrial 2040 Building envelope and HVAC Stationary energy, demand -- 25% reduction in electricity consumption in the 8 2010 25 1822 3856 5857 1 equipment commercial commercial sector Equipment efficiency Stationary energy, demand -- 10% improvement in energy efficiency in 9 improvement in commercial and 2010 15 2667 4062 5182 2 commercial commercial and residential sector residential sector Stationary energy, demand -- 25% reduction in electricity use in the 7 Lighting (commercial) 2010 25 1822 3856 5857 2 commercial commercial sector

25% emissions efficiency improvement from 2 Coal drying Stationary energy, supply 2013 15 7329 14433 18965 3 brow n coal electricity production

6 Waste to energy Stationary energy, supply 10% reduction in electricity production 2010 10 6929 7721 9749 3

30 percent improvement in fuel efficiency 14 Improved fuel efficiency Transport achieved betw een 2010 and 2022, improving to 2010 12 5092 11454 17506 3 60 percent betw een 2022 and 2034

3 Cogeneration Stationary energy, supply 20% reduction in electricity demand 2015 15 4157 12353 19498 3

20% reduction in embedded coal and gas 4 Renew able energy Stationary energy, supply 2015 20 4157 12353 19498 3 electricity generation

Accelerate afforestation -- 18 LULUCF 30% increase in afforestation 2010 10 827 449 2 3 new harvestable plantations

10% improvement in emissions efficiency in 17 Soil management Agriculture 2010 10 754 784 843 3 corpping

Accelerate afforestation -- 19 LULUCF 10% increase in afforestation 2010 10 276 276 276 3 revegetation

Cement extenders and/ or 50% improvement in emissions efficiency in 21 Industrial processes 2010 5 168 201 279 3 geopolymer cements cement production

80% emissions reduction at coal electricity 1 Carbon Capture and Storage Stationary energy, supply 2020 20 2932 33870 60690 4 generation plants On-site and off-site Stationary energy, demand -- 20% reduction in consumption of coal and gas- 10 renew ables for the residential 2010 25 1742 3739 5678 4 residential fired electricity in the residential sector sector

12 Travel demand management Transport 10% reduction in demand for travel 2010 10 1433 2304 2932 4

10% reduction in private vehicle use for 15 Increased vehicle occupancy Transport 2010 10 868 1299 1397 4 passenger transport

20 Avoiding landfill Waste 80% reduction in landfill 2010 25 474 1257 2664 4

Substitution of 10% of private passenger Mode shift aw ay from private 13 Transport transport to rail; 1% shift in road freight to rail 2010 40 217 552 1292 4 transport freight 15% alteration in fuel mix -- from coal to natural 5 New gas Stationary energy, supply 2015 20 1829 4590 8134 5 gas -- in electricity generation Table 15: wedges – managing risk Top ten wedges in this list represent a mix of energy demand and supply initiatives, coupled with wedges concerning the efficiency of vehicles and livestock. The list generally includes wedges that are low-cost with short pay-back periods, and do not require significant investment in infrastructure relative to alternatives outside the top ten. Notably, CCS does not make the top ten. Timing and interdependency : Assessing the wedges independently for confidence yields a different result than assessing the wedges collectively; the interdependency between the wedges suggests that some wedges should be of a higher priority than others. Importantly, energy demand wedges are considered lower risk, but energy supply wedges will reduce the impact of energy demand wedges. A possible resolution here is to undertake an aggressive approach to demand side initiatives, then gauge their impact, before addressing the riskier supply side alternatives – although technology development should continue to the extent that these options would be available if needed. The non-energy wedges are additive and could be implemented aggressively without large concern over interdependent effects.

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The following chart shows the top ten wedges according to risk, accounting for intra- and inter- sector dependencies:

Total wedges impact Technology and reduction potential

180,000

160,000

140,000 Large renewables Cogeneration 120,000 Fuel efficiency Waste 100,000 Coal drying Lighting 80,000 Equipment

000s tonnesCO2e 000s Envelope 60,000 Industrial Livestock 40,000 Residual

20,000

Figure 20: Total wedges impact: lowest risk Together, these ten wedges would reduce 2050 emissions to 65% of 2000 emissions. They do not reduce emissions as much as early and deep cuts, but they are less expensive and involve less risk. The following table shows compounded emissions reduction potential for each wedge to 2020:

Equipment Building efficiency Industrial Improved Livestock envelope and improvement in Lighting Waste to Renewable energy Coal drying fuel Cogeneration efficiency HVAC commercial and (commercial) energy energy efficiency efficiency equipment residential sector

Reference case (sequentially [1] 120,461 116,141 112,684 110,862 108,195 106,373 100,077 94,755 89,663 86,469 updated)

[2] 4,320 3,457 1,822 2,667 1,822 6,296 5,322 5,092 3,193 3,193 Risk initiatives Difference [1] - [2] 116,141 112,684 110,862 108,195 106,373 100,077 94,755 89,663 86,469 83,276

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5.6 Wedges analysis: sensitivity to a carbon price Establishing a price for carbon - through, for example, an emissions trading scheme or a tax on carbon - has the potential to accelerate the implementation of certain wedges initiatives. The wedges outlined in this report were assessed for the extent to which they would be responsive to a carbon price. This assessment was binary: wedges are considered to be carbon price-sensitive or they are not. The following table shows the wedges sorted for their sensitivity to a carbon price:

Annual CO2e reductions (000s tonnes CO2e)

Effective Ramp-time Wedge # Wedge name Sector Description date (years) 2020 2030 2050 25% emissions efficiency improvement from brown coal 2 Coal drying Stationary energy, supply 2013 15 7329 14433 18965 electricity production

6 Waste to energy Stationary energy, supply 10% reduction in electricity production 2010 10 6929 7721 9749

3 Cogeneration Stationary energy, supply 20% reduction in electricity demand 2015 15 4157 12353 19498

Stationary energy, demand -- 10% reduction in electricity use in the industrial sector, 11 Industrial energy efficiency 2010 10 3457 5671 9135 industrial rising to 15% by 2030 and 20% by 2040

Carbon Capture and 80% emissions reduction at coal electricity generation 1 Stationary energy, supply 2020 20 2932 33870 60690 Storage plants

15% alteration in fuel mix -- from coal to natural gas -- in 5 New gas Stationary energy, supply 2015 20 1829 4590 8134 electricity generation

Accelerate afforestation -- 18 LULUCF 30% increase in afforestation 2010 10 827 449 2 new harvestable plantations

Accelerate afforestation -- 19 LULUCF 10% increase in afforestation 2010 10 276 276 276 revegetation

Cement extenders and/ or 50% improvement in emissions efficiency in cement 21 Industrial processes 2010 5 258 309 430 geopolymer cements production 30 percent improvement in fuel efficiency achieved 14 Improved fuel efficiency Transport between 2010 and 2022, improving to 60 percent 2010 12 5092 11454 17506 between 2022 and 2034 40% improvement in emissions efficiency in enteric 16 Livestock efficiency Agriculture 2010 10 4320 4265 4155 fermentation

20% reduction in embedded coal and gas electricity 4 Renewable energy Stationary energy, supply 2015 20 4157 12353 19498 generation Equipment efficiency Stationary energy, demand -- 10% improvement in energy efficiency in commercial 9 improvement in commercial 2010 15 2667 4062 5182 commercial and residential sector and residential sector Stationary energy, demand -- 7 Lighting (commercial) 25% reduction in electricity use in the commercial sector 2010 25 1822 3856 5857 commercial

Building envelope and Stationary energy, demand -- 25% reduction in electricity consumption in the 8 2010 25 1822 3856 5857 HVAC equipment commercial commercial sector On-site and off-site Stationary energy, demand -- 20% reduction in consumption of coal and gas-fired 10 renewables for the 2010 25 1742 3739 5678 residential electricity in the residential sector residential sector Travel demand 12 Transport 10% reduction in demand for travel 2010 10 1433 2304 2932 management

Increased vehicle 10% reduction in private vehicle use for passenger 15 Transport 2010 10 868 1299 1397 occupancy transport

17 Soil management Agriculture 10% improvement in emissions efficiency in corpping 2010 10 754 784 843

20 Avoiding landfill Waste 80% reduction in landfill 2010 25 474 1257 2664

Mode shift away from Substitution of 10% of private passenger transport to 13 Transport 2010 40 217 552 1292 private transport rail; 1% shift in road freight to rail freight Table 16: wedges – sensitivity to carbon price Wedges considered to be sensitive to a carbon price broadly include energy supply and establishing carbon sinks through planting trees. Energy supply is an obvious candidate because of its intensive use of high-emissions brown coal; increasing carbon sinks through afforestation will be attractive to groups seeking carbon offsets. Wedges unlikely to be affected to a significant extent by a price for carbon include:

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• Energy efficiency wedges: demand for energy is considered relatively price-inelastic • Transport: demand for transport is broadly considered inelastic also. In addition, it is as yet unclear how transport will be included in a future emissions trading scheme • Agriculture – similarly, the agriculture industry will not be included in an emissions trading scheme • Renewable energy production – under an emissions trading scheme, renewable energy production still remains economically unattractive Timing and interdependency : The imposition of a carbon price is unique among the ‘lenses’ considered here because timing is not an issue (especially in regard to a market for carbon, with impacts realised quickly and reflected through a fluid market carbon price). Energy supply interdependencies will, however, mute the combined effects of wedges (compared with adding their separable impacts together). The expectation, however, is that a carbon price around the $30 mark will yield significant reductions across the big three energy supply wedges: coal drying, CCS and cogeneration. The following chart shows the emissions-reduction potential for the collection of wedges believed to be most responsive to a carbon price.

Total wedges impact Carbon price potential

180,000

160,000

140,000

Cement 120,000 Revegetation Plantations 100,000 CCS New gas Industrial 80,000 Cogeneration Waste 000s tonnes 000s CO2e 60,000 Coal drying Residual

40,000

20,000

0 4 8 4 9 92 00 06 08 1 16 22 30 32 3 40 4 46 9 9 998 0 004 0 0 0 0 0 028 0 0 0 0 0 0 1 1 1994 1996 1 2 2002 2 2 2 2010 2012 2 2 2018 2020 2 2024 2026 2 2 2 2034 2036 2 2 2042 2 2 2048 2050

Figure 21: Total wedges impact – carbon price potential

Together, these nine wedges would reduce 2050 emissions to 76% of 2000 emissions. They do not reduce emissions as much as early and deep cuts, but they are less expensive and involve less risk.

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Of course, it should be noted that an emissions trading scheme, in specifying (and mandating) a target for emissions reduction, would potentially impact on the all of the parameters underlying the individual wedges represented here – faster ramp-ups and greater emissions reductions for some wedges would be expected under a strong emissions trading scheme. The following table shows compounded emissions reduction potential for each wedge to 2020:

Accelerate Cement Industrial Carbon Accelerate Waste to afforestation -- extenders and/ or Coal drying Cogeneration energy Capture and New gas afforestation -- energy new harvestable geopolymer efficiency Storage revegetation plantations cements

Reference case [1] 120,461 113,132 106,937 103,219 101,085 98,595 97,279 96,452 96,176 (sequentially updated)

Carbon price [2] 7,329 6,196 3,717 2,134 2,490 1,316 827 276 168 initiatives Difference [1] - [2] 113,132 106,937 103,219 101,085 98,595 97,279 96,452 96,176 96,009

5.7 Wedges analysis: summary By way of summary, the following chart shows residual emissions (emissions net of high- priority wedges) for the four scenarios modelled above:

Emissions under 4 scenarios

140,000

120,000

100,000

80,000 Early & deep Cost effectiveness Risk 60,000 Carbon price 000s tonnes 000s CO2e

40,000

20,000

0 2 4 6 0 2 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 4 6 8 0 9 9 0 0 1 1 1 2 2 2 3 3 3 3 4 5 9 0 0 0 0 0 0 0 0 0 0 0 199 19 1 199 1998 2 200 2004 2 200 201 2 2 201 2 2 202 20 2 202 20 2 203 20 2 204 2042 2 204 204 2

Figure 22: Emissions outcomes under four scenarios

This chart reflects a tangible challenge for policy makers. If reducing emissions is a priority for government, the biggest emissions-reduction returns come at a relatively larger cost, require quicker action and will impact communities. All options lead to a reduction in emissions but, assessing initiatives relative to each other, there exists an inverse relationship between, on the one hand, emissions reduction potential, and on the other, cost, timing and risk. Importantly,

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in addition, much effective emissions-reduction potential rests beyond the imposition of a price for carbon alone. It should be noted that the confidence which can be accorded to the analysis diminishes over time, in particular post 2030. As was noted in respect to the Reference Case, uncertainty related to forecasting (in particular in technology-rich sectors) grows considerably in the later years of this analysis. This is equally true in regard to the wedges, and this, coupled with the fact that most of the wedges have reached their steady state by 2035, mean that the analysis is least reliable over the last fifteen years to 2050.

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6 Key Themes and Further Work

6.1 The overall picture

6.1.1 Total emissions pathway The overall conclusion which can be drawn from this project is that, noting the reasonable but conservative assumptions underlying the project, there is considerable potential to reduce greenhouse gas emissions from Victoria in the short, medium and long term. The ten wedges aggregated in chapter five in consideration of early and deep cuts offer a 47% reduction against 2000 levels by 2050, and it should be remembered that these are based on conservative assumptions.

Looking at the four scenarios adopted in chapter five (early and deep cuts, cost effectiveness, risk management and carbon price sensitivity), emissions in 2005, 2020, 2030 and 2050 would be as follows:

2005 2020 2030 2050 Reference case 124 120 134 168 Early & deep 124 83 60 64 Cost effectiveness 124 85 68 73 Risk 124 83 70 78 Carbon price 124 96 82 92 Table 17: Emissions pathways under four scenarios The difference between the four scenarios is not great out to 2020 - this occurs because firstly, the wedges with a big pre-2020 impact (such as wedge three - cogeneration) appear in all scenarios and secondly, the rest of the wedges have similar ramp ups and small and relatively comparable steady states. At the same time, the four scenarios all see emissions grow from 2030 – this is because, with the exception of wedge one (carbon capture and storage), all wedges are fully implemented by 2035 (CCS needs another 5 years of ramp up). Because the steady state for a given initiative represents a proportional reduction against the reference case, emissions post 2035 in all four scenarios will track the reference case (they will have the same direction, but will be lower in absolute terms). Overall, the emissions reduction opportunities identified in this project and modelled in the wedges offer substantial reductions against the reference case, as well as against a benchmark of 2000 emissions. The ten wedges aggregated in chapter five in consideration of early and deep cuts offer a 47% reduction against 2000 levels by 2050, and it should be remembered that these are based on conservative assumptions. By 2020, when the reference case emissions reached 121 Mt, the four scenarios considered in chapter five offered emissions outcomes between 20% and 31% lower than the reference case; by 2030 these were between 32% and 50% below the reference case.

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There are a considerable number of emissions reduction opportunities which are not modelled in these wedges, in most cases because they related to smaller scale (i.e. less than the 50,000 tonnes CO 2-e per annum threshold) reductions in greenhouse gas emissions. Examples include efficiencies in natural gas use in industry and households, or further improvements in urban design (beyond that considered in Melbourne 2030 ). There are undoubtedly also a number of emissions reduction opportunities which would be “unearthed” by a carbon price signal and are not represented here. The study’s assumptions around technology feasibility, that is, a focus on technologies that are reasonably expected to be proven to the demonstration stage (i.e. both technically and commercially viable and available) by 2020, leads to the exclusion of speculative and potentially transformative technologies. Examples of these include the production and use of hydrogen as an electricity generation source or transport fuel, or second generation biofuels (for example cellulosic ethanol) which have the potential to dramatically reduce emissions from the stationary energy and transport sectors. Additionally, a considerable number of the wedges could be accelerated or deepened by the use of more aggressive policies – examples include coal drying, industrial energy efficiency, and new gas (wedges two, eleven and five). It has been noted that some significant issues have not been incorporated into wedges, and rapidly moving technology and community attitudes will introduce additional opportunities for emission reduction over time. Key questions which remain are those that centre around the rate of change and the sequencing of wedges and interventions, and management of the total and regional economic impact.

6.1.2 Emissions trading and a carbon price The setting of some form of carbon price, most likely through an emissions trading scheme as envisaged either by the National Emissions Trading Secretariat 65 or more recently by the Australian Government 66 , will act as a driver for many of the wedges, as noted in chapter five. Other wedges, however, were not expected by the project team and experts react to such market signals as easily, for a variety of reasons such as short or medium term price inelasticity (for example where emissions reductions require turnover in capital stock), or where technology development remained crucial and a price signal might not be sufficient (for example in wedges 16 and 17). The policy decision to insulate some sectors from the impacts of an emissions trading scheme (for example trade exposed and energy intensive industries and the agriculture sector) will also reduce the capacity of any such scheme to deliver or accelerate the savings associated with the various wedges. As a consequence of this, the achievement of the emissions reductions examined in this project is likely to require an ongoing mixture of measures – further work related both to the implementation details of an emissions trading scheme and the policy tools government has at its disposal will no doubt explore this question in more detail.

65 Possible Design for a National Greenhouse Gas Emissions Trading Scheme National Emissions Trading Taskforce August 2006

66 Report of the Task Group on Emissions Trading May 2007

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6.1.3 Importance of the energy sector As noted in the discussions in chapters four and five, substantial emissions reductions are likely to be available in the energy sector through a range of approaches related to energy supply and demand (wedges one through eleven). These wedges are not simply additive and are interrelated in various ways – some easy to model and some less so. Efficiency improvements in the energy supply sector – in particular those wedges associated with electricity generation – offer the largest savings of any of the wedges. The combination of coal drying and carbon capture and storage provides savings of 64 Mt by 2050 in the absence of other wedges. Investment in future low emissions uses for Victoria’s brown coal resource is central to any response to reducing greenhouse emissions, and can provide economic opportunities in terms of technology transfer overseas. At the same time, a number of these energy sector wedges, particularly those associated with energy efficiency improvements (wedges seven through eleven), rely on largely commercialised technologies, provide short to medium term economic benefits. Further, in reducing energy demand, these wedges can provide a certain degree of economic resilience by insulating Victoria from carbon prices in future. These wedges can potentially also delay the need for new energy supply baseload and peaking generation construction. This, in addition, can ensure that more efficient technologies (wedges one and two) for power station performance are definitely available to meet demand for new construction. Finally, early implementation of energy efficiency and renewable energy wedges clearly reduces the risk associated with reliance on the larger but lower confidence wedges such as carbon capture and storage. Newer and transformational energy technologies have only been briefly considered in this study (either for technology certainty or current cost reasons), however an ongoing commitment to the longer term energy sector solutions such as large scale solar energy generation, energy efficiency improvement and the use of hydrogen for fuel cells, power generation and as a vehicle fuel, would clearly complement the wedges modelled here.

An important message coming from this analysis is that while the energy sector is extremely important in delivering emissions reductions, and while a carbon price is important in realising improvements across several sectors, no single sector and no single initiative will offer the sort of emissions reductions which may be required by 2050.

6.1.4 Innovation central to the future A considerable number of the wedges rely for their impact on technological change or on process or behaviour change. The life cycle of new technologies tends to follow a steady path from research and development through to demonstration and finally commercialisation (or deployment). A technology filter was used for this project, with wedges only being considered which were reasonably expected to be proven to the demonstration stage (i.e. both technically and commercially viable and available) by 2020. Wedges which rely heavily on the later stages of the technology research through to demonstration parts of this cycle include high impact wedges in the energy supply sector such as wedge one (carbon capture and storage) and to a lesser extent wedge two (coal drying). In other sectors, important wedges such as wedge 14

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(vehicle efficiency), wedge 16 (livestock efficiency) and to a certain extent wedge 20 (avoiding landfill) rely on the demonstration and commercialisation or deployment of new technologies. Policies, programs and measures supporting research and development or fostering innovation in industry (particularly the energy supply industry) will reduce the risk associated with these wedges. A commitment to innovation across all sectors of the economy would represent a considerable investment in enhancing the capacity of Victoria to meet any target which it is set, and reducing the risks related to the cost of climate change policies overall. Consumer information and education, and training of market intermediaries also offer the potential to reduce costs and bring forward emission reductions.

6.1.5 Further work in the transport sector Discussion around the transport sector wedges modelled here strongly suggested that further examination of policies, programs and measures designed to alter current trends of travel demand would be of great value. Pilot programs examining travel demand management have proved effective, but questions clearly remain as to how these might be rolled out more widely. Equally clearly, ongoing investment in public transport infrastructure and long term policies such as Melbourne 2030 will deliver some of the outcomes sought through such programs.

6.2 Risks Inherent in the development of the wedges and the Reference Case for this project were a wide range of key assumptions, which have been discussed in detail in various sections above. Inherent in these assumptions are a number of specific risks to the achievement of the emissions reduction potential estimated for the wedges which were modelled. Further risks relate to the impacts on previous investments of possible developments in technologies, services and community attitudes. Developing policy on the basis of ‘conservative’ estimates of the potential for mitigation can lead to investment in assets that could become stranded, or failure to incorporate sufficient flexibility in systems to respond to change. For example, if new cars were required to fit alcohol-compatible fuel supply systems, the rate at which a shift to alcohol fuels could be achieved in the future if or when such fuels are competitive could be significantly increased. This would introduce greater resilience and capacity to respond to shortfalls in oil supply or price increases. Policy analysis should incorporate sensitivity studies that reflect lower and higher abatement, and low and higher costs for wedges, so that the implications can be explored.

6.2.1 Technical risks associated with the wedges Technical risks – while wedges were only modelled which were considered to meet a certain standard of technical feasibility, a number of the wedges still contain an element of technical risk to their achievement. An important example is carbon capture and storage, which has associated with it a number of technical risks (in terms of capture, transport and storage technology and capacity), legal and policy risks (the absence to date of a long term legal regime for storage and the questions of access to storage), economic risks, and risks in terms of public perception. It is recognised that all of these issues are the subject of considerable ongoing work by industry and governments, and this work will be crucial to the successful achievement of the (considerable) savings estimated for this wedge.

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6.2.2 Risks related to the Reference Case and any Target A number of risks associated with the reference case are discussed above. Importantly, for the future policy development purposes, some of these risks could impact significantly upon the capacity of the wedges modelled to allow any future target to be met. An example which might warrant future examination include the development of major new manufacturing plant with associated demand which was not modelled by MMA/ABARE and is consequently not included in energy demand forecasts here. While a certain degree of informal international consensus seems to be developing around an aspirational target of a 60% reduction in greenhouse gas emissions by 2050, it is possible that in the longer term future developments or observations in climate science could lead to a considerable change in this consensus. Three broad possibilities exist for the future direction of any greenhouse gas emissions target: the stringency of any target could diminish as international consensus weakens, the stringency of a target could increase as consensus deepens or the science around climate change strengthens, or the need for short-to-medium term targets could grow as further developments around the Kyoto Protocol (or a successor mechanism) could emerge.

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Appendix A Model and wedges description

Appendix Table of Contents

Model structure ...... 132 T4: Individual sector input data – description ...... 133 Stationary energy...... 133 Transport ...... 135 Agriculture...... 136 Land use, land use change and forestry ...... 138 Industrial processes...... 138 Waste 139 Wedges manipulation...... 139 Wedges template...... 140 Wedges demonstration ...... 141 Audit and error-debugging ...... 144 Generating compound wedges charts...... 145 Readme sheets...... 145

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Model structure For this project a large-scale, dynamic and scaleable computer model was formulated to project emissions out to 2050 under a set of “reference case” assumptions and to measure reductions in emissions from this reference case generated by specific initiatives – the “wedges”. This appendix sets out the assumptions and data sources used to derive the reference case, the assumptions behind the wedges, and acts as a manual for parties interested in using the model for further forecasting. In as far as this appendix operates as a manual, a more complete understanding will be obtained if users integrate reading this section with operating and observing the model. The model includes 5 “levels” of data. A description of the model, and the levels of data included, is supported by the following graphic:

T1: Sector summary & wedges control

T2: Individual sector emissions aggregation

T3: Individual sector output and emissions factor aggregation

T4: Individual sector input data

Energy demand

Stationary energy Transport Agriculture LULUCF Industrial pr’cs Waste

Macroeconomic input data

The data levels in the model correspond with various levels of aggregation, beginning with the macroeconomic data, then moving up through T4 to T1. The following describes each level in general terms: Macroeconomic input data : data here includes gross state product (GSP) and State population projections out to 2050. GSP figures were provided by the Victorian Department of Treasury and Finance (DTF): the data from 2006-07 to 2009-10 are from the 2006-07 Victorian Budget forward estimates and the data from 2010-11 are from the DTF long term fiscal model (2007 update). Population figures were provided by the Victorian Department of Sustainability and Environment. For the same time period, data also includes Monash Centre for Policy Study’s projections of sector-based real value-added and National Emissions Trading Scheme forecasts of stationary energy emissions.

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• T4: Individual sector input data : drawing on macroeconomic data where necessary, level T4 includes data used to generate the two basic components of emissions projections for each sector: sub-sector output and corresponding emissions factors. The elements of T4 are described sector-by-sector later in this appendix.

• T3 : Individual sector output and emissions factor aggregation : at this level, the appropriate information from T4 is extracted to generate output and emissions factors, the product of which yields sub-sector-specific emissions.

• T2 : Individual sector emissions aggregation : data here is a restatement of sub- sector-specific emissions generated at the T3 level.

• T1 : Sector summary and wedges control : at T1 sub-sector-specific emissions from T2 are aggregated to form sector-level and total state emissions. In addition, it is at this level that model users define wedge parameters. Manipulating wedges parameters is described later in this appendix.

T4: Individual sector input data – description Initial data collection and forecasting was conducted by industry experts at SKM in consultation with expert panel members and Victorian government departments. The methodology used for each sector is different, reflecting the outcomes of disparate collaboration processes and data availability. In each case, the superior method was chosen. The model draws on macroeconomic input data and T4 level data to generate sector-level predictions of emissions through calculating the sub-sector products of output and emission factors (the amount of CO2e [carbon dioxide equivalent units] per unit of output). The model can be represented algebraically as such: For each sector, j, for sectors j {stationary energy,…, j,…, waste}, emissions in year t, for years {2006,…, t,… 2050} are

I Emissions j = Output i × Emissions factor i t ∑i=1 t t where i is the index for appropriate sub-sectors, totalling I, in {1,…, i,…, I}. Sector assumptions and data sources for sub-sector calculations are described in the following sections.

Stationary energy The output for the stationary energy sector is energy produced. Energy produced was modelled according to energy demanded. Output in the stationary energy sector was thus modelled as

VIC k K Electricit y consumptio n × Fuel share  Stationary energy = t t Output t ∑   k=1 × k k  Generation efficiency t - Non - elec consumptio n t  where k is the fuel type index. In turn, electricity consumption was modelled as

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VIC = VIC + VIC + VIC VIC Electricit y consumptio n t Industrial t Commercial t Residentia lt - Net exports t

Commercial and residential electricity consumption was modelled explicitly. To facilitate potential for feedback existing across the stationary energy and industrial processes sectors, industrial electricity consumption for sub-sector i was modelled as

VIC = i × i Industrial t Output t Per unit lectricity Consumptio n t .

The following table shows elements of the emissions calculation for this sector, data sources and forecasting methods:

Variable Data type Forecasting method and data COPS real value-added projections until 2030, then grown annually by Sector output COPS 2030 growth rate for this sector Held constant at aluminium sector GWhr consumption in 2005 divided Sector electricity use intensity by COPS real value-added in 2005 Sector electricity use Output * electricity use intensity Aluminium smelting Coal combustion (excl embedded electricity) Held constant at aluminium sector consumption sourced from ABARE

Natural gas combustion (excl embedded electricity) Held constant at aluminium sector consumption sourced from ABARE

Other fuel combustion (excl embedded electricity) Held constant at aluminium sector consumption sourced from ABARE Sector output Held constant at 1 AGO emissions from electricity use in the industrial sector (less aluminium emissions) divided by AGO emissions sourced from the Sector electricity use intensity "AGO factors" workbook, p. 42 Sector electricity use Output * electricity use intensity Other industrial Held constant at industrial (less aluminium) sector consumption sourced Coal combustion (excl embedded electricity) from ABARE Held constant at industrial (less aluminium) sector consumption sourced Natural gas combustion (excl embedded electricity) from ABARE Held constant at industrial (less aluminium) sector consumption sourced Other fuel combustion (excl embedded electricity) from ABARE Sector output Held constant at 1

AGO emissions from electricity use in the commercial sector divided by Sector electricity use intensity AGO emissions sourced from the "AGO factors" workbook, p. 42 Sector electricity use Output * electricity use intensity Commercial Coal combustion (excl embedded electricity) Held constant at commercial sector consumption sourced from ABARE

Natural gas combustion (excl embedded electricity) Held constant at commercial sector consumption sourced from ABARE

Other fuel combustion (excl embedded electricity) Held constant at commercial sector consumption sourced from ABARE Sector output Held constant at 1

AGO emissions from electricity use in the residential sector divided by Sector electricity use intensity AGO emissions sourced from the "AGO factors" workbook, p. 42 Sector electricity use Output * electricity use intensity Residential Coal combustion (excl embedded electricity) Held constant at residential sector consumption sourced from ABARE

Natural gas combustion (excl embedded electricity) Held constant at commercial sector consumption sourced from ABARE

Other fuel combustion (excl embedded electricity) Held constant at commercial sector consumption sourced from ABARE Share of electricity generation Equal to share of electricity generation derived from NETS data Brown coal Generation efficiency Sourced from ABARE Emissions factor AGO estimates divided by output Share of electricity generation Equal to share of electricity generation derived from NETS data Natural gas Generation efficiency Sourced from ABARE Emissions factor AGO estimates divided by output Share of electricity generation Equal to share of electricity generation derived from NETS data Renewable Generation efficiency Sourced from ABARE Emissions factor AGO estimates divided by output Net exports were assumed to be zero for the forecast period.

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Transport Transport emissions were modelled for the following transport modes:

People moving – People moving – regional Freight metropolitan

Train Train Road – metropolitan

Tram Public transport – bus Road – regional

Public transport – bus Other bus Rail

Other bus Car

Car Motorcycle

Motorcycle

Walk/ cycle

Output for each mode was modelled in vehicle-kilometres. 67 The following table shows data sources for historical information and forecasting methods:

Name Description Source Forecast Method

Rail freight CO2e BTRE estimates Proportional to BTRE, 0.66%

Regional freight Vehicle-km ABS SMVU Proportional to GSP (Road)

Metro freight Vehicle-km ABS SMVU Proportional to GSP (Road)

Regional Vehicle-km ABS SMVU Proportional to Regional motorcycle Population

Metro motorcycle Vehicle-km ABS SMVU Proportional to Metro Population

Regional car Vehicle-km ABS SMVU Proportional to Regional Population

67 The exception here is rail freight. Emissions for rail freight were modelled explicitly.

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Metro car Vehicle-km ABS SMVU Proportional to Metro Population

Regional other Vehicle-km ABS SMVU Proportional to Regional bus Population

Regional PT bus Vehicle-km DoI Annual Report Proportional to Regional Population

Regional train Vehicle-km DoI Annual Report Proportional to Regional Population

Metro other bus Vehicle-km ABS SMVU Proportional to Metro Population

Metro PT bus Vehicle-km DoI Annual Report Proportional to Bus growth

Tram Vehicle-km Apelbaum Proportional to Employment

Metro train Vehicle-km Apelbaum Proportional to Employment

Emissions attributed to the transport sector were those due to vehicle combustion only (consistent with the NGGI). Therefore, emissions associated with powering electric vehicles via the electricity grid (including trains and trams) were attributed to the stationary energy sector. Emissions factors – tonnes CO2e per vehicle-kilometre – were determined through the following formula: = × Tonnes CO2e v Fleet proportion fuel v Emissions f where v represents vehicle types including cars, busses, road freight vehicles and diesel trains, and f is fuel efficiency for fuel types including lead-replacement petrol, unleaded petrol, diesel and LNG/ CNG/ dual fuel. Thus, emissions factors for each vehicle type were the product of the vehicle type fuel shares and the emissions factors associated with each fuel. Vehicle type fuel shares were sourced from ABARE and fuel-specific emissions factors were sourced from the AGO.

Agriculture Victorian emissions generated in the agriculture sector were modelled across three sources: enteric fermentation, manure management and agricultural soils. Output for both enteric fermentation and manure management was measured in dry sheep equivalents; output for agricultural soils was measured in dry sheep equivalents and crop hectares. Output measures were calculated as either:

H Output = animal type × DSE weight , or livestock ∑h=1 h h

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= Output crop ABARE projection s till 2011, then ABARE growth rate where Output livestock is one of {enteric fermentation, manure management and agricultural soils}; animal type is animal counts for one of {dairy, beef and sheep} for enteric fermentation and some of agricultural soils usage, and one of {dairy, beef, sheep, pigs and poultry} for manure management; and DSE weights are, respectively, 12, 8, 1.2, 6 and 0.1 for dairy, beef, sheep, pigs and poultry. For the case of agricultural soils usage by livestock, it is assumed that each hectare can carry 20, 5.5 and 5.5 heads of sheep, dairy and beef respectively, to arrive at DSE hectares. Dairy figures were sourced from Dairy Australia; animal counts for the remaining animal types were sourced from ABS agricultural census data. In all cases, post 2006 forecasts were based on historical trend relationships determined through regression analysis. Emissions factors for the agricultural sector were sourced from the NGGI. Forecasts were determined using the estimation of emissions time trends based on historical data. The following table shows particulars of output and emissions factor modelling.

Variable Data type Forecasting method and data Projections of heads of livestock were generated using regressions analysis of historical data. Data was sourced by DSE, measured as (head of dairy cattle)*12 + (head of beef)*8 + (head of sheep)*1.2 + Sector output (head of pigs)*6 + (head of poultry)*0.1. Dairy data was sourced from Dairy Australia; other data was sourced from the ABS Agricultural Census. Livestock-specific emissions were generated using regression analysis Manure management of historical CO2e emissions data sourced from the AGO divided by sector outputs, and using this relationship to forecast emissions. The sum total emissions across livestock types were divided by total DSE to Emissions factor generate emissions factors. Given the changing composition of DSE expected in the future (based on the regression work used to estimate sector outputs), these emissions factors vary from year to year and are nonlinear. Projections of heads of livestock were generated using regressions analysis of historical data. Data was sourced by DSE, measured as Sector output (head of dairy cattle)*12 + (head of beef)*8 + (head of sheep)*1.2. Dairy data was sourced from Dairy Australia; other data was sourced from the ABS Agricultural Census. Livestock-specific emissions were generated using regression analysis Enteric fermentation of historical CO2e emissions data sourced from the AGO divided by sector outputs, and using this relationship to forecast emissions. The sum total of emissions across livestock types was divided by total DSE Emissions factor to generate emissions factors. Given the changing composition of DSE expected in the future (based on the regression work used to estimate sector outputs), these emissions factors vary from year to year and are nonlinear.

Emissions are directly proportional to crop area and heads of livestock. Projections of crop area and heads of livestock were generated by regressions analysis of historical data. Emissions data were generated by analysing crop cultivation and animal harvesting data. Output is thus Sector output defined as the combination of crop area and DSE. Historical crop area estimates were sourced from ABARE. DSE, measured as (head of dairy cattle)*12 + (head of beef)*8 + (head of sheep)*1.2. Dairy data was sourced from Dairy Australia; other data was sourced from the ABS Agricultural Census. Agricultural soils Emissions include direct soil emissions, animal production, nitrogen leaching and run-off, atmospheric decomposition, and soil disturbance. Historical estimates of these variables were sourced from the AGO. Forecast estimates were based on regressions of each emissions type on corresponding sector outputs. These were summed across Emissions factor emissions types to generate emissions factors. Given the changing composition of land area deveoted to animal and crop production expected in the future (based on the regression work used to estimate sector outputs), these emissions factors vary from year to year and are nonlinear.

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Land use, land use change and forestry Emission calculations in this sector were modelled in two parts: emission sequestration due to afforestation and contributions to emissions due to deforestation. Afforestation was modelled according to stocks of hardwood and softwood plantation area; hardwood plantations were assumed to have a rotation cycle of 15 years and softwood a 35 year cycle. Based on the assumption that there is no carry-forward of carbon from first to second and subsequent rotations, and that all plantations return to timber production at the end of each rotation (with zero net sequestration over second and subsequent rotations), the sequestration contributing area across both plantation types begins to decline from 2020 onwards and almost runs out by 2050. Both hardwood and softwood historical plantation areas was sourced from the BRS National Plantation Inventory. Emission reductions were forecast by regressing AGO historical afforestation sequestration on historical contributing plantation area. Deforestation emissions are generated from clearing and reclearing of plantation area. Historical values for these series were sourced from the AGO. Consistent with Victoria’s net gain policy, emissions due to clearing and reclearing both decline to zero by 2020. Historical emissions were sourced from the AGO; projected emissions were determined through a regression of historical emissions on cleared and recleared plantation area.

Industrial processes Emissions from industrial processes were modelled in four sub-sectors: mineral products, chemical industries, metal production and HFCs and SF6. Due to the relatively small emissions in this sector, individual components of these sub-sectors include:

• Mineral products: cement production and lime production

• Chemical industries: chemical production

• Metal production: iron and steel production and aluminium production

• HFCs and SF6 were modelled using air-conditioning stock as an output proxy Output (including forecasts) for cement production, chemical production, iron and steel production and aluminium production was sourced from Monash COPS estimates of real value-added. Lime production (an especially difficult value to obtain for Victoria) was based on an estimate of Victoria’s shares of CO2e emissions from the AGO divided through by the pure- lime emissions factor. Air-conditioning stock was sourced from the AGO. Emissions factors for these sources (other than for lime production) were calculated by dividing AGO emissions estimates by output data.

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Waste Waste was modelled in two parts: solid waste and wastewater. These were disaggregated further into the following groups:

Solid waste Wastewater

Municipal solid waste Domestic and commercial wastewater

Commercial and industrial solid waste Industrial wastewater

Construction and demolition solid waste

Solid waste figures were further broken down into waste types including food, paper and textiles, garden and green, wood and other. Historical solid waste figures were sourced from the AGO. For forecasting, these amounts were grown in proportion with population to arrive at future waste stock. The amount of CO2e generated by the solid waste stock was calculated by determining, for each waste type, decomposition of degradable organic carbon (a function of existing and new waste stock). This was multiplied by a methane production factor and converted into CO2e. The stock of wastewater was generated by multiplying the state’s population, average per person water consumption (from the ABS). Emissions resulted from treatment of resulting waste at municipal wastewater plants, emissions from on-site systems, and additional nitrous oxide emissions from protein decomposition.

Wedges manipulation Users can define and manipulate wedges at the T1 level in the model. The analytical construct used for wedges definition was based on the following questions:

• Does the initiative impact on the output or the emissions factor in a given sector (or sub-sector)? For example, a reduction in the demand for private transport vehicles will reduce emissions through a corresponding reduction in corresponding “output” (vehicle kilometres for private transport use); an improvement in private transport vehicle fuel efficiency will impact on emissions factor without affecting the total vehicle kilometre travelled for this mode

• What is the total expected “steady-state” impact of the initiative? That is, what will be the impact of the wedges initiative once it has reached its terminal emissions-reduction potential?

• When will the initiative be implemented?

• How long will it take for the initiative to reach its steady-state? It is assumed that over the course of the time it takes a wedge initiative to reach its steady- state, the defined impact on the relevant variable (output or emissions factor) occurs in a linear fashion. For example, if the reduction in demand for vehicle use was to take 10 years through

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a demand initiative, and the reduction potential was expected to be 20 percent, then “output” would be reduced by 2 percent per year over the phase-in time to steady state. In defining wedges, users are required to enter the following fields:

• Implementation date: this date reflects the year in which the wedge initiative begins

• Phase-in time to steady-state (years): the number of years expected for a given wedge initiative to reach its full (that is, terminal) potential

• Steady-state (%) change: this is the expected reduction in the relevant variable from its reference case level.

• Model input affected: users have three options when choosing the type of impact an initiative will have. The initiative will affect either output, emissions efficiency or electricity efficiency (included specifically for demand-side initiatives in the energy sector)

• Sector-to-sector: if the initiative impacts a single sector in isolation, then users enter the sector impacted by the wedges initiative in the first sector column and stop. If the initiative involves a substitution from one sector to another, then users should select the appropriate menu option from the second sector column. For example, a reduction in demand for vehicle use alone should be modelled by selecting the appropriate transport sectors in the first column, then stopping. If, alternatively, the initiative involves a substitution of private vehicle use for public transport (or a switch from coal- fired electricity generation to gas-fired generation), then users need to select values in both sector columns: a “from” selection and a “to” selection. Users can “turn on” more than one initiative at a time to observe the combined impact. The model is set up such that changes that occur later in the “emissions supply chain” are impacted by changes that occur earlier. Consider these two examples:

• Stationary energy: an electricity supply initiative, such as carbon capture and storage, will reduce the potential for emissions-reduction for energy demand initiatives

• Transport: an improvement in vehicle fuel efficiency will reduce the impact of vehicle occupancy measures. Users can observe emissions-reduction outcomes at any relevant level, from T3 through T1. However, charts at the T2 level automatically update for changes. At the T2 level, users can observe outcomes at the sector level or at the state-wide level.

Wedges template The following screen shot, from the “Main toggle” worksheet in theT1 level file, shows the template through which users can define wedges:

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Phase-in time Initiative-specific sensitivity Choose Yes if to steady Initiative Implementation date active state (in years) Steady state % change Model input affected Sector Sector

Yes 2020 15 80 emissions efficiency improvement in CCS to blank

No blank blank to blank

No blank blank to blank CCS

No blank blank to blank

Yes 2013 15 25 emissions efficiency improvement in Coal to blank

No blank blank to blank

No blank blank to blank Coal drying

No blank blank to blank

blank blank blank to blank

Yes 2015 20 20 output change in Coal to blank

Yes 2015 20 20 output change in Natural gas to blank

No blank blank to blank Cogeneration

blank blank blank to blank

Yes 2015 20 20 output change in Coal to blank

Yes 2015 20 20 output change in Natural gas to blank

blank blank blank to blank Renewable energy

blank blank blank to blank

Yes 2015 20 15 output change in Coal to Natural gas

Yes blank blank to blank

blank blank blank to blank

New gas blank blank blank to blank

blank blank blank to blank

The first column, “Initiative”, provides the wedge name. The second column, “Choose Yes if active” permits users to turn on or off wedges, facilitating the estimation of outcomes when multiple wedges are modelled simultaneously. Data in the remaining columns are entered as described above. There are three important points to note about the above graphic. First, a single wedge may be associated with several actions. Cogeneration, for example, includes a reduction in embedded generation sourced from coal and natural gas. Second, the CCS wedge is special because of the interplay between coal drying and CCS – both occur at the generation phase. To link both with emissions efficiency improvements in coal would overstate their contributions to emissions reduction. Instead, CCS (though not a “sub-sector”, as previously defined, is treated on its own to capture appropriately any feedback between these two large wedges. Third, the final wedge shows the assumptions behind new gas, requiring a shift in generation sourced from coal to natural gas.

Wedges demonstration The following steps show the construction of a new wedge concerning power storage. Power storage could describe a case in which electricity could be stored economically feasibly and in large quantities. Assume the consensus is that power can be stored on a large scale from

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2025 onwards, that it has the potential to reduce embedded electricity generation sourced from coal and natural gas by 50 percent, and that the phase-in time (or ramp-up to this 50 percent steady-state) is expected to be 10 years from 2025. Prior to modelling, stationary energy projections are equal to reference case levels. The following chart is a reproduction from T2 of the stationary energy reference case with no active wedges:

Stationary energy, wedges

120,000

100,000

80,000

Stat. en. Wedge 60,000 Stat. en. Residual 000s tonnes 000s CO2e 40,000

20,000

2 4 6 8 0 2 4 6 8 0 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 9 9 9 0 0 1 1 1 1 2 2 3 3 3 3 4 4 5 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 1990 199 1 1 1 2 200 200 200 2 20 2012 2 2 2 2 202 202 202 2 2 20 203 2 2 2 204 204 204 2 2

From this chart we see that nothing is attributed to the stationary energy wedge, and all is contained in the residual, defined as the reference case less the wedge value. To model this energy storage wedge, a user would call up Main toggle in T1 and enter values in the following way. Note, each part of the wedge is turned off:

Phase-in time Initiative-specific sensitivity Choose Yes if to steady Initiative Implementation date active state (in years) Steady state % change Model input affected Sector Sector

No 2025 10 50 emissions efficiency improvement in Natural gas toblank

No 2025 10 50 emissions efficiency improvement in Coal to blank

No blank blank to blank Power storage

No blank blank to blank

No blank blank to blank Turning on the natural gas component yields relatively small emissions reductions because natural gas is a small component of embedded generation, and it is associated with relatively small emission factors.

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Phase-in time Initiative-specific sensitivity Choose Yes if to steady Initiative Implementation date active state (in years) Steady state % change Model input affected Sector Sector

Yes 2025 10 50 emissions efficiency improvement in Natural gas toblank

No 2025 10 50 emissions efficiency improvement in Coal to blank

No blank blank to blank Power storage

No blank blank to blank

Stationary energy, wedges

120,000

100,000

80,000

Stat. en. Wedge 60,000 Stat. en. Residual 000s tonnes 000s CO2e 40,000

20,000

Turning on the coal component, in addition to the natural gas component, changes the T2 stationary energy figure significantly:

Phase-in time Initiative-specific sensitivity Choose Yes if to steady Initiative Implementation date active state (in years) Steady state % change Model input affected Sector Sector

Yes 2025 10 50 emissions efficiency improvement in Natural gas toblank

Yes 2025 10 50 emissions efficiency improvement in Coal to blank

No blank blank to blank Power storage

No blank blank to blank

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Stationary energy, wedges

120,000

100,000

80,000

Stat. en. Wedge 60,000 Stat. en. Residual 000s tonnes 000s CO2e 40,000

20,000

Audit and error-debugging The model was designed to permit users flexibility in defining wedges. Users have the option of choosing output or emissions efficiency changes (or, in some cases, electricity consumption efficiency changes), for 37 sub-sector categories (listed on menus in the “sector” column of Main toggle in T1). Combined with complete flexibility in choosing start dates, steady-states and ramp-up times, users can define wedges in myriad ways. Notwithstanding, there is the possibility that wedges might be coded up that yield unexpected results. In the event this occurs, users should perform the following steps: a. All data files must be open when operating wedges because of the cascading structure of files. If any file in the model folder is not opened some files may not update, returning a Ref# Excel error. b. Check to see if the appropriate columns to the right of the data entry part of Main toggle (columns L through ES) have updated (they will be in the same row as the data entered, and they will appear in “Output”, “Emissions efficiency” or “Electricity efficiency” depending on the selection made in “Model input affected” in Main toggle). c. Consult the appropriate data series at the T3 level (sufficient for all sectors except stationary energy, were users should consult both T3 and T4, the latter included because it recognises wedges affecting energy demand). Users will need to access the correct sector file and worksheet (output or emissions efficiency), then look for the data series affected by the wedge. Changes to series are reflected not in changes to the reference case series, but in the “Wedge” series alongside each reference case series. d. If data described in b. above updates, but T3 level data has not, users should add conditions to T3 wedges series to reflect desired changes. This is done with the

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“Sumif” command referencing corresponding “workhorse” sheets in T1 (see the “Total energy & net exports” tab of T4 – Energy sector, column C for an example of multiple Sumif commands in Excel. If achieved successfully, all higher-level files will update automatically.

Generating compound wedges charts While every effort was made to ensure that model manipulation was an automated process, some manual effort is required to generate compound wedges (the situation where multiple wedges initiatives are in effect). Users will be interested in the net effect of wedges’ profiles because earlier initiatives may impact the reduction potential of later initiatives. An obvious example here is carbon capture and storage and energy demand wedges: energy demand initiatives (all feasible around 2010) may reduce the electricity production base on which carbon capture and storage operates (assumed feasible from 2020), potentially reducing the size of emissions reduced by carbon capture and storage. Some manual effort is needed because the Excel model produces wedges effects one at a time. To generate compound wedges, a user must ‘turn on’ a given initiative, save the resulting emissions outcome in a specified place, then ‘turn on’ a separate initiative (in addition to the first), and save the net result (the effect of both wedges) alongside the first. This permits the user to observe the marginal impact of the first and second wedge (rather than their stand-alone impact). In the electronic version of the model, a place has been provided for users to do these manual calculations and observe the impact of sequentially added wedges. This can be found at the tab marked ‘Compound wedges data’. The following sequence describes how a user might generate compound wedges results. 1. After some prioritisation of wedges has been determined, turn on the highest priority wedge, leaving all others turned off. 2. Save the ‘Wedges’ column (column V) from the sheet called ‘T2 Emissions Output Agg) in the column ‘W1’ in the sheet ‘Compound wedges data’ 3. Turn on the second wedge (leaving the first turned on also), and repeat step 2, instead saving the ‘Wedges’ column output from T2 Emissions Output Agg in W2 in Compound wedges data. 4. Repeat for all wedges in the prioritised list, saving output sequentially through W3 – Wk (with k the final wedge in the prioritised list). 5. Columns starting at column N in Compound wedges data will show the marginal impact of each wedge as it is added 6. Update the column headings beginning at column N in compound wedges data to reflect the sequencing of wedges. 7. Observe the effects of the compound wedges in the chart contained in the adjacent sheet, ‘Compound wedges chart’.

Readme sheets The model contains readme sheets for each sector (and in some cases, sub-sectors). Each sheet contains a high-level description of the sheets used to generate results, as well as the

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primary data sources used. Users should familiarise themselves with the data needed to generate results for each sector, and manually update data sources as new ones are provided. Starting the ‘Sheet index’ tab (showing all sheets in the model), the following contains screen snapshots of each readme file in alphabetical order. Sheet index T1 - Wedges Control and Summary Results T1 Main Toggle T1 Output Workhorse T1 Emissions Effic Workhorse T1 Elec Efficiency Workhorse T2 - Summary of Reference Case and Wedges by Sector T2 Summary T2 Stat Energy Wedge T2 Trans Wedge T2 Ag Wedge T2 Ind P Wedge T2 LULUCF Wedge T2 Waste Wedge T2 Reference Case T2 Stat Energy Ref T2 Trans Ref T2 Ag Ref T2 Ind P Ref T2 Deforestation Ref T2 Afforestation Ref T2 LULUCF Ref T2 Waste Ref T2 Wedges Data T2 Emissions Output T2 Emissions Output Agg T3 - Sector Output and Emissions Summaries AG LULUCF T3 AG LULUCF Output Disagg T3 AG LULUCF Emis Eff Disagg T3 AG LULUCF Emis Output Industrial Processes T3 Industrial Output Disagg T3 Industrial Emis Eff Disagg T3 Industrial Emis Output Disagg Energy T3 Energy Output Disagg T3 Energy Emis Eff Disagg T3 Energy Emis Output Disagg Transport T3 Trans Output Disagg T3 Trans Emis Eff Disagg T3 Trans Emis Output Waste T3 Waste Output Disagg T3 Waste Emis Eff Disagg T3 Waste Emis Output

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Sheet index (cont)

T4 - Sector Output and Emissions Summaries T4 Ag Soils Ag Soils Readme Reference Case Data Assumptions Ag+LULUCF Tot Emis Livestock Area Crop-Area Input Data Ag Land T4 Deforestation Defor Readme Reference Case Data Assumptions Def Areas Def Emissions T4 Energy Energy Readme Sector Output Sector Elec Intensity Sector Elec Use Tot Elec & Net Export Fuel Mix Generation Efficiency Total Energy in Prod Other Sector Use Fuel Energy Output VIC (Transposed) VIC Alum Assumptions Final Energy Consum Indirect Emissions Fuel Energy Pivot ABARE Proj to 2030 MMA Data Summary T4 Enteric Fermentation Enteric Readme Reference Case Data Assumptions Input Data T4 Forestry Forest Readme Reference Case Data Assumptions Forestry Wk T4 Industrial Processes Industrial Processes Readme T3 Industrial Notes T3 Indutrial Assumptions T3 Indutrial Emis Factors T3 Industrial GWPs T3 Industrial 2005 AGO Data T3 Industrial Conversions T3 Industrial Input AGO T3 Industrial VIC T4 Manure Management Manure Readme Reference Case Data Assumptions Livestock # Emissions Data T4 Transport Transport Readme Reference Case Data Sources Original Reference Demand Mgmt Rates Vehicle Util Rates Emission Rates Growth Train Growth Metro Bus Growth Apelbaum DOI PT patr BTRE SMVU DOI Annual Report Scen Test Summ Scen Test Scenarios Scen Test Demand Mgmt Scen Test Mode Shift Scenario Testing Emis Eff Scen Test Vehicle Util Scen Test All Wedges T4 Waste Waste Readme Model Input Output & Emis Summary Solid Waste - MSW Solid Waste - C&I Solid Waste - C&D Wastewater - D&C Wastewater - Ind Emissions Factors

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Agricultural soils

The purpose of this file is two-fold: 1. To generate forecasts for agricultural output and emissions 2. To provide places for wedges construction at various stages of agricultural production process

Tab Description

Reference Case Waste production and emissions summary, to be passed to T3 Working Working sheets

Data Assumptions This sheet summarises the key variables used to project the modelled outputs and emission factors into the future. The green cells can be changed for new information and will automatically adjust model accordingly Ag+LULUCF Tot Emis This sheet summarises the historical data for Agricultural and LULUCF emissions. This data was used in regression analysis to predict future emissions Livestock Area This sheet summarises the historical data for livestock area. This data was used in regression analysis to predict future emissions Crop-Area This sheet summarises the historical data for crop area. This data was used in regression analysis to predict future emissions Supporting sheets Supporting Input Data This sheet summarises the emissions factor input data Ag Land This sheet summarises the historical data for agricultural land area. This data was used in regression analysis to predict future emissions

Input data Variable Measure Data source Relevant sheet Dairy Head of dairy cattle, dry sheep equivalent Dairy: Dairy Australia 2006. Australian dairy industry in focus 2006. T4 Ag Soils Livestock Area Beef, sheep, pigs, Heads of beef, sheep, pigs, poultry in dry ABS (various dates) Agricultural Commodities Australia. Annual reports. Downloaded T4 Ag Soils Livestock Area poultry, sheep equivalent from ABS web site. ABARE Crop area ABARE Australian Crop Report, May 2007 T4 Ag Soils Crop Area Direct soil emission Emissions from soil Australian Greenhouse Office, 2007 T4 Ag Soils Input Data Animal production Emissions from animals Australian Greenhouse Office, 2007 T4 Ag Soils Input Data Nitrogen leaching & Emissions from leaching and run-off Australian Greenhouse Office, 2007 T4 Ag Soils Input Data run-off Atmospheric Emissions from atmospheric deposition Australian Greenhouse Office, 2007 T4 Ag Soils Input Data deposition Soil disturbance Emissions from soil disturbance Australian Greenhouse Office, 2007 T4 Ag Soils Input Data Deforestation

The purpose of this file is two-fold: 1. To generate forecasts for deforestation land area (output variable) and emissions factor 2. To provide places for wedges construction at various stages of the deforestation process

Tab Description

Reference Case Deforestation production and emissions summary, to be passed to T3 Working sheets Working

Data Assumptions This sheet summarises the key variables and sources used to project the modelled outputs and emission factors into the future. The values in the green cells are function coefficients calculated through regression analysis of the historical data. They can be changed for new information in the future and will automatically adjust model accordingly Def Areas This sheet includes historical deforestation land area data and calculates the land area flux due to deforestation. Land area is the output variable that is used for calculating total emissions. Supporting sheets Supporting Def Emissions This sheet includes historical deforestation emissions data and uses this data to model the future emissions per land area unit

Input data Variable Measure Data source Relevant sheet Data file downloaded from National Carbon Accounting System (2005): Copy of T4 Defor Def Cleared land in kHa PopulatedTemplate_15_2007_2005_AUSTRALIA_RT_AT_LUCF_2007_v5.xlt_20284. Areas Clearing xls Data file downloaded from National Carbon Accounting System (2005): Copy of T4 Defor Def Recleared land in kHa PopulatedTemplate_15_2007_2005_AUSTRALIA_RT_AT_LUCF_2007_v5.xlt_20284. Areas Reclearing xls T4 Defor Def Emissions Gg CO2e emissions Australian Greenhouse Office website, 2007 Emissions

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Energy The purpose of this file is two-fold: 1. To generate forecasts for energy production by fuel type to pass up to T3 calculation of stationary energy emissions 2. To provide places for wedges construction at various parts of the energy demand and supply chains

Tab Description

Sector Output Output index for the industrial, commercial and residential sectors Electricity consumption per unit of the output index for industrial, commercial and Sector Elec Intensity residential sectors Sector Elec Use Sector output * Sector electricity intensity Tot Elec & Net Export Total electricity output in Victoria accounting for net exports Proportional mixes of coal, natural gas and renewables in electricity generation Fuel Mix according to MMA estimates Generation Efficiency Efficiency of various fuels in generating electricity in Victoria Working sheets Working Total Energy in Prod Total electricity and net exports * Fuel mix / Generation efficiency Other Sector Use Coal, natural gas and renewable production in Victoria by fuel type Fuel Energy Output Total energy in elec production + Other sector energy use

Transposition of MMA sector output and growth rate; used for growth rates in VIC (Transposed) aluminium production to 2030 VIC as above - not transposed Alum Assumptions Calculates post 2030 growth in aluminium production Final Energy Consum ABARE energy consumption forecasts, by industry, for Victoria Emissions by sector; used to generate sector energy intensities in 2005 for non- Indirect Emissions aluminium sectors Fuel Energy Pivot Sheet used to manipulate data using pivot tables prior to input to working sheets Supporting sheets Supporting Fuel efficiency Fuel efficiencies in electricity generation; derived from ABARE data MMA Data Summary MMA Data for renewable energy forecasts

Input data Variable Measure Data source Relevant sheet Real value added for 52 industries, generated from the Centre of Policy Studies T4 Energy VIC Industry real value added at Monash University CoPS Macroeconomic model run, August 2007 Aluminium consumption of Annual consumption of electricity by Production capacity and elecricity efficiency sourced from Alcoa: T4 Energy Alum electricity in 2005 Victoria's aluminium industry http://www.alcoa.com/australia/en/info_page/smelter_facts.asp Assumptions National and State energy Energy consumption by industry across ABARE, December 2006: T4 Energy Final consumption and forecasts Australia and Victoria www.abareconomics.com/interactive/energy_dec06/excel/B2_a.xls Energy Consumption across industries and fuel type Greenhouse gas emissions by T4 Energy Indirect Gg CO2e AGO website ANZIC classification Emissions Energy consumption by energy ABARE data: http://bureau- Energy consumption by industry across T4 Energy ABARE and fuel type (used to calculate index.funnelback.com/search/cache.cgi?collection=abare&doc=http/www.abareconomi Victoria Energy Consump non-electricity consumption) cs.com/interactive/energy/excel/table_f.xls.pan.txt Total fuel used and electricity ABARE , December 2006: T4 Energy Fuel PJ, and efficiency factors output by fuel http://www.abareconomics.com/interactive/energy_dec06/excel/i1.xls Efficiency Electricity produced per fuel type, McLennan, Magasanik Associates modelling in support of its report "Impacts of a T4 Energy MMA Data GWh to determine fuel shares National Emissions Trading Scheme on Australia's Electricity Markets", July 2007 Summary Enteric fermentation

The purpose of this file is two-fold: 1. To generate forecasts for enteric fermentation related emissions 2. To provide places for wedges construction at various stages of the enteric fermentation process

Tab Description

Reference Case Enteric Fermentation production and emissions summary, to be passed to T3 Workingsheets

Supporting sheets Supporting worksheet

Input data Variable Measure Data source Relevant sheet Dairy Emissions from dairy Australian Greenhouse Office website, 2007 T4 Enteric Input Data beef Emissions from beef Australian Greenhouse Office website, 2007 T4 Enteric Input Data sheep Emissions from sheep Australian Greenhouse Office website, 2007 T4 Enteric Input Data

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(Re)forestation

The purpose of this file is two-fold: 1. To generate forecasts for forestry related emissions 2. To provide places for wedges construction at various stages of the forestry process

Tab Description

Reference Case Forestry and afforestation production and emissions summary, to be passed to T3 Working sheets Working

Supporting sheets Supporting Assumptions worksheet

Input data Variable Measure Data source Relevant sheet total area sw Land area of softwood, 2006 National Forest Inventory 2007. National Plantation Inventory T4 Forestry Forest Wk total area hw Land area of hardwood, 2006 National Forest Inventory 2007. National Plantation Inventory T4 Forestry Forest Wk new area sw New area of softwood, 2006 National Forest Inventory 2007. National Plantation Inventory T4 Forestry Forest Wk new area hw New area of hardwood, 2006 National Forest Inventory 2007. National Plantation Inventory T4 Forestry Forest Wk Afforestation Gg of CO2e emissions from deforestation Australian Greenhouse Office, 2007 T4 Forestry Forest Wk emissions Industrial processes

The purpose of this file is two-fold: 1. To generate forecasts for industrial output and emissions 2. To provide places for wedges construction at various stages of the industrial production process

Tab Description T4 Industrial Assumptions This sheet shows steady state values for selected variables

T4 Industrial Notes This sheet shows key assumptions used in generating data

T4 Industrial Emis Factors This sheet shows emissions factors associated with selected industrial processes

T4 Industrial GWPs This sheet shows global warming potentials for various greenhouse gases

T4 Industrial 2005 AGO data This sheet shows greenhouse gas emissions for Australia and Victoria attributed to the inndustry sector T4 Industrial Conversions This sheet uses Australia-wide emissions records to calculate an emissions/ value

Supporting sheets Supporting added figure for selected industries

T4 Industrial Input AGO This sheet uses Victorian emissions attributed to Consumption of Halocarbons and Sulphur Hexafluoride to calculate an emissions factor for Consumption of Halocarbons and Sulphur Hexafluoride T4 Industrial VIC This sheet provides value-added figures for 52 selected industries in Victoria

Input data Variable Measure Data source Relevant sheet AGO data for the CO2e (tonnes) emissions in Australia Australian Greenhouse Office, 2007 T4 Industrial Conversions industrial sector AGO data for the CO2e (tonnes) emissions in Victoria Australian Greenhouse Office, 2007 T4 Industrial Conversions industrial sector Real value added Real value added across 52 industries CoPS Macroeconomic model run, August 2007 T4 Industrial VIC

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Manure management

The purpose of this file is two-fold: 1. To generate forecasts for manure related emissions 2. To provide places for wedges construction at various stages of the manure management process

Tab Description

Reference Case Manure related production and emissions summary, to be passed to T3 Working sheets Working

Supporting sheets Supporting Emissions Data Historical data collected from sources as detailed in the Data Assumptions worksheet

Input data Variable Measure Data source Relevant sheet dairy CO2e emissions from dairy, 2006 Australian Greenhouse Office website, 2007 T4 Manure Emissions Data beef CO2e emissions from beef 2006 Australian Greenhouse Office website, 2007 T4 Manure Emissions Data sheep CO2e emissions from sheep 2006 Australian Greenhouse Office website, 2007 T4 Manure Emissions Data pigs CO2e emissions from pigs 2006 Australian Greenhouse Office website, 2007 T4 Manure Emissions Data poultry CO2e emissions from poultry 2006 Australian Greenhouse Office website, 2007 T4 Manure Emissions Data Transport

The purpose of this file is two-fold: 1. To generate forecasts for transport related output and emissions 2. To provide places for wedges construction at various stages of the Transport chain

Tab Description

Reference Case Transport related production and emissions summary, to be passed to T3 Working sheets Working

Data Sources List of all Data Sources used in this workbook Original Reference Initial Reference Case outputs for the model Demand Mgmt Rates Transport demand management calculated rates from historical data Vehicle Util Rates Transport vehicle utilisation calculated rates from historical data Emission Rates Emmissions factors data for different vehicle types Growth Population growth projections (driven by Macroecon Data.xls) Train Growth Population and transport demand growth modelled and allocated against Melbourne Metro train lines Metro Bus Growth Projected public transport bus demand growth, modelled as a function of population growth Apelbaum Victorian heavy transport historical emissions factors data

Supporting sheets Supporting DOI PT patr Victorian public transport patronage historical data, including expected growth rates to model future demand BTRE Freight rail emissions factors - historical data SMVU Small to Medium (size) Vehicle Utilisation includes historical emissions factors data

DOI Annual Report Department of Infrastructure (Victoria) annual public transport report data

The following sheets test some possible transport scenarios. They are not used in the model and are included for information only. Scen Test Summ Summary of Scenario Testing results Scen Test Scenarios Detailed breaksdown of the assumptions in-built for each scenario that was tested Scen Test Demand Mgmt Scenario - Transport demand is managed through a number of initiatives Scen Test Mode Shift Scenario - Transport modes change Scenario Testing Emis Eff Scenario - Transport emissions efficiency increases Scenario Testing Scenario Scen Test Vehicle Util Scenario - Transport / Vehicle utilisation increases Scen Test All Wedges Scenario - Combined scenario (incl. all the above scenarios)

Input data Variable Measure Data source Relevant sheet Metro train Millions of vehicle kilometres DOI Annual Reports available at www.doi.vic.gov.au T4 Trans DoI Annual Report Metro tram Millions of vehicle kilometres DOI Annual Reports available at www.doi.vic.gov.au T4 Trans DoI Annual Report Metro PT bus Millions of vehicle kilometres DOI Annual Reports available at www.doi.vic.gov.au T4 Trans DoI Annual Report Metro other bus Millions of vehicle kilometres Victorian Transport Facts 2006, Apelbaum Consulting T4 Trans Apelbaum Metro car Millions of vehicle kilometres Victorian Transport Facts 2006, Apelbaum Consulting T4 Trans Apelbaum Metro motorcycle Millions of vehicle kilometres Victorian Transport Facts 2006, Apelbaum Consulting T4 Trans Apelbaum Regional train Millions of vehicle kilometres DOI Annual Reports available at www.doi.vic.gov.au T4 Trans DoI Annual Report Regional PT bus Millions of vehicle kilometres DOI Annual Reports available at www.doi.vic.gov.au T4 Trans DoI Annual Report Regional other bus Millions of vehicle kilometres ABS reference 9208.0 available through www.abs.gov.au T4 Trans SMVU Regional car Millions of vehicle kilometres Victorian Transport Facts 2006, Apelbaum Consulting T4 Trans Apelbaum Regional motorcycle Millions of vehicle kilometres ABS reference 9208.0 available through www.abs.gov.au T4 Trans SMVU Metro freight (road) Millions of vehicle kilometres Victorian Transport Facts 2006, Apelbaum Consulting T4 Trans Apelbaum Regional freight (road) Millions of vehicle kilometres Victorian Transport Facts 2006, Apelbaum Consulting T4 Trans Apelbaum Emissions per km for lead replacement Emissions Rates petrol, unleaded petrol, diesel and LPG/ AGO Factors and Methods Workbook", which can be found: T4 Trans Emissions Rates CNG/ duel fuel http://www.greenhouse.gov.au/workbook/pubs/workbook2006.pdf SMVU, Catalogue 9210.55.001 (data cubes of the SMVU data). Note that 2004 data Fuel consumption for vehicle type for lead Total and average fuel was used for the common base. replacement petrol, unleaded petrol, diesel T4 Trans Emissions Rates consumed http://www.abs.gov.au/AUSSTATS/[email protected]/DetailsPage/9210.0.55.00101%20Nov% and LPG/ CNG/ duel fuel 202003%20to%2031%20Oct%202004?OpenDocument

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Waste

The purpose of this file is two-fold: 1. To generate forecasts for waste output and emissions 2. To provide places for wedges construction at various stages of the waste production process

Tab Description

Model Input Waste production and emissions summary, to be passed to T3

Disaggregated input passed to T3 level. Output and emissions disaggregated into solid waste landfill and wastewater. These further disaggregated into municipal solid waste, commercial and industrial solid waste, construction and demolition solid waste, Output & Emis Summary domestic and commercial wastewater and industrial wastewater

Calculations for municipal solid waste, generated for food, paper and textiles, garden and green, wood and other. Waste emissions calculated from Degradable Organic Solid Waste - MSW Carbon (consisting of an existing stock and forecast flows) that can decompose to gas. Calculations for commercial and industrial solid waste, generated for food, paper and textiles, garden and green, wood and other. Waste emissions calculated from Degradable Organic Carbon (consisting of an existing stock and forecast flows) that Solid Waste - C&I can decompose to gas.

Working sheets Working Calculations for construction and demolition solid waste, generated for food, paper and textiles, garden and green, wood and other. Waste emissions calculated from Degradable Organic Carbon (consisting of an existing stock and forecast flows) that Solid Waste - C&D can decompose to gas. Calculations for domestic and commercial wastewater, generated for emissions from wastewater treatment plants, emissions from on-site systems and nitrous oxide Wastewater - D&C emissions Calculations for industrial wastewater, generated for emissions from dairy, pulp and paper, meat and poulty, organic chemstry, sugar, beer, wine, fruit and vegetable Wastewater - Ind production

Supporting sheets Supporting Emission Factors Emissions factors used in emissions production calculations, sourced from IPCC

Input data Variable Measure Data source Relevant sheet T4 Waste Solid Waste - Municipal solid waste on land (kilotonnes) Total waste landfilled Sustainability Victoria MSW Municipal waste composition proportions for T4 Waste Solid Waste - food, paper and textiles, garden and green, MSW Waste composition wood and other Sustainability Victoria T4 Waste Solid Waste - Average methane recovery Hyder Consulting MSW Commercial and industrial solid waste on T4 Waste Solid Waste - C&I Total waste landfilled land (kilotonnes) Sustainability Victoria Commercial and industrial waste composition proportions for food, paper and T4 Waste Solid Waste - C&I textiles, garden and green, wood and other Waste composition Sustainability Victoria Construction and demolition solid waste on T4 Waste Solid Waste - Total waste landfilled land (kilotonnes) Hyder Consulting C&D Construction and demolition waste T4 Waste Solid Waste - composition proportions for food, paper and C&D textiles, garden and green, wood and other Waste composition Sustainability Victoria Sewered population Population connected to the sewage system Water Services Association of Australia T4 Wastewater C&D Biological oxygen demand per head of BOD per capita T4 Wastewater C&D population Water Services Association of Australia Includes fraction to slude, fraction Emissions from wastewater anaerobic, methane emissions T4 Wastewater C&D wastewater factor, fraction methane recovered Sustainability Victoria Includes fraction to slude, fraction Emissions from sludge wastewater anaerobic, methane emissions T4 Wastewater C&D factor, fraction methane recovered Sustainability Victoria Production of dairy, pulp/paper, Commodity production meat/poultry, org chem, sugar, beer, wine, T4 Wastewater Ind in kilotonnes fruit, veg Fraction methane Production of dairy, pulp/paper, recovery/ flaring from meat/poultry, org chem, sugar, beer, wine, T4 Wastewater Ind wastewater fruit, veg