© NATIONAL aERONAUTICS AND sPACE ADMINISTRATION

Laggard to Leader How Australia Can Lead the World to Zero Carbon Prosperity

> Australia must stop using the promise of a global treaty that won’t eventuate to duck responsibility for its ballooning coal and gas exports.

> A moratorium on coal and gas expansion followed by a phasedown will drive a massive increase in global investment.

> Australia can lead the world to cheap, abundant renewable energy by deploying off-the-shelf, zero carbon technology that will grow Australia’s prosperity.

Laggard to Leader

Laggard to Leader How Australia Can Lead the World to Zero Carbon Prosperity

LEAD AUTHORS

Fergus Green and Reuben Finighan

> Australia must stop using the promise of a global treaty that won’t eventuate to duck responsibility for its ballooning coal and gas exports.

> A moratorium on coal and gas expansion followed by a phasedown will drive a massive increase in global renewable energy investment.

> Australia can lead the world to cheap, abundant renewable energy by deploying off-the-shelf, zero carbon technology that will grow Australia’s prosperity. Laggard to Leader

© 2012 Acknowledgements

This work is licensed under the Creative Commons Lead Authors: Attribution-NonCommercial-ShareAlike 3.0 Fergus Green and Reuben Finighan Unported License. To view a copy of this license, visit http:/ creativecommons.org/licenses/by-nc-sa/3.0/ or Researchers: send a letter to Creative Commons, 171 Second Street, Josh Brown • Lisa Caripis • Tom Dreyfus • Lisa Evans Suite 300, San Francisco, California, 94105, USA. • Ashley Fletcher • Patrick Hearps • Cameron Jewell • Gillian King • Jay Lewis • Marina Lou • Tristan Maddocks • Cassidy Prent • Russell Stubbs • Michelle Tran • Liem Truong • Daniel Wiseman ii Published by Beyond Zero Emissions Graphic Design: Kindness House Phuong Le • Alice Liu • Claire Miller • Tracey Nguyen Suite 10, Level 1 • Angeline Yannopoulos • Guyang Chen (The Climate 288 Brunswick Street Group) Fitzroy, Victoria 3065 Phone: 03 8383 2232 Expert Reviewers: www.beyondzeroemissions.org We are grateful to the following people who peer- reviewed the entire report: Associate Professor Peter Christoff • Professor Robyn July 2012 Eckersley • Martin Jones • Dr Greg Picker

Designed using Adobe CS5 We are grateful to the following people who peer- reviewed individual chapters of the report: Dr Richard Denniss • Declan Kuch • Professor Malte Meinshausen • Guy Pearse • Mick Power • Cédric Philibert

Printed by Impact Digital BZE Production Support and Review: Unit 3-4, 306 Albert St Hannah Aulby • Pablo Brait • James Bramwell • Ben Brunswick, VIC 3056 Courtice • Gerard Drew • John Fisher • Vicky Fysh • on Monza Satin FSC certified stock with 55% post Margaret Gaita • Pierre Grimaud • Patrick Hearps • Lucy consumer waste Luo • Liem Truong • Michael Waters • Sally Wilmott • Matthew Wright

Cover photograph: Supporters: © National Aeronautics and Space Administration We are grateful to the following people and organisations Suomi National Polar-orbiting Partnership, “Blue Marble” that provided in-kind support to this project: Australian view, 2012 Kate Nicolazzo, Nicolazzo Consulting • Luke Hockley, Midnightsky Contents Laggard to Leader

Contents

Executive Summary v

Glossary vii

Part 1 Introduction 1

Part 2 The Current Global Predicament 5 iii 2.1 Introduction 6 2.2 The Rapidly Diminishing Global Carbon Budget 6 2.3 The Deadlocked UN Climate Negotiations 9 References 12 Part 3 Australia’s : The “Sphere of Influence” Approach 15 3.1 Introduction 16 3.2 The “Sphere of Influence” Approach 16 3.3 Australia’s Domestic Emissions 17 3.3.1 Australia’s Absolute and Per Capita Domestic Emissions 17 3.3.2 Australia’s Domestic Emissions in a Global Context 18 3.4 Australia’s Exported Emissions 20 3.4.1 Australia’s Exported Emissions Today 20 3.4.2 Australia’s Growth in Exported Emissions 20 3.5 Australia’s Carbon Footprint Under the “Sphere of Influence” Approach 20 References 22 Part 4 Australia’s Current Policy Settings: Explaining our Ballooning Carbon Footprint 23 4.1 Introduction 24 4.2 Six Problems with Australian Climate and Energy Policy 24 4.2.1 Arbitrary Targets, Low Ambition 24 4.2.2 Over-Reliance on Offsets: Green Carbon and Overseas Credits 24 4.2.3 “Transition Gas” 26 4.2.4 Hoping Against Reason for Carbon Capture and Storage 28 4.2.5 Insufficient Deployment Support for Renewables 29 4.2.6 Fossil Fuel Promotion Policies: Betting the Other Way 29 References 31 Part 5 Cooperative Decarbonisation: A New Paradigm for International Climate Policy 33 5.1 Introduction 34 5.2 The “Bottom-Up” Reality 34 Contents Laggard to Leader

5.3 Cooperative Decarbonisation 35 5.3.1 The Fundamentals 35 5.3.2 Small Group Cooperation 36 5.3.3 Unilateral Action 38 References 41 Part 6 Australia’s Role in Cooperative Decarbonisation 43 6.1 Introduction 44 6.2 Cooperative Decarbonisation: What Should Individual Countries Do? 44 iv 6.3 Australia’s Responsibilities under Cooperative Decarbonisation 45 6.3.1 The Case for Australian Climate Leadership 45 6.3.2 International Equity 47 6.3.3 Australia’s National Interest 48 6.4 From Responsibility to Action 50 References 51 Part 7 Renewable Energy: Australia’s Contribution 53 7.1 Introduction 54 7.2 The Problem: Severe Underinvestment in Zero Carbon Innovation 55 7.2.1 The Case for Public Investment in Zero Carbon Deployment 56 7.2.2 The Case for Public Investment in Renewable Energy Research and Development 56 7.3 What Should Australia Do and What Effect Would it Have? 58 7.3.1 Unilateral Action: Australia Leading by Example 58 7.3.2 Coordinating With Like-Minded Countries 63 7.4 The National Interest in Renewable Technology Deployment and Development 66 7.4.1 Sizing the Zero Carbon Economy 66 7.4.2 Australian Opportunities in Clean Tech Markets 68 References 71 Part 8 Ending the Growth in Fossil Fuels: Australia’s Contribution 75 8.1 Introduction 76 8.2 The Problem: More Fossil Fuels Than We Can Safely Burn 76 8.3 What Should Australia Do? 77 8.4 What Effect Would These Actions Have? 80 8.4.1 Australia’s Moratorium 80 8.4.2 Bringing Global Attention to the Issue 81 8.5 Fossil Fuels: Really in Australia’s National Interest? 82 8.5.1 Understated Risk: A Global Carbon Bubble? 82 8.5.2 Overstated Value: The Minor Role of Coal 84 8.5.3 Further Research 85 References 86 Part 9 Conclusion 89 Laggard to Leader

Executive Summary Executive Summary Laggard to Leader

Australia has the power to lead the world towards To allow this to occur would be catastrophic for global zero carbon prosperity. efforts to avoid dangerous : it would mean Australia would be causing more than 1 in every 10 tonnes Australia, along with the rest of the world’s nations, has of the that can be emitted into formally adopted the objective of restraining global the atmosphere in 2030 consistent with a 2°C warming average temperatures to no more than two degrees trajectory. Celsius (2°C) above pre-industrial levels. The 2°C goal is a proxy for avoiding dangerous and irreversible changes to Australia is the steward of its natural resources. They the world’s climate — an outcome that the vast majority belong to all Australians and we can choose what to do of Australians support. with them. When our exports of coal and gas are burned, the carbon dioxide released into the atmosphere is the Even a 2°C average temperature rise would worsen climate product of these choices. The fact that these emissions vi change impacts that are already being felt across Australia. are not counted in Australia’s “carbon accounts” under UN Yet the world’s breakneck growth in fossil fuel supply and carbon accounting rules has previously been used as an consumption is causing greenhouse gas emissions to rise excuse for us to ignore their consequences. at such a rate that, as the International Energy Agency warned this year, “the door to a 2°C trajectory is about to But these rules are based on the idea that all countries close”. will have emissions reduction targets, the achievement of which will “add up” to the global cuts necessary to stay To keep the door open, global emissions must peak and within the 2°C limit. With the UN negotiations deadlocked begin to decline by 2020 at the absolute latest and then and no foreseeable prospect of such an international keep declining to zero by between 2040 and 2050. We regime emerging in the necessary timeframe, this excuse are in “the critical decade”. Decisions we make today will is not acceptable. largely determine the state of the climate system within which all subsequent generations must live. Hoping, against all probability, that the negotiations will reach a breakthrough just in time, while at the The world’s nations gathered in Durban in late 2011 same time making the problem they are trying to solve to continue long-standing negotiations towards a significantly worse is a dangerous, counterintuitive and comprehensive international treaty to cut greenhouse counterproductive approach for Australia to take. gas emissions. The best they could agree was that they would aim to negotiate by 2015 an agreement requiring It is well beyond time to approach the global challenge of some countries to start reducing emissions beginning in preserving a safe climate in a very different way. It is time 2020. These negotiations cannot be relied upon to secure to put leadership towards zero carbon prosperity at the the emissions cuts that are required. “It is clear”, argue heart of our response. the editors of the world’s preeminent scientific journal, Nature, “that the science of climate change and the politics In this report, Beyond Zero Emissions proposes a new of climate change ... now inhabit parallel worlds”. way forward: a practical, problem-solving approach to the decarbonisation of the global economy within the Australia, too, is operating in a parallel world. Having timeframe necessary to preserve a safe climate — driven by introduced a carbon price that it claims will usher in a “Clean national leadership and accelerated through international Energy Future”, the Federal Government and its State cooperation. Government counterparts are aggressively supporting a massive programme of investment in new mines, wells, The logic of “Cooperative Decarbonisation” is simple. Each pipes and ports. These projects will see Australia export a country must phase down to zero or very near zero the staggering amount of highly emissions-intensive coal and greenhouse gas emissions associated with every economic gas during — and well beyond — the critical decade. and social process over which it has control or influence. Instead of drawing lines at national borders, this approach Australia is already the world’s largest coal exporter, recognises that, in a globalised economy, countries have responsible for more than a quarter of the world’s traded shared responsibility for many of the emissions that occur coal, and is the fastest growing exporter of liquefied in any one place. As such, countries should use every natural gas. The emissions embodied in Australia’s fossil lever they have to eliminate those emissions within their fuel exports already total much more than our “domestic” “sphere of influence”, including the fossil fuels they export emissions. Based on data accumulated by Australian and the goods they import. Government agencies, Australia’s combined coal and gas exports are projected to more than double between now Clearly, international cooperation will be required — and 2030. particularly to ensure that the goals of sustainable economic development are achieved and that wealthier countries assist low income countries to make this Executive Summary Laggard to Leader

essential transition. But instead of trying to do it all in one policies and targeted investments, enable the deployment “grand bargain” as they are today, countries should work across Australia of enough CST to make this game-changing in smaller groups, focusing their efforts on the individual technology cost-competitive with fossil fuels everywhere. sectors and processes that cause emissions — working to leave fossil fuels in the ground, preserve the world’s forests Cheap renewable energy will solve some of the most and make renewable energy affordable for all. challenging problems facing humankind this century — from climate change, to oil scarcity, to — Australia, one of the world’s wealthiest nations, is one and allow us to build a global economy on foundations as of only a small handful of countries that can lead this reliable as the rising sun. process. The main reason for this is simple: our sphere of influence over global emissions is immense. Our high Australia has the power to make it happen. domestic emissions make us an important player, on par with nations like France, Spain and South Korea. But it is vii our ballooning coal and gas exports that make us a truly critical influence on global emissions.

We can use this position to focus the attention of world leaders on the most important, yet least discussed part of the climate problem: the fact that only one eighth of the world’s remaining fossil fuel reserves can safely be burned. Australia can help make that which is currently “unthinkable” — a global fossil fuel phase out — a reality. We propose an Australian moratorium on new fossil fuel developments: a bold move from the world’s largest coal exporter that can serve as the centrepiece for a wider call to action. Such a move would maintain the current global price of coal and stop it from falling by an expected 30% this decade. It would be one of the few conceivable ways that any single country could jolt world leaders into action, creating the economic and political momentum to commence immediate global discussion on the best and fairest means to phase-out fossil fuels.

Thankfully, Australia’s global power does not arise only from our ownership of the resources that are fuelling the problem. As the beneficiary of world class solar and wind resources, we also hold the key to the most important solutions.

Solar photovoltaics (PV) and wind energy are essential to decarbonising the world’s energy system. Thanks largely to the targeted investments made by Germany and other European countries when these technologies were more expensive, they have sailed down the “cost curve” and are now price-competitive with fossil fuel energy in many markets. Germany’s installation of almost 30GW of solar PV brought PV prices down by an incredible 65% over the past six years.

The other crucial technology is concentrating solar thermal (CST) with storage. This technology, which is operating today in other countries, produces 24 hour energy from the power of the sun. The Zero Carbon Australia Stationary Energy Plan showed that powering the Australian economy using predominantly CST is technically and economically achievable, starting now, in ten years. The greatest gift that sunny Australia could give to the world is to repeat for CST what cloudy Germany did for solar PV: through smart Glossary Laggard to Leader

Glossary

Acronym/ Definition Abbreviation BZE Beyond Zero Emissions CCS Carbon Capture and Storage CD Cooperative Decarbonisation CDM Clean Development Mechanism CEF Clean Energy Future CO Carbon dioxide viii 2 CO2-e Carbon dioxide equivalent CSG Coal Seam Gas CST Concentrating solar thermal Gt Gigatonne (1 billion tonnes) IEA International Energy Agency IISD International Institute for IPCC Intergovernmental Panel on Climate Change LNG Liquefied Natural Gas LULUCF Land Use, Land Use Change and Forestry Mt Megatonne (1 million tonnes) ppm Parts per million PV Photovoltaic UN United Nations UNDP United Nations Development Program UNEP United Nations Environment Program UNFCCC United Nations Framework Convention on Climate Change ZCA Zero Carbon Australia Laggard to Leader

Part 1 Introduction Part 1: Introduction Laggard to Leader

export income. In this report we show how the practical, 1. Introduction problem-solving approach to sectoral decarbonisation advocated in the Zero Carbon Australia Plans can be “I do not accept”, proclaimed Professor Ross leveraged to achieve major emissions reductions globally. Garnaut at the launch of his 2011 Review of In particular, we explain how Australia can exploit its world Australian climate change policy, “that Australia class renewable energy resources and its unique position 1 in the global market for internationally traded coal and is a pissant country”. gas to steer the world’s trajectory away from breakneck growth in fossil fuel exploitation and toward a truly clean With less than one third of one per cent of the world’s energy future. population, Australia has built the world’sth 13 largest economy and enjoys one of the highest incomes per person Chapter 2 of this report describes the current climate 2 2 of any country. Historically, Australian governments of change predicament in which humanity finds itself. It both political stripes have used our influence to lead the surveys the latest science and notes the necessity of world on issues of global and regional importance. Prime reducing global emissions this decade if we are to stay in Minister Hawke led the successful push to ban mining the “safe” range of 2˚C warming or below. The urgency of in Antarctica. The Hawke, Keating, Howard and Rudd emissions reductions is contrasted with the deadlocked Governments have led global efforts to stem nuclear UN negotiations, which are extremely unlikely to yield a proliferation and ban the testing of nuclear weapons. comprehensive agreement in the timeframe required. We Under each of these governments, Australia played a explain why the Durban Roadmap is no cause for genuine central role in regional peace and security initiatives in hope and why a different approach to international Southeast Asia and the Pacific. Our diplomatic reach is cooperation is urgently required to supplement the UN substantial, and we enjoy a seat at the most important process. The challenges discussed in this chapter pose the global decision-making table, the G20 — an institution we question: what should Australia’s role be in this “critical helped elevate to that status. decade”?

Yet when it comes to climate change — a phenomenon Chapter 3 illuminates the true extent of Australia’s that profoundly threatens our safety, prosperity and contribution to the climate problem. Whereas we typically natural environment — we are strangely content to play conceive of Australia’s “carbon footprint” purely in terms down our potential role and to let others take the lead. of emissions released within Australian territory, we “We are too small to make a difference”; “Aren’t we only explain why this approach grossly understates the tonnage 1.5% of the world’s emissions?”; “Australian leadership of emissions caused by Australian economic activity. We would be pointless”, for “only the big emitters — China make the case that considering Australia’s carbon footprint and the US — can ever play a leadership role”. Our political in terms of the emissions within Australia’s “sphere of leaders actively reinforce these ideas — from Tony Abbott’s influence” — in particular our domestic emissions plus claim that Australian emissions reductions “will not make emissions embodied in our fossil fuel exports — provides a difference for 1000 years”,3 to the Gillard Government’s a far more realistic picture of Australia’s contribution to veneration of followership (Australia’s carbon pricing climate change in world without a functional UN process. scheme puts us in the “middle of the pack”).4 Claims such Given the extraordinary scale of Australia’s coal and gas as these tend to go uncriticised and have come to set the export boom, the picture presented is not a flattering one: boundaries of mainstream debate about the desirability Australia’s combined domestic and exported emissions and effect of Australian climate action. are on track to consume, by 2030, 11% of the remaining yearly global carbon budget required to keep below 2°C The purpose of this paper is to refute the notion that of warming. Australian action is globally insignificant and to make the case that Australia can, and should, lead the world towards It is widely perceived that Australia’s current policy settings “zero carbon prosperity”. — including the “Clean Energy Future” package and carbon price — will have a major impact on Australia’s emissions, The ground-breaking Zero Carbon Australia Stationary restructure our economy towards clean energy and make Energy Plan showed that there are no technical or economic Australia a global leader on climate change. In Chapter 4 barriers to a complete decarbonisation of Australia’s we analyse Australia’s current domestic and international stationary energy sector, for the first time disproving the policy settings on energy, resources and climate change to conventional wisdom that “renewable energy cannot demonstrate the inaccuracy of these perceptions. While provide baseload power”. The full series of Zero Carbon Australia is certainly undertaking some welcome initiatives Australia Plans will set out in similarly technical terms how to reduce its emissions below “business as usual”, including Australia can decarbonise its transport, industrial, land-use the carbon pricing scheme, we show that Australian climate and agricultural sectors, revolutionise the energy efficiency the Clean Energy Future package depends upon paying of its built environment and replace its coal and gas other nations to cut emissions for us, and on “silver bullet” Part 1: Introduction Laggard to Leader

technologies like CCS that look unlikely to ever arrive. This examine the decisions we are now making about the extremely risky policy approach comes at the expense of shape of our economy over the next decade and beyond. measures that would induce the deep, structural change While a comprehensive cost-benefit analysis of Australian needed for a zero emissions economy. When considered decarbonisation is beyond the scope of this report, each of alongside the wide range of state and federal policies Chapters 7 and 8 highlights a number of reasons why these promoting the rapid exploitation of Australian coal and gas actions will serve Australia’s national interest. Beyond the for export, the conclusion is inescapable: Australian policy clear value of lessening the odds of dangerous climate is, on balance, fuelling the problem. change, we argue that on raw economic terms, building Australia’s future around fossil fuels bears substantially Chapter 5 introduces a new way of thinking greater risks and far fewer benefits than are currently about international climate action — Cooperative acknowledged. Investing such wealth in the rapidly Decarbonisation. This entails a more practically-oriented, growing clean tech sector is a much wiser option given our problem-solving approach to decarbonising the global natural advantages in renewable energy innovation and 3 economy, sector by sector, using a wide range of policies, our world class solar and wind resources. measures, investments and cooperative structures. This chapter explains why approaching climate action in this Everything proposed in this report is technically possible, way is more likely to yield progress on emissions cuts and legally permissible and economically viable. All our structural transformation than the UN negotiations. proposals can be implemented now using commercially available technologies and processes. All can be Chapters 6-8 make the case for Australian leadership encouraged or mandated through laws and policies that towards a zero carbon world within a Cooperative have been successfully implemented before, in other Decarbonisation paradigm. contexts, and which the Commonwealth Government has the Constitutional authority to pursue. Moreover, Chapter 6 argues the case that Australia should not only given the diversity of industries that comprise Australia’s decarbonise its domestic economy rapidly but do so in multi-faceted, service-based economy, it is inconceivable such a way as to provide global leadership, co-operating that anything we propose individually or in totality would intensively with like-minded countries to provide significantly retard the projected growth of Australia’s affordable, zero emissions solutions globally — particularly economy, or make Australia a less equitable society, in the in the developing world. This Chapter also outlines many decades to come. the kinds of practical international actions and policies that Australia could implement to ensure its domestic We are nevertheless cognisant of the political, economic, decarbonisation efforts are leveraged for maximum impact social, and cultural barriers that stand in the way of on global emissions. Australia implementing reforms and policies along the lines we propose on these pages. It is because of these Chapter 7 explains why large-scale investment in the rapid barriers that the scope of Australian action that can be deployment of commercially-available zero emissions imagined, discussed and analysed in detail is currently technologies should be the focus of Australian climate so limited. An alternative vision is required. Instead of policy, alongside increased investment in research, projecting our current norms and structures forward over development and demonstration of new technologies. It forty years and thinking about what could be tweaked, we describes the actions Australia should take in this regard believe it is preferable to articulate a vision for the future and demonstrates that such efforts would make an we want, informed by the realities and projections of the immense contribution to making zero carbon technologies best climate change science we have at our disposal, and cheap and accessible for people everywhere. forge a pathway to that future.

The second area where Australian leadership could make a Climate change poses extraordinary threats to our great difference to the global emissions trajectory relates collective future and Australia is a huge part of the to the exploitation and export of coal and gas. Chapter problem. Yet, we have immense capacity to contribute 8 explains why a global fossil fuel phase-out, currently a substantially toward global climate solutions, dramatically sensitive topic in mainstream discussion, is necessary to reducing the risks posed by climate change, at a time when preserve a safe climate. Accordingly, it outlines a series of our leadership is urgently required. There has never been steps that Australia should take to put the issue squarely a better time for Australia to shed its laggard skin and lead on the international agenda, including a moratorium on the world to zero carbon prosperity and a safe climate. new Australian fossil fuel developments, and explains the important effect on global energy markets and political action that such steps could have.

The underlying message of Chapters 6-8 is this: in light of Australians’ desire for a safe climate, we must critically Part 1: Introduction Laggard to Leader

References 1. Ross Garnaut, quoted in Tom Arup, “We’re Not Pissants”, The Age (1 June 2011) http://www.theage.com.au/national/were-not-pissants-garnaut- 20110531-1feq1.html. A “pissant” is a type of ant found in Europe. Used in its adjectival form, it is a pejorative that means insignificant and annoying: see “Pissant”, Oxford Dictionaries,http://www.oxforddictionaries.com/definition/ english/pissant. 2. World Bank, “Gross national income per capita 2010, Atlas method and PPP”, World Development Indicators Database (1 July 2011) http://siteresources. worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf; “Gross Domestic Product 2011” (9 July 2012) http://databank.worldbank.org/databank/ 4 download/GDP.pdf. 3. See, e.g., Tony Abbott as quoted in Lauren Wilson and Matthew Franklin, “1000 year vision fuels climate fight”, The Australian (29 March 2011) http:// www.theaustralian.com.au/national-affairs/year-vision-fuels-climate-fight/ story-fn59niix-1226029695904 and “Rio Meet Another International Talkfest: Abbott”, Business Spectator (21 June 2012) http://www.businessspectator. com.au/bs.nsf/Article/Rio-another-international-talkfest-Abbott- VG6WD?opendocument&src=rss. 4. See, e.g., Wayne Swan, “The Role of Government in a Changing Economy” Address to the Economic and Social Outlook Conference, Melbourne (30 June 2011) http://www.treasurer.gov.au/DisplayDocs. aspx?doc=speeches/2011/021.htm&pageID=005&min=wms&Year=&DocTy pe. Laggard to Leader

Part 2 The Current Global Predicament

Contents

2.1 Introduction 06

2.2 The Rapidly Diminishing Global Carbon Budget 06

2.3 The Deadlocked UN Climate Negotiations 09

References 12 Chapter 2: The Current Global Predicament Laggard to Leader

• Because of numerous design flaws in the UN approach, 2.1 Introduction a new treaty is unlikely to emerge anytime soon. • Even if agreed, any new treaty would likely impose only Earlier this year, the International Energy Agency modest restrictions on key countries’ emissions and (IEA) gave its most strident warning yet that a only with effect from 2020 at the earliest — far too little safe climate is about to slip out of reach. Global and far too late to achieve science-based emissions cuts in this critical decade. energy emissions rose more rapidly in 2011 than • Relying on the UN process alone is dangerous — at expected, to an all-time high of 31.6 billion tonnes least in the short-medium term, a different approach to of carbon dioxide equivalent (CO2-e), leading IEA cooperative climate action is urgently required. Chief Economist Fatih Birol to announce that “the door to a 2°C trajectory is about to close.”1 6 For 20 years the UN climate process has been working to 2.2 The Rapidly Diminishing Global keep this door open. While countries have striven to limit Carbon Budget global warming to safe levels through the development of a comprehensive international climate treaty, global energy emissions have soared by 50%.2 In 2012 there is Climate scientists tell us that greenhouse gas emissions still no such treaty on the horizon. The world’s key emitters are warming the world and that a temperature rise of remain irreconcilable, the negotiations are deadlocked, more than 2˚C would pose catastrophic risks for human and the tough decisions keep being postponed. In the populations and ecosystems alike. More than 100 countries words of the editors of the world’s pre-eminent scientific — Australia included — have formally recognised these journal, Nature, the latest round of negotiations in Durban facts by adopting a global warming limit of 2˚C or below was “an unqualified disaster. It is clear that the science of as a guiding principle for climate change mitigation efforts. climate change and the politics of climate change... now 3 inhabit parallel worlds.” This 2˚C limit has been equated with a CO2-e concentration of no more than 450 parts per million (ppm) in the As a result, humankind finds itself in an extraordinary atmosphere (compared with around 390ppm today and predicament: we are about to step over dangerous climatic 280ppm pre-industrially), which is estimated to give a thresholds, towards a world that nobody wants, because 50/50 chance of a temperature rise of 2˚C or more. As we cannot find a way to cooperate. discussed in Box 2.1, there is mounting evidence that even 450ppm may pose serious risks, and as such it represents

This chapter elucidates that predicament. First, it briefly an extreme upper limit for CO2-e concentrations. examines the present science regarding what constitutes a “safe” degree of global warming and the implications of our current emissions trajectory. Using data and analysis from the International Energy Agency, the German Advisory Council on Climate Change and Nature, it concludes that: • The latest science provides increasingly serious warnings about the risks associated with even 2°C warming. • To give a likely chance of avoiding warming above 2°C, global emissions need to peak before 2020 and decline rapidly thereafter to zero by 2050 (however, for developed countries, the deadline is much earlier, as discussed in Chapter 3). • Only one eighth of the world’s remaining fossil fuel reserves can be burned before the 2°C limit is breached. • Current international emissions targets fall well short of the 2°C goal, and the world is presently on track to use up its carbon budget by 2025 and raise global average temperature by 6°C.

The chapter then explains why the current UN climate negotiations — and the “top-down” paradigm of international climate action with which they are associated — are not the solution. While recognising that the UN process has laudable aims and is worth persisting with, the chapter concludes that: Chapter 2: The Current Global Predicament Laggard to Leader

From the perspective of emission scenarios, these Box 2.1: 450ppm and 2˚C: A Risky Legacy? feedbacks imply that an increase in emissions can no longer be assumed to result in a pro-rata The 2˚C and 450ppm guardrails are the product of a incremental increase in impacts. Put another long history of climate sensitivity analysis leading up way, a decision to relax climate policy and aim to the 2007 International Panel on Climate Change for a higher temperature target, such as 2.5°C (IPCC) Report. Although much of today’s climate change or 3°C, may not actually allow much room for politics is conducted around these targets, they are not an increase in emissions, given the likelihood of chiselled in stone. Science continues to improve upon further emissions and warming being triggered our understanding of the climate, and what constitutes a by feedbacks. For example, Schaefer et al. (2011) rational policy response will ideally move in tandem. calculate that under conditions similar to the New Policies Scenario (which stabilises the Estimates of climate sensitivity (or the amount global atmospheric concentration at around 650ppm 7 temperatures rise from a doubling of atmospheric CO2 CO2-eq), emissions from melting permafrost would concentrations) have remained remarkably constant for lead to a further increase of 58 to 116ppm in CO2 more than a century, with Svante Arrhenius arguing in concentrations, resulting in further warming and

1896 that doubling atmospheric CO2 would increase global more feedbacks. temperature by 4˚C. Today, a doubling is expected to cause 3˚C of warming, with a range of 2 to 4.5˚C. But the risk of The 450 Scenario, by definition, achieves a long- climate feedbacks and “tipping points” transforming 2˚C of term atmospheric concentration of 450ppm warming into much more — such as permafrost thawing, CO2-eq (resulting in average warming of 2°C). changing vegetation patterns and ice-albedo feedbacks — Such a temperature increase (even without are becoming an increasing concern. allowance for additional feedback effects) would still have negative impacts, including sea-level rise, In light of the latest science, is there anything special increased floods, storms and droughts. about 2˚C? The IEA’s World Energy Outlook 2011 provides the following answer:4 The new evidence has led some researchers to conclude that even keeping the temperature rise “The expected warming of more than 3.5°C in to 2°C may risk dangerous climate change, and the New Policies Scenario [note that the IEA’s that an even lower temperature threshold and “New Policies Scenario” assumes substantially corresponding stabilisation target (such as 350 increased investment compared with today, but ppm) should be set (Anderson and Bows, 2011; only achieves stabilisation at 650ppm and 3.5°C Hansen et al., 2008; Rockström et al., 2009; Smith of warming] would have severe consequences: a et al., 2009). The uncomfortable message from the sea level rise of up to 2 metres, causing dislocation scientific community is that although the difficulty of human settlements and changes to rainfall of achieving 450 ppm stabilisation is increasing patterns, drought, flood, and heat-wave incidence sharply with every passing year, so too are the that would severely affect food production, human predicted consequences of failing to do so.” disease and mortality. Beyond Zero Emissions advocates a return to 350ppm Alarmingly, research published since the or below as the necessary long-term outcome. This will International Panel on Climate Change’s Fourth require a rapid decline in global fossil fuel emissions by Assessment Report in 2007 suggests that this level 2020 and emissions draw-down in following years to of temperature change could result from lower reverse our overshoot. Nevertheless, like the IEA, this emissions than those of the New Policies Scenario, paper regularly makes reference to the conventional 2˚C due to climate feedbacks (IPCC, 2007a). For scenario simply because it is the most widely modelled,

example, drying of the Amazon would release CO2 and it is not widely known that the world is currently on that would then lead to further warming (Lewis track to completely overshoot even this risky target. et al., 2011) and rising arctic temperatures would lead to extra emissions from melting permafrost (Schaefer et al., 2011). These feedbacks have not yet been characterised with certainty, but they are expected to be triggered by temperature rises between 2°C and 5°C (Smith et al., 2009). The threshold for large-scale sea level rise may be similar, between 1.8°C and 2.8°C (Lenton et al., 2008 ; Hansen et al.,2008). Chapter 2: The Current Global Predicament Laggard to Leader

The 2°C limit can be expressed in terms of our remaining fuel reserves. Current reserves are equivalent to 3,500Gt

“carbon budget”, or the amount of CO2 in gigatonnes of CO2. Given that some of the global carbon budget will (Gt or billion tonnes) the global community is permitted be consumed from non-energy sources of emissions, at

to release into the atmosphere before this temperature most only 1/8 (equivalent to around 450Gt CO2) of our guardrail is breached. If we aim for a 75% chance of staying remaining fossil fuel reserves can be burned up to 2050. within the 2˚C guardrail, the world’s carbon budget over

the 2000–2050 period is around 1,000Gt of CO2. Figure 2.1, adapted from Meinshausen et al (2009), shows the relationship between the amount of carbon dioxide

As at 2012, we have already emitted around 450Gt CO2 — we emit during the 2000-2050 period and our likelihood of almost half of the 2˚C carbon budget within only 12 years5 exceeding 2˚C of warming. — leaving only 550Gt for the remainder of the period to 20506. The small size of our remaining carbon budget sits Keeping global emissions within the carbon budget requires 8 in contrast to the immensity of the world’s remaining fossil energy (fossil fuel) emissions to peak within the latter half

Figure 2.1 Total global proven fossil fuel reserves, compared to the probability of exceeding 2˚C global warming as a function of 7 cumulative CO2 emissions 2000-2049 a 100%

Very 90% unlikely

80% Unlikely 70%

60%

50% Less likely than not

40% More likely than not obability of exceeding 2 °C

P r 30% Probability of staying below 2 °C

20% Likely

Carbon budget for 2°C 10% Very likely

0% 0 500 1,000 1,500 2,000 2,500 b Land use Cumulative total CO2 emissions 2000–49 (Gt CO2)

Gas including unconventional 2000 - 2012 emissions Oil already Coal released Total reserves >3500 Gt

Unburnable carbon >3000 Gt

0 500 1,000 1,500 2,000 2,500

Emitted, available carbon (Gt CO2)

Below the curve, the figure shows: • 2000-2012 emissions — These have already been with coal taking the lion’s share.8 released, and so are subtracted from the 2000-2050 • Unburnable carbon — The figure shows that to remain budget. Emissions over these 12 years have already within the 2°C carbon budget, only a fraction of these taken us almost halfway to the carbon budget. resources — less than 500Gt worth — can be burned. • Fossil fuel reserves — Also shown is the size of This assumes very low emissions from non-energy remaining global gas, oil and coal reserves in terms of sources of emissions (e.g. industrial processes, land-use,

their CO2 potential. These come to 3,500Gt in total, land-use change and forestry). Chapter 2: The Current Global Predicament Laggard to Leader

of this decade, with the height of the peak determining Under the current negotiations, countries are also trying to the rate at which emissions need to decline thereafter. reach agreement on reducing emissions from deforestation, The German Advisory Council on Climate Change provides international aviation and shipping, and on complex issues a number of scenarios: if emissions peak by 2015, then of international equity (including the provision of financial global emissions need to reach around zero by the 2050 and technological transfers to developing countries to mark; if emissions peak later, by 2020, then the rate of assist with mitigation and adaptation to climate impacts)16 decline becomes more severe — emissions must decline — all as part of the same “grand bargain”. by an unlikely 9% per year to reach zero by 2040.

Whichever curve one chooses, global energy emissions Box 2.2: Brief History of the UN Climate Process need to peak at no more than 34Gt before 2020 and fall 9 17 to less than 20Gt of CO2 by 2030. The urgency of efforts The UNFCCC, negotiated in 1992, established a to turn the global emissions trajectory around before 2020 multilateral framework for international climate 9 has led numerous governments, Australia’s included, to governance within the UN system. The UNFCCC enshrined note that we have entered “the critical decade”.10 the long-term goal of avoiding dangerous anthropogenic interference in the climate system and established a On current trends, the world will use up its carbon budget suite of institutions and rules for the negotiation and by as soon as 2025. We are “perfectly on track for a six- development of more detailed emissions reductions and degree Celsius rise in temperature,” concluded Birol — a related commitments. path that “will have catastrophic implications for all of us.”11 Notable developments over the UNFCCC’s twenty year history have included: • the negotiation (in 1997) and entry into force (in 2005) of the , in which developed countries 2.3 The Deadlocked UN Climate accepted binding emissions limitation targets to be Negotiations achieved over the first commitment period, between 2008-2012;18 • the Bali Action Plan (2007),19 which established two Since the adoption of the United Nations Framework “tracks” for negotiating, by 2009 at Copenhagen, a Convention on Climate Change (UNFCCC)12 in 1992, the suite of agreements to commence following the end of international community has been trying to agree on the first Kyoto commitment period;20 cooperative international climate action that would prevent • the Copenhagen Conference (2009) at which parties these afore-mentioned catastrophes from eventuating. It fell well short of reaching any such agreements but has been doing so within a top-down paradigm that we instead produced a three page set of high-level political refer to as “treaties, targets and trading”.13 This paradigm commitments known as the Copenhagen Accord,21 aims to “prevent dangerous anthropogenic interference which were translated into formal decisions on with the climate system”14 as follows: peripheral issues (not including emissions constraints • all 193 Parties to the UNFCCC (nearly every country in the for individual countries) a year later in Cancun (2010);22 world) negotiate, agree by consensus, and eventually • the Durban Platform (2012), by which countries agreed sign and ratify a binding international agreement(s); to start another new negotiating process towards • the agreement imposes on each country an emissions a treaty or other “outcome with legal force” to be reduction target entailing a reduction of that country’s negotiated by 2015 and take effect in 2020.23 total domestic emissions (i.e. those produced within its borders) against a historical baseline; • those individual country targets add-up to a level of emissions reduction that stabilises concentrations of greenhouse gases in the atmosphere to an agreed level (e.g. 350, 450 or 550ppm), which translates to an agreed This top-down paradigm is an ambitious, theoretically maximum level of warming (average temperature elegant response to the technical and moral challenges increases above pre-industrial levels);15 posed by climate change — but it has been unable • each country’s target leaves it with an emissions to deliver the results it has promised. Since countries

entitlement (an amount they are allowed to emit began negotiating this grand bargain, global CO2 energy without exceeding their target) and these entitlements emissions have risen by around 50%.24 The Kyoto Protocol, can be traded between countries via an international the first commitment period of which expires at the end of mechanism; 2012, has failed to make a significant impact on the global • compliance with targets and related obligations is emissions trajectory (see Box 2.3) and no comprehensive enforced through centralised international institutions; regime for cutting emissions has been agreed to replace it. Successive conferences are hailed as important Chapter 2: The Current Global Predicament Laggard to Leader

“steps forward”, but the positive spin barely conceals an increasingly stark reality. Figure 2.2 The delegate for Haiti rests before the second day of negotiations, December 2009, Copenhagen, Denmark31 Box 2.3 The Flaws in the Current Paradigm: The Case of the Kyoto Protocol

The flaws in the current paradigm of climate action have been empirically demonstrated via the Kyoto Protocol. The Kyoto targets were meant to be a “first step” for developed countries in reducing their emissions and were only intended to result in an average 5% cut in developed 10 country emissions below 1990 levels over the 2008–2012 period. With the 2012 end-date fast approaching, we now know how it will turn out:25 • Russia and other former Soviet countries will beat their targets by a long way due to the collapse of their economies in the transition from Communism after There are important political, economic and cultural 1990, gifting them millions of tonnes worth of surplus reasons why countries are not making ambitious emissions (or “hot air”) emissions allowances which they can reduction pledges and why the major emitters (particularly trade with other countries (that this would result was developed countries including the United States) are known at the time of the negotiations in 1997 — in fact, not providing political leadership.32 These issues are it was seen to be an important inducement for certain beyond the scope of this report but, undoubtedly, the countries to sign).26 “game of chicken” being played by the United States and • A number of eastern European economies were also China — the world’s two largest emitters — has been affected by the post-Soviet collapse, which has made a major barrier to progress.33 The US insists that it will it much easier for the EU to meet its EU-wide Kyoto not accept emissions reduction targets unless China (and target — an achievement also helped by the use of other major industrialising countries like India and Brazil) international offsets and the outsourcing of heavy also accept binding targets. Meanwhile, China and India industry and manufacturing to China (though Europe remain reluctant to accept such obligations until the US must receive some credit for meeting its targets partly and other developed emitters fulfil their “differentiated through climate policy).27 responsibilities” to lead, enshrined in article 3(1) of • Australia is on track to meet its target (of an 8% increase the UNFCCC. This crisis of leadership has crippled the on its 1990 level emissions), albeit largely thanks to an negotiations for years. accounting provision it inserted into the Kyoto Protocol at the 11th hour of the negotiations. The so-called There are no signs that this will change anytime soon. “Australia clause” allows Australia to claim the emissions Promises of a comprehensive treaty in the near future reduction benefit of post-1990 land-clearing reductions should be regarded with a high degree of scepticism. on private land, which mask the fact that our fossil fuel The “Durban Roadmap” (the latest international plan emissions have risen by around 44% since 1990.28 to negotiate such a treaty) in particular provides no real • Japan will fail to meet its Kyoto target through domestic cause for hope that the deadlock can be broken. reductions, but made purchases of hot air allowances to make-up the shortfall.29 The Roadmap commits the parties to a new process for • Canada is on track to increase its emissions by around the negotiation by 2015 of “a protocol, another legal 30% since 1990, putting it way in excess of its Kyoto instrument or an agreed outcome with legal force” (a target. Faced with the threat of enforcement action formulation that has been interpreted to mean very under the Protocol (additional obligations in the different things by different countries34), with the hypothetical second commitment period, post-2012) associated emissions reduction obligations to come into it has simply repudiated its obligations and withdrawn effect from 2020.35 But the Roadmap is nothing more from the Protocol altogether.30 than a (non-binding) “agreement to negotiate” an “agreed • The US, having been instrumental in weakening the outcome” of unknown content and form. The last such content of the Protocol during the negotiations, never roadmap — the Bali Action Plan agreed in 2007 — was ratified it at all and has increased its emissions well meant to result in a binding agreement by the end of beyond its nominal 7% reduction target. 2009 in Copenhagen. When it became clear that no such agreement would be reached in Copenhagen, the parties simply extended indefinitely the negotiating timetable and ultimately abandoned it in 2011. The process launched at Durban could likewise extend well beyond 2015 — Chapter 2: The Current Global Predicament Laggard to Leader

perhaps to be replaced by another new roadmap in four if such legally binding commitments become too onerous, or five years’ time. countries can simply ignore them as Canada has ignored its Kyoto obligations. Even if an agreement were to be reached by 2015 and come into effect by 2020, it is likely to be too little, too Of course, it is possible that, sometime in the future, late. Currently pledged emissions targets (on which any countries will be able to agree to a comprehensive, top- future treaty is likely to be based) come nowhere near down regime of targets that add up to a sufficiently risk- to plugging the enormous disparity — estimated by the averse climate stabilisation goal, backed by effective UN Environment Program to be up to 18 billion tonnes — verification and enforcement mechanisms. For this and between business as usual emissions and science-based other reasons, including the need to have a centralised estimates of the reductions required.36 repository of emissions data to track countries’ emissions, the UN process should continue. Moreover, as discussed , the latest climate science suggests 11 that global emissions must peak within the second half of However, Australia and other countries cannot depend the current decade — the earlier the better — if we are to solely upon that process to deliver a sufficient solution. have any chance of restraining global average temperature To do so would be a dangerous policy response to the rises to within 2°C. Holding out for inadequate emissions extraordinary threat to Australian and global welfare reduction obligations that might begin in 2020 is not an posed by climate change. Countries must urgently develop acceptable international policy response. new models of cooperation outside the UN process if large-scale emissions reductions are to be achieved in the Finally, even the inadequate commitments countries timeframe required to preserve a safe climate — a theme may make can easily be hollowed-out through complex we return to in Chapter 5. accounting loopholes and through the provision of international offsets, many of which are of dubious quality, as the Kyoto experience has shown.37 In any case,

Figure 2.3 Delegates rest during an all night plenary session, December 2009, Copenhagen, Denmark38 Chapter 2: The Current Global Predicament Laggard to Leader

(14 May 2012) http://www.newyorker.com/reporting/2012/05/14/120514fa_ References fact_specter?currentPage=all. 1. Jessica Shankleman, “IEA Warns Time is Running Out to Prevent Catastrophic 12. UNFCCC, Opened for signature 4 June 1992, 1771 UNTS 107 (entered into Climate Change”, Business Green (25 May 2012) http://www.businessgreen. force 21 March 1994). com/bg/news/2179906/iea-warns-running-prevent-catastrophic-climate- 13. See Fergus Green, “The Failure of ‘Treaties, Targets and Trading’ and the change. Future of Australian Climate Policy”, Inside Story (2 February 2012) http://

2. Based on a comparison of CO2 emissions from energy consumption between inside.org.au/the-failure-of-treaties-targets-and-trading/ and “Time to Move 1992 and 2010: US Energy Information Administration, “International Energy Beyond ‘Treaties, Targets and Trading’”, Inside Story (6 March 2012) http:// Statistics”, http://205.254.135.7/cfapps/ipdbproject/iedindex3.cfm?tid=90&pi inside.org.au/time-to-move-beyond-treaties-targets-and-trading/. d=44&aid=8&cid=regions&syid=1980&eyid=2010&unit=MMTCD. 14. UNFCCC (1992), art 2. 3. Editorial, “The Mask Slips” (2011) Nature, Vol. 480, p 292, http://www.nature. 15. For the archetypical explanation of how this process is supposed to work in com/nature/journal/v480/n7377/full/480292a.html. theory, see Ross Garnaut, “The Garnaut Climate Change Review” (2008) Ch 12 4. International Energy Agency, World Energy Outlook 2011 (2011) p 209, 12. The causal relationship between each of these logical steps is, however, http://www.scribd.com/doc/72512781/World-Energy-Outlook-2011. extremely complex and countries have struggled to define and agree on a 5. Extrapolated from, Malte Meinshausen et al, “Greenhouse-gas emission precise set of objectives. For example, while many nations have clung to targets for limiting global warming to 2°C” (2009) Nature, Vol 458, p 1158- the goal of restraining global temperature increases to less than 2°C, the 1162, http://www.nature.com/nature/journal/v458/n7242/full/nature08017. Alliance of Small Island States and a number of other countries insist that html. the goal should be to keep increases below 1.5°C. This disparity of objectives 6. Ibid. is reflected in, for example, the Copenhagen Accord paragraph 1 (which 7. Adapted with permission from Meinshausen et al (2009). Estimates of global recognises “the scientific view that the increase in global temperature gas reserves in Meinshausen et al (2009) were based on end-2005 figures should be below 2 degrees Celsius”) and paragraph 12 (which calls for a of proven gas reserves at the most conservative confidence level of proven consideration of strengthening the goal to 1.5°C) and the Durban Platform reserves (WER 2007) - 176 trillion cubic metres (TCM), corresponding to preamble (which refers to holding temperatures increases in global

360GtCO2 of emissions if combusted to CO2 (ignoring potential fugitive temperature to below “2°C or 1.5°C”). methane leaks). Since 2005, new technology employed by the oil & gas 16. For a summary of the issues on the UN negotiating agenda, see Fergus Green industry such as advanced fracturing techniques have led to significant and Greg Picker, “Comprehending Copenhagen: A Guide to the International developments of unconventional gas resources such as shale gas and Climate Change Negotiations” (Lowy Institute for International Policy, coal seam gas, leading to the IEA featuring a special issue with the World November 2009). Energy Outlook 2011 asking ‘Are we entering a Golden Age of Gas?’. IEA 17. UNFCCC (1992). WEO2011 estimates January 2010 Ultimately Recoverable Reserves of 404 18. “Kyoto Protocol to the United Nations Framework Convention on Climate TCM conventional gas, and a further 406 TCM unconventional gas. This is Change”, opened for signature 16 March 1998, 2303 UNTS 148 (entered into

equivalent to 1655GtCO2. The authors note that URR is a less conservative force 16 February 2005) art 3.1, Annex B. estimation than ‘proven’ reserves, however this gas could potentially be 19. Conference of the Parties, “Report of the Conference of the Parties on Its exploited with the new techniques mentioned earlier. For the mid-range Thirteenth Session, Held in Bali from 3 to 15 December 2007, Addendum estimate we have taken 50% of the difference between IEA’s URR of 810 — Part Two: Action Taken by the Conference of the Parties at Its Thirteenth TCM and the WER estimate of 176 TCM, added to the original 176 TCM, Session”, UNFCCC, 13th sess, UN Doc FCCC/CP/2007/6/Add.1 (14 March 2008) giving a mid-range potentially recoverable reserve of 493 TCM, equivalent p 3 (Decision 1/CP.13 — Bali Action Plan).

to 1008 GtCO2. See: Malte Meinshausen et al. “Greenhouse gas emission 20. One track was focused on achieving a second commitment period under targets for limiting global warming to 2°C: Supplementary material”, Nature the Kyoto Protocol and the other concerned with a broader range of issues, (April 2009) Table S3, doi:10.1038/nature08017; “2007 Survey of World including emissions reduction obligations for developing countries (and Energy Resources”, World Energy Council, (2007) Table 5-1, p 161, http:// related financial and technical assistance from developed countries) and www.worldenergy.org/documents/ser2007_final_online_version_1.pdf; reducing emissions from deforestation. “Are we entering a Golden Age of Gas?”, International Energy Agency 21. Conference of the Parties, “Report of the Conference of the Parties on (2011) Table 2.1, p 49, http://www.iea.org/weo/docs/weo2011/WEO2011_ Its Fifteenth Session, Held in Copenhagen from 7 to 19 December 2009, GoldenAgeofGasReport.pdf. Addendum — Part Two: Action taken by the Conference of the Parties at Its 8. Carbon Tracker, “Unburnable Carbon – Are the world’s financial markets Fifteenth Session”, UNFCCC, 15th sess, UN Doc FCCC/CP/2009/11/Add.1 (30 carrying a carbon bubble?” (2011), p 6 http://www.carbontracker.org/wp- March 2010) p 4-9 (Decision 2/CP.15 — Copenhagen Accord). content/uploads/downloads/2011/07/Unburnable-Carbon-Full-rev2.pdf. 22. See the formal documentation from the Cancun meeting at UNFCCC, “Cancun 9. WBGU – German Advisory Council on Climate Change, “Solving the Climate Climate Change Conference — November 2010”, http://unfccc.int/meetings/ Dilemma: The Budget Approach” (2009) p 16, http://www.wbgu.de/ cancun_nov_2010/meeting/6266/php/view/reports.php. fileadmin/templates/dateien/veroeffentlichungen/sondergutachten/sn2009/ 23. Conference of the Parties, “Report of the Conference of the Parties on Its wbgu_sn2009_en.pdf. Seventeenth Session”, UNFCCC, Held in Durban from 28 November to 11 10. Australian Government, “Australia’s Submission to the Rio+20 Compilation December 2011, Addendum — Part Two: Action Taken by the Conference of Document”, (2012) p 10, http://www.environment.gov.au/rio/pubs/ the Parties at Its Seventeenth Session, 17th sess, UN Doc FCCC/CP/2011/9/ compilation-draft-submission.pdf; Australian Climate Commission, “The Add.1 (15 March 2012) p 2 (Decision 1/CP.17 — Establishment of an Ad Hoc Critical Decade: Climate Science, Risks and Responses” (2011) http:// Working Group on the Durban Platform for Enhanced Action) paras 2, 4. climatecommission.gov.au/report/the-critical-decade/. 24. Analysis of US EIA “International Energy Statistics”. 11. Fatih Birol quoted in Michael Specter, “The Climate Fixers”, The New Yorker 25. Data relating to the below points can be accessed from UNFCCC, “Kyoto Chapter 2: The Current Global Predicament Laggard to Leader

Protocol Data”, http://unfccc.int/ghg_data/kp_data_unfccc/items/4357.php. 26. Dieter Helm, “Climate-Change Policy: Why has So Little been Achieved?”, Oxford Review of Economic Policy (2008) 24(2), p 211, 218; Gwyn Prins and Steve Rayner, “The Wrong Trousers: Radically Rethinking Climate Policy” (2007) p 10-11; David Victor, The Collapse of the Kyoto Protocol and the Struggle to Slow Global Warming (2001). 27. Helm, “Climate-Change Policy: Why has So Little been Achieved?”, p 218; Prins and Rayner, “The Wrong Trousers: Radically Rethinking Climate Policy”, p 10-11. 28. Andrew Macintosh, “Reducing Emissions from Deforestation and Forest Degradation in Developing Countries: A Cautionary Tale from Australia”, The Australia Institute, Policy Brief No. 12 (April 2010). 29. See, e.g., Adam Easton “Poland Signs Deal to Sell Japan 4 Million AAU 13 Emissions Credits”, Platts (10 December 2010) http://www.platts.com/ RSSFeedDetailedNews/RSSFeed/ElectricPower/6663640; David Pilling and Fiona Harvey, “Japan to Start Buying Carbon Credits”, Financial Times (22 November 2007) http://www.ft.com/intl/cms/s/0/b45ad96c-9929-11dc- bb45-0000779fd2ac.html; “Greenhouse Gas Emissions in Fiscal 2010 up 4.2%”, The Japan Times Online (18 April 2012) http://www.japantimes.co.jp/ text/nn20120418f3.html. 30. “Canada Pulls Out of Kyoto Protocol”, The Guardian (13 December 2011) http://www.guardian.co.uk/environment/2011/dec/13/canada-pulls-out- kyoto-protocol. 31. Ghali Hassan, “COP15-A-Haitian-delegation”, 2009, http://homepagedaily. com/Pages/article8757-cop15-copenhagen-a-road-to-ecocide--by-ghali- hassan.aspx. 32. For a discussion of these reasons, see Robert Falkner, Hannes Stephan and John Vogler, “International Climate Policy after Copenhagen: Towards a ‘Building Blocks’ Approach” (October 2010) Global Policy, 1(3), p 252, 256- 257. 33. Ibid. 34. See, e.g., the differing interpretations of the Durban outcome by Australian Climate Change Minister Greg Combet (‘’Certainly, in our view, it means we are negotiating a legally binding agreement that would bind all developing and developed countries”) and Indian Environment Minister Jayanthi Natarajan (“It does not imply that India has to take binding commitments to reduce its emissions in absolute terms”): Greg Combet quoted in Adam Morton, “Accord Won on Climate Deal”, The Age (12 December 2011) http://m.theage.com.au/environment/climate-change/accord-won-on- climate-deal-20111211-1opu4.html; Jayanthi Natarajan quoted in “No Binding Pacts Inked in Durban Climate Meet: Jayanthi Natarajan”, The Times of India (22 December 2011). See also Lisa Friedman, “India Hits Brakes on Durban Pledges; Poorer Nations Want Climate Talks to Accelerate”, Climate Wire (8 March 2012). 35. “Report of the Conference of the Parties on Its Seventeenth Session”, UNFCCC, Working Group on the Durban Platform for Enhanced Action. 36. See UNEP, The Emissions Gap Report (2010) http://www.unep.org/ publications/ebooks/emissionsgapreport/. 37. See also below Chapter 4.2. 38. “Developing Countries Condem Copenhagen Climate Agreement”, San Francisco Sentinel (18 December 2009) http://www.sanfranciscosentinel. com/?p=53124. Chapter 2: The Current Global Predicament Laggard to Leader

14 Laggard to Leader

Part 3 Australia’s Carbon Footprint: The “Sphere of Influence” Approach

Contents

3.1 Introduction 16

3.2 The “Sphere of Influence” Approach 16

3.3 Australia’s Domestic Emissions 18 3.3.1 Australia’s Absolute and Per Capita Domestic Emissions 18 3.3.2 Australia’s Domestic Emissions in a Global Context 18

3.4 Australia’s Exported Emissions 20 3.4.1 Australia’s Exported Emissions Today 20 3.4.2 Australia’s Growth in Exported Emissions 20

3.5 Australia’s Carbon Footprint under the “Sphere of Influence” Approach 20

References 22 Part 3: Australia’s Carbon Footprint Laggard to Leader

emissions and its exported emissions from fossil fuels — 3.1 Introduction this chapter concludes that: • Australia’s combined domestic and exported emissions How much does Australia contribute to the account for 4% of total global emissions. Coal is global climate crisis? responsible for some 80% of this combined footprint. When export emissions are added to domestic Contrary to popular belief, there is no single way emissions, Australia jumps from the 15th to 6th biggest to determine a country’s “carbon footprint”. The polluter globally. size of Australia’s carbon footprint, therefore, • Our exported emissions are growing rapidly: Australia depends on which sources of emissions we is on track to export fossil fuels equivalent to 1.8 billion tonnes of CO2-e per annum, almost twice as much as count, and which ones we exclude. Saudi Arabia does today, and equivalent to the entire 16 emissions of India’s 1.2 billion people. It is often said that Australia causes “only 1.5%” of the • Australia’s combined domestic and exported emissions

world’s emissions. This statistic refers only to Australia’s are on track to grow to 2.2 billion tonnes of CO2-e domestic emissions (those emissions released into the per year by 2030. This would be equal to 11% of the atmosphere within our borders). As we show in this allowable global carbon budget (for 2˚C warming) in chapter, even these are very high by world standards: that year (shown in Figure 3.1). • Of 193 nations, Australia’s domestic emissions (around th 540 million tonnes of CO2-e per annum) are the 15 In sum, Australia bears remarkable responsibility for largest in the world. climate change given its size – and therefore has a • Australia’s per capita domestic emissions are the highest disproportionately high potential to alter the global in the developed world. emissions trajectory. • Based on an equal apportionment among the world’s people of the global 2°C carbon budget for 2000–2050, Australians consumed their full 50-year share in the first ten years. 3.2 The “Sphere of Influence” Approach Even these figures seriously under-represent Australia’s true contribution to climate change. Australia is the biggest 100.5 exporter of coal in the world and a large exporter of gas, In our globalised economy, a country can engage in a whole with significant influence on global fossil fuel markets. The range of actions that are exclusively or partially responsible domestic emissions statistics ignore, among other things, for causing greenhouse gas emissions somewhere in the emissions embodied in these exported fossil fuels. the world. Consider the example of “Country A” and the emissions in the following three activities in its economy: 100.4 In this chapter, we advocate a different model for 1. A company in Country A extracts and combusts some conceptualising a country’s carbon footprint — the sphere of its own coal to produce electricity that is supplied to of influence approach — and explain why it results in a nearby households. more realistic characterisation of Australia’s contribution 2. Another company in Country A exports some of its coal 100.3 to climate change. Through a detailed examination of to be combusted in Country B. two of the biggest categories of emissions sources that 3. A citizen of Country A imports a consumer product 100.5 fall within Australia’s sphere of influence — its domestic from Country C, the production of which required the combustion of coal in Country C. 100.2 100.4 Figure 3.1 The emissions from which of these activities should be Australia’s contribution to the 2030 carbon budget considered “Country A’s emissions”? Clearly, emissions from the first activity are attributable to Country A, since 100.3 no other countries were proximately involved in the supply 100.1 chain of the electricity.1 But what about the second and third activities? At the very least we can claim that country 100.2 2030 Global CarbonA is a partial Budget or contributory cause of the emissions created in the course of both activities (along with countries B and 100 C, respectively). 100.1 2030 Australian Total Fossil Fuel EmissionsAs these examples illustrate, there are many different 2030 Global Carbon Budget principles or approaches that could be devised for 100 attributing responsibility for a particular tonne of emissions 99.9 2030 Australian Total Fossil Fuel Emissions to a particular country.

99.9

99.8 99.8

99.7 99.7

99.6

99.6 99.5 0.7 0.8 0.9 1 1.1 1.2 1.3

99.5 0.7 0.8 0.9 1 1.1 1.2 1.3 Part 3: Australia’s Carbon Footprint Laggard to Leader

As explained in Chapter 2, the UN climate process has been goods and services that it imports. All of these emissions built around one such approach, by which each country fall within a country’s sphere of influence — and this is the is responsible for accounting for its domestic emissions. case irrespective of whether they also fall within another There are good reasons why one might want to draw the country’s sphere of influence. line at the water’s edge. If there were a comprehensive, legally binding and effectively enforced global regime Australia is today undertaking an immense, government- of domestic emissions reduction targets in place, it backed expansion of coal and liquefied natural gas would make sense for countries to concern themselves (LNG) exports. Australia has sovereignty over its natural only with their respective domestic emissions. In these resources, and State and Commonwealth Governments circumstances, for example, Australia could export fossil possess the legal authority to determine whether, and fuels to the world with full confidence that other countries the extent to which, those resources may be extracted, were engaging in this fossil fuel trade in the context of used and exported.2 Australian governments also have “safe” limits on emissions. the capacity to determine how much to subsidise resource 17 exploitation. Fossil fuel exports therefore clearly fall within But no such regime exists. There are no controls ensuring Australia’s sphere of influence. Similarly, Australia has the volume of fossil fuels being traded is consistent with the capacity to control and regulate the range of goods a safe climate outcome. Nor, as we argued in Chapter 2, that enter through its borders, for example by requiring is such a regime likely to arise in the timeframe within importers to hold licences, imposing quotas or tariffs which emissions reductions are required. It therefore no on imports, or prohibiting the import of certain goods longer makes sense for us to confine our conception of a altogether (though its ability to affect the emissions- country’s carbon footprint to its domestic emissions. intensity of those goods that it allows into the country is less direct). The emissions associated with our imports For the purpose of ascertaining how much a single country therefore also fall within our sphere of influence. contributes to climate change, a more realistic approach is to consider that country’s carbon footprint in terms In conclusion, under the “sphere of influence” approach, of the emissions within its “sphere of influence”. Every Australia’s carbon footprint should be defined as the sum tonne of greenhouse gas emitted in the world can be of its domestic emissions, emissions embodied in its fossil conceptualised as lying on a spectrum that measures the fuel exports and emissions caused as a result of its imports. degree of control or influence a particular country has over its production. In the case of “purely domestic” emissions Consistent with this approach, below we outline Australia’s (such as example 1, above), a country has full control over domestic and exported emissions — two of three those emissions. Similarly, a country has full control over categories3 of emissions sources in Australia’s sphere of the emissions embodied in its fossil fuel exports. A country influence — to develop a more accurate account of our also has influence, though not full control, over the contribution to global warming. emissions caused overseas as a result of the production of

Figure 3.2 National inventory total (excluding Land Use, Land Use Change and Forestry - LULUCF), Carbon Dioxide equivalent4 600

500

400

e -

300 Tonnes CO2 Tonnes

200

100

0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Energy Industrial Processes Agriculture Waste Part 3: Australia’s Carbon Footprint Laggard to Leader

Land use, Land use Change and Forestry).8 At around

3.3 Australia’s Domestic Emissions 540 million tonnes of CO2-e (energy and other emissions, excluding LULUCF), Australia is directly responsible for around 1.5% of these emissions.9 At first glance this may 3.3.1 Australia’s Absolute and Per Capita Domestic seem like an insignificant contribution — but this is largely Emissions due to the number of players involved. There are 193 countries recognised by the UN, the majority of which have In 2011, Australia released a total of 540 million tonnes of emissions contributions closer to 0.1%. In fact, Australia th 10 CO2-e into the atmosphere (see Figure 3.1). Since 1992, is the 15 biggest direct emitter of CO2-e in the world. when the UNFCCC was adopted, Australia’s emissions have Many countries that we would instinctively assume have grown almost 30%. an important contribution to make in reducing global emissions — countries such as France, Italy and Spain — 18 Emissions from energy production contribute the lion’s have emissions at around the same level as our own. share of Australian emissions, accounting for almost 80% of direct emissions today. In total, they reach around 417 The nations of the world can usefully be divided into three 11 million tonnes of CO2-e, representing growth of around groups: 44% since 1990.5 • The gigatonne emitters, with total emissions measured in the gigatonnes (billions of tonnes). This list is The emissions intensity of Australia’s energy system is composed of China, India, Japan, Russia and the United more than 30% higher than the world average. There are States (and the EU, if it is imagined as one entity). Their but five countries in the world with a more emissions- emissions range from around 4% to 23% of the global intensive energy system: Bosnia Herzegovina, Estonia, total. Mongolia, North Korea and Poland.6 • The middle emitters, which are clustered around half a gigatonne. Australia is in the middle of this category, This is largely due to our dependence on coal-fired alongside countries such as Germany, South Korea, electricity. Transition countries like China and India are Mexico, and Spain. Their emissions range from around also coal-dependent and have electricity generation 1% to 2% of global emissions. systems that are almost as emissions-intensive as those • The minor emitters, a long list of countries that emit

in Australia. Nevertheless, their per capita emissions are from as little as tens of thousands of tonnes of CO2-e well below the OECD average due to high rates of energy (New Zealand, Sudan, Lebanon) up to a couple of poverty — around 300 million Indians still go without hundred millions of tonnes (Kazakhstan, Malaysia, electricity today.7 Venezuela). Their emissions range from 0% to 1% of the global total.

3.3.2 Australia’s Domestic Emissions in a Global The 20 countries with the highest emissions — including Context all the gigatonne and middle emitters — account for

around 81% of world CO2-e emissions while the remaining How do Australia’s domestic emissions compare with countries account for only 19% (see Figure 3.3). In a world those of other countries? where the UN recognises 193 nations, Australia sits clearly within this most important group. In 2010, the world’s nations released around 33.4 billion

tonnes of CO2-e (energy and other emissions, excluding Looking at emissions per citizen shows that Australia’s emissions are immense in proportion to our small Figure 3.3 population. Australia’s domestic energy emissions per CO2 emissions (fromCO 2fuel em combustion)ission shares of the 20 capita were 18.4tCO2-e per person in 2011, more than 2 14 highest emitting countries times the OECD nation average of 9.0tCO2-e per capita and the highest among all countries in the Top 20 (see Figure 20 top emitters 3.4).12 China may be the world’s biggest emitter, but the average Australian citizen still emits more than 3 times as Rest of world 13 19% much CO2-e as the average Chinese.

Our high emissions per capita mean that we have already exceeded our portion of the global 450ppm carbon budget for 2000 to 2050. In the first 10 years of this century, we 81% emitted all the emissions that would be allowed to us for the first 50 years (if we were to share out emissions quotas evenly between the world’s people, see Box 3.1). As a result, we are now rapidly eating into the carbon Part 3: Australia’s Carbon Footprint Laggard to Leader

budgets of other nations. This demonstrates how unfair have lower per capita emissions, particularly given that our greenhouse gas emissions are on those nations that Australia is also one of the world’s wealthiest nations.

Box 3.1: Australia’s Carbon Budget are well above that level, at 7tCO2-e. When population growth to 2050 is factored in, real emissions will9/28/2009 need to

The global carbon budget for 2000-2050, explored in fall to 1tCO2-e per capita or less by 2050. Chapter 2, can be apportioned to the nations of the world to guide each nation on its emissions responsibility over Australia’s share in this global carbon budget is 0.33%, the period. The method recommended by the German or 3.3GtCO2-e. With our own domestic emissions of Advisory Council on Climate Change (WBGU) is to distribute around 0.5Gt per year since 2000, Australia exceeded the budget equally according to population — that is, to its 2000–2050 carbon budget 43 years early, in 2007. A 15 split it into an allowance of tonnes per person per year. more generous apportionment by the WBGU (see Figure 19 3.5) recalculates the carbon budget from the year 2010, Under the conventional 2°C scenario, with a carbon giving Australia around 2.5Gt.16 Staying within this budget budget of 1000Gt over the 50 years (see Chapter 2), the (without international carbon trading) requires a rapid distribution of the global carbon budget proposed from reduction of emissions to zero by 2020. On our current 2000–2050 amounts to average yearly emission allowances trajectory, we are set to blow our budget by 2016. of around 3tCO2-e per capita. Global per capita emissions

Figure 3.4 17 Direct emissions from fossil fuelC consumptionurrent CO2 from Fossil Fuel Consumption 8,000 60

7,000 )

r Domestic emissions 50 a 6,000 /year) Per capita

es /y e 40 n

n 5,000 o t

n 4,000 30 illi o n (tonnes/perso

m a (

3,000 it 2 2 p O 20 a c C

2,000 Pe r

2 Tota l 10 O

1,000 C

- 0

Scenario 2: Climate Compromise T = 2010, T = 2050, T = 2010, p = 2/3 Figure 3.5 1 2 M 18 Example emission reduction curves (selectedEmission countries) paths per for capita a 2010-2050 for selected carbon countrie budgets on an equal per capita basis 20

18 Germany USA (& Australia) 16 China India 14 Burkina Faso a 12 Global budget per capita assuming capi t constant annual 10 emissions per

2 O

C 8 t

6

4

2

0 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Part 3: Australia’s Carbon Footprint Laggard to Leader

As a result of the coal and gas expansion, the Australian 3.4 Australia’s Exported Emissions Government forecasts a multiplication of our already immense export emissions by as much as 2.2.25 That

would see Australia export 1.8 billion tonnes of CO2-e 3.4.1 Australia’s Exported Emissions Today every year26 — around the entire emissions released by India’s 1.2 billion citizens today, or equivalent to the export Few Australians are aware that their nation already exports emissions of almost 2 Saudi Arabias. carbon emissions equivalent to the entire direct emissions of Germany, the world’s fourth largest economy. In fact, Australia exports more emissions through fossil fuels, at

800 million tonnes of CO2-e each year, than any nation 3.5 Australia’s Carbon Footprint except Russia and Saudi Arabia.19 Under the “Sphere of Influence” 20 The overwhelming majority of these export emissions are Approach in the form of coal. With 27% of the global trade, Australia is the world’s number one coal exporter.20 If we add Australia’s domestic emissions and export emissions together, Australia’s total carbon footprint

In 2010 Australia also exported 872 billion cubic feet of today comes to around 1.2 billion tonnes of CO2-e, or 4% gas in the form of LNG, equal to around 48 million tonnes of the global total, giving Australia the world’s 6th largest

of CO2-e — enough to make Australia the world’s fourth carbon footprint (when countries’ emissions are adjusted largest LNG exporter.21 to include exported emissions and net out emissions from fossil fuel imports).

3.4.2 Australia’s Growth in Exported Emissions On a per capita basis, Australia’s combined footprint is the largest among all of the top 20 emitters. Excluding Australia’s coal exports are growing rapidly, projected to countries with a population of 5 million or less, Australia double from 2009 levels by 2020 and increase by a further has the highest combined footprint per capita in the world 50% to 2035. In the near term, coal port expansions in (see Figure 3.6).27 Newcastle, Kooragang Island and Hay Point will increase coal export capacity by some 100 million tonnes - equal to Coal contributes some 80% of Australia’s total footprint, 22 around 240 million tonnes of CO2-e. accounting for a total of 935 million tonnes of CO2. This represents around 7% of the world’s coal-related LNG is growing in importance as Australia’s eastern emissions, and is around 50% of the entire US coal-related seaboard becomes peppered with coal seam gas wells and footprint. other projects off the North-West shelf also come online. An annual growth rate of 5.5% from 2009 to 2030 will see Including the effect of the Clean Energy Future package total LNG exports multiply by a factor of four.23 By 2020, and assuming the current fossil fuel export project pipeline Australia is set to overtake Qatar as the world’s number is fully realised, Australia’s combined (domestic + export) one LNG exporter.24 energy emissions are on track to grow as high as 2.2 billion

Figure 3.6 Emissions from fossil fuel consumption and exports28 Current CO2 from Fossil Fuel Consumption + Exports 8,000 60

7,000 )

r 50

a Total footprint

6,000 n /y e a r) Per capita o s/y e 40 n e

n 5,000 o t

n nn e s/p er s o

i 4,000 30 o t il l (

m (

3,000 it a 2 p O 20 a c C

2,000 Pe r

ota l 2 T 10 O

1,000 C

- 0 Part 3: Australia’s Carbon Footprint Laggard to Leader

tonnes of CO2-e by 2030. This comes to around 11% of the total global emissions allowable in that year for even the Box 3.2: Emissions Within Australia’s Sphere of risky 2˚C pathway outlined in Chapter 2.29 Influence: Summary

These figures demonstrate that, far from being a “small Emissions within Australia’s sphere of influence include: part of the problem”, Australia’s contribution to global • Domestic emissions of 540 million tonnes of CO2-e (or emissions is large, growing rapidly, and in remarkable around 417 million tonnes of CO2-e from fossil fuels). disproportion to its population. An important implication Under the Clean Energy Future Package, these are of this finding is that Australia has considerable potential projected to rise above 600 million tonnes of CO2-e by to influence the global emissions trajectory — for better 2030 (with energy emissions staying at today’s level).32 or for worse. • Export emissions of 800 million tonnes of CO2-e. Current projections forecast export emissions rising up to 1.8 billion tonnes of CO2-e by 2030 (or around 3.5 21 times today’s domestic emissions).33

If ranked alongside all other countries in the world, Australia is: • The world’s 15th largest emitter (domestic only). • The 1st in the OECD for emissions per capita (domestic only). • The 3rd in the world for export emissions, with today’s export emissions equal to more than 75% of Saudi Arabia’s. Current fossil fuel project pipelines suggest we may grow to become the largest export emitter, equal to almost two Saudi Arabias by 2030. • The 2nd in export emissions per capita (of countries with a population above 5 million) • The world’s 6th largest emitter (domestic and export emissions combined).

Australia’s combined carbon emissions (domestic plus exported emissions) equate to around 4% of global emissions. Coal is responsible for around 80% of this

Figure 3.7 combined total, accounting for 935 million tonnes of CO2 Coal exports by country30 in 2012. This represents around 7% of the world’s coal- related emissions today, and comes to around 50% of the entire US coal-related domestic and export emissions. Country 2010 (tonnes) C02-e (tonnes) (%) Australia 297,000,000 709,000,000 27 By 2030, Australia’s combined domestic and export Indonesia 287,000,000 660,000,00031 26 emissions are on track to grow to 2.2 billion tonnes of CO2-e. This would equate to 11% of the total global Russia 111,000,000 263,000,000 10 emissions allowable in that year for the 2˚C pathway United States 75,000,000 179,000,000 7 outlined in Chapter 2.

Figure 3.8 Australia’s fossil fuel emissions nowA andus tinr a2030lia's Fossil Fuel Emissions 2500

2000

MtCO2/year 1500

1000

500

0 Current Domestic Current Domestic + Export 2030 Domestic + Export Part 3: Australia’s Carbon Footprint Laggard to Leader

Australian Bureau of Agriculture and Resource Economics (2011) http://www. References bree.gov.au/documents/publications/energy/Australian-Energy-Projections- 1. Of course, there are few transactions that are truly “domestic only”. For report.pdf. example, Country A could have imported the machinery that comprises its 23. Ibid. coal-fired power generator, and the manufacture of that machinery could 24. David Winning, “Australia adjusts to new energy role”, The Australian (21 have resulted in greenhouse gas emissions. May 2012) (from The Wall Street Journal) http://www.theaustralian.com. 2. Mineral resources are vested in state governments, however the au/business/wall-street-journal/australia-adjusts-to-new-energy-role/story- Commonwealth Government has the power to make laws with respect to, fnay3ubk-1226362016587. among other things, trade and commerce with other countries, corporations, 25. Coal and LNG projections sourced from Syed and Penney, “Australian and “external affairs”: Commonwealth Constitution s 51(i), (xx), (xxix). Energy Projectionsto 2034-25”. Conversion factors sourced from Australian 3. Because of the complexities associated with counting emissions associated Department of Climate Change and Energy Efficiency, National Greenhouse with imported goods, we have not sought to quantify those emissions in this Accounts (NGA) Factors (2010) http://www.climatechange.gov.au/~/media/ 22 Chapter. However, we advocate that Australia introduce policies intended to publications/greenhouse-acctg/national-greenhouse-factors-july-2010-pdf. reduce the emissions intensity of Australian imports. pdf. 4. “Quarterly Update of Australia’s National Greenhouse Gas Inventory, 26. Ibid. September Quarter 2011”, Australian Department of Climate Change and 27. Data from US EIA, Carbon Trust, World Bank, as per footnote 11, above. Energy Efficiency,Australian Greenhouse Emissions Information System 28. Ibid. (2012) http://ageis.climatechange.gov.au/. 29. Considering that all emissions pathways for staying within the 2˚C limit, as

5. “National Emissions Inventory”, Australian Department of Climate Change discussed in Chapter 2, require emissions to have fallen to 20Gt of CO2-e or

and Energy Efficiency (2012) Australian Greenhouse Emissions Information below by 2030. At 2.2Gt of CO2-e, Australia’s total footprint would account for System, http://ageis.climatechange.gov.au/. 11% of the emissions allowable in that year. 6. Ross Garnaut, The Garnaut Climate Change Review (2008) Ch 7. 30. “International Energy Statistics”, US Energy Information Administration (2012) 7. “WBCSD leads business engagement on for all in Asia”, http://www.eia.gov. “Conversion factors”, Carbon Trust (2011) http://www. WBSCD (2012) http://www.wbcsd.org/Pages/EDocument/EDocumentDetails. carbontrust.co.uk/cut-carbon-reduce-costs/calculate/carbon-footprinting/ aspx?ID=14271&NoSearchContextKey=true. pages/conversion-factors.aspx. “Population Data”, World Bank (2012) http:// 8. Glen Peters et al., “Rapid growth in CO2 emissions after the 2008-2009 global data.worldbank.org/indicator/SP.POP.TOTL. financial crisis”, Nature Climate Change, Correspondence (2012) 2, p 2-4 31. Note that Indonesia’s slightly lower emissions per tonne of coal ratio is due to http://www.nature.com/nclimate/journal/v2/n1/full/nclimate1332.html. the lower grade of its coal exports. The Indonesian Government is considering 9. “Shaping a global solution”, Australian Department of Climate Change and legislation to ban low-grade export coal unless processed into higher-value Energy Efficiency (2012) http://www.climatechange.gov.au/government/ forms. See the US Energy Information Administration, http://www.eia.gov international.aspx. and “Indonesia’s coal sector could take a hit from planned export ban, Fitch 10. Ibid. says”, The Jakarta Globe (2012) http://www.thejakartaglobe.com/economy/ 11. “‘International Energy Statistics”, US Energy Information Administration (Data indonesias-coal-sector-could-take-a-hit-from-planned-export-ban-fitch- Only) (2012) http://www.eia.gov; “Conversion factors”, Carbon Trust (2011) says/503427. http://www.carbontrust.co.uk/cut-carbon-reduce-costs/calculate/carbon- 32. Australian Treasury, Strong Growth, Low Pollution (2011) http://cache. footprinting/pages/conversion-factors.aspx; “Population Data“, World Bank treasury.gov.au/treasury/carbonpricemodelling/content/report/downloads/ (2012) http://data.worldbank.org/indicator/SP.POP.TOTL.. Modelling_Report_Consolidated.pdf. 12. Ibid. 33. Coal and LNG projections sourced from Syed and Penney, “Australian 13. Ibid. Energy Projectionsto 2034-25”. Conversion factors sourced from Australian

14. “CO2 Emissions From Fuel Combustion: Highlights (2011 edition)”, Department of Climate Change and Energy Efficiency. International Energy Agency (2011) http://www.iea.org/co2highlights/ co2highlights.pdf. 15. “Solving the Climate Dilemma: The Budget Approach”, WBGU – German Advisory Council on Climate Change (2009) p 16, http://www.wbgu.de/ fileadmin/templates/dateien/veroeffentlichungen/sondergutachten/sn2009/ wbgu_sn2009_en.pdf. 16. Ibid. 17. Data from US EIA, Carbon Trust, World Bank, as per footnote 11, above. 18. Adapted from: Hans Joachim Schellnhuber, “Terra Quasi-Incognita: Beyond the 2oC Line”, Presentation at the International Climate Conference: 4 Degrees and Beyond (September 2009) p10, http://www.eci.ox.ac. uk/4degrees/ppt/1-1schellnhuber.pdf. 19. Data from US EIA, Carbon Trust, World Bank, as per footnote 11, above. 20. Ibid. 21. Keith Schaefer, “How exporting LNG could bring serious wealth to the US”, Resource Investor (9 April 2012) http://www.resourceinvestor. com/2012/04/09/how-exporting-lng-could-bring-serious-wealth-to-th. 22. Arif Syed and Kate Penney, “Australian Energy Projections to 2034-35” Laggard to Leader

Part 4 Australia’s Current Policy Settings: Explaining our Ballooning Carbon Footprint

Contents

4.1 Introduction 24

4.2 Six Problems with Australian Climate and Energy Policy 24 4.2.1 Arbitrary Targets, Low Ambition 24 4.2.2 Over-Reliance on Offsets: Green Carbon and Overseas Credits 24 4.2.3 “Transition Gas” 26 4.2.4 Hoping Against Reason for Carbon Capture and Storage 28 4.2.5 Insufficient Deployment Support for Renewables 29 4.2.6 Fossil Fuel Promotion Policies: Betting the Other Way 29

References 31 Part 4: Australia’s Current Policy Settings Laggard to Leader

4.1 Introduction 4.2 Six Problems with Australian Climate and Energy Policy If measured by the volume of climate policy activity and the extent of political and media attention, Australian policy makers have been 4.2.1 Arbitrary Targets, Low Ambition extremely busy when it comes to climate change. The first problem with Australia’s climate policy is the Indeed, federal and state governments have arbitrary nature of, and low level of ambition implicit implemented more than 300 emissions reduction in, Australia’s emissions reduction targets. Australia has programs and policies over the last 15 years.1 accepted: a medium-term target of a 5% reduction in With the recent introduction of Australia’s “Clean Australia’s domestic emissions below 2000 levels by 2020 24 (with an offer to raise the 2020 target to 15% or 25% if Energy Future” package, Australia now has a certain stringent conditions are met by other countries); carbon pricing scheme to add to this vast array and a long-term target of 80% below 2000 levels by 2050.2 of existing initiatives. Does this mean Australia is However, these targets are not consistent with the science- now destined for leadership on climate change? based global carbon budget to 2050 to achieve the 2°C Is a clean energy future the new business as goal that the Australian Government has itself adopted — let alone any reasonable calculation of Australia’s fair usual? Can we can switch off, sit back and let the share of that budget (see Chapters 2 and 6). markets do the rest, confident that Australia is “doing its bit”? Moreover, these targets only cover Australia’s domestic emissions. Emissions embodied in fossil fuel exports are The Chapter 3 analysis of Australia’s carbon footprint, excluded, consistent with the UN’s accounting rules (as including our fossil fuel exports, shows that the answer is explained in Chapter 2). This enables Australia to claim its a resounding “no”. This chapter explains why that is the policies are internationally compliant while fuelling global case by focusing on six problems with current Australian warming through its coal and gas exports, as we saw in climate and energy policy. It concludes: Chapter 3. • Australia’s emissions reduction targets are not consistent with the global carbon budget to 2050 to achieve the 2°C goal that the Australian Government 4.2.2 Over-Reliance on Offsets: Green Carbon and has adopted — let alone any reasonable calculation of Overseas Credits Australia’s fair share of that budget. • The Government is relying excessively on international The establishment of Australia’s carbon pricing scheme is offsets, green carbon (see Box 4.1) and the much the Government’s primary means of meeting Australia’s vaunted “gas transition”. This “least cost abatement” medium and long-term emissions targets. Critically, the mentality privileges more risky and less effective targets determine the stringency of the “cap” on emissions forms of abatement and undermines efforts to deploy that will apply to sectors covered by the scheme during renewable technologies that are essential for Australia’s the floating price, or “cap-and-trade” phase of the scheme urgent decarbonisation task. that begins on 1 July 2015. The weaker the target, the • Reliance upon Carbon Capture and Storage (CCS) looser the cap; the looser the cap, the higher Australia’s as a future solution to climate change is a risky and emissions will be. It can therefore be seen how Australia’s dangerous strategy — if we continue to burn fossil fuels low-ambition targets translate into the wrong price signals throughout this critical decade only to find that CCS to the Australian economy, triggering “solutions” that is not the saviour it was hoped to be, the window for are not sufficient to meet Australia’s decarbonisation action will have closed. imperative. • Taking into account the wide range of state and federal policies promoting the rapid exploitation of Australian Additionally, the scheme has numerous design flaws that coal and gas for export, Australian climate and energy affect the level and quality of abatement Australia will policy is currently doing much more harm than good. achieve. These flaws include the reliance on offsets from green carbon (see Box 4.1) and from other countries.

International emissions trading

Internationally, Australia has strongly advocated that countries be allowed to achieve their emissions targets by buying unlimited amounts of international offsets (credits that represent emissions reductions that have nominally Part 4: Australia’s Current Policy Settings Laggard to Leader

occurred overseas) as opposed to being required to achieve its targets, while minimising the sources of land-based them through reductions within their own borders.3 emissions that would count as “debits”. Specifically, Australia: Consistent with Australia’s international position, its carbon • has taken the lead on the negotiation of land-use and pricing scheme will allow the extensive use of international forestry rules on behalf of its UN negotiating bloc, offsets by liable entities for compliance purposes each year the Umbrella Group (a group of non-EU developed from 1 July 2015: up to 50% of an entity’s liability between countries which advocates for international rules that 2015 and 2020 and an unrestricted amount thereafter.4 allow the utmost flexibility in the types of abatement So far the Government has prescribed that international that count towards countries’ emissions targets);7 offsets from the UN’s Clean Development Mechanism • was influential in securing agreement to rules in the (CDM) will be allowed for this purpose.5 Credits from the Kyoto Protocol that allow countries to count, without highly over-supplied CDM market are currently at “rock restriction, net removals from green carbon activities 8 bottom” prices and, according to climate economist Frank toward compliance with their emissions targets; 25 Jotzo, are likely to remain so for the rest of the decade, • negotiated the inclusion in the Kyoto Protocol of a leaving Australian companies with cheap and easy clause that allowed Australia to receive a huge windfall compliance options under the Australian scheme.6 gain from reductions in land-clearing that had already occurred, making the achievement of its Kyoto target a Green carbon “3 inch putt”;9 and • has made its acceptance of a higher-than-5% 2020 Australia has taken a similarly “flexible” approach to green target conditional on the international agreement of carbon (see Box 4.1). Through its international negotiating land use and forestry accounting rules that it deems positions and its domestic climate change policies, Australia acceptable,10 which would likely allow Australia has sought to prioritise “green carbon” abatement over considerable scope to continue to minimise the debits reductions in fossil fuels and other sources of emissions. and maximise the credits from the forestry sector.11

In international climate negotiations, Australia has been Back home, Australian companies will also be able to enjoy influential in maximising the scope of land-based emissions the fruits of green carbon accounting. Kyoto-compliant removals for which it can obtain “credit” towards meeting green carbon abatement that is credited under the federal government’s Carbon Farming Initiative will be able to be used for compliance purposes by liable entities under Box 4.1: Green Carbon vs Brown Carbon Australia’s carbon pricing scheme. While a 5% cap per liable entity on the use of such credits applies during the

By “green carbon” we refer broadly to removals of CO2 from fixed price phase of the scheme, there will be no limit on the atmosphere, or emissions of CO2 into the atmosphere, the number of such credits that liable entities will be able from the natural environments such as forests and soils. to use under the cap-and-trade phase of the scheme.12 Under the UN carbon accounting system, green carbon goes by the name of LULUCF, referring to Land-Use, Land- The problem with offsets Use Change and Forestry. Activities within this category include: Undoubtedly, reducing deforestation, increasing tree • removals of emissions from afforestation and plantings and supporting overseas abatement are reforestation (planting trees) since 1990; valuable components of global emissions reduction • emissions from deforestation (cutting down trees); and efforts. Indeed, if Australia is to go truly beyond zero

• emissions and removals from forest management, emissions, we must necessarily remove more CO2 from cropland management, grazing land management and the atmosphere through increased forest (and other land revegetation (accounting for which is optional under sector) abatement than we emit from all sources. Similarly, the Kyoto Protocol first commitment period). financing emissions reductions in developing countries is, in and of itself, an important contribution that Australia This can be contrasted with “brown carbon” or “black can and should make to the global emissions reduction carbon”, which includes greenhouse gas emissions caused effort, as we explain in subsequent chapters. But there’s from the burning of fossil fuels, such as emissions of CO2 the rub: these efforts need to be additional to Australia’s from the smokestacks of a power generator or from the reductions in fossil fuel, industrial and other emissions in tailpipe of a combustion engine vehicle. Other emissions order to be consistent with the 2°C carbon budget. that could be within this category include: fugitive emissions from the extraction and transport of fossil fuels, According to Treasury modelling of the carbon pricing industrial process emissions (such as per fluorocarbons scheme, Australia’s domestic emissions (which includes emitted from the smelting of aluminium); emissions from both green and brown carbon) will increase over the next landfill waste and waste-water treatment facilities; and 20 years and will return to their current levels by 2050, emissions from the agriculture sector. even if Australia implements the 80% “reduction” target Part 4: Australia’s Current Policy Settings Laggard to Leader

by 2050. The only way this is possible is through the importation of billions of overseas offsets — enough to 4.2.3 “Transition Gas” equal half of our abatement below “business as usual” (see Figure 4.2). The general expectation in government and industry is that the carbon pricing scheme will drive a switch from Proponents of “lowest cost abatement”, including coal to gas-fired power. While there will be an increase in the Australian Government, would argue that this is renewable energy generation, until 2030, it will be driven unproblematic; the only relevant outcome is that Australian primarily by the Renewable Energy Target, not by the action causes a tonne of emissions to not be emitted or carbon price. to be removed from the atmosphere somewhere in the world. But there are two problems with this view. When burnt in efficient combined cycle gas turbines, electricity from fossil gas can have in the order of one 26 First, international offsets (and green carbon) typically half to one-third of the emissions than the same amount have a higher risk profile than most forms of Australian of electricity from coal. Given the maturity of gas turbine brown carbon abatement, even though they are treated as technology and the abundance of gas in Australia, this equivalent for accounting purposes.13 This means they are has made it appear to be an attractive option for reducing unreliable. Offsetting can produce higher net emissions emissions from electricity in the short-medium term. The than domestic brown carbon abatement. The possibility fact that it is marginally more expensive with marginally (albeit distant) of Australia relying on international offsets lower emissions means it fits perfectly into the paradigm of from avoided deforestation (REDD) schemes in developing lowest cost abatement. The theory being a gradually rising countries presents an even greater threat to the integrity carbon price will at some point become just high enough of Australia’s carbon market.14 to tip the economic balance from coal to gas. Climate Change Minister Greg Combet has made it clear that this Second, and more importantly, relying on offsets will is one of the main goals of the carbon pricing scheme: delay and undermine the roll-out of technologies that “For baseload electricity generation it will be gas-fired are essential for Australia’s urgent decarbonisation task. electricity that we see emerge, and for that investment to Allowing international offsets will dampen the Australian be committed, we need a carbon price in the economy.”17 carbon price and increase its volatility — problems exacerbated by the lack of a long-term price floor.15 This The term “transition gas” is often used to refer to the creates substantial uncertainty for businesses looking to idea that gas can be used to displace coal until some invest in renewable energy technologies that will last for point in the future when some other technology becomes decades. commercially and technically viable.18 However, for a number of reasons, the reliance on gas as a transition fuel is nonsensical.

Fugitive emissions risk

While gas generation technologies are typically less emissions-intensive than coal-fired equivalents, the more relevant comparison is between the full life-cycle emissions of coal-fired and gas-fired power. When life- cycle emissions are considered, the fuel switch from coal to gas is unlikely to result in a significant cut in Australia’s Figure 4.1 emissions. Plantations in Gippsland, Australia16 The life-cycle emissions of gas fired power depend on a range of factors, including fugitive emissions rates, the particular source of the gas and the extraction method used, and the specific type of power generation technology. In Australia, new sources of gas are most likely to come from coal seam gas (CSG). Little is known, however, about the fugitive emissions from the drilling, extraction and processing of CSG, which is a relatively new form of extraction.

Recent analysis of the full life-cycle emissions of natural gas has shown that, due to additional emissions, such as fugitive methane emissions — some 25 times more potent Part 4: Australia’s Current Policy Settings Laggard to Leader

at warming the globe than CO2 on a 100 year timescale — extraction, processing and transport of a continual supply a switch to natural gas has no advantages over coal and of gas to the power plant. The International Energy Agency would have no impact in reducing temperatures to at least has warned in their World Energy Outlook 2011 that lock- 2100.19 The authors conclude that:20 in of fossil energy infrastructure is an urgent problem.23 On our current trajectory, by 2017 the world will have “Conservation, wind, solar, nuclear power, and built enough fossil energy infrastructure that if allowed to possibly carbon capture and storage appear to be run it will burn the entire allowable global carbon budget, able to achieve substantial climate benefits in the meaning that all new power plants built after 2017 need second half of this century; however, natural gas to be zero emissions — no gas, no coal, no oil. While fossil cannot.” power plants could be shut down before their economic lifetime to avoid breaching the carbon budget, it would be The US National Oceanic and Atmospheric Administration inefficient and expensive. The IEA estimates that it would observed average methane fugitive emissions rates from cost more than four times as much to compensate for the 27 US oil and gas production fields of 4% (considerably high emissions infrastructure.24 higher than industry estimates), reaching as high as 7.7%.21 This means that alternative gas sources can have The implication for Australia is that if we need to have a stronger warming impact than brown coal. The absence zero-emissions energy infrastructure in place in 20 years’ of independent testing of actual fugitive emissions time, we need to build it today, not in 20 years. from Australian gas operations means the true life- cycle emissions from Australian gas are unknown, with The transition to nowhere unreliable industry estimates being the only source of methane emissions data.22 Because gas is the principal fuel In summary, while the “gas transition” is a key plank of on which the Australian Government has hinged Australia’s the Australian energy sector abatement plan in the eyes energy future, it is highly questionable whether even the of government and industry, it is incompatible with the minor reductions in emissions projected to be achieved deep emissions cuts required to actually avoid dangerous from 2025 onward are likely to be realised. climate change. As explained in the following section, while this incremental step is taken, the strategy for Dirty infrastructure lock-in making deep cuts is to wait another two decades until yet- to-be-invented technologies such as carbon capture and The economic lifetime of a new power plant is in the order storage come through to save the day. This “delay-and- of at least 25 years, while the technical lifetime can stretch hope” strategy (combined with the political rebranding of to over 50 years. Building new gas-fired power stations fossil gas as “clean energy”) is well captured by comments not only locks in fossil fuel burning on-site, it will drive in May 2012 from Energy Minister Martin Ferguson, investment elsewhere in the gas supply industry, requiring responding to criticisms of the incompatibility of current

Figure 4.2 Treasury carbon price modelling: domestic vs internationally sourced abatement25

Mt CO2-e Abatement 1200 2020 2050 152 897

1000

Domestic abatement 463 800

58

600 94

400 Internationally-sourced abatement 435

200

0 2010 2020 2030 2040 2050

Without carbon pricing With carbon pricing Including overseas abatement Part 4: Australia’s Current Policy Settings Laggard to Leader

energy and climate policy with the necessity of immediate on fossil fuel-based energy sources by capturing carbon deep cuts in emissions:26 dioxide emissions at their source and storing them in deep underground geological reservoirs — the “silver bullet” “The challenge on climate change is to reduce — CCS has been heavily supported and promoted by the emissions. Gas is clean energy. Carbon capture and federal government through its direct funding of domestic storage is the potential solution to coal-fired power and overseas CCS projects and through its vigorous and internationally.” well-funded advocacy of CCS technology.27

Australian federal and state governments have poured 4.2.4 Hoping Against Reason for Carbon Capture hundreds of millions of dollars into funding for CCS projects, and Storage infrastructure and research.28 Internationally, the federal government has invested in bilateral CCS partnerships 28 In order to avoid the required changes to Australia’s that fund demonstration projects and provide capacity- fossil fuel-based economy, the Government has chosen building in developing countries, particularly China, to support highly risky technologies. CCS has not been through numerous federal agencies.29 technically demonstrated at commercial scale, is unlikely to be a viable solution to global fossil fuel emissions, is While the industry claims that individual components of

unlikely to be cheaper than renewable alternatives by the CCS — separating CO2 from gas streams, CO2 compression time it is commercialised (if ever), and entails significant and transport, and geological storage of CO2 — are legacy risks. Yet, the Australian Government is one of individually proven, the reality is that combining these its most vigorous proponents. As the promise of CCS on a fossil power plant represents a number of significant has diminished in the last few years with attempts to challenges. To date there are still no examples of even demonstrate the technology on power stations becoming demonstration-scale projects capturing and storing even a

mired in technical and financial challenges, it is timely to significant fraction, let alone all, of the CO2 from a power consider why and how it has occupied a special place in station. Australia’s approach to climate change. As a technological solution, CCS is still on the starting CCS has been a longstanding priority area of Australian blocks. A recent expert review of CCS progress in the UK climate policy. Touted as a means of continuing our reliance recognised that while the process appears technically

Figure 4.3 Artist impression of failed Zerogen CCS project, Queensland, Australia30 Part 4: Australia’s Current Policy Settings Laggard to Leader

workable on paper, a key reason for delays and failures to invest $10 billion into renewable energy, energy of recent projects was neither government nor industry efficiency and other “low carbon” projects with a view being willing to accept the multiple layers of risk associated to overcoming some of the barriers to commercialisation with a single project.31 CCS demonstration projects around and deployment of associated technologies. Beyond Zero the world have faced major setbacks and delays as the Emissions has pointed out that on its own, the CEFC will challenges with combining and scaling up the individual be limited in its ability to affect the type of technology elements have become apparent, and many have fallen deployed. Moreover, the funds will not actually add to the over altogether.32 total amount of renewable energy generation in Australia and are open to being used for investment in projects Moreover, CCS carries significant storage risks. Recent using fossil fuels as an energy source.38 It is not impossible research published in the Proceedings of the National that the CEFC may be able to finance deployment of Academy of Sciences has pointed to the “high probability technologies such as concentrating solar thermal power, that earthquakes will be triggered by injection of large however initiatives like the CEFC are more appropriate 29 volumes of CO2 into the brittle rocks” commonly found when combined with other support policies. For example, in continental storage sites. “Because even small-to while Germany’s KfW state bank provides finance to moderate-sized earthquakes threaten the seal integrity of renewable energy (AU$30 billion in 2010 alone39 compared

CO2 repositories”, the authors of the study conclude that to the CEFC’s $10 billion over 5 years), the primary support “large-scale CCS is a risky, and likely unsuccessful, strategy mechanism is feed-in-tariffs (FiTs) for renewable energy. for significantly reducing greenhouse gas emissions”.33 It is worthwhile pointing out that despite the negative Despite the failures, setbacks and risks of CCS, the attention in the media, Australia’s FiTs for rooftop solar Australian Government has remained a staunch advocate photovoltaics (PV) have been quite successful in their of the technology, spending a similar amount of money on goal of enabling deployment. In financial year 2010-2011 promoting its supposed benefits as it does on actual CCS alone, AU$4 billion was invested in solar PV in Australia.40 projects. Most notably, Australia bankrolls an organisation While the state-based FiTs have not been managed as well called the Global Carbon Capture and Storage Institute. as Germany has managed their national FiT system over Established by the Rudd Government in 2008, the Institute the last decade, they do show that the policy is effective. has already received $253 million in federal government funding34 — an amount the Institute’s own chief executive, In Chapter 7 we advocate a much more targeted and Brad Page, concedes is “impossible” to spend responsibly.35 sophisticated set of deployment support policies to Although the Institute employs some 78 staff, a Sunday Age enable Australia to decarbonise its energy sector in the investigation revealed that the Institute’s members remain appropriate timeframe. confused as to the organisation’s objectives and frustrated by its lack of tangible achievements.36 When asked what the Institute has actually achieved, Page responded that 4.2.6 Fossil Fuel Promotion Policies: Betting the “the Institute runs some very advanced, internet-based Other Way websites” on which it publishes information from CCS projects around the world.37 The Australian climate policy picture would not be complete without some consideration of Australia’s policies that In sum, reliance upon CCS as a future solution to climate incentivise the production and use of fossil fuels and assist change is a risky and dangerous strategy. If we continue to energy-intensive and emission-intensive industries. When burn fossil fuels throughout this critical decade only to find Australia’s climate policy efforts are balanced against its that CCS is not the saviour it was hoped to be, the window fossil fuel promotion policies, the true priorities of the for action will have closed. federal and state governments come clearly into focus.

As we explained in Chapter 3, Australia is undergoing an 4.2.5 Insufficient Deployment Support for extraordinary boom in coal and gas exports with equally Renewables extraordinary emissions consequences. These projects and the emissions that stem from them have been facilitated Australia’s existing policy mix does not facilitate the kind by Australian federal, state and territory governments. of large-scale renewable energy deployment necessary Far from strictly regulating fossil fuels, resource-rich state for Australia to decarbonise its energy system. The carbon governments are pursuing aggressively expansionist fossil price will not lead to renewables deployment within a fuel development policies.41 The federal government, foreseeable timescale, and we explain in Chapter 7 why meanwhile, offers considerable incentives to foreign the Renewable Energy Target and Solar Flagships policies investors to “facilitate” investment into major Australian are inadequate. fossil fuel-related projects. The Government designates those projects it considers to be of “strategic significance” The new Clean Energy Finance Corporation has a mandate as a having “major project facilitation” (MPF) status, Part 4: Australia’s Current Policy Settings Laggard to Leader

which means the Government acts as a one-stop shop to utilise its abundant natural resource of both the fossilised shepherd proponents through key regulatory approvals and renewable variety. It’s one small step for renewable processes and into relationships with local suppliers.42 energy; and one giant leap for fossil fuels. Technically, the scheme is industry agnostic, but the results speak for themselves: of the 17 projects that currently enjoy MPF status, 12 are energy/resource projects and 11 of these are fossil fuels projects.43

Australian governments also spend billions of dollars every year on subsidies for the fossil fuel industry and for energy- intensive industries (despite Australia promising to abolish such subsidies at the G20 Leaders’ Summit in September 44 30 2009 ). An Australia Institute study in 2011 estimated that the federal government spends around $10 billion a year directly subsidising the production or consumption of fossil fuels.45 State and territory governments provide additional subsidies that benefit fossil fuel power generators and energy-intensive industries — ranging from subsidised coal prices for black coal power stations in New South Wales46 to heavily subsidised electricity for aluminium smelters in Victoria — along with support for fossil fuel infrastructure development.47

Australia currently offers around 8 to 12 times more in subsidies and rebates to fossil fuels than to any climate- related policies (see Figure 4.4).48

When Australia’s expansionist fossil fuel policies are compared with Australia’s weak climate policies, it becomes patently clear how Australia is choosing to

Figure 4.4 Australian spending on fossil fuel subsidies vs climate change programs49

14000

12000

10000

8000

Fossil fuel subsidies and rebates Climate change programs 6000

4000

2000

0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Part 4: Australia’s Current Policy Settings Laggard to Leader

2010 Rating of Designated Operational Entities (DOEs) Accredited under the References Clean Development Mechanism (CDM) (Öko-Institut e.V, 2010); Roddy Boyd, 1. Grattan Institute, Learning the Hard Way: Australia’s Policies to Reduce “SGS- the Designated Operational Entity of Choice?” Climatico (24 January Emissions (2011) p 3, http://grattan.edu.au/static/files/assets/35ea95b7/077_ 2010) http://www.climaticoanalysis.org/post/cdm_sgs-the-doe-of-choice/. report_energy_learning_the_hard_way.pdf. Regarding green carbon see, e.g., Lee Godden, et al., “Reducing Emissions 2. “Fact Sheet: Australia’s Emissions Reduction Targets”, Commonwealth from Deforestation and Forest Degradation in Developing Countries (REDD): Government, http://www.climatechange.gov.au/en/government/reduce/ Implementation Issues”, Monash Law Review (2010) 36(1) p 139, 146-149; national-targets/factsheet.aspx. Govindasamy Bala, et al., “Combined Climate and Carbon-Cycle Effects of 3. International Institute for Sustainable Development (IISD), “COP 6, 27 Large-Scale Deforestation”, Proceedings of the National Academy of Sciences November 2000”, Earth Negotiations Bulletin (2000) 12(163), p 12; Matthew (PNAS), (2007) 104(16) 6550; Nicola Durrant, “Legal Issues in Carbon Coghlan, “Prospects and Pitfalls of the Kyoto Protocol to the United Farming”, Climate Law (2011) 4(2) p 515-533. Nations Framework Convention on Climate Change” Melbourne Journal 14. See, eg., Erik Olbrei and Stephen Howes, “A Very Real and Practical of International Law,(2002) 3(1) p 165. Countries ultimately agreed a Contribution? – Lessons from the Kalimantan Forests and Climate 31 compromise position, by which the use of international offsets for Kyoto Partnership” (Australian National University Discussion Paper #16, 1 March compliance purposes must be “supplemental” to domestic reductions: Kyoto 2012) http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2041832; Protocol art 6(1)(b), (d). There is disagreement as to what “supplemental” Erik Olbrei and Stephen Howes, “For peat’s sake, we need an overhaul of means in practice. forestry aid”, Reneweconomy, 22 March 2012, ; “Australian REDD #Fail in 4. Clean Energy Act 2011 (Cth) s 133(7). Indonesia’s Kalimantan Forests”, ABC Radio Australia, 20 April 2012, http:// 5. Commonwealth Government, Securing a Clean Energy Future (2011) p 107; www.radioaustralia.net.au/international/radio/program/asia-pacific/ Clean Energy Act 2011 (Cth) s 5; Australian National Registry of Emissions australian-redd-fail-in-indonesias-kalimantan-forests/931280; Tom Arup, Units (ANREU) Act 2011 (Cth) s 4. “$30m Sumatra forest deal in doubt after concerns over funding”, The Age, 6. Frank Jotzo, “Why the Government Must Keep the Carbon Price Floor”, 15 May 2012, http://m.theage.com.au/environment/conservation/30m- Climate Spectator (18 May 2012) http://www.climatespectator.com.au/ sumatra-forest-deal-in-doubt-after-concerns-over-funding-20120514-1yn48. commentary/why-australia-must-keep-carbon-price-floor. html; Michael Bachelard, “No Credits Due as Forests Plundered”, The Age, 9 7. See, e.g., IISD, “Report of the Third Conference of the Parties”, Earth June 2012 http://m.theage.com.au/environment/no-credits-due-as-forests- Negotiations Bulletin(13 December 1997) 12(76) p 6-7. On the Umbrella plundered-20120608-201dy.html; Sid Maher, “$30m Indon project a ‘failure’”, Group, see Farhana Yamin and Joanna DePledge, The International Climate The Australian (4 June 2012); “REDDy and Waiting”, The Economist, 11 June Change Regime: A Guide to Rules, Institutions and Procedures (2004) p 45-46. 2009. 8. IISD, “Report of the Third Conference of the Parties”, p 6-7; Kyoto Protocol 15. Fergus Green, “Don’t Mention the Floor”, Inside Story (14 June 2012) http:// arts 3.3, 3.4. inside.org.au/don%E2%80%99t-mention-the-floor/. 9. Duncan Kerr, Labor’s Environment Spokesman at the time, quoted in Clive 16. Michael Ryan, “Plantations of Pinus radiata and Eucalyptus nitens in Hamilton, Scorcher: The Dirty Politics of Climate Change (2007) p 75. Gippsland (Victoria, Australia)”, http://www.globalcarbonproject.org/news/ 10. Commonwealth Government, “Fact Sheet: Australia’s Emissions Reduction ManagingForests.htm. Targets”. 17. “Combet: An early announcement was appropriate”, ABC Lateline, 9 March 11. For example, measuring and accounting for emissions and removals within 2011, http://www.abc.net.au/lateline/content/2011/s3159809.htm. the category of “forest management” is extremely technically complex and 18. As is typically the case elsewhere, the CEF modelling assumes that these will inevitably leave countries including Australia with considerable scope future technologies will primarily be CCS and enhanced geothermal. See, to develop self-interested approaches to accounting for forest management for example, the electricity sector generation modelling carried out by the emissions and sinks. See, e.g., Australia’s submissions on “forest management Australian Energy Market Operator in their “National Transmission Network reference levels” (FMRL) and the independent synthesis report of technical Development Plan (2010)” http://www.aemo.com.au/en/Electricity/ assessments of a number of countries’ FMRL submissions (showing wide Planning/2010-National-Transmission-Network-Development-Plan. variations): Commonwealth Government, “Submission to the SBI and SBSTA 19. Nathan Myhrvold and Ken Caldeira, “Greenhouse Gases, Climate Change, and — February 2011 Forest Management Reference Level Submission”, http:// the Transition from Coal to Low-Carbon Electricity”, Environmental Research unfccc.int/files/meetings/ad_hoc_working_groups/kp/application/pdf/ Letters (2012) 7(1). awgkp_australia_2011.pdf and Commonwealth Government, “Submission 20. Ibid. to the SBI and SBSTA — September 2011 Forest Management Reference 21. See Jeff Tollefson, “Air Sampling reveals High Emissions from Gas Field”, Level Submission”, http://unfccc.int/files/meetings/ad_hoc_working_groups/ Nature – News (7 February 2012), http://www.nature.com/news/air- kp/application/pdf/australia_290911.pdf; UNFCCC, Synthesis report of the sampling-reveals-high-emissions-from-gas-field-1.9982. technical assessments of the forest management reference level submissions, 22. BZE, “Worley Base Case Baseless but Coal Seam Gas Still Worse than Coal” (28 FCCC/KP/AWG/2011/INF.2, http://unfccc.int/resource/docs/2011/awg16/ March 2012) http://beyondzeroemissions.org/media/releases/worley-base- eng/inf02.pdf. case-baseless-coal-seam-gas-still-worse-coal-120328. 12. Clean Energy Act 2011 (Cth) s 1336(b). The legislation giving effect to the CFI 23. IEA, World Energy Outlook 2011 (2011) http://www.iea.org/w/bookshop/add. is the Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth). aspx?id=428. 13. Regarding international offsets see, e.g., Søren E Lütken, “Penny Wise, 24. Ibid. Pund Foolish? Is the Original Intention of Cost Efficient Emissions Reduction 25. “Australian emissions in the core policy scenario”, Australian Department through the CDM Being Fulfilled?” (UNEP Risø Climate Working Paper Series of the Treasury (2011) Chart 5.2, http://archive.treasury.gov.au/ No. 1, June 2012) p 17-18; CDM Watch, “HFC-23 and N2O Projects” http:// carbonpricemodelling/content/chart_table_data/chapter5.asp. www.cdm-watch.org/?page_id=451; Lambert Schneider and Lennart Mohr, 26. Martin Ferguson, quoted in David Crowe, “Charities warned off ‘demonising’ Part 4: Australia’s Current Policy Settings Laggard to Leader

coal and gas industry”, The Australian (14 May 2012) http://www. Group/About_KfW/thematic_dossier/index.jsp. theaustralian.com.au/news/nation/charities-warned-off-demonising-coal- 40. Clean Energy Council, Clean Energy Australia 2011 (2011) Table 6, p 14, and-gas-industry/story-e6frg6nf-1226354884254. http://www.cleanenergycouncil.org.au/dms/cec/reports/2011/Clean-Energy- 27. For an excellent overview and critique of Australia’s support for CCS, see Guy Australia-Report-2011/Clean%20Energy%20Australia%20Report%202011.pdf. Pearse, Quarry Vision, Quarterly Essay 33 (2009). 41. See, e.g., LNP, “The ‘CANDO’ LNP Resources and Energy Strategy” (2012) 28. See for example “National Low Emissions Coal Initiative”, Department of http://lnp.org.au/policies/grow-a-four-pillar-economy/resources-and-energy- Resources, Energy and Tourism (2011) http://www.ret.gov.au/resources/ strategy; Tom Arup, “Baillieu Set to Boost Brown Coal”, The Age (20 March resources_programs/nleci/Pages/NationalLowEmissionsCoalInitiative.aspx. 2012); Paddy Manning, “NSW to Press on with Coal Seam Gas: Hartcher”, 29. See “International Carbon Capture and Storage Project”, Geoscience Sydney Morning Herald (15 May 2012) http://www.smh.com.au/business/ Australia, Australian Government (2012) http://www.ga.gov.au/ghg/projects/ nsw-to-press-on-with-coal-seam-gas-hartcher-20120515-1yo6c.html. international-ghg.html; CSIRO, “CSIRO Technology Captures China’s CO2” 42. Commonwealth Department of Infrastructure and Transport, “Major Project (2011) Australian Government. http://www.csiro.au/en/Portals/Multimedia/ Facilitation: Overview” (2012) http://www.majorprojectfacilitation.gov.au/ 32 CSIROpod/Capturing-CO2-Emissions.aspx; Department of Resources, Energy overview.aspx. and Tourism, “National Low Emissions Coal Initiative”;“Australian Energy 43. Commonwealth Department of Infrastructure and Transport, “Major Engagement with China & India”, International Energy Agency (2009) http:// Project Facilitation: Current MPF projects” (2012) http://www. www.iea.org/papers/roundtable_slt/australia2_mar09.pdf; Minister for majorprojectfacilitation.gov.au/projects/index.aspx. The twelfth is an algal Resources, Energy and Tourism, Media Release, “Australia-China Joint Study biofuels project. for Commercial Scale CCS Project” (17 December 2010) http://minister.ret. 44. G20, Pittsburgh Summit Declaration, para 24, http://www.g20.org/images/ gov.au/MediaCentre/MediaReleases/Pages/Australia-ChinaJointStudyForCom stories/docs/eng/pittsburgh.pdf. mercialScaleCCSProject.aspx. 45. Richard Denniss, Complementary or contradictory? An analysis of the design 30. “Anna Bligh’s team wastes another $116m on controversial ZeroGen clean- of climate policies in Australia, The Australia Institute (February 2011) https:// coal debacle “, Courier Mail (2011) http://www.couriermail.com.au/news/ www.tai.org.au/index.php?q=node%2F19&pubid=831&act=display. queensland/clean-coal-plan-goes-to-zero/story-e6freoof-1226178916182. 46. Giles Parkinson, “NSW’s great big coal subsidy scandal”, Climate Spectator (1 31. Stuart Haszeldine, “UK carbon capture and storage, where is it?”, Energy and November 2011). http://www.climatespectator.com.au/commentary/nsws- Environment (2012) Vol. 23, p 448. great-big-coal-subsidy-scandal. 32. Ibid; Clair Gough and Sarah Mander, “Are we nearly there yet? A review of 47. Pearse, Quarry Vision; Bernard Keane, “Aluminium Smelting: The Best progress against CCS roadmaps in the UK”, Energy and Environment (2012) 23 Bang for your Fossil Fuel Buck”, Crikey (10 March) http://www.crikey.com. p 367. The Global CCS Institute has only identified 15 large-scale CCS projects au/2011/03/10/aluminium-smelting-the-best-bang-for-your-fossil-fuel-

in operation or under construction, capturing a mere 35.4MtCO2 per annum: subsidy-buck/. Global CCS Institute, Global Status of CCS – Update to the 3rd Clean Energy 48. The Australian Conservation Foundation (ACF) estimates that fossil fuel Ministerial (March 2012) http://cdn.globalccsinstitute.com/sites/default/ subsidies outnumber government support for climate change mitigation and files/publications/37901/globalstatusofccsmarch2012final-opt.pdf. Compare clean energy by around 12 to 1: “Media Release: Australia Spends $11 Billion these results with IEA’s “roadmap” for CCS, which envisages 100 projects by more Encouraging Pollution than Cleaning It Up”, Australian Conservation 2020 and more than 3000 by 2050 to make even a modest contribution to Foundation (1 March 2011) http://www.acfonline.org.au/news-media/ global emissions reduction efforts: IEA, Carbon Capture and Storage Road releases/australia-spends-11-billion-more-encouraging-pollution-cleaning- Map (2010) http://www.iea.org/papers/2009/CCS_Roadmap.pdf. it; Bernard Keane, “Our carbon addict tax system is stronger than a carbon 33. Mark Zoback and Steven Gorelick, “Earthquake triggering and large-scale price”, Crikey, (3 March 2011) http://www.crikey.com.au/2011/03/03/our- geologic storage of carbon dioxide”, Proceedings of the National Academy of carbon-addict-tax-system-is-stronger-than-a-carbon-price/. Sciences (2012) 109(26), p 10164. 49. “Comparison of the ACF’s identified fossil fuel subsidies versus climate change 34. A further $80 million of federal government funding over the next five years programs, in millions of dollars”, Australian Conservation Foundation (2011) has been allocated: Lenore Taylor, “Waste of Energy or Fine Chance for a http://www.crikey.com.au/2011/03/03/our-carbon-addict-tax-system-is- Ballroom Blitz?”, The Age (17 June 2012) http://www.theage.com.au/opinion/ stronger-than-a-carbon-price/?wpmp_switcher=mobile. political-news/waste-of-energy-or-fine-chance-for-a-ballroom-blitz-20120616- 20h1t.html. 35. Lenore Taylor, “Carbon Millions Squandered”, The Age (17 June 2012) http:// www.theage.com.au/opinion/political-news/carbon-millions-squandered- 20120616-20h4x.html. 36. Ibid; and Taylor, “Waste of Energy or Fine Chance for a Ballroom Blitz?”. 37. “Up in Smoke” video containing televised interview of Brad Page by Lenore Taylor, Fairfax Media, available at http://www.theage.com.au/opinion/ political-news/carbon-millions-squandered-20120616-20h4x.html. BZE can confirm that the Institute’s advanced website is indeed “internet-based” and can be located at http://www.globalccsinstitute.com/. 38. BZE, “CEFC Bill Senate Committee Submission” (2012) http:// www.aph.gov.au/Parliamentary_Business/Committees/Senate_ Committees?url=economics_ctte/clean_energy_corporation_bill_2012/ submissions.htm. 39. “Energy turnaround in numbers”, KfW, http://www.kfw.de/kfw/en/KfW_ Laggard to Leader

Part 5 Cooperative Decarbonisation: A New Paradigm for International Climate Policy

Contents

5.1 Introduction 34

5.2 The “Bottom-Up” Reality 34

5.3 Cooperative Decarbonisation 35 5.3.1 The Fundamentals 35 5.3.2 Small Group Cooperation 36 5.3.3 Unilateral Action 38

References 41 Part 5: Cooperative Decarbonisation Laggard to Leader

The UN process adopts one particular paradigm of 5.1 Introduction international cooperation, as we explained in Chapters 2 and 3. To recap, the underlying logic of Treaties, Targets That Australia can claim to be complying with its and Trading is that international climate cooperation will Kyoto Protocol obligations and acting consistently evolve in a top-down way towards the creation of a single with UN rules on carbon accounting, despite international solution. The “solution” will be in the form of a comprehensive international treaty containing a its strong recent growth in domestic fossil fuel regime of targets that add-up to a safe climate emissions emissions and its extraordinary fossil fuel export reduction objective. Under this paradigm, each country boom, illustrates how the lofty goals of the focuses on technical compliance — meeting its target Treaties, Targets and Trading paradigm have for domestic emissions reductions while ignoring other been subverted by the technocratic imperatives emissions within its sphere of influence. 34 of legal compliance and least cost abatement. The overarching “shared vision” of the UNFCCC provides a valuable contribution to raising the political profile of It is time for these noble goals to be met with noble climate change. In a different geopolitical context, the UN actions. It is time to put leadership towards zero carbon process may have succeeded in producing a useful treaty. prosperity at the heart of global efforts to avoid dangerous But, as discussed, the process is deadlocked and unable climate change. to produce the urgent turnaround in global emissions required. The focus of international cooperation in the This chapter introduces a new way of thinking about near-term should therefore move away from the quest to international climate action — the Cooperative create a perfect, comprehensive regime and onto more Decarbonisation paradigm. This entails a more practically- pragmatic cooperative efforts: a “bottom up” approach oriented, problem-solving approach to decarbonising that involves a range of different actions by states.1 the global economy, sector by sector, using a wide range of policies, measures, investments and cooperative Many climate activists abhor the notion of a bottom-up structures. It concludes that: approach, claiming it cannot guarantee that sufficient cuts • With the UN process deadlocked, the reality of will occur to ensure a safe climate, or that it will simply addressing climate change at present is one of allow the big emitters to continue to emit with impunity. “bottom-up” action. But these criticisms miss the point. As has been shown • Cooperative actions among small groups of countries by the last 20 years of failure, the UN system does not focused on particular climate solutions provide guarantee a sufficient outcome either. Nor does it hold the significant potential for generating the emissions big emitters to account; it merely allows them to point to reductions required to avoid dangerous climate change. the failure of the process itself as an excuse for their own • Countries should be prepared to take unilateral action inaction. where cooperation fails, employing a much wider range of mechanisms to equitably influence the global In any case, whether it is desirable or not, the bottom up emissions trajectory. approach is the reality — for now and for the foreseeable • As the ZCA Stationary Energy Plan demonstrated, the future. Climate change is an extremely complex, global, costs of unilateral action are overstated and the benefits inter-generational problem that must be addressed under understated. conditions of significant uncertainty in a highly imperfect • Through actions of this nature, small groups of countries world of sovereign states. In this context, it is not helpful or even individual nations can act as catalysts for global for countries simply to keep acting as if the top down cooperation. approach will work eventually because it “just has to”. It may do one day, but, as we have shown, even the best case scenario under the UN negotiations would establish a treaty that does far too little, far too late to achieve safe 5.2 The “Bottom-Up” Reality climate objectives. It is time to embrace the complexity of climate change mitigation and figure out how to do Climate change presents a challenging collective action bottom-up action in a way that dramatically increases the problem. Since no country alone can reduce emissions chances of preserving a safe climate. In short, we have to sufficiently to ensure a safe climate, countries must make bottom-up work. cooperate to ensure the provision of a public good (a safe climate) that benefits everyone. But there are more than one means of achieving international cooperation — a fact that 20 years of UN climate conferences seems to have obscured. Part 5: Cooperative Decarbonisation Laggard to Leader

Secondly, the actions must genuinely be consistent with 5.3 Cooperative Decarbonisation achieving zero emissions within the transition timetables necessary to preserve a safe climate. Crucially, this implies a focus on peaking global emissions before 2020 and 5.3.1 The Fundamentals rapidly phasing down thereafter, not waiting until 2049 and hoping for a breakthrough. In thinking about a bottom-up response, we need a new paradigm that provides the underlying logic by which Thirdly the approach must be practical and solutions- international climate cooperation should evolve. oriented, entailing systems thinking, collaboration, trial- and-error and adaptive learning focused on genuine The paradigm we advocate is Cooperative Decarbonisation decarbonisation outcomes; not technical compliance with (CD) — opaque accounting rules at the lowest possible cost. • a practical, problem-solving approach 35 • to the decarbonisation of every emissions-intensive The last two points of the definition refer to the agents of economic and social process across the globe this action. Since the focus of this report is on international • within the timeframe necessary to preserve a safe cooperation, we emphasise the national leadership climate actions of individual state actors (countries), which can • driven by national leadership, and be accelerated through cooperation of various degrees • accelerated through international cooperation. with other state actors. Of course, we also envisage wide- ranging cooperation between states and non-state actors, The first three of these points refer to the action that including corporations, research institutes, universities, is required and the mindset with which it must be NGOs and citizens. But we argue that this must largely approached. Consistent with this broad definition, we be driven through laws, investments and other actions of envisage a wide range of policies, measures and other states, albeit in ways that enable more intense cooperation actions falling within this paradigm. To qualify, actions must among non-state actors to occur.2 first be directed toward the decarbonisation of a particular economic or social process. That is, they must be focused By national leadership, we envisage countries taking action on phasing down the greenhouse gas emissions associated that is above and beyond both what they are required with any such process to zero or very near zero, or on the to do by law, and even beyond what their “fair share” of development of technologies and processes that result in the solutions might be. First, we envisage countries using zero or very near zero emissions. whatever levers at their disposal to decarbonise all of

Figure 5.1 Cooperative Decarbonisation compared with Treaties, Targets & Trading

Treaties, Targets & Trading Cooperative Decarbonisation Evolution of international Top-down Bottom-up cooperation One solution or multiple One comprehensive solution / “grand bargain” Multiple solutions each of which is partial Locus of power (ideal) Centralised institutions Polycentric (multiple centres of power) Focus of policy model GHG emissions per se Economic and social processes that directly and indirectly cause GHG emissions Policy mechanism Legally binding treaties, emissions Wide array of general and specific reduction targets and emissions trading policies and measures Dominant mentality Managerialist, technocratic, legalistic, coercive Systems thinking, problem-solving, structural change, cooperative Focus of each country Technical compliance with legal Decarbonising each economic sector through liability to achieve domestic emissions whatever means at their disposal, unilaterally target / “lowest cost abatement” and through cooperation with others Outcome of each Mutually exclusive efforts (each Overlapping efforts (each country cannot country’s efforts country assumes responses will assume responses will add-up so must take add-up to precise target) individual or shared responsibility for all emissions within sphere of influence) Underlying ethical Fair Shares (based on equal per capita Fair shares based on emissions within principles (see Chapter 6) entitlements; modified by historical sphere of influence; modified by special responsibility for emissions and capacity to pay responsibilities (based on scope of sphere (“Common but Differentiated Responsibilities”) of influence, capacity to pay, capabilities for climate solutions and leadership capacity) Part 5: Cooperative Decarbonisation Laggard to Leader

the emissions-causing processes within their sphere of Examples of cooperative groupings influence. This is likely to involve a wide range of policies and measures, investments and initiatives. From market One type of grouping would focus on tackling particular mechanisms that enable the widespread deployment of causes of climate change. These groups would draw renewable energy to regulations prohibiting new fossil membership from countries that are major contributors fuel developments; from changes to electricity market to a particular problem, along with those that have the incentives to large-scale investments in public transport greatest interest in and capacity to provide resources to infrastructure. tackle the problem. The Climate and Clean Air Coalition (see Box 5.1) provides a good, albeit small, illustration Second, we envisage countries cooperating to accelerate of this type of grouping. The global conference on fossil global decarbonisation efforts and providing assistance to phase-out we advocate in Chapter 8 could evolve into other countries to do the same. This will be particularly groups along these lines. 36 critical in relation to trans-national emissions-intensive processes (such as fossil fuel and primary product imports and exports, and aviation and shipping emissions) and in Box 5.1: The Climate and Clean Air Coalition the provision of assistance to developing countries. The Climate and Clean Air Coalition is focused on Our expectation is that many of the solutions will be led practical, sector-based efforts to reduce Short-Lived by small groups of willing countries focusing on particular Climate Pollutants, including soot, methane and some issues associated with decarbonisation. However, hydrofluorocarbons (HFCs), which cause harmful countries should be prepared to “go it alone” if cooperative localised health and environmental impacts as well overtures fail. We discuss the nature and benefits of these as contributing significantly to climate change.4 The different approaches in turn, below. Coalition’s membership includes donor countries and developing countries that are especially affected by the localised impacts of such pollutants. Taking practical steps to reduce such pollutants is a classic example of a climate 5.3.2 Small Group Cooperation change mitigation strategy that draws on “co-benefits”. According to the Coalition, short-lived climate pollutants A new focus for international cooperation affect food and water systems and are the primary cause of 3.1 million air pollution-related premature deaths per The primary means of international policy is state-state year. Accordingly, quick actions such as the widespread diplomacy — the exertion by one government of influence adoption of advanced cookstoves and clean fuels have or pressure on the government of another country or the potential not only to reduce climate-warming gases countries.3 This is traditionally done through either but dramatically reduce morbidity and mortality in the multilateral (many countries) forums or institutions, developing world.5 particularly in regard to global or regional issues, or through bilateral means (between two countries).

Multilateral cooperation can, but need not, be universal, Another type of multilateral grouping would be focused involving all (or nearly all) countries in the world. The UN on the development and deployment of zero emissions climate process is a form of universal multilateralism that technologies and processes. These groupings would draw works on the basis of agreement by consensus between membership only from countries that have the greatest all countries. Bilateral and multilateral processes can be interest in cooperating on a particular issue, which may more or less formal, involving anything from mere political derive from a high capacity to innovate or manufacture meetings (e.g. the G20) to more formal arrangements particular technologies (deriving benefits from supplying involving treaties and legal obligations and some central them) or a high capacity to reap benefits from deploying institutions (e.g. the UNFCCC), all the way through to the technologies (deriving benefits from deploying them highly legalistic regimes with centralised institutions at lower costs). and enforcement mechanisms (e.g. the World Trade Organisation and its Dispute Settlement Body). By limiting membership to such countries, obstacles to progress are removed and a “race to the top” culture can We argue that countries should shift their focus onto be fostered among those countries that have naturally- cooperating on particular, tangible aspects of the climate aligned incentives to make progress toward particular problem and its solutions (specific emissions-causing or climate solutions.6 Meanwhile the upfront costs and emissions-reducing sectors, technologies or activities) and risks (of research, development, demonstration and/ within smaller groups of countries, with more pragmatic or deployment) are shared among such countries. We membership criteria. discuss in Chapter 7 how groupings such as these could be harnessed to develop and deploy renewable energy. Part 5: Cooperative Decarbonisation Laggard to Leader

We recognise that the idea of this type of cooperation is example nuclear testing, anti-personnel land mines and not new, but we explain below what needs to change in law of the sea.12 An example of how norms regarding fossil order to make it more effective. fuels could evolve is discussed in Chapter 8.

Why tackling climate change in this way is more likely to Possible Objections to the CD Paradigm succeed than the UN process Despite being convinced of the superiority of the CD While developing cooperative arrangements or forging paradigm given present geopolitical realities, we recognise agreements under the CD paradigm would inevitably that there are challenges. First, the CD paradigm does involve considerable challenges (particularly in relation not necessarily entail a global framework for measuring, to fossil fuels), the benefits of tackling such vexed issues reporting and evaluating progress towards agreed global on their own and in smaller, interest-based groups are climate objectives. However, the UNFCCC and decisions considerable compared with trying to do so within the made under it provides an adequate (if not perfect) 37 UNFCCC.7 framework for accounting for emissions for the purposes of providing this information and tracking progress. First, the process of “decoupling” issues into small parts of As explained in Chapter 2, we do not argue for the the problem, to be dealt with in smaller groups, enables abandonment of this process, but rather the development progress to be made in areas where it is attainable while the of complementary cooperative actions within a different central UN negotiations are stalled.8 Because the current paradigm. paradigm is all-encompassing and seeks to address climate change through a grand bargain, its success is entirely As such, the emissions monitoring and reporting process hostage to politics (there is a saying in the UN climate under the UNFCCC should continue. In fact, it should be process that “nothing is agreed until everything is agreed”). strengthened. In particular, there is a greater need for an The small group approach is inherently more resilient to international capability to synthesise global emissions data political deadlocks, as political disputes in one process from all sources and provide up-to-date information about need not infect progress in other areas. Such cooperative the gaps between decarbonisation efforts and emissions processes have been shown in other contexts such as trajectories, cumulative emissions and the risks of climate trade and arms control to yield technical breakthroughs impacts.13 whilst generally building trust and confidence among participants and demonstrating the beneficial possibilities Second, the CD paradigm does not entail a centralised of cooperation (see Box 8.2 in Chapter 8).9 means by which countries’ efforts can be calibrated to the achievement of a global goal and enshrined in binding Second, the smaller, interest-based membership ensures legal obligations to achieve emissions targets. A bottom- disinterested parties are unable to interfere or dilute up paradigm by definition cannot depend on all countries processes as they try to advance their interests, as often agreeing specific, long-term responsibilities up-front, occurs in the UNFCCC.10 Oil exporting states, for example, once-and-for-all. Again, we simply note that the conditions have for many years held-up multilateral negotiations on for such a regime do not currently exist, but that through reducing shipping and aviation emissions because they actions within the CD paradigm they could be fostered. This are dissatisfied with the lack of compensation developed could occur, for example, through building social capital countries are offering them for importing less of their in smaller cooperative groups, and through initiatives to oil as a result of climate change measures! This type of bring down the cost of renewable energy and other zero behaviour begs a simple question that proponents of the carbon technologies. UN process struggle to answer: why let global emissions reduction be held hostage by the laggards? It can readily be seen how the sort of cooperative mechanisms we advocate can lead to opportunities Third, the smaller membership and more intensive, down the track for more centralised, top-down forms of single-issue focus allows greater scope for: the collection cooperation. Indeed, this is exactly why both paradigms are of information and the development of expertise; the needed: achievements in each paradigm should ultimately identification of co-benefits for participating countries; make success within the other more likely. Moreover, it is and the provision of targeted technical assistance and not as though the CD paradigm necessarily ignores binding incentive payments by developed countries to developing commitments that reduce emissions, it is just that these countries.11 commitments are more likely to focus on the economic and social processes that cause emissions (such as coal Fourth, progress in smaller groups can result in the and gas exports). development of international norms (standards of conduct) that have legitimacy and become institutionalised beyond Third, similar types of partnership arrangements have the group’s membership — history has shown that this can been tried before and have not fundamentally “changed occur even in the absence of universal participation, for the game”, therefore it could be argued that going down Part 5: Cooperative Decarbonisation Laggard to Leader

this path would be a distraction. For example, the Asia- Pacific Partnership on Clean Technology and Climate (APP), 5.3.3 Unilateral Action inaugurated by the Bush Administration, established eight public-private “task forces” that aimed to reduce emissions If benign diplomatic initiatives continue to fail to induce through a practical focus on particular industry sectors sufficiently transformative change then individual such as steel, aluminium, concrete and fossil fuels.14 countries must be prepared to lead on their own. They The Major Economies Forum takes a similar, practically- must use whatever means at their disposal to decarbonise oriented approach to clean technologies.15 emissions-intensive processes within their sphere of influence and to pressure other countries into following The novelty of CD is that these types of initiatives are no suit. longer viewed as “peripheral” in the way they are today. They must become extremely well-resourced and focused Such “unilateral” action can only succeed if countries 38 on delivering scalable zero-carbon solutions, such as those taking it articulate a clear set of values or goals to which examined in the Zero Carbon Australia Plans, within the they aspire — such as decarbonisation, poverty alleviation, timeframes required. and sustainable prosperity (see Chapter 6) — and behave consistently with them, while expressing willingness to Moreover, the focus of these partnerships has not been engage with other countries in regard to how this occurs in sufficiently ambitious. The APP, for example, has a “Cleaner international fora. By leading by example and conforming Fossil Energy Task Force” which is focused on CCS and to the standards they expect of others, countries gain scaling-up LNG, which the APP website refers to as a “low credibility, help to establish new norms of behaviour and emissions fuel”. Patently, this would not meet the criteria influence the actions of others. for Cooperative Decarbonisation outlined above. Another example is the Forest Carbon Partnerships Facility, which Unilateral actions by countries can range from the brings together donor countries to provide funding to benevolent to the punitive. forested developing countries that undertake “REDD readiness” programs and, eventually, protect forests.16 Starting at the benevolent end, the German Government’s There is an unfortunate emphasis within REDD-related world-leading policies aimed at rolling out solar PV over institutions on the preparation of countries for inclusion the last decade have had an extraordinary global impact in carbon markets with a view to offset generation for in bringing down its price. While Germany has engaged in use by developed countries (we explain in Chapter 4 multiple research collaborations relating to PV throughout why this is problematic). While we recognise that REDD this period,19 its policies were largely unilateral. Germany’s is extremely complex, the emphasis needs to shift onto solar rollout has been so ambitious that, by 2010, Germany halting deforestation as quickly as possible in addition to was home to around half the world’s installed solar PV.20 actions in other areas. Germany’s solar PV policies are directly targeted at reducing PV prices, and have brought costs down by an CD is not a recipe for carte blanche (at least, no more than incredible 65% since 2006.21 the status quo is). But it will, at least initially, entail an array of imprecise efforts at multiple levels of governance This essentially amounts to Germany subsidising solar from the local to the global, working separately but for the rest of the world: Germany undertook the burden in complementary ways towards a safe climate.17 The of investing in the technology when it was relatively resulting outcome will not be the precise hitting of a global expensive. Its efforts have allowed others to “free ride” by target at the lowest possible cost; it will be far less elegant gaining access to cheaper PV. A short-sighted rationalist than that. But as different approaches are trialled, fail might have foregone those initial investments; instead, and succeed, and as countries and non-state actors learn a far-sighted government saw a strategic opportunity. from these successes and failures, the focus will gravitate The economic rewards for Germany have been profound towards the most effective regimes and approaches, which (see Box 7.5 in Chapter 7). Today, German innovation has can in turn be expanded and deepened.18 spurred China, the US and other countries to join the PV rush, and its initial efforts have snowballed into a global Ultimately, under the CD paradigm, political leadership is PV boom. required. Below, we consider the sorts of leadership actions that countries can take even in the absence of cooperation Another innovative example is the financial pledges from others. Chapters 7 and 8 further demonstrate that by Germany and others currently being made to the leadership under the CD paradigm can make a material Ecuadorian Government, via a UN Development Program- difference to the global emissions trajectory. We turn administered fund, for its conservation of, and forbearance now to thinking about the possibilities of unilateral action to exploit the oil reserves under, the richly biodiverse within this paradigm. Yasuni National Park in the Amazon Rainforest.23

Finally Norway’s strategic use of its sovereign wealth fund Part 5: Cooperative Decarbonisation Laggard to Leader

Figure 5.2 The Yasuni National Park, Ecuador: A worthy investment?22

39

further expands notions of how states can act to influence emissions in the International Civil Aviation Organization issues like climate change. The $550 billion fund, in which and the International Maritime Organization, the EU Norway saves its oil and gas revenues from the North Sea, recently incorporated international aviation emissions has become so large that it now owns more than 1% of within the EU Emissions Trading Scheme so that flights to the world’s shares, is Europe’s biggest equity investor and and from Europe will need to pay a carbon price on the speaks for 1.7% of all listed European companies.24 The fuel used.26 fund manager is putting climate change on the agenda of the companies in which it owns stakes, requiring them to The second type of unilateral measure involves the analyse the impact climate change has on the companies’ imposition of border tax adjustments on imports of goods activities, measuring the greenhouse gases they emit and that are not subjected to equivalent carbon costs in their setting clear targets for reducing them. It also invests country of origin. Such measures serve the combined directly in . The fund invested $1.2 billion purpose of maintaining the competitiveness of industries into 232 Indian companies that support environmental within the “leader” country that are subject to emissions sustainability and clean energy and has made billion dollar reduction policies such as carbon pricing (reducing the investments in forest preservation.25 oft-cited, albeit typically remote, possibility of “carbon leakage”) while encouraging “laggard” countries to At the punitive end of the spectrum of unilateral action, enact similar measures on equivalent goods.27 The US two types of measures could be utilised by “leader” climate protection legislation that passed the House countries: pricing emissions from international aviation of Representatives in 2009 contained border tariff and shipping, and border tax adjustments. adjustments of this nature.28

The first type of unilateral impost that a leader country The Grattan Institute recommends that Australia adopt can apply is targeted at emissions from international such border adjustments for steel and cement because, flights and shipping voyages that arrive in or depart from compared with compensating industries through the the country’s ports and airports. Such emissions are not issue of free carbon units, it would be a more efficient accounted for by any one country under UN rules, since and effective way of preventing carbon leakage in the only they are “international” in nature. The policy measure two industries that are at genuine risk of such leakage.29 involves subjecting those “bunker fuel” emissions to To address equity concerns where the country of origin that country’s carbon pricing scheme or other emissions is a developing country, the revenue raised by the leader reduction policy. For example, in the absence of progress country from the tariff can be recycled to the developing towards international agreements to address such country exporter in the form of investments in renewable Part 5: Cooperative Decarbonisation Laggard to Leader

energy or other forms of sustainable development.

In both the EU airline case and the US border tariff case, the measures in question provoked an international outcry. This is precisely the point. The EU decision provoked vigorous complaint from a number of non-EU countries (though ultimately only China and India have prohibited their carriers from complying).30 China and India were also strident in their criticism of the proposed US measures.31 But this type of action will become increasingly necessary in the absence of international agreements to regulate emissions or international enforcement structures to 40 discipline laggard states. While some commentators and politicians fret about the free trade implications of unilateral action,32 these concerns typically imply a subversion of climate-related concerns to free trade goals that is morally dubious given the threat posed by climate change. One might well ask, “how many trade wars will there be in a world that’s 2-7 degrees warmer?” The food price spikes of 2008, which provoked riots in more than 30 countries and led grain exporters to cut off exports to food-importing nations, provided an ominous foretaste of the tenor of international relations in a warming world.33 In any case, concerns about trade wars are largely unwarranted as it is eminently possible to design carbon-related unilateral measures that are lawful and consistent with World Trade Organization (WTO) rules.34

Though they can be undertaken unilaterally, these types of restrictions can be imposed by a group of leader countries in order to preserve benefits to the leader group and incentivise action by non-participating laggards.35 The more states that engage in this this type of action, the more likely others will want to cooperate. Part 5: Cooperative Decarbonisation Laggard to Leader

solar-idUSTRE60C4OS20100113; “For how long will Germany the world’s References largest PV market?”, Solarplaza (16 August 2011) http://www.solarplaza.com/ 1. See Ruth Greenspan Bell et al., Building International Climate Cooperation: article/for-how-long-will-germany-remain-the-worlds-large. Lessons from the weapons and trade regimes for achieving international 21. “Preisindex Photovoltaik”, Bundesverband Solarwirtschaft (2012) http://www. climate goals, World Resources Institute (2012) p 38. solarwirtschaft.de/preisindex. 2. See, e.g., Adam Bumpus, “Start a carbon tax? That’s so 1991. Clean 22. “San Rafael Falls, located in the Yasuni National Park, Ecuador”, ZME Science innovation and partnerships is where it’s at”, The Conversation(2 July 2012) (2010) http://www.zmescience.com/ecology/environmental-issues/ecuador- http://theconversation.edu.au/start-a-carbon-tax-thats-so-1991-clean- will-receive-3-6-billion-not-to-drill-for-oil-in-a-historic-pact-06082010/. innovation-and-partnerships-is-where-its-at-8009. 23. See http://www.mdtf.undp.org/yasuni; Melissa Fyfe, “Meet Cash Deadline 3. “In different social settings, influence may be exerted by a variety of different or the Drillers Move In”, Sydney Morning Herald, (29 October 2011); Sophie means, including setting an example, skilful persuasion, providing institutional Vorrath, “Amazon: 1, Fossil Fuels: 0” in “Mixed Greens: Australia (Still) Lags on support, the possession and communication of superior expertise or Cleantech”, RenewEconomy (5 June 2012). experience, the exercise of a formal position of authority (including 24. Gladys Fouché, “Norway’s Sovereign Wealth Fund: £259bn and growing” The 41 traditional authority), and/or simply the possession of qualities that are Guardian (20 September 2009) http://www.guardian.co.uk/business/2009/ admired by others”: Robyn Eckersley, “Does Leadership Make a Difference sep/20/norway-sovereign-wealth-fund; Sophie Baker, “Norway SWF told to in International Climate Politics?” International Studies Association Annual invest in land as climate change hedge” Financial News (21 May 2012) http:// Meeting, San Diego, (1-4 April 2012) p 6. www.efinancialnews.com/story/2012-05-21/norway-swf-told-to-invest-in- 4. “About”, Clean Air and Climate Coalition, http://www.unep.org/ccac/About/ land-as-climate-change-hedge. tabid/101649/Default.aspx. 25. Ibid. 5. “Short-Lived Climate Pollutants”, Clean Air and Climate Coalition, http://www. 26. Council Directive 2008/101/EC of 19 November 2008 Amending Directive unep.org/ccac/ShortLivedClimatePollutants/tabid/101650/Default.aspx. 2003/87/EC so as to Include Aviation Activities in the Scheme for Greenhouse 6. Bell et al., Building International Climate Cooperation (2012) p 5, 45, 48. Gas emission Allowance Trading within the Community [2008] OJ L 8/3. 7. Ibid., p 39-40, 43-44; Robert O Keohane and David G Victor “The Regime While no countries have as yet undertaken unilateral measures to put a price Complex for Climate Change”, The Harvard Project on International Climate on emissions from international shipping, the EU has established a formal Agreements: Discussion Paper (January 2010) p 12, 13. working group to address the issue and a recent Report, jointly prepared 8. See generally Bell et al., Building International Climate Cooperation (2012) by the University of Manchester and the Tyndall Centre for Climate Change Chapter 1 and specifically page 50. Research, outlines the potential scope for unilateral action by the United 9. Ibid., p 5, 40-41, 44-45, 56 (Chapter 1 generally). Kingdom to address such shipping emissions: see Paul Gilbert, Alice Bows and 10. Ibid., p 39-40, 43-44. Richard Starkey, Shipping and Climate Change: Scope for Unilateral Action 11. Ibid., p 17-19, 23-24, 44-45. (August 2010) http://www.tyndall.ac.uk/publications/research-report/2010/ 12. Ibid., p 35-36. shipping-and-climate-change-scope-unilateral-action. 13. Fergus Green, Warwick McKibbin and Greg Picker, “Confronting the Crisis of 27. John Daley and Tristan Edis, “Restructuring the Australian Economy to Emit International Climate Policy: Rethinking the Framework for Cutting Emissions” Less Carbon”, Grattan institute (April 2010) p 12 http://www.grattan.edu.au/ Lowy Institute Policy Brief (6 July 2010), p 10, 14-17. publications/026_energy_report_22_april_2010.pdf. The measures could 14. APP, “APP Public-Private Sector Task Forces”, http://www. operate so that importers of goods competing with equivalent trade exposed asiapacificpartnership.org/english/about.aspx. industries in the “leader” country could be required to pay a price based on 15. “About”, Major Economies Forum, http://www.majoreconomiesforum.org/ the leader’s industry average emissions. This price could then be adjusted about.html. if importers could demonstrate that their actual production emissions were 16. “Home”, The Forest Carbon Partnership Facility, http://www. lower than the leader country average or that they were already subject to forestcarbonpartnership.org/fcp/. an equivalent carbon price or equivalent in their country of origin: see John 17. Elinor Ostrom, “Polycentric approaches to climate governance” Development Daley and Tristan Edis, “The Real Cost of Carbon Pricing”, Inside Story (23 and Economics Research Group, World Bank (2010) p 39. See also Thomas September 2010) http://inside.org.au/the-real-cost-of-carbon-pricing/. Heller “Climate Change: Designing an Effective Response”, in Ernesto Zedillo 28. American Clean Energy and Security Act of 2009, H.R. 2454, 111th Congress. (ed.), Global Warming: Looking Beyond Kyoto (2008) p 115-144; Mike Hulme, 29. Daley and Edis, “Restructuring the Australian Economy” (2010) . “Moving beyond Climate Change”, Environment (2010) 52(3), p 15-19. 30. See, e.g., “Europe against the World”, The Economist (16 May 2012) http:// 18. Daniel Bodansky and Elliot Deringer, The Evolution of Multilateral Regimes: www.economist.com/blogs/gulliver/2012/05/airlines-and-pollution; Tania Implications for Climate Change (December 2010) p 3-12; Ostrom, “A Branigan, “China Bans its Airlines from Paying EU Carbon Tax”, The Guardian Polycentric Approach”, p 11, 35; Keohane and Victor, “The Regime Complex (online) (6 February 2009) http://www.guardian.co.uk/world/2012/feb /06/ for Climate Change”, Robert Falkner, Hannes Stephan and John Vogler, china-airlines-european-carbon-tax. The European Court of Justice recently “International Climate Policy after Copenhagen: Towards a ‘Building Blocks’ found the European scheme to be lawful: Air Transport Association of Approach”, Global Policy, (October 2010) 1(3), p 252, 256-257; Gwyn Prins America and Others v Secretary of State for Energy and Climate Change (C- and Steve Rayner, The Wrong Trousers: Radically Rethinking Climate Policy 336/10) [2011] OJ C 49. (2007). 31. International Centre for Trade and Sustainable Development, “China, India 19. See, e.g., “Australia-Germany Collaborative Solar Research and lash out at talk of ‘carbon tariffs’”, China Programme (2009) 13(25) http:// Development Program”, Sydney University, http://sydney.edu.au/news/84. ictsd.org/i/news/bridgesweekly/50301/; “China says carbon tariffs will harm html?newsstoryid=9046. global trade”, China Daily (16 December 2012) http://www.chinadaily.com. 20. “Germany moves toward trimming solar power incentives”, Reuters (13 cn/business/2009-12/16/content_9189672.htm; Amy Kazim, “India attacks US January 2010) http://www.reuters.com/article/2010/01/13/us-germany- carbon tariff plan”, Financial Times (online) (1 July 2009) http://www.ft.com/ Part 5: Cooperative Decarbonisation Laggard to Leader

cms/s/0/3b180c9a-65d4-11de-8e34-00144feabdc0.html#axzz20lnw8I00. 32. See, e.g., Tim Wilson and Caitlin Brown, “Costly, ineffectual and protectionist carbon tariffs”, The Institute of Public Affairs (December 2009); Frédéric Simon, “France plans to revive EU carbon tariff”, The Guardian (18 May 2012) http://www.guardian.co.uk/environment/2012/may/18/france-eu-carbon- tariff. 33. “Riots, instability spread as food prices skyrocket”, CNN World (14 April 2008) http://articles.cnn.com/2008-04-14/world/world.food.crisis_1_food- aid-food-prices-rice-prices?_s=PM:WORLD; Javier Blas, “UN Body Warns of ‘Food Price Shock’”, Financial Times (5 January 2011) http://www.ft.com/intl/ cms/s/0/524c0286-1906-11e0-9c12-00144feab49a.html; Javier Blas, “Trade: Export Ban Prompts Reviews of Security of Supplies”, Financial Times (14 42 October 2010) http://www.ft.com/intl/cms/s/0/89dfdf36-d65a-11df-81f0- 00144feabdc0.html. 34. According to a recent joint report from the WTO and the United Nations Environment Programme, border tax adjustment measures will be WTO- compliant so long as: they display a close connection with essential climate change policy; they are non-discriminatory in application, so as not be a “disguised restriction on international trade”; and administrative due process is properly followed: Ludivine Tamiotti et al, Trade and Climate Change: A Report by the United Nations Environment Programme and the World Trade Organization, WTO Publications (2009) p 98–103. See also Rudi Kruse “Climate Change Regulation in Australia: Addressing Leakage and International Competitiveness Consistently with the Law of the WTO”, Environmental and Planning Law Journal (2011) 28 p 297; Benjamin Eichenberg “Greenhouse Gas Regulation and Border Tax Adjustments: the Carrot and the Stick”, Golden State University Environmental Law Journal (2010) 3, p 283. 35. Keohane and Victor, “Regime Complex for Climate Change” (2010) p 12-13. Laggard to Leader

Part 6 Australia’s Role in Cooperative Decarbonisation

Contents

6.1 Introduction 44

6.2 Cooperative Decarbonisation: What Should Individual Countries Do? 44

6.3 Australia’s Responsibilities under Cooperative Decarbonisation 45 6.3.1 The Case for Australian Climate Leadership 45 6.3.2 International Equity 47 6.3.3 Australia’s National Interest 48

6.4 From Responsibility to Action 50

References 51 Part 6: Australia’s Role in Cooperative Decarbonisation Laggard to Leader

this involves domestic decarbonisation, but thinking about 6.1 Introduction our contribution in terms of our sphere of influence invites us to consider a more expansive set of policy responses Having articulated the basic concept and logic — aimed at the full range of global emissions over of Cooperative Decarbonisation, we now turn to which we can exercise control or influence. This includes ask: what should a single country do? And, more responsibility for influencing the emissions-related actions of others (while taking equity considerations into account), specifically, what should Australia do? and recognising that we already influence these actions through our extensive participation in global fossil fuel Within the Cooperative Decarbonisation paradigm states markets. must assess their responsibility to contribute as a basis for determining the action they should take. This chapter This approach accepts that, as with most international 44 outlines the basic principles that should guide countries issues we face today — from financial crises to global poverty under a bottom-up paradigm of climate action and applies to nuclear proliferation — responsibility for emissions these to Australia. It concludes: in a globalised world cannot be so easily quantified and • The precise responsibilities of a particular country demarcated at national borders. Addressing climate with regard to the timing of its decarbonisation and change in this context requires forms of international its contribution of resources to the global effort will cooperation that are concerned much more with the (often depend on a range of factors, including: its historical trans-national) economic and social processes that cause contribution to climate change; the scope of its sphere emissions than with tonnes of emissions that happen to of influence over emissions-intensive processes; its fall within one or another country’s borders. financial resources; its special capabilities to contribute to decarbonisation efforts; and its capacity to lead. None of this is to say that every country should decarbonise • When these criteria are applied to Australia, there is a at the same pace or contribute equal resources to global strong case that Australia should decarbonise rapidly, decarbonisation efforts. Rather, we emphasise that this contribute substantially to global decarbonisation should be the basic guiding logic applicable to every efforts and play a leadership role in facilitating country’s climate actions — in the same way that lowest international cooperation. cost domestic abatement provides the guiding logic for • The imperative to act consistently with international individual country actions within the current paradigm, equity considerations strengthens the case for even though not every country approaches this in exactly cooperative action by Australia and other developed the same way or to the same extent. countries. • While much is required of Australia under Cooperative The more precise responsibilities of any particular country Decarbonisation, these actions are consistent with with regard to the timing of decarbonisation and the Australia’s national interest. extent of their contribution of resources to their own and global efforts will necessarily depend on a range of factors.1 These include, with regard to any country: its historical contribution to climate change; the scope of its 6.2 Cooperative Decarbonisation: sphere of influence over emissions-intensive processes; its What Should Individual Countries financial resources; its special capabilities to contribute to decarbonisation efforts; and its capacity to lead.2 Do?

As applied to a single country, the basic logic of the CD paradigm is that each country takes responsibility for: 1. decarbonising those emissions-intensive economic and social processes within its sphere of influence (i.e. domestic emissions, exported emissions and emissions- intensive imports); and 2. cooperating with other countries to facilitate that decarbonisation by whatever means is most appropriate.

For an individual country, including Australia, operating under the assumptions of the CD paradigm necessitates a substantial shift in the way we think about our contribution to climate change. As argued in Chapter 5, under the CD paradigm, countries should reduce emissions wherever possible within their sphere of influence. At the very least, Part 6: Australia’s Role in Cooperative Decarbonisation Laggard to Leader

measure causal responsibility for emissions on a sphere 6.3 Australia’s Responsibilities under of influence basis, apportioning shared responsibility Cooperative Decarbonisation for imports and exports, the case that Australia must decarbonise rapidly is even stronger.

Below, we explain the reasons why Australia should take a Special Capabilities to Provide Climate Solutions leadership role in global decarbonisation efforts. In making this argument, we recognise that there are many other Australia, as we have shown, has immensely high and imperatives and goals that must be taken into account growing emissions from the fossil fuels it exports. The fact in advocating this type of leadership.3 As such, we also that we have full control over these emissions enlarges address two of these additional considerations, namely: Australia’s responsibility to decarbonise rapidly, as noted • international equity: the imperative for developed above. But the scale of Australia’s exported emissions also countries to decarbonise more rapidly than developing highlights Australia’s unique capabilities to influence the 45 countries, and to provide assistance to developing global fossil fuel trade. The scale of Australia’s fossil fuel countries so that decarbonisation contributes to exports also makes Australia a central player in the global sustainable development and poverty alleviation; and coal and LNG trade, conferring on it unique capabilities • the national interest: the imperative for Australia to to influence the supply and price of those commodities. ensure that its actions serve Australia’s long-term Those abilities arguably give rise to a special responsibility national interest. for Australia to contribute to global emissions reduction efforts associated with coal and gas. In Chapter 8, we show We argue that, far from making trade-offs between how Australia can discharge this special responsibility and achieving decarbonisation, international equity and the profound impacts that such action is likely to have in acting in the national interest, these three objectives are reducing global emissions, shaping global energy markets intertwined and mutually reinforcing. and strengthening relevant international norms.

Australia also has world class renewable energy 6.3.1 The Case for Australian Climate Leadership resources in solar and wind and excellent capabilities in infrastructure services (finance, project management, There is a strong case that Australia should decarbonise engineering and construction). As such, Australia has rapidly, contribute substantially to global decarbonisation an immense capacity to contribute to the deployment efforts and play a leadership role in facilitating international of zero emission technologies and associated services, cooperation. giving rise to a special responsibility for Australia to make global contributions in those areas. In Chapter 7, we Domestic Decarbonisation explain how Australian could play a leading role deploying commercially available technologies, particularly CST, at The conclusion that Australia has a responsibility home and abroad, thereby significantly reducing the cost to decarbonise rapidly is evident even from a strict of those technologies for energy users all over the world. application of the traditional, “fair shares” approach, based on its domestic emissions alone and its capacity to While the focus of Australia’s decarbonisation efforts pay.4 Despite having a relatively small population (0.3% should be on deployment, as we discuss in Chapter of the current world total, the 52nd biggest in the world), 7 there is also a strong case for global research, Australia is historically responsible for a high level of development and demonstration (RD&D) of new zero domestic emissions. As discussed in Chapter 3, Australia is emissions technologies. Australia’s strong research currently the world’s 15th largest domestic emitter and is and technical capabilities arguably extend Australia’s the highest developed country per capita emitter. It is also special responsibilities to encompass the provision of a the 14th largest emitter in terms of cumulative historical considerable share of targeted investment into RD&D for emissions.5 Moreover, as the world’s 13th largest economy new zero emissions technologies. Australia’s immense by GDP with one of the world’s highest levels of GDP per capacity to gain advantages from low cost renewable capita, we enjoy very high wealth by global standards.6 energy technologies should provide more than adequate incentives for Australia to invest in this realm. Australia’s high current per capita and historical emissions, and its capacity to pay, Australia has a responsibility to decarbonise rapidly compared with other countries. Under the calculation of “fair shares” in the context of a 2°C carbon budget developed by the German Advisory Council on Climate Change, countries with high per capita emissions such as Australia must reduce emissions to zero by 2020 (see Figure 3.5 on page 19 of Chapter 3).7 If we Part 6: Australia’s Role in Cooperative Decarbonisation Laggard to Leader

Capacity to provide leadership promote peace and security, or respond to common threats, Australia has on many occasions risen to the Australia is in an outstanding and near-unique position to challenge — despite the fact that in narrowly defined play a global leadership role in cooperative decarbonisation terms, our national interest has often not been at stake. efforts. This position arises largely from Australia’s wide A resourceful and influential middle power, Australia has sphere of influence over global emissions-intensive shown itself capable of mobilising coalitions, injecting economic and social processes, high capacity to pay good ideas, establishing new norms, cajoling other and numerous special capabilities for providing climate countries and industries and, most importantly, producing solutions, all of which are discussed above. results on the international stage that serve the long- term interests not only of Australians, but of people Additionally, Australia has an historical identity as a leader everywhere.16 Importantly these examples also attest and is socially recognised by other states as a legitimate to the fact that Australia is generally well respected and 8 46 leader in international affairs. Each of these attributes trusted in international affairs and is often looked upon is evident from Australia’s rich tradition of creative and by the international community as a source of moral effective “middle power” diplomacy, for which it has an leadership, particularly when the great powers are found unusual flair (see Box 6.1).9 Spanning fields as diverse wanting or are mistrusted.17 as environmental protection, human health and safety, international security and regional peacekeeping over the Of course, as we have shown above, Australia is much more last quarter of a century, bipartisan examples of bold and than a “middle power” when it comes to climate change: effective Australian leadership are presented in text boxes it is a major player. Although it currently uses its influence below and in Chapter 8. largely to fuel the problem, it has enormous potential to use its power for good. These case studies show that when history has required far-sighted leadership to protect our natural environment,

Box 6.1: Regional Peacekeeping: Cementing the Cambodia Peace Process and Beyond

Australia’s leadership role in the Cambodian peace process provided strong support to the UN Transitional Authority of the late 1980s and early 90s stands out as an early in Cambodia (UNTAC), supplying the military commander example of far-sighted leadership in circumstances where for the UNTAC operation and over 500 communications our security interests were not directly threatened. personnel, police officers and electoral supervisors, along aid and humanitarian support.13 The UN peacekeeping In the aftermath of Pol Pot’s brutal Khmer Rouge regime, process ultimately produced an effective resolution to the Cambodia remained politically divided and racked by conflict. internal conflict. The conflict was characterised by extremely complex internal and international dynamics: “Being of secondary size does not mean being second- most of Cambodia was under the control of a regime rate in international affairs”, affirmed Australian Foreign supported by Vietnam and the Soviet Union; and the Minister Gareth Evans at the time: “we can as a middle main military opposition was composed of three separate power effectively deploy our resources not only in a way Khmer factions, supported to varying degrees by China, that advances our own interests”, but in a way that helps the ASEAN countries and the US.10 In 1989, following years to “make the world a better and safer place”. A middle of unsuccessful peace negotiations between the major power like Australia, says Evans, can do a great deal “using stakeholders, the negotiations around the Cambodia techniques of coalition building and niche diplomacy, peace process seemed intractable. With Vietnamese forces paying careful attention to priorities and credibility leaving the country and no agreement on the composition maintenance, exercising intellectual creativity at the right of a future government or the potential role of the Khmer times, and through sheer persistence and stamina”.14 Rouge, ongoing conflict seemed inevitable. Political leaders expressed similar sentiments in The breakthrough in the negotiations was a product characterising later Australian interventions in the region. of Australian diplomacy.11 The Australian Government As then foreign minister Alexander Downer noted in 2007, drafted a peace plan based on its proposal for a greater Australia’s involvement in the Pacific region has been about role for the United Nations in the civil administration of more than pursuing “narrowly defined national interests … Cambodia for a brief, transitional period. The ‘Australia there is a large element of altruism in what we do”.15 Plan’ was successfully promoted by Australia to the parties to the conflict and to the international community.12 Having built consensus around the plan, Australia then Part 6: Australia’s Role in Cooperative Decarbonisation Laggard to Leader

Making reliable energy available to the world’s energy poor 6.3.2 International Equity is important, but making reliable clean energy available to all the world’s people is the goal we should really be We unashamedly take the position that achieving striving for. Yet this raises a conundrum: in the short term, the imperative of a safe climate through Cooperative addressing climate change necessitates that global energy Decarbonisation must be the starting point for, and prices rise to better reflect the damage costs associated highest priority of, countries’ energy and climate change with burning fossil fuels and to facilitate the essential policies this decade and beyond. The reason for this is growth in renewable energy. As we show below, many simple: without climate stabilisation at safe levels, all of the world’s energy poor are not especially affected by other benevolent or progressive goals of international fossil fuel prices because they are not connected to the policy would become unattainable.18 grid. But, to the extent they would need to, is it right that people in developing countries should pay relatively higher There are, of course, other international policy imperatives prices for clean energy in order to address a problem 47 worth striving for, and to which resources should be largely caused by developed countries? Arguably it is not. allocated. One of these worth highlighting is poverty alleviation. Some 1.4 billion people around the world live So what should be done? below the international poverty line of $1.25 per day.19 One of the UN’s Millennium Development Goals is to One argument is that we should supply ever more coal and reduce that number to 900 million by 2015.20 Moreover, gas to developing countries because it is a cheaper way of there are some 1.3 billion people around the world who alleviating poverty and powering economic development do not have access to electricity and 2.7 billion with unsafe in lower-income countries. There are three reasons why cooking stoves — more than 95% of these people live in this approach is flawed (see Box 6.2). Sub-Saharan Africa or developing Asia and 84% live in rural areas.21 “The lack of access to modern energy services is Rather, to ensure that decarbonisation efforts are a serious hindrance to economic and social development, consistent with international equity considerations, and must be overcome if the UN Millennium Development Australia and other countries should undertake three Goals are to be achieved”, argues the International Energy types of measures. Agency.22

Box 6.2: Why Supplying Coal and Gas to Developing medical journal, The Lancet, the health benefits of Countries on Poverty Alleviation Grounds is mitigation policies to reduce fossil fuel electricity Flawed consumption “greatly offset costs of greenhouse-gas mitigation, especially in India where pollution is high and First, it is patently false for some applications. Even at costs of mitigation are low”, with modelling suggesting current prices, renewable energy can provide cheaper “clear health gains (co-benefits) through decarbonising household power than fossil fuels for more than 1 electricity production”.25 While it is reasonable to expect billion people. As discussed further in Chapter 7, solar differing results from different locations, it seems likely photovoltaic power is now a cheaper energy solution for that in urban mega-city situations (which is largely the remote, off-grid areas, where the vast majority of the destination of Australian coal exports) the health costs of world’s energy poor actually lives.23 As such, allocating coal would be substantially higher, and therefore the co- capital to coal and gas at the expense of distributed benefits of decarbonisation substantially greater. renewable energy solutions actually prolongs the harms suffered by the world’s most energy poor populations. Third, the “fossil fuels alleviate poverty” argument is dangerously short-sighted because it ignores the Second, in those markets where fossil fuels are cheaper developmental (and obviously all the other) implications than renewable energy, the price differential subsists partly of climate change resulting from the continued burning because the full costs of fossil fuels are not incorporated of fossil fuels. According to a report produced by a into their price. Fossil fuel prices do not incorporate Commission comprising The Lancet and the University local “externalities” (to say nothing of the externalised College London Institute for Global Health, “climate change climate damage costs) which typically include large is the biggest global health threat of the 21st century”: public health impacts from fossil fuel combustion that “vector-borne diseases will expand their reach” and “the affect local communities where electricity is generated.24 indirect effects of climate change on water, , Decarbonising electricity generation in developing and extreme climatic events are likely to have the biggest countries would have considerable and immediate health effect on global health”.26 Moreover, the Commission co-benefits for local populations. reinforced previous conclusions that climate change will disproportionately affect the world’s poor.27 Fossil fuels According to one study of alternative climate policy provide cheaper energy (in some contexts) in the short scenarios published in the world’s preeminent international term but threaten lives and livelihoods in the longer term. Part 6: Australia’s Role in Cooperative Decarbonisation Laggard to Leader

First, global decarbonisation policies should be designed The following chapters on Australian decarbonisation so that developing nations are less exposed in the initial initiatives recognise the importance of international periods, consistent with their justified longer timeframes equity and poverty alleviation as part of broader strategies for decarbonisation. to assist developing countries transition away from fossil fuels (including those that we should no longer be Second, the provision by developed countries of finance exporting to them) and scale-up renewable energy. For for zero emissions technologies and services, other example, we explain the international aid and poverty financial payments and technology transfers, technical alleviation benefits of Australian measures to deploy expertise and capacity-building will need to be built into renewable energy in Australia and overseas. global decarbonisation efforts in order to ensure they do not compromise equity and poverty alleviation objectives. In the case of low-income developing countries, 6.3.3 Australia’s National Interest 48 such assistance can complement existing sustainable development policies, for example by financing distributed Up to now, we have focused on Australia’s responsibilities renewable energy generation systems that can assist to the rest of the world, but Australia clearly also has the in reducing energy poverty. The Climate and Clean Air responsibility to serve the interests of its own citizens. Coalition, discussed in Chapter 5, is a good example Policy must, for practical if not ethical reasons, also serve of developed country financial assistance directed to the national interest.32 the achievement of both socially and environmentally progressive development goals. Preserving a safe climate is manifestly in Australia’s national interests. Without sufficient global action, the Developed countries must also look to ways of developing social, economic and environmental impacts of climate a more cooperative framework for sharing the benefits change on Australia will range from highly damaging to of proprietary technologies, goods and services that devastating. are essential for reducing emissions. This remains a significant challenge for the international community.28 This sits in contrast to many mainstream, rationalist Facilitating the diffusion into developing countries of accounts of international climate policy. Such accounts such technologies, without jeopardising private sector typically treat climate change as a global collective action incentives to invest in making them in the first place, is problem in which action by one country entails an internal likely to necessitate the provision of additional resources cost to that country but confers an external benefit on by developed countries as a component of their global all countries. The standard conclusion is that unilateral decarbonisation responsibilities. Harnessing international action, or “leadership”, is irrational because the costs to trade and investment to promote the freer flow of goods that country of such action outweigh the benefits in the and services that can assist in emissions reduction efforts absence of sufficient action by all to realise the global would generally assist with this goal.29 benefit of climate protection.33

Thirdly, through their own deployment policies, developed Successive Australian governments (from both major countries should bring about low-cost, “on demand” parties) and their policy advisers have accepted this logic renewable energy so that decarbonisation becomes without reservation, albeit with two slightly different more affordable to developing countries by the time their implications. Some leaders have done so to justify inaction decarbonisation timelines start to bite. on the basis that Australian mitigation action will impose local costs on Australia while conferring no local or global Ultimately, all countries must decarbonise. If dangerous benefit in the absence of sufficient action by other key climate change is to be avoided, the delay in the phase- emitters.34 Others, including the current government, out timeline for major developing nations such as have drawn on the rationalist account of climate policy to China must be short-lived. Over the long term, global justify moderate, incremental action that accords with the development goals simply cannot be achieved otherwise. perceived level of action by other key countries.35 In the With developing nation emissions rapidly rising, the calculations of the latter, the “national benefit” is located phase-out of fossil fuels and continued economic growth in the advancement of cooperative action — and hence in developing nations must be achieved together. These improvement in the probability of eventually sufficient twin objectives are recognised by the UN Development action — through the contribution of globally proportionate Program, the International Energy Agency and leading mitigation by Australia.36 Again, on this view, the costs of international development NGOs such as Oxfam.30 It leadership action are assumed to outweigh the benefits. is why the UN’s Sustainable Energy for All initiative is focused on expanding global access to modern energy The differences in the interpretation of the rationalist services primarily through renewable energy deployment account of climate policy by Australian politicians and and energy efficiency improvements31 — not through ever policy makers outlined above reveal an obvious point: “the greater amounts of cheap coal and gas from Australia. national interest” is not objectively determinable; it is not Part 6: Australia’s Role in Cooperative Decarbonisation Laggard to Leader

“out there”, awaiting discovery through the application of Our purpose in this regard is to articulate some of the some rational, scientific process. Rather, it is subjective most significant benefits of leadership action with a and contested; viewed differently by different people and view to prompting deeper discussion about the choices groups and in different circumstances, and changing over Australia faces. Quantifying every cost and benefit is time. beyond the scope of this paper. Aside from lacking the resources to undertake such an exercise (it would likely In a practical sense, the national interest is determined costshundreds of thousands of dollars to commission ultimately by the federal government of the day and economic consultants to do this modelling in a way that is embodied in the decisions of the executive and the enjoys mainstream credibility), we have avoided attempts laws passed by the parliament.37 But the judgements of at crude quantification because many of the costs and politicians and political parties are, in turn, affected by benefits that we highlight — including those that matter many complex factors, including: their values and beliefs; most — are either unquantifiable in financial terms, or, their political calculations; powerful interest groups, to the extent that methods exist to quantify such costs 49 personalities and institutions; international circumstances and benefits, those methods are themselves open to and events; our domestic situation (geography, economy, contestation on normative grounds (for example, the political system); social and ethical norms; and much more. determination of the discount rate to apply to valuations In other words, such judgements are socially constructed. of future benefits; the means for ascribing value to the preservation of an animal species; and the dollar value of Moreover, as Eckersley argues:38 an Australian’s sense that the world is a safe place to raise children).41 In the case of climate change, the social construction of the costs and benefits of action This is not to suggest that attempts at modelling are or inaction vary enormously between different unhelpful, rather it is to recognise that quantifications can national jurisdictions depending on different only ever be partial, imperfect and contestable — part local circumstances, different cultures of risk of the conversation, not the answer to all our questions. assessment, what kind of discount rate is adopted, Ultimately, whether cooperative decarbonisation is in the what kinds of benefits and risks are costed or national interest will depend on what we value most, not ignored and whether risks are appraised in the how we quantify every cost and benefit. context of economic, security, environmental or justice frames. These assessments can also vary markedly over time in the same jurisdictions due to contingent events (extreme weather), or depending on which parties are in government.

In Australia, the calculation and expression of the costs and benefits of climate action has been framed overwhelmingly by the fossil fuel industry.39 The influence of these industries on Australian political leadership has contributed to a myopic conception of the costs and benefits of action — one in which small costs are exaggerated into large costs, costs to a relatively small few are extrapolated to national costs (to a far greater extent than is justified), and in which benefits of action are construed extremely narrowly, if at all.40 It is also typically the case that the benefits and costs of business as usual are not articulated, even though “doing nothing” is a choice that also entails costs and benefits.

We firmly believe that Australian leadership on decarbonisation is in Australia’s national interest. In each of the following Chapters, we set out a number of arguments that explain some of the key economic, social and environmental benefits to Australia of the actions we propose, while recognising that they will also impose costs. In our view, these arguments suggest that the specific policies we advocate are not only economically affordable, but would also serve the national interest well. Part 6: Australia’s Role in Cooperative Decarbonisation Laggard to Leader

strategy) and of establishing Australia as a leader in zero 6.4 From Responsibility to Action carbon energy system design, management and finance (and, to a lesser extent, manufacturing). How should Australia go about fulfilling its great responsibilities to lead the world to zero carbon prosperity? The technology mix in the Stationary Energy Plan has been modelled using years of real solar insolation and wind Put simply, it should start with its own decarbonisation speed data from sites around Australia. The system is able and then leverage its domestic policies and measures on to successfully meet 100% of Australia’s electricity needs the international stage, seeking to draw other countries throughout all seasons of the year. into cooperative arrangements that accelerate global decarbonisation efforts. This is not pie-in-the-sky: showing Following the Stationary Energy Plan, the ZCA Project exactly how this can be done is the raison d’être of the has turned its attention to releasing Plans for Buildings, 50 Zero Carbon Australia Project. The Zero Carbon Australia Transport and Land-Use. Future plans will cover Industrial (ZCA) series is demonstrating that the task of 100% Processes and Replacing Fossil Fuel Export Income. decarbonisation is technically achievable within a decade using existing technologies and processes, and that The critical benefit of Australia’s decarbonisation effort lies the long-term cost (ignoring climate-related costs and in its potential to reduce global greenhouse gas emissions benefits) is comparable to that of business-as-usual. and steer the world onto a zero carbon trajectory. By phasing out the emissions from those processes within its The 2010 Stationary Energy Plan was the first ZCA Plan sphere of influence, Australia’s efforts would have a direct released, in recognition of the importance of Australia’s impact on global emissions. But the greatest potential coal-dominated electricity grid, and other forms of benefit of Australia’s decarbonisation would be the changes stationary energy, in our domestic emissions profile. The it would induce from others. As Professor Garnaut put it: Plan examines in significant detail a pathway towards a “Each country’s evaluation of whether some mitigation zero emissions energy system where: action of its own is justified depends on its assessment • The coal and gas-fired generators of today are replaced of the interaction between its own decisions and those of predominantly with wind energy and concentrated others”.42 solar thermal with energy storage, with hydroelectric and biomass backup. This technology mix is favoured By enacting policies that enable the widespread because it is available off-the-shelf, it allows the deployment of CST and other technologies, we would integration of the variability of wind with the dispatch- enable companies to achieve economies of scale and as-needed power of solar thermal. It will also allow spark a cycle of innovation and cost reductions similar to Australia to develop an advantage in solar thermal – Germany’s PV revolution, making renewable energy more one of the most flexible renewable energy technologies, affordable to people everywhere. By raising building and with the capacity to provide solar-powered baseload product efficiency standards, we stimulate the design of and thereby displace coal. highly efficient products. By halting the expansion of our • Nationwide energy demand is reduced through energy coal and gas exports and investing in renewable energy efficiency, but total electricity demand is assumed to development, we influence global energy markets and rise due to of transport and heating, accelerate the transition to renewable energy across the replacing oil and gas use that is currently not related to world. electricity. • The transition time is 10 years, requiring a total The technologies, products, processes, services, skills, investment of AU$370 billion, or around 3.0% of GDP knowledge and experience developed by Australian per year. The required investment, timeline, materials companies, researchers and governments in the process and workforce requirements are examined in detail, and of decarbonising Australia’s $1.5 trillion economy will be found to be within Australia’s capacity to meet. Due to extremely valuable in a world crying out for zero carbon savings on fuel costs alone (ignoring other factors, such solutions. Australia should aim to become the world’s go- as health improvements), with a social discount rate of to country for zero-carbon products, zero-carbon services, 1.4% there is no difference between the net present zero-carbon finance and zero-carbon systems planning. value of the Stationary Energy Plan and the Business- The global benefit, in terms of facilitating emissions As-Usual pathway. reductions overseas, of Australia’s zero carbon ingenuity • Emissions in the stationary energy sector fall from 417 and experience would be considerable. And the benefit

million tonnes of CO2-e today to zero. to Australia of capturing what HSBC is forecasting to be a • Large-scale renewable energy deployment and multi-trillion dollar market by 2020 would be enormous.43 integration serves the secondary purpose of substantially reducing zero carbon technology costs for both Australia and the rest of the world (explored further in Chapter 7 on Australia’s research, development and deployment Part 6: Australia’s Role in Cooperative Decarbonisation Laggard to Leader

In the following two chapters, we illustrate the immense potential for Australian leadership by showing how the References decarbonisation of Australia’s domestic and export energy 1. See, e.g., James Garvey, The Ethics of Climate Change: Right and Wrong industries can steer the world away from fossil fuels and in a Warming World (2008) p 114-118; Mlada Bukovansky et al., Special towards renewable energy, while alleviating poverty and Responsibilities: Global Problems and American Power (2012) p 229-236; serving Australia’s national interest. WBGU – German Advisory Council on Climate Change, Solving the Climate Dilemma: The Budget Approach (2009). We focus on energy for two reasons. The first reason is 2. Cf Garvey, Ethics of Climate Change (2008), p 114-118; Bukovansky et al. that energy is the area in which Australia leadership can (2012), p 229-236; Peter Singer, One World; The Ethics of Globalisation (2002) make the greatest global difference, as we explain above 30-55. in our discussion of Australia’s special capabilities in regard 3. See, e.g., Bukovansky et al. (2012), p 231-232. to climate solutions. The second is that it allows us to draw 4. See, e.g., Garvey, Ethics of Climate Change (2008), p 114-118. on the work done in the Zero Carbon Australia Stationary 5. Stephan Lewandowsky, “History Shows Australia is No Pissant when it Comes 51 Energy Plan to demonstrate the affordability and technical to Emissions”, The Conversation (1 June 2011) http://theconversation.edu. viability of powering the Australian economy with 100% au/history-shows-australia-is-no-pissant-when-it-comes-to-emissions-1589, renewable energy. based on data from the Carbon Dioxide International Analysis Centre, http:// cdiac.ornl.gov/. 6. World Bank, World Development Indicators Database: “Gross national income per capita 2010, Atlas method and PPP” (1 July 2011) http://siteresources. worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf and “Gross Domestic Product 2011” (9 July 2012) http://databank.worldbank.org/databank/ download/GDP.pdf. 7. WBGU (2009). 8. See, e.g., Timothy L H McCormack, “Some Australian Efforts to Promote Chemical Weapons Non-Proliferation and Disarmament”, Australian Yearbook of International Law (1992) 14, p 157. 9. See, e.g., ibid. 10. See Frank Frost, The Cambodia Conflict (Parliamentary Research Service, Background Paper, 2 May 1991). 11. Ibid, p 21. 12. Ibid. 13. Frank Frost, The Peace Process in Cambodia: The First Stage (Parliamentary Research Service, Background Paper, 24 June 1992) p 19. 14. Gareth Evans “Australia’s Foreign Relations in the World of the 1990s” (Speech to the National Press Club following the launch of Evans and Grant, Australia’s Foreign Relations: in the World of the 1990s, Canberra, 4 November 1991) 5-6, http://www.gevans.org/speeches/old/1991/041191_ fm_australiasforeignrelations.pdf. 15. Alexander Downer “Australia’s Commitment to the Pacific” (Speech for the Biennial Sir Arthur Tange Lecture on Australian Diplomacy, Canberra, 8 August 2007) http://www.foreignminister.gov.au/speeches/2007/070808_tange. html. 16. See, e.g., McCormack (1992); Frost (1992); “Interview: Bob Hawke on Conserving Antarctica”, available on YouTube (uploaded 19 February 2012) www.youtube.com/watch?v=iH9l7VmSarU. 17. See, e.g., McCormack (1992); Frost (1992). 18. See generally United Nations Development Program, “Climate Change”, http://www.undp.org/content/undp/en/home/ourwork/ environmentandenergy/strategic_themes/climate_change.html; Oxfam, “Climate Change”, https://www.oxfam.org.au/explore/climate-change/. 19. UN Millennium Development Goals, Fact Sheet (2010) http://www.un.org/ millenniumgoals/pdf/MDG_FS_1_EN.pdf. 20. Ibid. 21. “Energy Poverty”, International Energy Agency, http://www.iea.org/topics/ energypoverty/. 22. Ibid. 23. Ibid. 24. On externalities in electricity generation generally and coal-fired power Part 6: Australia’s Role in Cooperative Decarbonisation Laggard to Leader

specifically, see Australian Academy of Technological Sciences and will of the people”. On this view, the national interest is devoid of substance; Engineering, The Hidden Costs of Electricity: Externalities of Power Generation it is merely a product of a lawful and rightful process. in Australia (March 2009); David Shearman and Linda Selvey, “Something 38. Eckersley, “Does Leadership Make a Difference in International Climate In the Air: Time for Independent Testing in Coal Areas”, The Conversation (9 Politics?”. March 2012); Doctors for the Environment Australia, DEA Position Paper on 39. Guy Pearse, High & Dry (2007); Clive Hamilton, Scorcher: The Dirty Politics the Health Impacts of Coal (14 February 2012) http://dea.org.au/images/ of Climate Change (2007); Guy Pearse, Quarry Vision, Quarterly Essay 33 general/Briefing_paper_on_coal_2011.pdf. (2009); Ross Garnaut, “Launch of the Garnaut Climate Change Review 2011 25. Anil Markandya et al., “Public Health Benefits of Strategies to Reduce Final Report”, Address to National Press Club (31 May 2011) News Centre Greenhouse-Gas Emissions: Low-Carbon Electricity Generation”, The Lancet Transcript, http://www.garnautreview.org.au/update-2011/events-speeches/ (12 December 2009) 374(9706), p 2006. transcript-final-report-launch.pdf. 26. Anthony Costello et al., Lancet and University College London Institute for 40. Pearse, Quarry Vision. Global Health Commission, “Managing the Health Effects of Climate Change”, 41. On discount rates, see W Beckerman and Cameron Hepburn, “Ethics of the 52 The Lancet, 73 (16 May 2009) p 1693. Discount Rate in the Stern Review on the Economics of Climate Change”, 27. Ibid p 1694-1696. World Economics (2007) 8(1), p 187–210; Garnaut Review 2008, Ch 1.7. 28. See, e.g., Letha Tawney and Lutz Weischer, World Resources Institute, “From 42. Garnaut Review 2008 Ch 1.5. Copenhagen to Cancun: Technology Transfer” (19 November 2010) http:// 43. Catherine Airlie, “HSBC Says Low-Carbon Market Will Triple to $2.2 Trillion www.wri.org/stories/2010/11/copenhagen-cancun-technology-transfer. by 2020”, Bloomberg (6 September 2012) http://www.bloomberg.com/ 29. WTO negotiations on the reduction or elimination of tariff and non-tariff news/2010-09-06/hsbc-sees-market-for-low-carbon-energy-tripling-to-2-2- barriers to environmental goods and services are currently a subject of trillion-by-2020.html. negotiations within the longstanding “Doha Round” launched in 2001: WTO Ministerial Conference, Fourth Session, Doha, 9–14 November 2001, WT/ MIN(01)/DEC/W/1, “Ministerial Declaration” (adopted 14 November 2001) at para 31.3. 30. UNDP, “Climate Change”; Oxfam, “Climate Change”; IEA, “Energy Poverty”. 31. See The Secretary General’s High-Level Group on Sustainable Energy for All, Sustainable Energy for All: A Global Action Agenda(April 2012), available from http://www.sustainableenergyforall.org/#. 32. Cf Bukovansky et al. (2012) p 231-232. 33. See, e.g., Ross Garnaut, The Garnaut Climate Change Review (2008) Ch 12; Peter Cramton and Steven Stoft, “International Climate Games: From Caps to Cooperation”, Global Energy Policy Research Paper No. 10-07 (20 August 2010). See also the discussion of this mentality in Robyn Eckersley, “Does Leadership Make a Difference in International Climate Politics?”, Paper presented at the International Studies Association Annual Meeting, San Diego, USA, 1-4 April 2012 (1 April 2012) p 9-11. 34. See, e.g., Tony Abbott quoted in James Massola, “Coalition, Greens attack Durban climate pact “, The Australian (12 December 2011) http://www. theaustralian.com.au/national-affairs/climate/coalition-greens-attack-durban- climate-pact/story-e6frg6xf-1226219726745; John Howard, “Transcript of the Prime Minister, the Hon John Howard MP, Address to Queensland Media Club, Sofitel Hotel, Brisbane” (23 April 2007) http://parlinfo.aph.gov. au/parlInfo/search/display/display.w3p;query=Source%3A%22PRIME%20 MINISTER%22%20Speech_Phrase%3A%22yes%22%20MajorSubject_ Phrase%3A%22economic%20growth%22;rec=4; John Howard quoted in Graham Lloyd, “IPCC’s ‘folly’ writ large: John Howard”, The Australian (24 November 2011) http://www.theaustralian.com.au/national-affairs/carbon- tax/ipccs-folly-writ-large-howard/story-fn99tjf2-1226204100938. 35. See, e.g., Wayne Swan, “The Role of Government in a Changing Economy”, Address to the Economic and Social Outlook Conference, Melbourne (30 June 2011) http://www.treasurer.gov.au/DisplayDocs. aspx?doc=speeches/2011/021.htm&pageID=005&min=wms&Year=&DocTy pe; Garnaut Review 2008. 36. See Garnaut Review 2008 Ch 12 for the best description of this logic. http:// www.garnautreview.org.au/chp12.htm. 37. This is distinct from the positivist conception of the national interest, in which the decisions of the executive and the laws passed by the Parliament can be seen as necessarily in the national interest because they originate from our elected representatives and are therefore ultimately the expression of “the Laggard to Leader

Part 7 Renewable Energy: Australia’s Contribution

Contents

7.1 Introduction 54

7.2 The Problem: Severe Underinvestment in Zero Carbon Innovation 55 7.2.1 The Case for Public Investment in Zero Carbon Deployment 56 7.2.2 The Case for Public Investment in Renewable Energy Research and Development 56

7.3 What Should Australia Do and What Effect Would it Have? 58 7.3.1 Unilateral Action: Australia Leading by Example 58 7.3.2 Coordinating with Like-Minded Countries 63

7.4 The National Interest in Renewable Technology Deployment and Development 66 7.4.1 Sizing the Zero Carbon Economy 66 7.4.2 Australian Opportunities in Clean Tech Markets 68

References 71 Part 7: Renewable Energy: Australia’s Contribution Laggard to Leader

To complete the transition, we need zero carbon energy 7.1 Introduction technologies that can provide energy storage and flexible, dispatchable-on-demand power to “firm” the variable Initiatives to achieve price parity between output of wind and PV. Key commercial technologies renewable energy and fossil fuels are often that are ready for deployment include batteries and heralded in lofty terms: the US roadmap for concentrated solar thermal (CST). Yet, in early 2012, the IEA warned that global innovation programs for most of reaching low-cost large-scale solar energy by these emerging technologies are falling off track — largely 2020, for example, was christened the “Sunshot” due to shortfalls in commercial-scale demonstration and initiative; while Bloomberg New Energy Finance deployment. posed the shorter-term “Golden Goal” of competitive small-scale solar PV. This high status The recent successes of wind and PV confirm what is 54 required to accelerate the arrival of these commercially is well deserved: cheap renewable energy will available but less mature technologies: substantial solve some of the most challenging problems and stable investment in research, development and facing humankind this century — from climate demonstration (RD&D), and particularly deployment (see change, to oil scarcity, to energy poverty — Box 7.1 for an explanation of these terms). For Australia, and allow us to build a global economy upon countries like Germany and Denmark can serve as models of how much one nation can contribute. foundations that are as reliable as the rising sun. This chapter examines how Australia can work to accelerate Cheap renewable energy will be achieved — but, on the maturation of renewable energy technologies and current deployment trajectories, it will come far too late their arrival at price parity with fossil fuels. It argues that to avert catastrophic climate change. The rapid price Australia should: reductions achieved for solar PV and wind turbines over • Increase investment in commercial deployment to the past decade are cause for significant optimism, but at least $15 billion per year in line with baseline “fair these two technologies ­alone cannot be expected to meet share” requirements specified by IEA analysis, rising 100% of our energy needs.

Box 7.1: The Innovation Chain: A Brief Overview manufacturing scale and standardisation (each of which provides its own innovation opportunities), but requires This chapter makes reference to a number of stages of the substantial public support. Effective deployment policies innovation chain, with which readers may not be familiar. have been crucial for driving the rapid wind and solar These include: price reductions observed over the past two decades. • R&D, or research and development. This denotes research, from basic and prototype development, which The stages of innovation listed above are inter-linked provide advances that can enhance the performance of and mutually supportive. For example, accelerating existing products or be used in entirely new products. PV deployment may stimulate R&D into strategies • Demonstration. This refers to the testing of prototyped for improving PV value chain efficiency, reducing the technologies in-the-field, at a scale or level of costs of further deployment. Supporting commercial performance similar to that required to effectively demonstrations provides a real-world laboratory to participate in markets — for example, a multi-megawatt enhance basic R&D, while also building investor confidence demonstration of a novel wave power project. While pilot in the technology at the deployment stage. demonstrations tend to prove the functionality of the technology at scale, commercial-scale demonstrations The vocal minority that promotes an “R&D only” attempt to prove the capacity to provide a return. Both solution to zero carbon innovation (e.g. Bjorn Lomborg1) provide essential in-the-field learning that feeds back to fundamentally misunderstands the integrated nature R&D and forward to indicate prospects for deployment. of the various stages of the innovation chain: the • RD&D is research, development and demonstration, a importance of deployment for driving innovation around term that comprises the stages of the innovation chain manufacturing efficiency, financing, product development that pertain to more “immature” technologies. It is split and a range of other market factors; and, as this chapter into one of its constituent terms, R&D or demonstration, discusses, the need to provide zero carbon innovation wherever a distinction is necessary. investors confidence that there exists a market for zero • Deployment is commercial, to-scale implementation of carbon products. This is a particularly important point for relatively mature projects in the field. Early deployment, Australia, given that deployment is its weakest link in zero via a range of market mechanisms, is crucial for carbon technology innovation. driving technology cost reductions such as increased Part 7: Renewable Energy: Australia’s Contribution Laggard to Leader

to $37 billion per year in line with the ZCA Stationary Energy Plan; 7.2 The Problem: Severe • increase annual RD&D expenditure in the order of $3 Underinvestment in Zero Carbon billion per year, in line with “fair share” requirements identified by the IEA and Professor Ross Garnaut; Innovation • introduce comprehensive innovation support measures along the innovation chain, with a particular focus on Despite the importance of innovation for long-term accelerating deployment of technologies that are less economic prosperity, a cocktail of market failures cause mature but have high promise (with CST highlighted as private companies to systematically underinvest in zero the primary example); carbon deployment and RD&D. Figure 7.1 from Ernst & • coordinate efforts with other like minded nations and Young outlines the chain of activities that make up the with a wide range of non-state actors, establishing innovation process, extending from early research, through shared roadmaps for technology advancement; demonstration and commercialisation, to deployment, 55 • contribute to the design of programs to build RD&D and and finally to maturity. deployment capacity in developing nations; and • seek to develop its natural advantages in renewable Capital availability declines as innovation projects proceed energy resources to become a “zero carbon technology into development, demonstration and commercialisation, superpower”, especially in areas Australia can strongly yet the need for capital progressively increases. Many compete — from finance to software, manufacturing, technologies that hold significant promise become project development and operation & maintenance. marooned by capital shortfalls at the prototype, pilot or early commercial phases — in what has become known as the innovation “Valley of Death”.

The Valley of Death is especially wide for zero carbon energy technologies due to the large amounts of capital needed to meaningfully demonstrate and deploy them. Large commercial CST projects with storage, for example, are at the top of their technology cost-curves and will typically require investment running over a billion dollars.

A persistent challenge for nations interested in achieving economically efficient levels of innovation is that what are in fact judicious long-term investments (see Figure 7.2) are derided with the politically charged term “subsidies”. Often these complaints come from the old guard of fossil fuel industries, ignoring the fact that oil, gas and coal

Figure 7.1 The wide valley of death for cleantech2 Part 7: Renewable Energy: Australia’s Contribution Laggard to Leader

The market barriers to large-scale zero carbon energy Figure 7.2 demonstration and deployment — particularly for Stylized return on investment in renewable energy3 emerging forms of generation like CST — are considerable. While access to renewable resources is effectively infinite, the cost of producing energy from renewable technologies is currently more than the fossil alternatives due to regulatory barriers, higher risk premiums, higher up-front costs and often higher market costs overall. While carbon pricing can in theory bridge the gap by making fossil fuels more expensive, carbon pricing schemes in all major jurisdictions are currently far too weak, yielding carbon prices too low and unpredictable to properly incentivise 56 renewable energy investments — a reality that is unlikely to change in the near future. Policies like feed-in tariffs (explored further below) are needed to level the playing field and accelerate deployment.

The purpose of the IEA’s recommended deployment is both to achieve emissions reductions now, and achieve cost reductions to make future deployment and emissions have historically received — and continue to receive — reductions cheaper. The challenge is to invest sufficiently subsidies in vast excess of those granted to renewable in deployment to cut emissions today, while aligning these energy. Indeed, this long history of public support has investments with a longer-term innovation strategy. What helped them become the cheapest forms of energy today; this means is that choosing least-cost zero carbon energy a process that now needs to be repeated for zero carbon deployment today (as seen with Australia’s focus on wind technologies. energy) will not result in least-cost deployment in the long- term. Here, we examine the origin and scale of market failures in zero carbon technology innovation to explain the dimensions of the shortfalls we face. 7.2.2 The Case for Public Investment in Renewable Energy Research and Development

7.2.1 The Case for Public Investment in Zero There are two causes of private sector underinvestment in Carbon Deployment zero carbon research and development (just “R&D”). • First, zero carbon R&D suffers from the usual market According to the IEA, to achieve even the risky 2˚C failures afflicting all R&D: the non-excludability of pathway, an additional investment of around US$36.5 research (or its rapid “leakage” into other companies trillion in energy infrastructure is required globally from and countries); the risks involved in “blue sky” research now to 2050 — an average of US$950 billion per year (the (basic research that lacks any immediate commercial IEA recommends starting slowly in the first decade and applications); and the short-termism inherent in private ramping up from there).4 As large as this figure sounds, it is sector value calculations. In other words, while R&D only 35% more investment than required to meet growing may create enormous society-wide economic value, it demand under the business-as-usual, 6˚C warming is often hard for a private company to translate this into pathway.5 its own commercial success. • Secondly, zero carbon technology R&D in particular is The IEA’s projection that fossil fuel subsidies will reach affected by the failure of markets to adequately price US$660 billion per year by 2020 shows that much of carbon emissions and other public harms caused by the the money is there, it is just in the wrong business.6 In fossil fuel energy system.18 If these harms were properly fact, subsidies promoting fossil fuel use dwarf those for priced at a value that reflected the true costs to society renewable energy. In the US, oil industry subsidies from of climate damage, there would be a greater incentive 1950 to 2010 totalled US$369 billion, around 19 times the for private companies to perform zero carbon R&D. US$20 billion allotted for solar power.7 In the words of the OECD Environment Directorate, zero Just as fossil fuels have enjoyed high levels of subsidies carbon technology R&D is “twice a public good” and throughout their history, so too will large scale renewable deserves substantial public support as a result.19 electricity generators require significant deployment support if the IEA’s 2˚C pathway is to be achieved. Because private companies chronically underinvest in R&D — that is, they spend less on R&D than is justified by Part 7: Renewable Energy: Australia’s Contribution Laggard to Leader

Box 7.2: Deployment Works

Photovoltaics Wind power

Even the relatively small public subsidies granted to solar A general trend of increased wind power capital costs photovoltaics (PV) have led to massive price reductions in the 2000s has been used to counter the idea that over the past decade. The price tag of installing enough deployment helps bring down production prices, but PV to supply 11% of the world’s energy (which the IEA recent University of California Berkeley analysis shows specifies as PV’s role in cutting global emissions by 50%) this argument to be spurious. Capital costs have generally has declined from US$53 trillion in 1982 to around US$3.5 increased since 2000, but improvements in wind turbine trillion today — a fall of US$50 trillion, or almost 95%, over project performance have accompanied and outpaced 8 30 years. these cost increases. The overall cost of wind-generated 57 energy per kWh has decreased by 17% to 31% since 2002, PV has received unprecedented deployment support driven by increased capacity factors, reduced operation in economies such as Germany over the past decade, and maintenance costs, and improved financing.13 triggering explosive growth in installed capacity. From 2000 to 2011, annual growth in the yearly global installation rate The estimated price of wind as of early 2012 was US$60- was 40%. In 2011, the total amount of global PV capacity 85 per MWh (at average wind speeds from 8 m/s to 6 installed was 27GW, an astonishing 60% growth on 2010 m/s respectively). Similar pricing has come to Australia, levels. Prices have responded in tandem. Full PV system with a recent Snowtown project achieving AU$80/ per prices have fallen as much as 75% in some countries over MWh.14 With average new coal power plants pricing at the past 3 years,9 and silicon wafer (the most expensive US$60-80 per MWh, wind energy is now approaching cost- component used to build solar modules) prices have fallen competitiveness without subsidies.15,16 A further reduction by 70% in just the past year.10 At the industrial scale, of only 10-20% over the next decade will enable wind to levelised solar PV prices are already as low as 15c/kWh unseat fossil fuels in most locations across the world. in sunny areas,11 competitive with grid electricity in many countries around the world. The increase in wind turbine capacity factors has particular promise for increasing the number of sites rated as As shown in Figure 7.3, price declines per watt of PV possessing good wind resources and for reducing total generation (along the vertical axis) closely track installation wind power variability. The land area of the US that can volume in MW (along the horizontal axis). Given the support wind projects with a capacity factor above 30% increase in deployment has been driven by policy (i.e. this is has doubled, while land area supporting very high capacity not a case of price reductions driving further deployment), factors of above 40% has increased by up to 1400% the implication is clear: to achieve grid parity, install more (due to new wind turbine designs). This bodes well for PV. the continued expansion of wind farms into previously marginal locations, and the goal of high penetration of Side Analysis: Impactwind of into Improvements grids across the world. in O&M, Financing, and Availability (without PTC/MACRS)

Assumed improvements in O&M costs, financing rates, and availability lead to substantial additional estimated LCOEFigure reductions 7.4 from 2002-2003 to 2012-2013 in comparison to core analysis that Estimatedonly varies reductions capital costin LCOE and of capacitywind power factor in the USA Figure 7.3 Core Assumptions over ten years from 2002-03, due to capital cost, capacity 12 Side Analysis Assumptions 17 Cost Curve of PV modulesonly as variesa function capital of deploymentcost and capacity factorfactor O&M,also varies availability O&M, and availability, financing and improvements financing $120 $140

$120 $100 20% Cost Reduction 31% Cost Reduction 6 m/s $100 6 m/s $80 7 m/s $80 7 m/s $60 8 m/s 8 m/s 3% Cost Reduction $60 No Incentives No Incentives 17% Cost Reduction $40 $40

$20 $20 Levelized Cost of Energy ($/MWh) Levelized Cost of Energy ($/MWh)

$0 $0 2002‐03 Current, 2012‐13 2002‐03 Current, 2012‐13 Standard Technology Technology Choice Standard Technology Technology Choice Note: “Technology Choice” assumes that IEC Class III machines are only available for sites up to 7.5 m/s average wind speed at hub height (sea level air density) 35 Part 7: Renewable Energy: Australia’s Contribution Laggard to Leader

its economic value — they leave a significant amount of potential wealth untapped. As a result, public investment 7.3.1 Unilateral Action: Australia Leading by Example in R&D, for example, tends to provide exceptionally high rates of return, with estimates ranging from 30% to up to This section sets out the domestic measures Australia 160% and beyond, compared to attractive private rates should take to invest in zero carbon RD&D and especially of return in the general economy of 8-15%.20,21,22 In an deployment. These measures are grouped under four ideal market that produces the greatest wealth over time, categories of increasing specificity, beginning with investment in R&D funding would be increased until the broad investment targets, moving to general innovation marginal return on investment fell to the average market policy design, through to identifying national technology rate. priorities, and finally examining some of these priorities in closer detail. Estimates of optimal global “clean” energy R&D investment 23 24 58 range from US$50 billion to US$100 billion per annum, Investment targets or 3-7 times current global investment. An increase of this size may sound far-fetched, but it is around the proportion First and foremost, Australia should commit to undertake of GDP expended on energy R&D in 1980. Despite the a significant share of the global investment considered mounting of our energy challenges over the past two optimal for achieving climate stabilisation goals. decades, investments in R&D have fallen 30-50% below 1980 levels and the share of energy R&D expenditure Currently projected investment under Australia’s Clean in total R&D has declined by around two thirds. It is Energy Future package represents an improvement remarkable that in a US$70 trillion dollar global economy over previous years, but nevertheless remains in serious facing severe energy and climate crises, only US$15 billion shortfall. The Clean Energy Future package provides — 0.02%, or two dollars in every US$10,000 of global GDP AU$3.4 billion in R&D support over the five years, or — is invested globally in clean energy R&D each year.25 To AU$680 million per year.27 This represents only 23% of put that in perspective, this is less than 1% of annual global the R&D investment recommended by the IEA and the military expenditures.26 Australian Government-commissioned Garnaut Review on the economics of climate change.28 The recommended AU$3 billion per annum should be regarded as a minimum target for dedicated zero carbon energy technology RD&D. 7.3 What Should Australia Do and What Effect would it Have? For deployment, the Clean Energy Future package and other Government policies, such as the 2020 Renewable Energy Target of 20%, are expected to deliver a total of The deficit in zero carbon innovation is a global problem, AU$20 billion in deployment of “clean” energy technology and it needs a global scale solution to match. to 2020.29 This comes to around AU$2.5 billion per year, or around 0.16% of GDP, and the Government’s definition Accordingly, alongside its public announcement of of “clean” allows this funding to be drawn into gas-fired the fossil fuel moratorium proposed in Chapter 8, the power projects.30 This compares to the minimum of 1.2% Australian Prime Minister should announce Australia’s recommended by the IEA (or around AU$15 billion per intention to pursue a domestic and international program annum). of unprecedented renewable energy deployment and RD&D to provide replacements for fossil fuels in energy Leveraging a combined public-private investment of at generation, industrial processes and transport. This least AU$18 billion (AU$3 billion in RD&D and AU$15 ambitious declaration should be accompanied by a detailed billion in deployment, in line with “fair share” IEA set of commitments that Australia will undertake to kick- minimums) should be an immediate baseline goal. This start deployment and research programs domestically and should rise to an average of as much as $40 billion per enhance collaboration internationally. annum, predominantly directed towards large-scale deployment of both emerging and mature zero carbon The suite of unilateral measures that Australia should energy technologies, if the Zero Carbon Australia (ZCA) 10 take to advance innovation is set out below, along with year Stationary Energy Plan is implemented. an explanation of the catalytic effect these efforts would have on renewable energy globally. We then show how Note that the ZCA Stationary Energy Plan as originally Australia’s leadership should be leveraged to foster conceived includes a cost-premium for extensive widespread, cooperative international engagement in innovation arising from early deployment of CST — it innovation efforts, multiplying the benefits of Australia’s achieves both 100% decarbonisation and the innovation domestic action. goals outlined in this chapter. Part 7: Renewable Energy: Australia’s Contribution Laggard to Leader

Comprehensive renewable energy innovation policy Driving emerging renewable energy technologies towards commercial competitiveness, and through the Valley of Size matters, but there is more to effective innovation than Death, requires a comprehensive policy program that the volume of investment. meets the needs of innovators along the breadth of the innovation activity chain — from early R&D, through Australian zero carbon innovation is often heavily critiqued. prototyping and piloting, commercial scale demonstration, Criticism typically focuses on the difficulty of attracting and the early and late stages of deployment (see Figure meaningful investment in technology commercialisation 7.5). within Australia. This is partly blamed on our small market size, but more accurately is due to the ad hoc and piecemeal Each stage has policies that suit the barriers particular to nature of Australian innovation support programs — in it: R&D benefits from tax credits, direct public investment essence, their inability to support a pipeline of projects. into “blue-sky” research and investment in national laboratories and networks. Successful prototypes and pilot 59 The Australian Government’s Solar Flagships program is a demonstrations require grant funding and incentives to case in point: its goal of building the “single largest solar attract venture capital. At the commercial demonstration power station in the world”31 was more about generating stage, support can be structured in a way that recognises political fanfare than providing the long, stable pipeline some return will be generated, with loans and tax breaks of projects that would help establish an Australian solar two of the preferred options. At the deployment stage, industry. The on-and-off nature of solar PV feed-in tariff stable performance subsidies and energy portfolio policies across most Australian states has been similarly standards can create the incentives, and the confidence in counterproductive, generating brief booms and then the future of the market, needed to attract large levels of crippling the emerging industry by removing all support. private investment. The most stable policy has been the 2020 Renewable Energy Target (RET) of 20% but even the RET only supports The number of policy options is immense and an exhaustive lowest-cost technologies such as wind — eliminating the treatment is beyond the scope of this report. Ernst & potential for the scheme to drive innovation. Young point out two policies as playing a particularly important role in addressing Australia’s weaknesses in In short, Australia has a dismal track record of innovating commercialisation and deployment: loan guarantees to through deployment. Where Australia does deploy overcome funding risk and feed-in tariffs for revenue technologies, it tends to focus on “safe”, mature risk.32 With these risks addressed, attracting up-front technologies such as wind; and where Australia does equity becomes a much more likely prospect for emerging deploy immature technologies, it has lacked the long-term clean tech companies. commitment that wouldThe produce following a stablediagram industry. illustrates the role that these four mechanisms can take in supporting the availability of capital, ahead of the RET. Figure 7.5 Figure 4: Scope of government action to support emerging cleantech investment Policies for navigating the “valley of death”

How these mechanisms are designed and maintained to deliver breakthrough technologies within host industries, and improved policy certainty for investors, needs careful consideration. Economic analysis is needed to determine the optimal level for grants, subsidies, loan guarantees and other proposed mechanisms, recognising the costs involved. This analysis must include costing and pricing benchmarks of traditional technologies from host industries.

Grant programs for scaling up demonstration Moving from bench-to-business and developing a proof of concept is where targeted R&D grants are initially of most value. However, even at this stage the funding cannot be all grant money, and co-funding with private investment is needed to share some of the risk and to access the management skills and financial discipline needed for the future growth of the business.

At the demonstration stage cleantechs are even more reliant on government support through grants such as the Renewable Energy Development Program. There is a significant change in risk profile at pilot and commercial scale demonstration, where the completion of project milestones heavily influences a cleantech‟s future investment attractiveness. The sizing of government grants, and their ratio to private investment, needs to be designed to support this transition in capital expenditure and risk.65

65 There are a range of issues around the effectiveness of grants that are outside the scope of this study, but which are fundamental to their success in supporting the cleantech market. These include the amount and timing of grants

Navigating the valley of death Ernst & Young 41

Part 7: Renewable Energy: Australia’s Contribution Laggard to Leader

National technology priorities coal-fired generation, the most important source of Australia’s domestic and export emissions. These include Each nation, according to its resources, expertise and but are not limited to CST and battery technologies; wider policy goals, has a set of more specific innovation • 2. Technologies that can reduce global energy poverty, advantages and interests around which its support especially for the 1.3 billion people that currently lack measures should be focused. This is partly of necessity: access to electricity. These include solar PV, batteries, very few nations, if any, have the economic resources to bioenergy systems and remote grid servicing strategies; pursue a deep innovation program for every promising and zero carbon technology. Nations should therefore direct a • 3. Technologies, applications and services where substantial share of available resources towards a set of Australia can develop world-leading expertise and national technology priorities. capture its share of zero carbon markets. Broadly these include the above two areas, with a focus on intellectual 60 Australia’s RD&D program should prioritise technologies property, project management, finance and other according to the three policy imperatives outlined in services expertise, along with some manufacturing. Chapter 6: decarbonisation; poverty alleviation; and Opportunities for technology applications of high value Australian prosperity. to Australia include renewable energy for mining, • 1. Renewable energy technologies that can provide remote settings and peak demand management. flexible, dispatchable electricity and therefore replace

mechanism that “pays on delivery” of energy;35 Box 7.3: Feed-in tariffs • Premium model feed-in tariffs can promote market engagement by paying only a “premium” on top of Feed-in tariffs have the best track record of success in the electricity market rate. This encourages renewable bringing price reductions internationally, and are the energy generators to participate in electricity markets preferred deployment subsidy by clean tech companies and produce electricity when it is most valuable (i.e. and investors.34 Feed in tariffs have delivered the vast peak times), while enhancing system-wide learning majority of wind energy, and essentially all solar PV energy, about integrating zero carbon energy with existing in the EU (see Figure 7.6). energy markets. • Feed-in tariffs provide for predictable reduction, or A feed-in tariff is, at its most basic level, a guaranteed “regression”, of support over time, including through payment to a renewable energy generator per unit methods such as linking regression to specific installation of electricity supplied to the grid. Typically, feed-in targets. This allows the cost of the policy to be controlled tariff schemes are supported by imposing statutory and incentivises technology improvements without requirements on electricity retailers to purchase electricity sacrificing investor certainty. in priority to other supply sources and at the legislated rate, with the additional costs being passed through to Introducing stable, long-term feed-in tariffs for large-scale electricity consumers. demonstration and deployment should be a top priority for any Australian Government interested in driving Advantages of feed-in tariffs include that: renewable energy technologies, mature and immature • Differential tariffs can be applied to different alike, towards greater market competitiveness. technologies, or the same technologies in different applications and different project sizes. For example, Figure 7.6 solar PV for mining would attract a different rate to Installed renewable energy capacity supported by feed-in solar PV for residential rooftops, and different again instruments in EU-27 countries36 to industrial-scale installations. This differentiation 90 allows innovation across the desired range of possible Wind power 80 technologies/applications, rather than only supporting Feed‐in wind power 70 the uptake of the cheapest technology; Solar PV power • Feed-in tariffs are clearly defined, transparent payments 60 Feed‐in solar PV power that are guaranteed well into the future. They are 50 Capacity therefore able to support renewable energy industry 40

growth over the long-term. In contrast to schemes GW 30 such as Solar Flagships, which provide a one-off grant 20 payment to successful tenderers (following what is 10 usually an opaque and lengthy tendering process) 0 that creates perverse incentives for applicants to 2005 2006 2007 2008 2009 2010 over-promise, feed-in tariffs are a market-based Part 7: Renewable Energy: Australia’s Contribution Laggard to Leader

These technologies and applications span the gamut of area to sharply reduce co-variability of insolation (i.e. the innovation chain: from R&D (battery technologies, with multiple CST locations spread across Australia, renewable energy integration, new heat carrier materials simultaneous overcast conditions become unlikely); and for CST), to demonstration (advanced grid technologies a reasonably advanced R&D position, as assessed by the for peak demand management, novel remote renewables IEA.39 The University of South Australia, for example, is systems), to deployment (power tower CST designs, wind researching high density solar thermal storage techniques turbines, solar for peak energy control, renewables for that could cut the size of storage tanks by 80-90% and mining). This emphasises the need for comprehensive reduce costs significantly.41 Numerous studies have agreed innovation support along the chain. upon the high potential for solar thermal to power a significant proportion of the Australian grid, from BZE’s Some of these technology opportunities are explored own analysis, to that of the IEA (40% by 2050), Siemens further below, including: (~25% after 2030), and the University of NSW Institute of 42,43,44,45 • Solar thermal development; Environmental Studies research team (40%). 61 • Renewable-powered mining and resource industries; • Remote community microgrids; CST has been demonstrated at commercial scale and • Addressing peak power demand through distributed most forms are now at early stages of deployment. renewables and energy efficiency; and Global leadership in this technology is still Australia’s for • Technologies and services for integrating renewables the taking: as of July 2012, Spain has just over 1.5GW into the electricity grid. installed,46 and the US is approaching 1GW.47

Example technologies and applications that Australia Previous analyses of solar thermal technology on a should prioritise component-by-component basis have argued that a relatively small level of installation may provide large Concentrated solar thermal gains in driving the technology to competitiveness. On a component-by-component analysis, Sargent and Lundy The unique characteristics of CST make it one of the most estimated as little as 8.7GW of capacity could bring CST to promising technologies in the innovation pipeline: it is parity.48 The IEA expects that with sufficient investment, one of the few renewable energy sources that can provide solar thermal will become competitive by 2020.49,50 energy “on-demand” (often referred to as “baseload”), with the Spanish Gemasolar power tower plant already BZE endorses the following IEA recommendations for producing electricity for 24 hours straight (see Figure accelerating solar thermal development: 7.10).37 It is dispatchable-on-demand and can therefore • Ensuring long-term funding for additional RD&D in CST “firm” electricity generation from variable renewable technologies and their component parts, across a range energy technologies such as wind turbines and solar PV. of applications and scales; Finally, it has high export potential, with much of the • Support CST deployment through long-term, predictable world’s population living near areas with sufficient sunlight solar-specific incentives — especially feed-in tariffs; to use the technology successfully.38 • Streamline procedures for obtaining permits for CST plants and grid access lines. Australia’s advantages are already numerous: we have one of the best solar resources in the world (superior to that of Spain, the current leader in CST); enough land

Figure 7.7 Combination of storage and hybridisation in a solar plant40 Part 7: Renewable Energy: Australia’s Contribution Laggard to Leader

Figure 7.8 Price of solar PV in various market types67

62

Remote grid applications Australia already exports its resource sector project management and technical expertise around the world. Mining and resource industries Renewable-powered mining provides an opportunity to expand Australian mining expertise into new areas, Diesel-fuelled electricity generation for mining projects in clean up metals mining in Australia, and help the rest of remote regions carries a fuel cost of around $250–$500/ the world to follow. In combination with a moratorium MWh, around the same price range for energy provided on (and eventually a phase-out of) fossil fuel mining, by solar PV. Diesel is, however, currently heavily subsidised the decarbonisation of metals mining would imbue the by the Australian Government at around AU$2 billion per Government’s Rio+20 claim that Australia is a leader in year,51 reducing its cost to around $100-$175/MWh. If “sustainable mining” with an air of credibility.60 this subsidy were removed, PV would become the most competitive option at many mines today. According to a Remote community grids Climate Spectator analysis, replacing 50% of diesel capacity would see 1900MW of solar PV installed — more than all Distributed renewable energy is a growing reality for the the PV in Australia today.52 world’s energy planners. Some thought leaders in the energy sector, such as Jeremy Rifkin and David Crane, view Galaxy Resources’ Mt Cattlin lithium project already distributed energy in a similar light to mobile telephony: sources 15% of its energy from sun-tracking solar panels developing countries surprised the telecommunications and plans to source further solar and wind energy to industry by leap-frogging landline telephones and heading increase this to 100% by 2014.53 At BHP’s Olympic Dam straight to mobile phones.61,62 Mobile phone uptake in the mine, geothermal and concentrated solar thermal are developing world is now at 80%,63 and South Africa has expected to become competitive diesel alternatives more mobile phones per person than the United States.64 (although given the lack of incentives and the presence In some parts of the globe, an analogous transformation of diesel subsidies, their installation is not yet certain).54 in energy systems is on the horizon. Fossil fuel power is Nations such as Canada, Chile and South Africa are already becoming more expensive and the cost of pole-and-wire powering mines with wind and solar technologies.55,56,57, grid infrastructure is prohibitive for many of the world’s 58 Other opportunities include electric vehicles in mining, poorest communities. It will be increasingly passed over with some Canadian mines adopting electric alternatives as renewable distributed energy sources become cheaper to diesel mining trucks.59 and more reliable, especially as battery costs continue their decline. Part 7: Renewable Energy: Australia’s Contribution Laggard to Leader

The energy needs of grid-less developing nations are Australian innovation in policy and regulatory systems, mirrored by those of remote settlements in Australia. combined with deployment support, could dramatically These settlements are either connected to microgrids or reduce Australian grid costs while concurrently developing are off-grid entirely. Whether in Australia or elsewhere in expertise that can be used in selling grid services to other the world, they tend to face high energy costs and energy countries. Advanced grid management technologies are poverty, yet are also likely to be situated in areas with high also high in complexity, providing opportunities to develop grade renewable energy resources. Carl Pope of the Sierra hardware, software and surrounding services — ideal areas Club provides analysis showing solar PV is ready to replace for exercising Australia’s natural advantages in technology kerosene for over a billion people around the world. and service industries. Finally, technologies like solar “Over a decade, the average poor family spends $1,800 thermal with even a small added storage component are on energy expenditures,” says Pope. “Replacing kerosene particularly suited to meeting the late afternoon power with a vastly superior 40Wp (Watts peak) home solar peak, which tends to come a little too late for PV, providing system would cost only $300 and provide them not only additional opportunities for Australian leadership in peak 63 light, but access to cell-phone charging, fans, computers, power management. and even televisions”.65 The next step is for the technology to pass on to the further 2 billion people in developing Renewables integration countries who current rely on expensive and unreliable electricity networks. Finally, the IEA identifies renewable energy integration into grids as a growing issue as renewables penetration McKinsey analysis has shown that solar power is already increases — providing another area in which Australia can cheaper than fossil fuels in such remote settings, and build local expertise.72 Australia has the natural advantages 50GW of potential (off grid and micro-grid combined) of excellent resources across a wide range of renewable exists to 2020 (see Figure 7.8). This is not far off all the energy sources, a large national grid to limit co-variability, solar PV installed in the world today — and the advantage and the high wind penetration that already exists within of renewable energy in this setting is only set to increase.66 South Australia (peaking at around 31% recently),73 which has helped drive Australian research into renewables The idea of powering remote Australian communities with integration to a world-leading standard. renewable energy is not new. In 2010, for example, Horizon Power proposed to the Australian Government that high- There is currently a window of opportunity to install solar penetration renewable energy be installed in more than thermal power stations in South Australia as a replacement 100 isolated Australian communities.68 But it has not for the Playford B and Northern coal power stations in Port been recognised for what it is: a genuine opportunity for Augusta.74 This would avoid the misstep of committing to a sustainable economic development, providing financial gas-fired future for the region, while also allowing Australia returns while helping to alleviate poverty. to build experience with solar thermal dispatchability alongside wind energy — a combination likely to be a Addressing peak power demand crucial energy mix in the future, as demonstrated in the ZCA Stationary Energy Plan. The rapid growth expected in Australian electricity prices over the next few years has little to do with carbon pricing and much more to do with the AU$45 billion grid upgrade 7.3.2 Coordinating with Like-Minded Countries that utilities argue is necessary to keep pace with peak network demand.69 In recent years, Australia’s peak RD&D collaboration electricity use has grown 260% faster than total electricity demand,70 putting pressure on an aging grid. This trend is Collaboration acts as a “multiplier” of lone research evident in many economies across the world, developed efforts.75,76 An idealised global RD&D program would and developing alike, driving hundreds of billions of dollars facilitate immediate information and resource sharing in global grid investment. between teams working on common problems, allowing cross-fertilisation of skills and ideas, preventing duplication Australia could instead resolve its grid weaknesses through of effort and providing for economies of scale. Such a distributed renewable energy, energy efficiency and so- system is of course counter to the purposes of much private called “smart grid” technologies that allow greater control RD&D — to protect discoveries from competitors — but is of the demand-side of the grid. Looking at PV alone, an ideal that the international community should strive for globally installed capacity directed at addressing peak in solving a global commons problem like climate change. demand is likely to reach 150-170GW by 2020 according As many policy makers have argued, it is important that to McKinsey (see Figure 7.8)71 — well over double the zero carbon RD&D programs are structured to encourage amount of PV currently installed worldwide. broad dissemination of the scientific and technological outcomes.77 Part 7: Renewable Energy: Australia’s Contribution Laggard to Leader

The most effective RD&D networks draw their membership Many networks and research centres of this type already from a variety of institutions that have an interest and a exist but gaps remain. Many are ineffective due to a lack role to play in a successful innovation program: leading of clear purpose (Australia’s Global CCS Institute, for technical institutions, funding agencies, private sector example) or financial backing. The primary novelty of leaders and international organisations. The United States the approach we suggest is the extent to which these ARPA-E program, for example, funds high-risk, high- arrangements are supported. Funding must be sufficient reward technology development that can then qualify for to enable research partnerships to deliver multiple large- venture funding within a few years. Many of the extremely scale demonstrations across numerous technology types. competitive ARPA-E awards have been won by university- Regular to-scale demonstration and deployment will industry collaborations — a testament to the value of significantly enrich efforts to accelerate price reductions. crossing institutional boundaries for high-value research.78 The first step for Australia would be to commission an 64 Australia should aim to work closely with other nations that assessment of present international RD&D networks hold leadership positions across its national technology across its technology priorities, working to fill any gaps priorities. For example, an Australian CST RD&D network and expand the capacity of those networks already would develop links with universities, private companies, successfully running — and draw their centre of gravity and government agencies in countries such as Spain, towards Australia. Australia’s commitment to providing a the United States, Israel and the United Arab Emirates. comprehensive support environment for RD&D within its The network would accelerate progress through holding borders — and leveraging the private capital needed to forums, sharing data and methods, exchanging researchers, undertake meaningful demonstration projects — would undertaking joint projects and pooling resources . To drive attract world-leading expertise. progress at the accelerated rate needed, activities would be coordinated as part of an internationally agreed CST Intellectual property concerns in the context of shared roadmap, used to set targets and review progress on technology programs remain a key barrier, but a an annual basis. Similar collaborations could be formed surmountable one. The US National Renewable Energy around photovoltaics; batteries; high-penetration wind; Laboratory (NREL) has developed the “Cooperative enhanced geothermal; biofuels; and zero carbon steel Research and Development Agreements” (CRADA) production. process,80 which is executed whenever a partner and the lab collaborate on a project. The proposed project is

Figure 7.9 Clean technology collaboration model79

Researcher Exchange & Strengthen Regional Training Programs Centers & Networks Expert Networks Technology Networks Global and Regional

Technology Standards, Portals with R&D Data,

Testing, & Certification & Methods, & Tools Training Programs

Technology Roadmaps & Action Plans Global, Regional, & National

R&D Cooperation Emerging Technology Demonstration Programs

Expanded Joint R&D Multilateral & Demonstration Developing Country Solicitations Bi-lateral R&D Partnerships Projects Demonstrations

Figure 1. Possible integrated framework for clean energy R&D cooperation.

As described in this section, the individual technology networks could have primary responsibility for conducting R&D programs with accountability to existing international energy agencies or partnerships (e.g., IEA, IPEEC, IRENA2, and MEF energy technology partnerships) that provide overall management oversight and coordinate provision of resources for the work of the networks. The GEF, MDBs, and UN agencies could also manage delivery of programs focused specifically on developing countries (e.g., expanded demonstrations in those countries) and work in partnership with these international energy agencies and partnerships. In turn, the management agencies could report to an overall UNFCCC clean energy technology advisory group. These activities could be closely coordinated with bilateral programs. This is depicted in Figure 2.

2 The emphasis of IRENA is more on building developing country capacity on renewable energy policies and deployment than on R&D, so the IRENA role may be limited in this area.

18 Part 7: Renewable Energy: Australia’s Contribution Laggard to Leader

discussed with the relevant NREL technical contact, project Coordinating assistance for developing nations goals and IP issues are reviewed, negotiated, and finally the agreement is signed, recognising the joint commitments of Developing nations — and especially the least-developed NREL and its partner to achieve the project’s goal towards nations — face difficulties in promoting and financing commercialisation. It protects a company’s and NREL’s RD&D, and in participating in collaborative networks, existing intellectual property, and allows the company to that developed countries do not. They are impeded by negotiate for an exclusive field-of-use license to subject high-risk finance (due to higher levels of political and inventions that arise during the CRADA’s execution.81 economic instability), lack of technology standards, and

Box 7.4: The SolarPACES Collaborative Network cooperation and industry partnerships. • Support market development to reduce hurdles to SolarPACES (or Solar Power and Chemical Energy Systems) commercialisation - through market assessment, 65 is an international cooperative RD&D network that has intellectual property protection, promotion of driven advances in CST since 1977. It is one of a number supportive policy, undertaking multilateral projects. of IEA Implementing Agreement programs that bring • Expand awareness of CST’s potential to address together teams of national experts from around the world energy and environmental challenges - through to accelerate technology innovation. It has the explicit aim information dissemination, membership expansion, of removing technical barriers to commercialisation, and and partnerships with other organisations. has been perhaps the central influence in the development of CST over the past four decades. Its technology development program specifies a roadmap for CST split into thematic areas of work, or “Tasks”, that Today, its membership of 20 countries includes countries SolarPACES teams cooperate to progress. from Australia to Spain, South Africa, the United Arab Emirates and the United States. Partnerships with private A shared R&D platform in the Spanish province of Almeria, entities in the energy industry play a key role, and indeed the “Plataforma Solar de Almeria”, is home to a number the involvement of some nations — such as Australia — of SolarPACES major test projects (such as testing of the has been driven primarily by industrial consortiums. In components later used in commercial projects e.g. the PS10 the case of Australia, membership was initiated through power tower),85 and is the largest centre for CST RD&D in a consortium of state energy utilities, now joined by the Europe. The Platform’s wide range of test projects enable University of New South Wales. in-the-field learning for international teams studying CST systems. The SolarPACES program, and the RD&D The SolarPACES network pursues three core strategic platform in Almeria, is a model for Australian engagement goals:82,83 in zero carbon technology innovation. Certainly, at the • Support technology development by leveraging funding levels recommended in the ZCA Stationary Energy national resources - through international RD&D Plan, Australia can rapidly become a world centre for deployment and RD&D in technologies like CST.

Figure 7.10 Torresol Energy Gemasolar Thermosolar Plant 84 Part 7: Renewable Energy: Australia’s Contribution Laggard to Leader

gaps in expertise across the renewable energy value chain, from initial procurement to operation and maintenance. 7.4.1 Sizing the Zero Carbon Economy Projects can therefore attract prohibitively large additional costs and outcomes may be a poor fit for actual community Zero carbon products and services are forecast to become needs. Getting developing nations on to even ground a major source of global value and employment: HSBC requires substantial technology and expertise sharing. expects the clean technology market to be worth up to US$2.2 trillion per annum by 2020;87 the IEA estimates that Capacity building in developing nations should be a key total clean energy investment will need to reach at least secondary goal of Australia’s international technology US$36 trillion to 2050;88 and recent ILO analysis predicts networks. Potential solutions include:86 up to 60 million green jobs by 2030.89 The savings from • the NREL’s proposed funding of demonstration projects zero carbon investment — from avoiding the purchase in developing countries to help build local experience of oil, coal and gas — are estimated by the IEA to reach 90 66 across the renewable energy value chain; as high as US$150 trillion by 2050. US Department of • the Carbon Trust’s proposal for establishing “Low Energy analysis shows that clean energy technology could Carbon Technology Innovation and Diffusion Centers” create 750,000 jobs in the US as early as 2020,91 while within developing nations, to operate as nodes for Germany already has almost 400,000 jobs across its zero coordinating training, demonstration projects and carbon energy industries.92 integration of developing nation institutions into international R&D networks; and The world’s major economies are racing to capture this • international finance mechanisms to de-risk private value. China, Germany and the US have been vying sector investment in developing nations, through for supremacy in renewable energy markets with an providing a special pool of funding to cover the country aggression that has led to talk of “renewable energy trade risk, currency risk and policy risk components of wars”.93,94 2012 has been a particularly heated year: the developing country investments. US won its case against Chinese PV export dumping in the World Trade Organisation and applied import tariffs of 31% to 250% on Chinese solar power imports.95 Germany is now preparing to bring similar claims.96,97 Japan and the 7.4 The National Interest in Renewable Technology Deployment and Box 7.5: The Economics of Germany’s Renewable Development Energy Act

This section argues that Australian investment into zero The investment represented by Germany’s Renewable carbon technology innovation, combined with a push for Energy Sources act is substantial, at €9.4 billion annually 100% economy-wide decarbonisation by 2030, is not only — and so are its benefits: a reasonable response to the threat of climate change but • Jobs growth: 382,000 jobs, including some 125,000 in is also in our long-term economic interests. Australia can solar energy.106 use its present wealth to transform itself to a “zero carbon • Sales value: Around €25.3 billion in total sales value, for superpower” over the next decade, preparing for a decline around €70,000 (or AU$85,000) per job.107 Around 50% in the fossil fuel trade (see Chapter 8) and success in the of is PV exported,108 to be raised to 80% by 2020,109 and multi-trillion dollar global industry in clean energy and 75% of wind turbines are exported.110 Wind exports environmental goods and services. reach €4.7 billion and PV exports more than €8 billion each year.111,112 This section examines: • Energy savings: Yearly savings from the Merit Order • Expected growth in clean tech markets: Zero carbon Effect of around €3.5 billion, and avoided energy technology market growth has been exponential over imports worth €6.7 billion.113 the past decade, and will soon reach into the trillions of • Zero-carbon energy. In 2011, Germany met 16.8% of its dollars in annual value. Competition is becoming fierce, electricity needs, 9.8% of heating needs, and 5.8% of and leading nations, such as the US and Germany, are transport needs with renewable energy. Four German reaping dividends in export value and employment. states met over 40% of their electricity demand with • Australian opportunities: Australia has a host of natural wind alone.114 advantages in clean tech markets, and significant • Emissions avoidance. Germany avoided 107 million

potential to capture its share. Australia can become tonnes of CO2 from electricity, heat and biofuels the go-to country for expertise across the clean tech investments in 2009.115 value chain — from finance to software, manufacturing, • Technology price reductions: Since 2006, solar PV project development and operation and maintenance. system prices within Germany have declined an incredible 65%.116 Part 7: Renewable Energy: Australia’s Contribution Laggard to Leader

EU joined the US to file against China over trade restrictions reality, the US is competing well on both price and quality. on rare earth metals — materials that are, currently In 2010 the US imported US$3.8 billion in solar products, essential for manufacturing zero-carbon technologies from but exported US$5.6 billion. Its solar balance of trade with wind turbines to electric vehicles to efficient lighting98— China gave the US a surplus of US$247 million.102,103 claiming billions of dollars worth of damages.99 And China has lashed back with a complaint against US import duties Germany, too, is reaping significant rewards from its on 22 Chinese products, including solar panels and wind renewable energy policies: the nation has 367,000 jobs turbines, and claims that the US paid unfair subsidies for in renewable energy today, and a majority of its wind and six major renewable energy projects.100 solar products are exported. Even with “slow” growth of exports, the policies will create 150,000 more jobs Chinese investment in renewable energy has reached than a business as usual trajectory by 2030, or around stellar levels. As Hari Chandra Polavarapu, an analyst at 185,000 under more optimistic conditions. Total German Auriga, New York, put it, “[y]ou’re competing against a employment in the renewable industry is estimated to 67 sovereign when you’re talking about the Chinese solar reach up to 600,000 people by this time (see Box 7.5).104 industry. It’s economic warfare.”101 Yet this is not an area in which China is the inevitable victor. With all the anger from the US, one might well think China was dominating solar exports to the detriment of other nations, but in

Figure 7.11 The PV value chain105 Part 7: Renewable Energy: Australia’s Contribution Laggard to Leader

7.4.2 Australian Opportunities in Clean Tech Box 7.6: Australian Clean Tech Manufacturing Markets The argument that Australia cannot compete in clean Australia has, rather short sightedly, left them to it. This is tech manufacturing due to labour costs is contradicted a tragedy: the quality of renewable resources in Australia by success in other countries that share this challenge, is unbeatable; our research talent is on par with the such as the US. Consider the US company First Solar – in world’s best; and public support for renewable energy 2009 the first solar company to achieve under US$1 per development is persistently high.117 Even in the absence watt solar power, and now providing solar for a world- of supportive policy for renewable energy deployment, leading US$0.73 per watt. In 2011, it ranked in first place Australia still scores highly on many inputs to innovation, on Forbes’s list of America’s 25 fastest-growing technology such as its entrepreneurial culture.118 Given the companies. First Solar competes in the same way that 68 extraordinary growth predicted for the clean tech market, Australian companies would compete: on the leading edge and its long-term future, rational economic policy must of innovation. consider this an excellent area to begin investing in today to ensure Australia can secure lasting advantages. Australia is in fact closely connected to the world’s largest solar PV company, the Chinese giant, Suntech. Dr. Shi, the The most common retort to the idea that Australia could founder of Suntech, is an Australian citizen trained in solar lead in zero carbon technology is that Australia cannot technology through a PhD at the University of New South compete in manufacturing. The idea that Australia’s labour Wales (UNSW). He started his company up in China and costs make zero carbon manufacturing untenable are drew much of his Suntech team from colleagues at UNSW, contradicted by the success of other nations that are said and is now one of the wealthiest people in China, valued to have lost competitiveness in manufacturing, like the US at around US$3 billion dollars. Dr. Shi left Australia to start in PV production (see Box 7.6 for a brief examination of Suntech in 2001 — a story of lost talent that has been the barriers to Australian participation in manufacturing). repeated again and again in Australian clean tech.

Regardless, this argument is a distraction: manufacturing In 2011, Silex Solar, the last PV cell manufacturer in is just one part of a long, varied zero carbon technology Australia, sent its cell production offshore due to the value chain. The US thin-film solar giant First Solar, for withdrawal of NSW support for the solar industry (although example, says that around 33% of its large-scale projects it still assembles the units in Australia). NSW Energy costing is in finance, 33% in “balance of system” (actual Minister Chris Hartcher said the industry had “been built installation costs and additional components like support on the back of government subsidies”, but neglected to racking), and 5% in development — only around 25% is explain how this differed from any other energy industry in the solar PV modules themselves.119 China’s Suntech, in history.122 the largest PV manufacturer in the world, agrees, pointing out that, unlike the car industry where 90% of the value This is not a fait accompli. Australia can build a domestic is in manufacturing, “50% of the value of PV is created zero carbon technology manufacturing industry that can locally”.120 capture global markets. The biggest difference between Australian and US solar manufacturers is the degree of Much of the value of the zero carbon economy is found in support required to push the Australian industry to reach R&D, software, training, project development, insurance, competitiveness5. Navigating on an international the valley stage. of death Because of the consulting, finance, operation and maintenance (see Figure small size of the Australian market, the leap to participation 5.1 What is the valley of death? 121 7.11). Australia already excels in many of these areas in globalThe valleymarkets of death i s notrequires unique to cleantech additional or Australia. It assistance,has been used to describe after the challenges in rolling out information technology and 3G networks where the characteristics and has strong potential to develop further advantages on which, pricesare slow customer converge adoption, unmanageablewith those platform ofand devicecountries complexity, andlike an explosionthe the long-term. US and thein operating industry expenses. 20becomes sustainable (see Figure 7.12

from ErnstThe metaphor & Young). was rife in science policy in the late 1990s and has been described as the massive transformational change to address another market where you need new capital, Consider renewable energy financial and insurance new staff and have to become familiar with new foreign rules. In remote countries like Australia, it is considered partly a function of distance (distance begets an attitude of products and services, for example. In the “Reimagining Figure 7.12scarcity) and mindset (adopting a global market perspective).21 123 US solar financing” white paper, Bloomberg New AustralianFigure solar 1: Defining manufacturingthe valley of death22 Energy Finance details the proliferation of sophisticated mechanisms being developed for solar PV project financing. Given the range of different renewable energy technologies and applications (beginning with those identified earlier as national priorities), there is wide scope for Australia to become a testing ground for the technical and management expertise that converts projects from high risk to low risk — and thereby makes them attractive to large and conservative sources of finance, such as superannuation funds (see Figure 7.13).124

Commentators also offered the following explanations for the valley of death:

► The valley of death relates to moving from small to large scale finance. The challenge is that if you are not sufficiently advanced in terms of removing the technology risk, and do not have the right corporate partners on board, you end up having to seek all equity for large scale finance. This means that the cost of capital is higher than if it was a bankable project able to attract debt. In this scenario the investment dollars will usually go elsewhere.

► Borrowing money from a bank for commercial scale demonstration and deployment is currently restricted to major corporate players, and the shortage of capital from the global financial crisis has tightened balance sheets all over the world. However, to deploy cleantech someone has to wear the balance sheet risk until revenues occur and there are not many businesses prepared to put the money up.

20 Surviving the valley of death; P. William Bane and N. Blain; Connected Planet; 19 March 2001 (www.connectedplanetonline.com) 21 Going global from New Zealand; Rod Drury; 16 March 2007; www.drury.net .nz 22 Adapted from Going global from New Zealand; Rod Drury; 16 March 2007; www.drury.net .nz

Navigating the valley of death Ernst & Young 19

Part 7: Renewable Energy: Australia’s Contribution Laggard to Leader

Software and management services are further areas ripe and finance. To revisit their potential market sizes: for leadership, as shown by the global success of Sydney • Concentrated solar thermal is expected to be a crucial company CarbonSystems. CarbonSystems recently won an global renewable energy source, providing at least 40% international tender to manage the energy, emissions and of energy needs in sunny environments. Its applications environmental performance reporting across Microsoft’s range from serving any national energy grids in global operations — more than 600 facilities across 110 countries that have reasonable sunlight resources — countries. CarbonSystems CEO, David Solsky, says that in other words, most of the world’s population — to Australia is “the hottest market in the world” for these kinds resources projects and industry demands for heat and of services. This kind of success has been made possible steam. In addition to grid-scale power production, the through existing Federal Government regulations such as IEA identifies a wide range of niche markets for CST, the National Greenhouse and Energy Reporting Scheme from providing heat for industrial processes to the (which requires companies to report their greenhouse gas production of fresh drinking water.127 emissions, energy production and energy consumption) • PV applications for remote communities and peak 69 and the Commercial Building Disclosure regulations demand management reach as high as 400GW by 2020 (which require sellers and lessors of commercial buildings according to McKinsey — or around 3 times the solar to disclose building energyUS efficiency SOLAR –performanceWHITE PAPER PV installed so far across the globe.128 Both4 June of these 2012 information).126 Just as management guru Michael Porter areas provide opportunities from basic manufacturing argues that “stringent environmental regulation promotes to novel system design and finance mechanisms. The most telling statement about this analysis is the absence of a compelling pattern linking solar economicThere could growth be by boosting efficiency”, so too can • Addressing peak demand through PV and smart grid project investment to other asset classes. Investors across a broad spectrum of risk/return regulationmeaningful can appetite boost growthto by encouraging innovation efficiency and demand-response programs could intoinvest entirely in solar new projects markets. if profiles, who are otherwise active in forestallinvestme ntsmuch that couldof the bear AU$45 resemblance billion togrid solar upgrade projects, investments are have largely not dipped a toe in the water,currently likely underway.because the Withasset haswidespread not yet been deployment 'configured' Eachstructured of the national to look technologylike to priorities match a identifiedfamiliar asset by BZEclass. The infindings the US, suggest the Brattle that there Group could estimates be meaningful potential appetite peak if earlierother assetin this classes chapter has diversesolar provalueject chainsinvestments that arewill structured demand to look savingslike other of classes. US$176 billion.129 Novel smart grid vary considerably across applications, especially in their applications range from household demand response service components — project4.2. development,Evolution consulting of US solar financing(e.g. automatically reduced energy use at times of peak The US solar project finance landscape is shifting. Figure 15 illustrates one plausible scenario of how US solar financing could evolve. Figure 7.13 FigureReimagining 15: Potential solar financing evolution125 of US solar financing High-liquidity investment vehicles Today Tomorrow Commission / Commi Spin-out of Development Construction Development Construction Operation -ssion operating assets

INFRASTRUCTURE DEBT FUNDS Bonds / ABS / ‘Crowdfunding’ INSURANCE COMPANIES INSURANCE COMPANIES PENSION FUNDS DEBT MUTUAL FUNDS BANKS BANKS RETAIL INVESTORS HEDGE FUNDS

VENTURE CAPITAL (VC) HIGH-RISK HEDGE FUNDS MLPs / ‘SREITs’ / ‘YieldCos’ DEVELOPMENT PRIVATE INFRASTRUCTURE DEVELOPMENT PRIVATE EQUITY PRIVATE EQUITY EQUITY INFRASTRUCTURE PRIVATE EQUITY

EQUITY SMALL/MED DEVELOPERS

VC SMALL/MED DEVELOPERS LARGE DEVELOPERS / LARGE DEVELOPERS / ACQUISITION- UTILITIES UTILITIES ORIENTED UTILITIES

BANKS Syndicated tax equity (AND OTHER SELECTED PLAYERS) BANKS / NON-FINANCIAL

TAX EQUITY CORPORATES

• >20% cost of • ~15% cost of equity • ~14% cost of • >20% cost of • 9-13% cost of equity (levered) • ~6% cost of equity equity (levered) equity equity • ~7% tax equity yield (after-tax, (unlevered) (unlevered) • ~7-9% tax equity yield (levered) (unlevered) unlevered), ~11% (levered) • <6% cost of debt (after-tax, unlevered), • ~6-7% cost • ~6% cost of debt (capital CAPITAL

COSTS OF ~14-18% (levered) of debt markets debt financing) • ~6-7% cost of debt Source: Bloomberg New Energy Finance

Several fundamental changes appear likely: • Participation from investors who have been historically active (banks and federal government) will likely diminish. European banks, which have for years provided construction debt to US clean energy projects, are grappling with the continent's ongoing credit crisis. At the same time, the set of financial regulations known as Basel III is further causing banks to reconsider their exposure to project finance. The regulations require that any loans longer than one year be backed by funding of at least one year (eg, a 20-year project loan must be matched by an asset with a maturity greater than one year, such as a long-term bond). This will result in higher capital requirements and will likely raise the cost and decrease the length of project finance debt. Though the European banks will feel the squeeze first, Basel III will reduce the

Strictly no copying, forwarding, shared passwords or redistribution allowed without prior written permission of Bloomberg New Energy Finance. For more information on terms of use, please contact © Bloomberg New Energy Finance 2012 [email protected]. Copyright and Disclaimer notice on page 28 applies throughout. Page 14 of 28 Part 7: Renewable Energy: Australia’s Contribution Laggard to Leader

demand, to save residents from paying peak prices) to integration with electric vehicles (e.g. charging electric vehicles at low prices, when excess wind energy is being fed into the grid). • Under the ZCA Stationary Energy Plan, new models of renewables integration at penetrations never before seen would be developed, with a host of technical insights for grid and market design. Pike Research estimates renewable energy integration in 2012 to be a US$4 billion global market, growing to US$18 billion over the next 6 years — a compound growth rate of 23%. 70 Innovation spurred as part of RD&D activities related to the other ZCA Plans — Transport, Land Use and Buildings — would provide a wealth of further opportunities.

Australia can become the go-to country for any nation seeking to follow the decarbonisation and energy efficiency pathway. To be conservative and estimate that this cross- sectoral investment only allows us to capture 2.15% of the global clean tech market anticipated by HSBC in 2020 — a share in line with Australia’s share in world GDP — we would see annual revenue of around US$50 billion. This is some AU$10 billion above the value of Australia’s total coal exports (a lead that is set to increase with coking coal prices currently collapsing,130,131 as explored further in the next chapter),132 and would provide many, many more long-term jobs.133

Only when Australia’s fastest growing companies and highest net-worth individuals are, like First Solar and Dr. Shi, drawn from renewable energy industries rather than coal mining can we truly claim to be working towards a Clean Energy Future. Part 7: Renewable Energy: Australia’s Contribution Laggard to Leader

21. Bronwyn H. Hall et al, “Measuring the Returns to R&D” (10 December 2009), References Chapter prepared for Handbook of the Economics of Innovation, http://emlab. 1. Bjorn Lomborg, “Smart Solutions to Climate Change: Comparing Costs and berkeley.edu/~bhhall/papers/HallMairesseMohnen09_rndsurvey_HEI.pdf. Benefits” (2010). 22. Jeffrey Bernstein and M Ishaq Nadiri, “Research and Development and Intra- 2. “The widening valley of death for cleantech”, Ernst & Young (2010) Figure 2, industry Spillovers: An Empirical Application of Dynamic Duality”, Review of http://www.cleanenergycouncil.org.au/mediaObject/Policy/Navigating-the- Economic Studies (1989) p 249-269, http://www.econ.nyu.edu/user/nadiri/ valley-of-death-CEC/original/Navigating%20the%20valley%20of%20death%20 pub59.pdf. CEC.pdf. 23. Valentina Bosettia, Carlo Carrarob, Emanuele Massettic, Alessandra Sgobbia & 3. “Short-term price support for renewable energy technologies to achieve Massimo Tavonic, “Optimal energy investment and R&D strategies to stabilize economies of scale will result in long term cost savings.”, Climate Bonds atmospheric greenhouse gas concentrations”, Resource and Energy Economics Initiative, (2009) http://climatebonds.net/what-we-do/encouraging- (2009) 31(2), p 123-137. http://www.sciencedirect.com/science/article/pii/ investment/the-10-point-case/. S0928765509000025. 4. “World Energy Outlook 2011”, International Energy Agency, (2011) http:// 24. “Global gaps in clean energy RD&D,” report for the Clean Energy Ministerial, 71 www.scribd.com/doc/72512781/World-Energy-Outlook-2011. International Energy Agency,(2010). http://iea.org/papers/2010/global_gaps. 5. Ibid. pdf. 6. “World Energy Outlook 2011 Factsheet,” International Energy Agency, (2011), 25. “Global Gaps in Clean Energy R&D: Update and recommendations for p 6. http://www.iea.org/weo/docs/weo2011/factsheets.pdf. International Collaboration” International Energy Agency ,(2010) p 7, http:// 7. Howard H. Baker Jr. Center for Public Policy, “Assessment of Incentives and iea.org/papers/2010/global_gaps.pdf. Employment Impacts of Solar Industry Deployment” (1 May 2012) p 4, http:// 26. According the Stockholm International Peace Research Institute (SIPRI), bakercenter.utk.edu/wp-content/uploads/2012/04/Solar-incentives-and- world military expenditure in 2011 was $1.74 trillion: SIPRI, “World Military benefits-_complete-report_May-1-2012-21.pdf. spending levels out after 13 years of increases, says SIPRI” (17 April 2012), 8. World Resources Institute, 2011, ‘The Role of Solar PV in reducing emissions http://www.sipri.org/media/pressreleases/17-april-2012-world-military- 50% by 2050 using past, present, and future technology,’ http://www.wri. spending-levels-out-after-13-years-of-increases-says-sipri. org/stories/2011/11/fact-sheet-power-innovation-meeting-our-energy- 27. “Securing a Clean Energy Future”, Australian Government (2011) http://www. challenges-through-accelerated-innova. cleanenergyfuture.gov.au/clean-energy-future/securing-a-clean-energy- 9. International Energy Agency, “Tracking Clean Energy Progress” (2012) p 28, future/. http://www.iea.org/papers/2012/Tracking_Clean_Energy_Progress.pdf. 28. Ross Garnaut, “The Garnaut Climate Change Review” (2008) Ch 10.1, http:// 10. IMS Research, Press Release “PV Module Suppliers Switch Tactics as Wafer www.garnautreview.org.au/pdf/Garnaut_Chapter10.pdf. Prices fall 70%” (11 April 2012). http://www.pvmarketresearch.com/press- 29. “Securing a Clean Energy Future” Australian Government, (2011). release/PV_Module_Suppliers_Switch_Tactics_as_Wafer_Prices_fall_70/1. 30. Ibid. 11. SolarBuzz,”Solar Electricity Prices” (March 2012) http://www.solarbuzz.com/ 31. Lenore Taylor, “1.6bn Not Enough to Build Rudd’s Solar Vision”, The facts-and-figures/retail-price-environment/solar-electricity-prices. Australian (5 September 2009) http://www.theaustralian.com.au/ 12. “PV module cost curve 1976-2011”, BNEF Brazilian et al (2012) http:// national-affairs/treasury/bn-not-enough-to-build-rudds-solar-vision/story- theconversation.edu.au/newsflash-solar-power-costs-are-falling-below-fossil- e6frgd66-1225769698238. fuels-7215. 32. “Navigating the valley of death: Exploring mechanisms to finance emerging 13. Ryan Wiser et al., “Recent Developments in the Levelized Cost of Energy from clean technologies in Australia” Ernst & Young, (2010) http://www. U.S. Wind Power Projects” (February 2012) p 35, http://eetd.lbl.gov/ea/ems/ cleanenergycouncil.org.au/mediaObject/Policy/Navigating-the-valley-of- reports/wind-energy-costs-2-2012.pdf. death-CEC/original/Navigating%20the%20valley%20of%20death%20CEC.pdf. 14. Giles Parkinson, “Snowtown project shows wind costs below $80/MWh”, 33. Ibid, Figure 4. RenewEconomy (7 May 2012) http://reneweconomy.com.au/2012/ 34. Ibid, p 34. snowtown-project-shows-wind-costs-below-80mwh-17727. 35. John Daley and Tristan Edis, “Learning the Hard Way: Australia’s Policies to 15. Sarah Feinberg, “Wind turbine prices fall to their lowest in recent years”, Reduce Emissions” Grattan Institute, (2011) http://grattan.edu.au/static/files/ Bloomberg New Energy Finance (7 February 2011) http://bnef.com/ assets/35ea95b7/077_report_energy_learning_the_hard_way.pdf. PressReleases/view/139. 36. Data from Ragwitz, M., Winkler, J., Klessmann, C., Gephart, M. and Resch, G., 16. World Coal Association, “Costs of Coal-fired Electricity” (January 2011) ECoal, “Renewable energy deployment supported primarily by feed-in instruments, Vol.73. http://www.worldcoal.org/resources/ecoal/ecoal-current-issue/costs- EU-27 countries”, (2012) http://www.feed-in-cooperation.org/wDefault_7/ of-coal-fired-electricity/. download-files/9th-workshop/presentations/Ragwitz.pdf . 17. Ryan Wiser, Eric Lantz, Mark Bolinger and Maureen Hand, “Recent 37. Lisa Zyga, “Gemasolar solar thermal power plant supplies power for 24 hours Developments in the Levelized Cost of Energy from U.S. Wind Power straight”, Phys.Org (11 July 2011) http://phys.org/news/2011-07-gemasolar- Projects”, National Renewable Energy Laboratory (February 2012) Pg35, solar-thermal-power-hours.html. http://eetd.lbl.gov/ea/ems/reports/wind-energy-costs-2-2012.pdf. 38. “Technology Roadmap: Concentrating Solar Power” International Energy 18. See above discussion in Chapter 6.3.2 and references there cited. Agency, (2010) http://www.iea.org/publications/freepublications/ 19. Cédric Philibert, OECD Environment Directorate, International Energy Agency, publication/csp_roadmap.pdf. “International Energy Technology Collaboration and Climate Change” (2004) p 39. Ibid. 11, http://www.oecd.org/dataoecd/58/62/32138947.pdf. 40. Geyer, “Combination of storage and hybridisation in a solar plant” SolarPACES 20. Charles Jones and John Williams, Measuring the Social Return to Annual Report, Adapted by International Energy Agency(2010) http://www. R&D (February 1997) p 1, http://www.federalreserve.gov/pubs/ iea.org/publications/freepublications/publication/csp_roadmap.pdf. feds/1997/199712/199712pap.pdf. 41. Giles Parkinson, “Solar Thermal: The Search for Cheaper Storage Solutions”, Part 7: Renewable Energy: Australia’s Contribution Laggard to Leader

RenewEconomy (23 May 2012) http://reneweconomy.com.au/2012/solar- Nations Environment Programme(2012). http://www.unep.org/ thermal-the-search-for-cheaper-storage-solutions-16595. environmentalgovernance/PerspectivesonRIO20/JeremyRifkin/tabid/101085/ 42. Ben Elliston et al., “Simulations of scenarios with 100% renewable electricity Default.aspx. in the Australian National Electricity Market”, Solar 2011 conference, 62. Giles Parkinson, “We are missing the boat on clean energy”, The Australian Australian Solar Energy Society, Sydney, (30 November – 2 December 2011), (15 June 2012) http://www.theaustralian.com.au/business/opinion/we-are- http://www.ies.unsw.edu.au/docs/diesendorf-simulations.pdf. missing-the-boat-on-clean-energy/story-e6frg9if-1226396021478. 43. “Technology Roadmap: Concentrating Solar Power” International Energy 63. Chandra Steele, “How the mobile phone is evolving in developing countries”, Agency, (2010). PCMag.com (11 May 2012) http://www.pcmag.com/slideshow/story/297822/ 44. Siemens, “What will the future of renewable electricity generation look like?” how-the-mobile-phone-is-evolving-in-developing-countries. (2010) http://www.siemens.com.au/files/PTF/energy/EnergyCasestudy_ 64. Per capita mobile cellular data by country, from Nation Master: http://www. renewables.pdf. nationmaster.com/graph/med_tel_mob_cel_percap-telephones-mobile- 45. Giles Parkinson, “Can Solar Thermal Energy Compete on Costs with Wind?”, cellular-per-capita. 72 RenewEconomy (7 May 2012) http://reneweconomy.com.au/2012/can-solar- 65. Carl Pope, “Solar power off the grid energy for the world’s poor”, Yale thermal-energy-compete-on-costs-with-wind-41615. Environment 360 (4 Jan 2012) http://e360.yale.edu/feature/solar_power_off_ 46. See Protermo Solar, http://www.protermosolar.com/mapa.html. the_grid_energy_access_for_worlds_poor/2480/. 47. “Renewable 2011 Global Status Report” REN21, (2011) p 25, http://www. 66. Krister Aanesen, Stefan Heck & Dickon Pinner, “Solar power’s next ren21.net/Portals/97/documents/GSR/GSR2011_Master18.pdf. shining,” McKinsey (April 2012) http://www.mckinsey.com/Client_Service/ 48. “Assessment of Parabolic Trough and Power Tower Solar Technology Cost and Sustainability/Latest_thinking/Solar_powers_next_shining. Performance Forecasts” Sargent & Lundy LLC Consulting Group, (2003), p Es-3 67. Ibid, Exhibit 2, p 7. (commissioned by Us National Renewable Energy Laboratory) http://www. 68. See Horizon Power’s submission to the Federal Government on supplying nrel.gov/csp/pdfs/34440.pdf. solar energy to 100 remote Australian communities: http://ret.gov.au/energy/ 49. “Technology Roadmap: Concentrating Solar Power” International Energy Documents/cei/acre-sub/057a-HorizonPower(Attachment).pdf. Agency, (2010). 69. Giles Parkinson, “Our ‘cheap’ grid is letting us down: That’s not smart”, 50. “Renewable Energy RD&D Priorities: Insights from IEA Technology RenewEconomy (22 February 2012) http://reneweconomy.com.au/2012/our- Programmes” International Energy Agency, (2006) p 163-164. cheap-grid-is-letting-us-down-thats-not-smart-12041. 51. Ben Cubby, “Miners get $4b in direct subsidies, says Think Tank”, Sydney 70. “2011 Electricity Statement of Opportunities: Update” Australian Energy Morning Herald (18 April 2012) http://www.smh.com.au/environment/ Market Operator, (2012) http://www.aemo.com.au/en/Electricity/Planning/ conservation/miners-get-4b-in-direct-subsidies-says-think-tank-20120417- Electricity-Statement-of-Opportunities. 1x5m8.html. 71. Aanesen and Pinner, “Solar power’s next shining,” McKinsey (April 2012). 52. Tristan Edis, “Mining powered by solar?”, Climate Spectator (7 May 2012). 72. “Tracking clean energy progress” International Energy Association (2012), 53. Jessica Burke, “Australia’s first 100% renewable energy-powered mine”, an excerpt from IEA, Energy Technology Perspectives (2012) for input to the Australian Mining (6 April 2011) http://www.miningaustralia.com.au/news/ Clean Energy Ministerial, http://www.iea.org/papers/2012/Tracking_Clean_ australia-s-first-100-renewable-energy-powered--1- . Energy_Progress.pdf. 54. Giles Parkinson, “BHP’s Green Tunnel Vision”, Climate Spectator (17 May 73. Claire Peddie, “Wind powers ahead of coal in electricity production”, 2011) http://www.climatespectator.com.au/commentary/bhps-green-tunnel- Adelaide Advertiser (20 March 2012) http://www.adelaidenow.com.au/news/ vision. south-australia/wind-powers-ahead-of-coal-in-electricity-production/story- 55. Yolandi Booyens, “Company on the brink of proving solar energy benefits e6frea83-1226304543845. to industry”, Mining Weekly (22 June 2012) http://www.miningweekly. 74. “Report sheds light on power stations’ solar potential”, ABC News (19-April com/article/company-on-the-brink-of-proving-solar-energy-benefits-to- -2012) http://www.abc.net.au/news/2012-04-19/report-sheds-light-on- industry-2012-06-22. power-stations-solar/3960148. 56. Editor, “Chile’s mining industry hunts for renewable energy”, Mining.com (23 75. Ron Benioff et al., “Strengthening Clean Energy Technology Cooperation March 2012) http://www.mining.com/2012/03/23/chiles-mining-industry- under the UNFCCC: Steps towards implementation,” US National Renewable hunts-for-renewable-energy/. Energy Laboratory (August 2010) http://www.nrel.gov/docs/fy10osti/48596. 57. “Barrick Opens Wind Farm in Chile”, Elko Daily (18 November 2011) http:// pdf. elkodaily.com/mining/article_9bed00b6-1207-11e1-a940-001cc4c03286. 76. Facilitating researcher exchanges has been shown to increase RD&D html. productivity, at least as measured by the rate of patenting and citations, 58. “Diavik mine to build wind turbines”, CBC News (4 November 2011). http:// which are generally taken as indications of research value. See, e.g., www.cbc.ca/news/canada/north/story/2011/11/03/north-diavik-wind-farm. Department of Innovation, Industry, Science and Research, Australian html. “Innovation System Report” 2011 (2011) Ch 4, http://www.innovation.gov.au/ 59. “Electric underground vehicle revolutionizes the mining industry”, Mining. Innovation/Policy/AustralianInnovationSystemReport/AISR2011/chapter-4- com (13 March, 2012) http://www.mining.com/2012/03/13/electric- links-and-collaboration/global-integration/index.html. underground-vehicle-revolutionizes-the-mining-industry/. 77. David C Mowery, Richard R Nelson and Ben R Martin, “Technology policy and 60. See Australian Government, Australia’s Submission to the Rio+20 Compilation global warming: Why new policy models are needed (or why putting new Document (2012) p 8-9; Australian Government, Fact Sheet: Rio+20 and wine in old bottles won’t work)”, Research Policy (2010) 39, 1011, 1020. Mining for Sustainable Development (2012); Fergus Green and Reuben 78. Ernest J Moniz, “Stimulating Energy Technology Innovation”, Daedalus (2012) Finighan, “Denying Responsibility for our Fossil Fuel Exports”, The Drum (21 141(2), 81, 86. June 2012) http://www.abc.net.au/unleashed/4083938.html. 79. “Possible integrated framework for clean energy R&D cooperation”, National 61. Jeremy Rifkin, “The future’s lateral: the new (green) economy”, United Renewable Energy Laboratory (August 2010) Figure 1, http://www.nrel.gov/ Part 7: Renewable Energy: Australia’s Contribution Laggard to Leader

docs/fy10osti/48596.pdf. over rare earths”, Reuters (13 March 2012) http://www.reuters.com/ 80. John P Benner, “Moving NREL technology to market: Industrial CRADAs”, US article/2012/03/13/us-china-trade-eu-idUSBRE82C0JU20120313. Department of Energy, presentation (2010). http://www1.eere.energy.gov/ 100. Ksenya, “China files WTO complained against US solar tariffs”, Solar Tribune solar/review_meeting/pdfs/prm2010_nrel%20benner_cradas.pdf. (18 May 2012) http://solartribune.com/2012-05-28-china-files-wto- 81. National Renewable Energy Laboratory, 35 Years of Innovation (February complaint-against-u-s-solar-tariffs/#.T-MU9rWO1kI. 2012). 101. Ehren Goossens, Justin Doom & William McQuillen, “Trade war seen looming 82. “SolarPACES” Presentation, US Department of Energy, http://www1.eere. as China rebukes US support for solar”, Bloomberg (26 May, 2012). energy.gov/solar/pdfs/solar_paces.pdf. 102. Steven Lacey, “Solar stunner: America is a 1.9 billion exporter of solar 83. Michael Geyer, Gregory Kolb & Patricia Cordeiro, “SolarPACES START Missions: products”, Renewable Energy World (29 August 2011) http://www. A Case Study for IEA,” International Energy Association, SolarPACES (2000). renewableenergyworld.com/rea/news/article/2011/08/solar-stunner- 84. Gemasolar Thermosolar Plant, used with permission from Torresol Energy america-is-a-1-9-billion-exporter-of-solar-products. 85. “Concentrating Solar Power Projects: Planta Solar 10” National Renewable 103. David Nicklaus, “Chinese companies seek tariffs on US-made silicon”, STL Energy Laboratory, (April 2009) http://www.nrel.gov/csp/solarpaces/project_ Today (20 June 2012) http://www.stltoday.com/business/columns/david- 73 detail.cfm/projectID=38. nicklaus/chinese-companies-seek-tariffs-on-u-s--made-silicon/article_ 86. Benioff et al., “Strengthening Clean Energy Technology Cooperation,” US d8d47826-bb1f-11e1-96bb-001a4bcf6878.html. National Renewable Energy Laboratory(August 2010). 104. Ulrike Lehr & Christian Lutz, “Green Jobs? Economic impacts of renewable 87. Catherine Airlie, “HSBC says low-carbon market will triple to $2.2 trillion energy in Germany”, World Renewable Energy Congress (May 2011) http:// by 2020”, Bloomberg (September 2010) http://www.bloomberg.com/ www.ep.liu.se/ecp/057/vol10/012/ecp57vol10_012.pdf. news/2010-09-06/hsbc-sees-market-for-low-carbon-energy-tripling-to-2-2- 105. “Value Chain Segments & Activities”, Green Rhino Energy, http://www. trillion-by-2020.html. greenrhinoenergy.com/solar/industry/ind_valuechain.php. 88. Steve Hargreaves, “IEA calls for $36 trillion more in clean energy investments”, 106. “Gross employment from renewable energy in Germany in 2011”, German CNN Money (12 June 2012) http://money.cnn.com/2012/06/12/news/ Government, (2011). economy/iea-energy/index.htm. 107. “Renewable energy sources in figures: National and international 89. “Transition to green economy could yield up to 60 million jobs, ILO says” development” German Government, Federal Ministry for the Environment, International Labour Organization, (May 2012) http://www.ilo.org/global/ Nature Conservation and Nuclear Safety,(July 2011) http://www. about-the-ilo/press-and-media-centre/news/WCMS_181795/lang--en/index. erneuerbare-energien.de/files/english/pdf/application/pdf/broschuere_ee_ htm. zahlen_en_bf.pdf. 90. Steve Hargreaves, “IEA calls for $36 trillion more in clean energy investments”, 108. “Solar energy market development” German Government, Federal Ministry CNN Money (12 June 2010). of Economics and Technology, (2011) http://www.renewables-made- 91. “Increased Environmental Goods and Services Exports = More U.S. Jobs” in-germany.com/en/renewables-made-in-germany-start/solar-energy/ Trade and American Competitiveness Coalition, (2010) http://www. photovoltaics/market-development.html. nam.org/~/media/5CCF9590E48E4F9EA287934B31E6B054/Increased_ 109. “Statistic data on the German solar power (photovoltaic) industry” German Environmental_Goods_Exports_Benefit_the_USA.pdf. Solar Industry Association, (June 2011) http://www.photovoltaique.info/ 92. “Gross employment from renewable energy in Germany in 2011” German IMG/pdf/factsheet_pv_engl.pdf. Government, Federal Ministry for the Environment, Nature Conservation 110. “Wind energy market development” German Government, Federal Ministry and Nuclear Safety (2011) http://www.erneuerbare-energien.de/english/ of Economics and Technology, (2011) http://www.renewables-made-in- renewable_energy/data_service/doc/48528.php. germany.com/en/renewables-made-in-germany-start/wind-energy/wind- 93. Ehren Goossens, Justin Doom & William McQuillen, “Trade war seen looming energy/market-development.html. as China rebukes US support for solar”, Bloomberg (26 May, 2012) http:// 111. Becky Stuart, “BSW: Germany to invest over €5 billion in its solar www.bloomberg.com/news/2012-05-24/trade-war-seen-looming-as-china- industry”, PV Magazine (10 June 2011) http://www.pv-magazine.com/ rebukes-u-s-support-for-solar.html. news/details/beitrag/bsw--germany-to-invest-over-5-billion-in-its-solar- 94. Bruce Stokes, “Emerging green technology poses threat of trade wars”, Yale industry_100003320/. Global Online (14 May 2010) http://yaleglobal.yale.edu/content/emerging- 112. Johannes Schiel, “Opportunities for the Wind Industry”, VDMA Power green-technology-poses-threat-trade-wars. Systems (25 November 2010) http://www.giz.de/Themen/de/SID-A80F3DDC- 95. Ehren Goossens, Brian Wingfield & William McQuillen, “US solar tariffs on 37B15698/dokumente/gtz2010-en-01-johannes-schiel-vdma-opportunities- Chinese cells may boost prices”, Bloomberg, (18 May 2012) http://www. for-the-wind-industry.pdf; “Wind Industry in Germany”, German Wind bloomberg.com/news/2012-05-17/u-s-solar-tariffs-on-chinese-cells-may- Industry Association (2011) http://www.wind-energy-market.com/fileadmin/ boost-prices.html. Bilder_und_Logos/Marktuebersicht/Windindustrie_in_Deutschland_ENG_ 96. Richard Read, “SolarWorld cuts up to 300 jobs in Europe, blaming China as Branchenreport.pdf. another trade complaint looms”, The Oregonian (4 June, 2012) http://www. 113. “Renewable energy sources in figures: National and international oregonlive.com/business/index.ssf/2012/06/solarworld_cuts_up_to_300_ development” German Government (2011). jobs.html. 114. “Renewable 2011 Global Status Report” REN21, (2011). 97. “Emerging green technology poses threat of trade wars”, Yale Global Online 115. “Renewable energy sources in figures: National and international (14 May 2010). development” German Government (2011). 98. Staff, “DoE: Rare earth shortages damage clean tech growth”, Business Green 116. “Preisindex Photovoltaik”, Bundesverband Solarwirtschaft (2012) http://www. (6 January 2012) http://www.businessgreen.com/bg/news/2135403/doe- solarwirtschaft.de/preisindex. rare-earth-shortages-damage-clean-tech-growth. 117. See discussion and references in Dylan McConnell, “Australia must act now 99. Doug Palmer & Sebastian Moffet, “U.S., EU, Japan take on China at WTO on renewables or be left behind”, The Conversation (3 August 2011) http:// Part 7: Renewable Energy: Australia’s Contribution Laggard to Leader

theconversation.edu.au/australia-must-act-now-on-renewables-or-be-left- 131. Peter Cai, Phillip Wen, “China finding ways to cut back on coal”, Brisbane behind-2631; Peta Ashworth et al, “Communication and climate change: Times (12 July 2012) http://www.brisbanetimes.com.au/business/china- What the Australian public thinks”, CSIRO (May 2011) http://www.csiro.au/ finding-ways-to-cut-back-on-coal-20120711-21w91.html. files/files/p11fh.pdf. 132. “Australia’s Coal and Iron Ore Exports: 1999 to 2009”, Department of Foreign 118. Vince Knowles, “The Global Cleantech Innovation Index 2012”, Cleantech Affairs and Trade, http://www.dfat.gov.au/publications/stats-pubs/australias- Group (2012) http://www.cleantech.com/wp-content/uploads/2012/02/ coal-and-iron-ore-exports-1999-to-2009.pdf. CleantechGroup_WWF_Cleantech_Innov_Index.pdf; George Mason 133. Based on US figures: see WWF, “Getting Back in the Game”, http://www. School of Public Policy’s Center for Entrepreneurship and Public Policy, worldwildlife.org/climate/Publications/WWFBinaryitem16415.pdf. “The 2012 Global Entrepreneurship and Development Index (GEDI)” (2012) http://66.147.244.232/~lifeats1/cepp/files/pdfs/GEDI2012- Austrailia%283%29%5B1%5D.pdf. 119. Tristan Edis, “Why Australia must build its own solar future”, Climate 74 Spectator (14 June 2012) http://www.climatespectator.com.au/commentary/ why-australia-must-build-its-own-solar-future. 120. “Marcus Priest, “Surviving the solar-coaster”, Australian Financial Review (19 November 2011) http://afr.com/p/national/surviving_the_solar_coaster_6Ca AXWzWWHvq7feq7gi6iN. 121. Ibid; ; Tristan Edis, “Follow Apple’s strategy on solar PV”, Climate Spectator (30 May 2012) http://www.climatespectator.com.au/commentary/follow- apple-s-strategy-solar-pv; Vahid Fotuhi, “A trade war with China over solar panels will burn US”, The National (30 October 2011) http://www.thenational. ae/thenationalconversation/industry-insights/energy/a-trade-war-with- china-over-solar-panels-will-burn-us; Patrick Stafford, “Australian SMEs ripe to benefit from renewable energy push, KPMG report reveals”, Smart Company (29 May 2012) http://www.smartcompany.com.au/resources-and- energy/049931-australian-smes-ripe-to-benefit-from-renewable-energy- push-kpmg-report-reveals.html. 122. Amos Aikman, “Government’s withdrawal of solar subsidy scheme leaves industry in trouble”, The Australian (18 August 2011) http://www. theaustralian.com.au/national-affairs/governments-withdrawal-of-solar- subsidy-scheme-leaves-industry-in-trouble/story-fn59niix-1226117018314; James Martin II, “Silex Solar to outsource solar cell production, modules still to be assembled in Australia”, Solar Choice (30 August 2011) http://www. solarchoice.net.au/blog/silex-solar-to-outsource-solar-cell-production- modules-still-to-be-assembled-in-australia/. 123. “Navigating the Valley of Death” Ernst & Young, (2010), Figure 1, p 19. 124. Daniel Palmer, “Solar PV’s new dawn rising”, Climate Spectator (29 May 2012) http://www.climatespectator.com.au/commentary/solar-pvs-new-dawn- rising. 125. Stefan Linder and Michel Di Capua, “Re-imagining US solar financing”, Bloomberg New Energy Finance (4 June 2012) Figure 15 www.bnef.com/ WhitePapers/download/84. 126. Giles Parkinson, “Tech Focus: Australia’s new export – carbon controls”, RenewEconomy (13 March 2012) http://reneweconomy.com.au/2012/tech- focus-australias-new-export-carbon-controls-45699; Australian Government, “Commercial Building Disclosure” (2010) http://www.cbd.gov.au/. 127. “Technology Roadmap: Concentrating Solar Power,” International Energy Association (2010). 128. Krister Aanesen, Stefan Heck, and Dickon Pinner, “Solar power’s next shining”, McKinsey & Company (April 2012) http://www.mckinsey.com/Client_Service/ Sustainability/Latest_thinking/Solar_powers_next_shining. 129. US Department of Energy “Smart Grid: The Value Proposition for Consumers” (23 October 2008) http://www.nema.org/Policy/Energy/Smartgrid/ Documents/Assembled_Deck.pdf. 130. Matt Chambers and Rick Wallace, “Coal price crash digs a huge budget hole”, The Australian (14 March 2012) http://www.theaustralian.com.au/ business/mining-energy/coal-price-crash-digs-a-huge-budget-hole/story- e6frg9df-1226298643045. Laggard to Leader

Part 8 Ending the Growth in Fossil Fuels: Australia’s Contribution

Contents

8.1 Introduction 76

8.2 The Problem: More Fossil Fuels Than We Can Safely Burn 76

8.3 What Should Australia Do? 77

8.4 What Effect Would These Actions Have? 80 8.4.1 Australia’s Moratorium 80 8.4.2 Bringing Global Attention to the Issue 81

8.5 Fossil Fuels: Really in Australia’s National Interest? 82 8.5.1 Understated Risk: A Global Carbon Bubble? 82 8.5.2 Overstated Value: The Minor Role of Coal 84 8.5.3 Further Research 85

References 86 Part 8: Ending the Growth in Fossil Fuels: Australia’s Contribution Laggard to Leader

This chapter hopes to stimulate much-needed public 8.1 Introduction debate about the domestic and global implications of Australia’s extraordinary investments in fossil fuel exports Australia’s potential to lead the world toward the during the critical decade on climate change. The interests essential goal of cheap and flexible renewable of the Australian people can only be well-served by a energy presents an extraordinary opportunity to more complete discussion of the costs, benefits and risks of the coal and gas boom, and, consistent with this aim, develop world-leading Australian industries and BZE is undertaking deeper research into the structure of decarbonise global energy supply. It would also an Australian fossil fuel phase out — and the replacement pave the way for Australia to draw international of export revenue with zero carbon products and services. attention to the other side of the decarbonisation coin: phasing out fossil fuels. 76 This chapter highlights a stark reality at the heart of the 8.2 The Problem: More Fossil Fuels world’s climate change problem: the world has far more Than We Can Safely Burn fossil fuels than it can safely burn if we want to avoid catastrophic climate change. Even Australian reserves alone can swallow up the entire world’s carbon budget. The continued expansion of fossil fuels is incompatible Recognising that, at present, even presenting this reality as with the preservation of a safe climate. In Chapter 2, a problem for discussion is largely taboo both in Australia we explained the size of the world’s remaining carbon and the wider world, this chapter outlines a series of steps budget for a 2°C trajectory, and the extent to which that that our political leaders should take to put the issue budget would be exceeded if existing fossil fuel reserves squarely on the international agenda. were extracted and burned. To recap from Chapter 2, combustion of the world’s fossil fuel reserves would

It concludes that: release 3,500 billion tonnes of CO2-e — enough to exceed • Australia, consistent with the need for it to decarbonise the world’s 2°C carbon budget by around 8 times. With rapidly as discussed in Chapter 6, should impose a new discoveries occurring all the time, even this dangerous federal moratorium on new fossil fuel developments over-abundance of fossil fuels is an underestimate. — a move that would influence strategic calculations about energy investments in key emerging economies, Australia’s reserves of fossil fuels are a substantial fraction during the “critical decade” in which fossil fuel power of the global total:2

infrastructure needs to avoid being “locked-in”. For • 145 billion tonnes of potential CO2-e in currently example, an Australian moratorium would ensure economic coal and gas reserves — one third of the that global coal prices are maintained at their current world’s remaining fossil fuel carbon budget;

levels, rather than falling 20-30% below today’s level • 428 billion tonnes of potential CO2-e in recoverable as expected from 2015 to 20201 (a fall that would coal reserves (250 billion tonnes from black coal, and undermine attempts to slow investment in coal-fired 178 billion tonnes from brown) — around equal to the infrastructure during the most critical period). world’s remaining fossil fuel carbon budget.3 • Australia, the world’s largest coal exporter and a major LNG exporter, is uniquely placed to focus If we are to avoid severe climate change well in excess political attention on the need to move away from of 2°C, fossil fuel reserves within Australia and the wider fossil fuels. Leveraging its existing market position and world must share a common fate: they must be left in the its commitment to a moratorium, Australia should ground. convene world leaders and prominent international experts to discuss options for decarbonising the global As discussed in Chapter 2, the current decade is widely energy system through the widespread deployment of regarded as “critical” (even, in fact, by the Australian renewable energy and the phase-out of fossil fuels. Government4) because of the implications of current and • Enacting a moratorium on fossil fuel development near-term decision-making for the prospects of a safe is in Australia’s interests, considering the obvious climate. There are two reasons for this criticality. First, implications of breakneck growth in our fossil fuel if we do not invert our emissions trajectory this decade, exports for climate change (as discussed in Chapter 3, the challenge of keeping global temperature increases where Australia’s footprint ends up as 11% of globally beneath 2°C will become practically impossible. Secondly, allowed emissions in 2030), and the growing number because typical power stations have an operational of mainstream voices (Citibank, HSBC, IHS McCloskey, lifespan of a half-century or more, any new high-emissions and many others) that are warning of a fossil fuel power stations built today will continue to pollute for investment bubble — with significant consequences for many decades. the Australian economy. Accordingly, in order to meet even the overly-risky 450ppm Part 8: Ending the Growth in Fossil Fuels: Australia’s Contribution Laggard to Leader

carbon budget, global investment in fossil fuel generation Third, Australia should convene a high-level panel of needs to decline to almost zero by 2020, with the vast independent experts from relevant fields to publish a majority of new-build energy from now until then being report making the case for a global moratorium and phase- zero-carbon. down of fossil fuels, within a timeline consistent with a global carbon budget for warming of 2˚C or less. Experts Given the global climate policy imperative (and the should be drawn from fields such as climate science, significant risks posed by depending on CCS technology, climate policy, energy systems, public health, international as discussed in Chapter 4), the only safe path is to move relations and other fields relevant to the assessment of the quickly to a world in which fossil fuel reserves remain impacts of climate change and of fossil fuels. Their report unexploited. should be widely publicised and promoted by Australia to the international community, including through Australia’s multilateral and bilateral diplomacy, and through public diplomacy initiatives targeting civil society within countries 77 8.3 What Should Australia Do? that are the key contributors to fossil fuel emissions. Australian has on numerous occasions done exactly this Despite the urgent need to decarbonise the world’s in the nuclear field to make the case for the abolition of economy, the idea of not developing the world’s remaining nuclear weapons (see Box 8.2). fossil fuel reserves, let along phasing out existing uses of fossil fuels, is virtually “unthinkable” for many of the world’s Fourth, following the publication and promotion of the investors and governments. Australia, the world’s largest report, Australia should convene a summit of world coal exporter, is uniquely placed to make the unthinkable, leaders to discuss options to decarbonise the global energy thinkable. It is a vexed and sensitive issue, and we cannot system through the widespread deployment of renewable pretend to have all of the answers. But below, we outline energy and the phase-out of fossil fuels. Recognising the four significant steps that Australia should take to put it international sensitivities associated with this issue, it is firmly on the international agenda. important that Australia emphasise: its intention for an open and inclusive dialogue from developing country fossil First, Australia should publicly commit to a moratorium fuel importers and exporters; its willingness to undertake on new fossil fuel developments within Australia. This the required action in an internationally equitable way; the announcement should be made at the highest levels of leadership responsibilities of developed countries; and the government and on the international stage, for example, essentiality of developed country provision of assistance by the Prime Minister at a G-20 meeting. In this declaration, to developing countries along the lines outlined in Chapter Australia should indicate its strong commitment to work 6. urgently at home and with other nations towards a world beyond fossil fuels. The declaration of Australia’s moratorium on fossil fuel export development should be framed as an important, concrete first step that demonstrates the seriousness of Australia’s commitment. The extent to which this would attract immediate global attention cannot be overstated.

Second, Australia should immediately follow through with its international commitment by implementing a federal moratorium on the development of new coal, oil and gas deposits within Australia. Imposing moratoria on resource exploitation is something Australia has done numerous times before. Australia’s policy regarding uranium developments, its ban on asbestos (see Box 8.3), and its global leadership to ban mining in Antarctica (See Box 8.1) all reveal the potential for moratoria on resources to gain political and social acceptance because of overwhelming security, health and environmental values. There will be outcry from the industry, but no jobs will be lost. Concern over reduced future earnings must be tempered by recognition of the risks of investing further in a global “fossil fuel bubble” (as explored in Section 8.5) and the incompatibility of the immense exports planned by 2030 with a safe climate outcome that the majority of Australians want. Part 8: Ending the Growth in Fossil Fuels: Australia’s Contribution Laggard to Leader

The Protocol’s overarching objective is the comprehensive Box 8.1: Conserving the Environment: Securing a protection of the Antarctic Environment and dependent Global Ban on Mining in Antarctica and associated ecosystems, based on the conviction that such a goal is “in the interest of mankind as a whole”.9 It The establishment of a successful treaty to protect the designates Antarctica as a “natural reserve, devoted to Antarctic environment through a legal prohibition on peace and science” and declares, in unqualified terms, mining stands as one of the proudest achievements that “[a]ny activity relating to mineral resources, other of Australian foreign policy in recent decades. It is than scientific research, shall be prohibited”.10 In addition also a powerful example of the potential for national to the 50 year mining ban, the Protocol provides for the environmental activism by Australia to bend the course of conservation of Antarctic flora and fauna, the minimisation history towards resource conservation for the benefit of and management of waste, the prevention of marine humankind and other species. pollution and the protection of “special areas” of the 78 continent. According to Professors Sands and Peel, authors In response to increasing industry pressure to open up the of a leading textbook on international environmental law, Antarctic region to mineral exploration and development the Madrid Protocol and its Annexes “comprise the most in the late 1980s, the parties to the 1959 Antarctic Treaty5 comprehensive and stringent regime of environmental adopted the Convention on the Regulation of Antarctic protection rules ever established under the rules of public Mineral Resource Activities (CRAMRA) in June 1988.6 international law anywhere in the world”.11 The provisions of CRAMRA, while prescribing a strict regime of environmental regulation, ultimately envisage In Hawke’s view, the conservation of Antarctica left a legacy and permit the opening of the Antarctic environment to for future generations and showed that “it was not beyond mining. Presented with a joint recommendation from his the powers of one or two people to change something that Environment Minister and Attorney-General that Australia was wrong”.12 It is a legacy Hawke’s political successors ratify CRAMRA, then Prime Minister Bob Hawke expressed are equally proud to uphold. In an article published by grave concerns about the potential implications of mining The Age ahead of the 35th Antarctic Treaty Consultative activity for the region’s pristine natural environment.7 Meeting in Hobart in June 2012, Foreign Minister Bob Carr Against the unanimous view of his cabinet colleagues, and Environment Minister Tony Burke invoked Australia’s and contrary to the prevailing consensus among Antarctic “global campaign to preserve Antarctica”, placing Hawke’s nations, Hawke refused to allow his Government to ratify achievements in the early 1990s within a longer tradition the Convention. of Australian Antarctic leadership dating back to Douglas Mawson’s heroic 1911-1914 Antarctic journey:13 Instead, Hawke launched a bold diplomatic initiative to mobilise international support for an alternative Today, as in 1911, Australia is a leading Antarctic international legal instrument that would comprehensively nation... Through our scientific endeavours and protect the icy continent. Hawke convinced his French international collaboration in Antarctica, we strive counterpart, Michel Rocard, to join Australia in refusing to understand our planet and our relationship with to ratify CRAMRA, thus precluding its entry into force,8 it. So what would Douglas Mawson make of it all? and the two nations spearheaded the development of He would recognise in Australia’s modern Antarctic the alternative agreement. On 4 October 1991 in Madrid, endeavours many elements of his legacy that Spain, 23 of the then 26 consultative parties to the Antarctic resonate through the years, especially a dedication Treaty signed the Antarctic Environmental Protocol and its to scientific excellence and a willingness to lead four Annexes, which established a 50 year moratorium on from the front in Antarctica. It’s a proud legacy Antarctic mineral resource activities commencing from the and one in which all Australians should take pride. Protocol’s entry into force on 14 January 1998.

Box 8.2: International Security: Restricting the imminent threat of nuclear attack, successive Australian Use and Proliferation of Weapons of Mass Governments have prioritised nuclear disarmament and Destruction non-proliferation as a foreign policy and national security issue — and we have punched well above our weight on Australia is widely recognised as a global leader for the world diplomatic stage.14 its efforts to improve international peace and security through restricting the use and proliferation of nuclear After a period in the 1960s and 70s in which Australian weapons and other weapons of mass destruction. governments vacillated over whether to acquire a nuclear arsenal, the Hawke Government ushered in a new era of Despite having no nuclear weapons and not subject to an Australian commitment to nuclear disarmament and non- Part 8: Ending the Growth in Fossil Fuels: Australia’s Contribution Laggard to Leader

proliferation in the 1980s. During this period, Australia led by the nuclear threat, but nothing could happen without the way in developing the influential Raratonga Treaty, the five nuclear powers. We decided, therefore, that the which created a nuclear free zone in the South Pacific. most useful thing we could do was to try to shape the Extending over a vast area, the South Pacific15 nuclear international debate.”22 free zone has been successful at limiting the spread and use of nuclear weapons within the region following years The finished report was handed to the Australian of extensive testing of nuclear weapons. In the context Government, which in turn promoted it to the international of intractable international nuclear disarmament and community and submitted it to the UN General Assembly non-proliferation negotiations at the time, this was an and the UN Conference on Disarmament.23 A creative innovative concept that inspired the establishment of exercise in international norm-building, the report had an subsequent nuclear free zones among countries in the immediate effect, transforming the international debate on regions of South East Asia,16 Africa17 and Central Asia.18 nuclear weapons from one of “reduction” to “elimination”. It served as the catalyst for, and was incorporated into, 79 Australia’s determined diplomacy on weapons of mass subsequent reports by a wide range of other influential destruction continued throughout the 1980s and 90s. bodies, including the US National Academy of Sciences.24 A Persistent and creative Australian arms control initiatives number of other States also publicly adopted the report’s in this period were instrumental in achieving international key findings. Most influentially, a small group of like- agreement to the Chemical Weapons Convention in minded governments calling themselves the New Agenda 1992. Important Australian interventions included the Coalition, led by Ireland and New Zealand,25 released a establishment of international and industry-focused declaration in 1998 that directly supported the conclusions stakeholder groups to address chemical weapons issues of the Canberra Commission and served as the basis for a and foster cooperative action.19 Most crucially, to help UN General Assembly resolution adopted later that year.26 break the gridlocked multilateral negotiations on the text of the ultimate Convention, Australia took it upon itself In the same period as the Canberra Commission released to prepare a complete draft text of the Convention text its report, the Howard Government requested that the that attempted to provide acceptable resolutions to all UN General Assembly refocus its attention on establishing of the issues in dispute. Leading Australian arms control a Comprehensive Nuclear Test-Ban Treaty (CTBT) and expert, Professor Tim McCormack, reflected as follows on submitted a draft treaty to that effect. The General Australia’s role:20 Assembly adopted the CTBT on 10 September 1996.27 And a decade later the Rudd Government established the It is now clear that the negotiations would not International Commission on Nuclear Non-Proliferation have concluded in 1992 without the Australian and Disarmament (ICNND) on 9 July 2008. A joint initiative initiative and Australia has justifiably received with the Government of Japan, the report set out a further international acknowledgments for its efforts. The series of policy steps and guidelines for bringing about the response of the members of the UN Conference elimination of nuclear weapons. While the CTBT has not on Disarmament and the references [to Australia’s yet entered in to force due to a failure of the necessary influential efforts] by representatives at the signing number of countries to ratify it and it is too early to tell ceremony in Paris reflect something of the standing the impact of the ICNND Report, these initiatives provides Australia has attained internationally not only for further evidence of Australia’s bipartisan preparedness to the initiative of the draft Convention text but also play a leadership role on a complex matter of long-term, for other contributions to the non-proliferation and global importance. disarmament of chemical weapons.

In 1995, the Keating Government established the Canberra Commission on the Elimination of Nuclear Weapons. Sidestepping the time-consuming and bureaucratic multilateral negotiation process, the Canberra Commission convened a select group of authoritative and independent experts to prepare a report that would advance the agenda of eliminating nuclear weapons.21 Directly confronting the arguments in favour of nuclear arsenals, the Report sought to reinforce and consolidate the view that nuclear weapons posed an unacceptable risk to the international community. Although this was not a new idea, the idea was to provide an authoritative platform for this position at the international level and to move the debate forward despite the failings of multilateral negotiations. As Paul Keating described it, “every country was directly affected Part 8: Ending the Growth in Fossil Fuels: Australia’s Contribution Laggard to Leader

More to the point for present purposes, the argument 8.4 What Effect Would These Actions does not reflect industry realities. Have? Australia’s projected coal and gas export growth is so large, and new projects take so long to build in potential 8.4.1 Australia’s Moratorium alternative exporter countries, that the slack leftover from an Australian moratorium cannot be taken up by Australia’s moratorium on new developments would have other countries for many years. The Waterberg mine in a significant effect on international energy markets and South Africa, for example, will take a total of 12-15 years the energy calculations of coal and gas importers. from the application for a mining permit (in 2008) to the commencement of full productivity (in 2020-2023).40 It is It is frequently argued that, despite the climate typical for coal mines to take as much as 10 years before 41 80 implications, Australia should continue to export coal and achieving a positive cash flow. gas because there is a growing demand which someone else will supply if Australia doesn’t.28 The first problem As for those nations that are currently increasing their with this argument — sometimes referred to as the “dope coal exports, they are doing so with Australia’s plans dealer’s defence” — is that it is morally bankrupt. The for export expansion in mind; no nation or investor has same logic could be applied to justify Australia exporting foreseen the absence of Australian export growth. Other uranium to North Korea or asbestos to Africa, for example. nations currently developing their coal export capacity, Even though there is a market for uranium we apply strict such as Indonesia and Columbia, lack the infrastructure controls to its export, and although there is still a legal and of rail and ports to quickly meet potential demand profitable export market for asbestos in the developing and are themselves beginning to apply more stringent world, Australia has banned its manufacture and export requirements on investors,42 while the United States (see Box 8.3). is facing growing internal resistance to increasing coal

Box 8.3: Protecting Human Health: Leading Global Sciences conference, Biological Effects of Asbestos, before Efforts to Ban Asbestos the health risks became widely accepted and difficult to deny.35 Regardless of this overwhelming evidence, the The struggle to eliminate asbestos provides a further industry continued to grow from around 2 million tonnes example of Australia’s willingness to lead global efforts of asbestos produced annually in 1960, to roughly 5 million to ban harmful industrial activities — albeit, in this case, tonnes at its peak twenty years later.36 a leadership role that was embraced too late for many workers affected by the industry. Successive Australian governments were slow to act on the problem of asbestos and Australia’s last mine at Woodsreef Yet, despite the well-established dangers of asbestos,29 in NSW closed as late as 1983.37 With national incidence there remains a significant global market for the product rates for mesothelioma in Australia among the highest in and it is not the subject of any global ban. More than 2 the world,38 Australia has learned the hard way the folly of million tonnes of asbestos is produced each year, primarily complacency in the face of evident public danger and now for consumption in the developing world, with the seven positions itself as a global leader on the issue. largest producers — Russia, China, Kazakhstan, Brazil, Canada, Zimbabwe and Colombia — responsible for 96% Asbestos was named as a priority area at the Australian of production.30 Owing to the determined opposition of Labor Party National Conference in the first week of asbestos mining and manufacturing countries, asbestos December 2011, at which then foreign minister Kevin is not included on the list of materials subject to the Rudd moved a motion on the subject. The motion was Rotterdam Convention,31 the purpose of which is to protect successful and the ALP National Platform now states developing countries from the importation of hazardous (emphasis added) that:39 chemicals by ensuring their prior and informed consent.32 Labor recognises the impact of asbestos on the In Australia, the manufacturing, trade and importation of health of those who are exposed to it and the asbestos have been banned since 2003.33 But the ban was legacy that it will leave, particularly on vulnerable a long time coming; the history of asbestos in Australia people in the developing world where asbestos illustrates the potential for powerful industries with vested is still used. Labor will lead international calls interests to delay the development of such principled, for a global treaty to ban the use of and trade in science-based regulatory regimes by lawmakers — at asbestos and will lead diplomatic efforts on this great human cost. Even though many of the health risks front including convening a Global Alliance against of asbestos were known since the 1890s,34 it took until the Asbestos Hazard Conference in Australia. around the mid 1960s, with the New York Academy of Part 8: Ending the Growth in Fossil Fuels: Australia’s Contribution Laggard to Leader

exports that may retard its ability to divert its domestic Crucially, it would also serve to heighten the already reserves to export (the City of Seattle, for example, has building perception of risk for would-be investors in the banned the passage of coal destined for export terminals coal industry: if Australia can abandon coal and gas, through its streets43).44 who next? That perception would provide a constructive counterpoint to the message implicit in our current What would be the effect of halting Australian export approach to fossil fuel exports, which discourages action growth? on climate change in the name of short-term self-interest.

For context, international coal markets are currently entering a period of oversupply due to a range of 8.4.2 Bringing Global Attention to the Issue influences: lower demand than expected from China, the US unconventional gas boom, and a large number of new The symbolic and practical impact of an Australian mines coming online. This oversupply negatively affects moratorium would be greatly enhanced by the other 81 the value of Australian coal projects (as explored in Section international actions we propose, above. Even these 8.5 on the national interest), but more importantly for preliminary steps, backed by Australia’s firm actions, would the issue at hand it will make addressing climate change make important contributions toward building consensus substantially more difficult. Oversupply means prices will among nations regarding the decarbonisation of the global drop. Indeed, the Australian Government has forecast that energy system. prices will decline to around 70% of present values for most of this decade — and this was before recent data on The articulation of a vision, goals and principles by political reduced demand growth in China emerged.45 leaders can play an important role in building consensus on policy directions, and mobilising political constituencies Crucially, the years during which coal prices are expected to within and across countries to garner support for deeper fall are likely to be the most important ones for preserving forms of cooperation and commitment towards those a safe climate. Not only will these years span the remainder goals.48 Similarly, international dialogue and information of the “critical decade”, but they are important years exchange between experts and political leaders — facilitated for key developing country importers such as China and through conferences, meetings and less formal networks India, who are currently making strategic decisions about — can catalyse the establishment and dissemination long-term investments in energy infrastructure.46 Many of new ideas and solutions to an international problem, of today’s proposed coal power station projects are on a helping to build new norms (see Box 8.4).49 For example, knife-edge due to risks associated with the future price of high-level interventions by political leaders and respected coal, concern about climate change and increasingly stiff experts at important times have served to draw attention competition from renewable energy (see Box 8.6 on India) to, and refocus international negotiating efforts towards, – but reduced coal prices would again make coal an all-too- issues such as reducing nuclear arsenals (see Box 8.2).50 attractive development option. An Australian withdrawal of anticipated supply would contribute significantly to maintaining prices at current levels, causing a collapse in the viability of coal in the eyes of many developing and developed country importers.47

While our share of the global LNG trade is not currently Box 8.4: The Power of International Norms as large, we are on track to be the world’s largest LNG exporter thanks to the sector’s rapid growth in Australia. In international politics, norms can be extremely powerful Not allowing any new projects would have a significant forces shaping the actions of states and non-state actors. impact on the viability of gas as a “transition fuel” (see For example, norms exist that prohibit slavery, genocide, Chapter 4) and further boost the business case for piracy, the testing of nuclear weapons, the use of land renewables in key export markets. mines and cluster bombs, and the mining and sale of certain products.51 Some norms are legally binding, others Finally, the symbolic impact of the world’s top coal are not. Norms can be particularly powerful when codified exporter and fastest growing LNG exporter exiting the into rules and laws, and even more so when consequences fossil fuel business should not be underestimated. Even prescribed for their breach are capable of being unilateral action by Australia would set an extremely enforced by legitimate institutions, be it domestically or powerful example to other countries. For the world to lose internationally. But norms are intrinsically powerful — they a fossil fuel export superpower and gain a new champion have an effect separately from and in addition to any legal of cooperative, bottom-up decarbonisation would or institutional mechanisms which may exist to support undoubtedly inspire action from other countries. their implementation — because they define standards perceived to be “normal” or appropriate and in so doing exert moral pressure on actors to conform.52 Part 8: Ending the Growth in Fossil Fuels: Australia’s Contribution Laggard to Leader

damage Australia’s wealth and slow the pace at which 8.5 Fossil Fuels: Really in Australia’s climate change can be addressed. Similarly, scenarios National Interest? where we phase out coal exports — beginning with thermal coal sent to developed markets — need to be modelled, with fair treatment of the economic benefits of It is fair to say that Australia’s national interest can be halting the growth of the coal industry. identified with the long-term prosperity and well-being of Australian citizens, present and future. Most Australians desire a world without catastrophic climate change — a 8.5.1 Understated Risk: A Global Carbon Bubble? world in which we have reliable access to food, water and security, and trust in the safety of the next generation. Such The analytical team at Citi, the world’s largest investment a future cannot exist without an international community bank, reassessed the value of Australian fossil fuel 82 that is able to work cooperatively and meet serious companies under the assumption that the world collective threats — be they environmental, humanitarian successfully takes action to limit climate change to 2˚C. or economic. Australian leadership of the type we argue for Under these conditions, Coal & Allied loses 44% of its in this paper represents a step towards building the trust present value, while Woodside loses 66%.58 HSBC analysis and credibility that allows global cooperation to occur. produces similar results: Nick Robins, the head of HSBC’s Climate Change Centre of Excellence in London, has Nonetheless, the national interest is typically framed in warned, “We’re still pricing [companies in the extractives more narrow economic terms, with an emphasis on short sector] as if they are all going to be exploited ... This is and medium-term impacts upon jobs and the cost of living. a particular concern for the UK as our stock market is In one of the world’s wealthiest nations, constructing the overweight fossil fuels”.59 national interest such that we avoid small expenses today at the risk of catastrophic harm tomorrow is clearly short- The stock exchanges of Australia, London, Moscow, Sao sighted. Yet Australians are understandably concerned Paulo, and Toronto are all estimated to have 20-30% of that the elimination of the fossil fuel export industry may their market capitalisation connected to fossil fuels.60 Just adversely affect their daily lives. as irresponsible investments into sub-prime mortgages set off the financial crisis, irresponsible investments into what The link between the fossil fuel industry and the national are being called “sub-prime fossil fuel assets” are inflating interest, even when constructed around short-term a carbon bubble that may trigger another financial crisis.61 economic dynamics, has been seriously overstated. The most important shortcoming of the national fossil fuel This is a perverse arrangement: livelihoods, communities discussion is that its boundaries have been restricted and pension funds are being built around resources whose to business-as-usual forecasts. Under scenarios where value can only be faithfully said to exist if we assume that coal demand falls short of current expectations (looking we will fail to address climate change. If, on the other increasingly likely), the resulting coal oversupply will both hand, we successfully address climate change, the bubble

Box 8.5: Australia’s Fossil Fuel Obsession affected by coal seam gas developments. And today, a growing number of ports are being constructed along If national industry priorities can be read from government the Queensland coast to provide millions of tonnes of spending, then for the Australian Government the mining coal and LNG to ships passing through the Great Barrier industry is national priority number one. Mining subsidies Reef — cause enough for concern that the UN released for rail and port infrastructure, and the use of diesel, a “scathing” report in June 2012, declaring that Australia reach around AU$4 billion each year53 (some 20 times has failed to protect the reef with an incredible 35 projects what climate change programs have generally received scheduled for approval in 2013.56 The World Heritage for the past decade); environmental approvals for mining Committee is now discussing whether the Great Barrier infrastructure are fast-tracked; and communities in the Reef will be added to the list of world heritage sites “in way of coal mining projects have been dislocated in the danger” — the so-called an international “list of shame” name of “national interest” projects.54 More recently in — because of its condition.57 the Clean Energy Future package, billions in compensation has been gifted to ‘gassy’ mines, typically the most carbon- The fossil fuel extractive industry has somehow become intensive due to the fugitive methane emissions they viewed as a proxy for Australia’s national interest, worthy release.55 of vast public subsidies, regulatory fast-tracking and the destruction of national icons. As section 8.5.1 explores, The LNG industry has been similarly offered the red carpet, this may prove to be a very costly notion. provoking a backlash among many local communities Part 8: Ending the Growth in Fossil Fuels: Australia’s Contribution Laggard to Leader

will burst. In the words of Lord Nicholas Stern:62 This would have two effects: • Damage the Australian economy in proportion to our “This contradiction is important. It means that the continued investment in the carbon bubble. Recent market has either not thought hard enough about analysis from groups such as IHS McCloskey indicates the issue or thinks that governments will not do that even on the short-term prices may fall low enough very much — or somewhere between the two. This that many Australian projects will become unviable. presents problems for markets’ assessment of risk; “It’s an unrelenting oversupply story for the foreseeable for governments’ credibility; and for regulators, future” says Bruce Jacques of IHS McCloskey. whose approach appears to contradict their own “Everybody’s getting the feeling there’s better places to governments’ policies. look.’’63 • Increase the economic incentive for countries to This argument makes no prediction of where the return to building coal power stations. Without a world may go. It points to a logical contradiction binding international agreement in place, supply and 83 between what many governments are saying and demand will remain trapped in lock-step. Only a steady what markets appear to believe — implying severe withdrawal of supply (or withdrawal of “expected risks both to the markets themselves and to the growth” through a moratorium in the short-term) can environments that shape lives and livelihoods ensure that oversupply is avoided and prices remain at across the world.” least at present levels.

There are increasing signs that the bubble is already In other words, it is unwise to invest further in an industry becoming unsustainable. Growth in coal demand is set to that is both (A) dangerous for the future prosperity of fall well short of industry expectations (see Box 8.6). Yet Australia and the wider world and (B) already heading celebrating this from a climate change perspective would for oversupply. To do so brings serious risks on the short, be premature: conditions of lower than expected growth medium and long-term, with few clear benefits. in coal demand will cause global coal oversupply, and result in coal prices crashing.

Box 8.6: Popping the Coal Bubble: Chinese and Coal industry expectations of India may meet similar Indian Coal Demand disappointments. India is expected to become the world’s top coal importer, with as much as 57% of its long-term China and India are expected to be the major growth coal needs to come from imports. But the Indian coal markets for Australian coal exports, with current trends industry is being slowed by widespread protests against suggesting that total Chinese demand for coal will balloon power stations71 and coal import price volatility – which from 3.5 billion tonnes today to 5.5 billion tonnes in 2020, have been severe enough that Indian banks have warned and 7.5 billion tonnes (equal to around all the coal used by of a coal-driven financial crisis.72 Tata Group, India’s all nations in the world today64) by 2030.65 largest power company (and indeed largest company of any type, accounting for 5% of the country’s GDP) has said Times appear to be changing. Earlier this year China coal-fired power stations have become “impossible” to announced that, as part of its current five-year plan, it will develop. “Why would anyone want to invest at this stage cap 2015 coal consumption at a maximum of 4.1 billion in a coal project?” says Tata Power Executive Director, S. tonnes.66 It plans to keep its energy consumption to Padmanabhan. “Investment has stopped”.73 Tata’s Chief below 5 billion tonnes of coal equivalent by 2030, through Financial Officer recently indicated that all plans for extensive use of energy efficiency (note that, given other imported coal power station projects had been shelved.74 fuels and energy sources are counted in this measure of “coal equivalent”, this means using substantially less than While coal is perceived as increasingly problematic, 5 billion tonnes of coal).67 The city of Beijing has set an alternative technologies are rapidly becoming cost- even more ambitious target, capping energy consumption competitive. In the last three months, the governments of at 90 million tonnes of coal equivalent and reducing the India, China and the US all predicted that the cost of utility- city’s actual use of coal to 20 million tonnes, by 2015.68 scale solar will fall below that of either coal-fired or gas- fired generation by the end of the decade. In India, because Professor Ross Garnaut recently told an economics of its reliance on costly imports and poor infrastructure, it conference in Melbourne that ‘’Coal use [in China] could come as early as 2016 . has hardly increased at all despite the growth in the economy... That’s contributing to a surplus of coal in China and internationally, and putting big downward pressure on prices, with implications for Australia.’’69 Part 8: Ending the Growth in Fossil Fuels: Australia’s Contribution Laggard to Leader

The “two-speed economy” is another well-known side- 8.5.2 Overstated Value: The Minor Role of Coal effect of the concentrated wealth generated by industries like coal mining — and is expected to go into “overdrive” Mining employs only 2% of Australians. BZE takes no issue over the next few years.85 Because the pipeline of with the bulk of Australian mining, which provides the investment for mining is so large and so economically metals from which wind turbines and solar thermal towers profitable for its investors, it draws investment and labour are made. It is only the small fraction of mining that is away from other sectors of the economy and from crucial 86 responsible for some 800 million tonnes of CO2-e in coal public infrastructure upgrades. The hugely profitable and gas exports that must have no future in Australia. mining project pipeline drives up the Australian dollar, making investment in infrastructure projects and industries Coal mining employs just 0.3% — or some 25 times fewer with more modest returns less attractive, and many other people than Australian manufacturing. The profits of the export industries — which Australia needs to maintain 87 84 mining industry may be enormous, but more than 80% value and jobs on the long-term — no longer viable. end up overseas and so have little to no local economic value for Australia.75 Even those profits that do stay within The “China First” mine’s own economic analysis showed Australia end up concentrated in very few hands, which that Queensland would lose 3000 jobs and AU$1.25 largely explains the rapid growth Australia has seen in the billion in manufacturing activity, that small-to-medium number of so-called “ultra-rich” mining landholders over enterprises and non-mining workers would struggle with the past few years. inflation, and affordability would decline. The benefits would be concentrated upon those working in (and The usual story told about mining wealth is that, while it predominantly those investing in) the China First mine.88 may be concentrated in the hands of mining workers and magnates, it “trickles down” into the rest of the economy In sum, we have a litany of good reasons to halt growth of and brings prosperity to all Australians.76 This is the the industry: to avoid further sinking Australian wealth into story of how mining saved the Australian economy in the a risky and morally hazardous carbon bubble; to counter recession.77 According to the 2001-2011 Treasury Secretary global oversupply and affect the calculus being made by Ken Henry, however, mining did not “save Australia from would-be coal investors; and to reinvest our wealth into recession”.78 As Henry explained to the Senate Committee, industries that will provide Australia with value in the long- “it is true that Australia avoided a recession, but the term. Australian mining industry actually experienced quite a deep recession — in the first six months of 2009 it shed 15 per cent of its workers. Mining investment collapsed, mining output collapsed.”79 By definition, industries that collapse and shed workers contribute to the recession, and are not the saviour.

More recently, the surprisingly large interest rate cuts of 0.5 points from the Reserve Bank of Australia in May 2012 were in fact partly a response to the failure of mining income to flow into the broader economy.80 The absence of “trickle down” is partly because the industry employs so few people, and partly due to increased leakage of mining investment into imports. Large amounts of mining investment dollars end up overseas because they are used to purchase equipment from other nations — partly because the rules that investors have been offered for some mines, some of which required that 50% of construction value was sourced from China.81 Some well-known mining magnates are even sourcing workers from overseas.82 Gina Rinehart’s Hancock Prospecting recently won approval to bring in 1700 foreign workers for the Roy Hill mine,83 and six more resource companies are to follow.84 Such moves may accelerate project development and further boost profits for mining investors, but they also further reduce the trickle-down into the rest of the economy. Part 8: Ending the Growth in Fossil Fuels: Australia’s Contribution Laggard to Leader

8.5.3 Further Research

Replacement of fossil fuel industries in Australia is a significant challenge that will require detailed analysis beyond the scope of this paper. The intention of this paper is to flag a number of realities that have not received sufficient attention in mainstream discussions of Australia’s future: that fossil fuel industries are incompatible with the safe climate Australians desire; that the economic risks created by the fuelling of “carbon bubbles” are increasingly regarded as dangerous by mainstream banks; and that mainstream forecasts of clean tech market value 85 suggests that Australia is not investing in the areas that will secure prosperity — environmental and financial — in the long-term.

The Zero Carbon Australia Project will be undertaking a detailed plan to show how Australian fossil fuel income can be replaced by zero carbon industries, turning Australia from a fossil fuel giant into a “renewable energy superpower”. The “Renewable Energy Superpower” plan will provide more detailed analysis of how an Australian renewable energy product and service export strategy, and a phase-out of fossil fuel industries, can best be orchestrated. For now, with full confidence, we advocate a moratorium on fossil fuel extraction projects and implementation of the Chapter 7 recommendations for establishing Australia as a leader in zero carbon technologies, services and innovation. Part 8: Ending the Growth in Fossil Fuels: Australia’s Contribution Laggard to Leader

forbidden from acquiring, manufacturing or developing nuclear weapons. References Strict controls apply to the export of nuclear materials by members. 1. Arif Syed and Kate Penney, “Australian energy projections to 2034-35” 16. Southeast Asia Nuclear-Weapon-Free Zone Treaty, opened for signature 15 Bureau of Resources and Energy Economics (December 2011) Figure E, p 23 December 1995 (entered into force 28 March 1997). http://www.bree.gov.au/documents/publications/energy/Australian-Energy- 17. African Nuclear Weapon-Free Zone Treaty, opened for signature 11 April Projections-report.pdf. 1996. 2. “Australia’s Identified Mineral Resources”, Geoscience Australia (31 December 18. Treaty on a Nuclear-Weapon-Free Zone in Central Asia, opened for signature 2011) http://www.australianminesatlas.gov.au/aimr/index.html 8 September 2006. 3. Note brown coal’s relatively low ratio of coal:carbon is due to its high water 19. Australia’s key role in establishing the Canberra Group, the Chemical Weapons content, which is what makes it such a low quality fuel. Regional Initiative and the Government Industry Conference on Chemical 4. “Australia’s Submission to the Rio+20 Compilation Document”, Australian Weapons is described in detail in Timothy L H McCormack, “Some Australian Government (2012) p 10, http://www.uncsd2012.org/content/ Efforts to Promote Chemical Weapons Non-Proliferation and Disarmament”, 86 documents/692Australian%20National%20Submission%20to%20Rio20%20 Australian Yearbook of International Law (1992) Vol. 14, p 157. Compilation%20Draft.pdf. 20. Ibid, p 159. 5. 402 UNTS 71 (entered into force 23 June 1961). The Antarctic Treaty was 21. See Marianne Hanson and Carl Ungerer, “Promoting an Agenda for established in Washington 1959 to regulate the Antarctic region as a global Nuclear Weapons Elimination: The Canberra Commission and Dilemmas of commons for peaceful purposes, including science research. The Treaty Disarmament”, Australian Journal of Politics and History (1998) Vol. 44, p 542. prohibits military activity in the region and prescribes a regime of dispute 22. Paul Keating, Eliminating Nuclear Weapons: A Survival Guide for the Twenty resolution among the parties. 50 states are party to the treaty, 28 of whom First Century, Lecture, Sydney, 25 November 1998, http://www.acronym.org. have “consultative Status” by virtue of their conducting “substantial scientific uk/dd/dd32/32keat.htm. research activity” in the region, allowing them to vote; the remaining 22 23. Canberra Commission on the Elimination of Nuclear Weapons, Report of the parties do not have consultative status, meaning they are invited to attend Canberra Commission on the Elimination of Nuclear Weapons (August 1996) Consultative Meetings but cannot participate in decision-making: “Parties”, http://www.dfat.gov.au/publications/security/canberra-commission-report/ Secretariat of the Antarctic Treaty (2011) http://www.ats.aq/devAS/ats_ CCREPORT.PDF. parties.aspx?lang=e. 24. Other such reports included those by the Stimson Center, the Carnegie 6. Convention on the Regulation of Antarctic Mineral Resource Activities, opened Commission on Preventing Deadly Conflict, and the Canadian Parliament: for signature 2 June 1988, 27 ILM 868 (1988) (not in force). see Gareth Evans, The Canberra Commission on the Elimination of Nuclear 7. “Interview: Bob Hawke on Conserving Antarctica”, available on YouTube Weapons and Subsequent International Developments(Paper presented to (uploaded 19 February 2012) www.youtube.com/watch?v=iH9l7VmSarU. the NIRA Round Table, Tokyo, 6-7 October 2000). 8. Under international law, a treaty does not become legally binding upon 25. Other members included Sweden, Brazil, Egypt, Ireland, Mexico, South Africa a particular nation state until both (a) that state has both signed and and briefly Slovenia. ratified the treaty; and (b) the treaty has “entered into force”. Typically, the 26. Towards a Nuclear-Weapon-Free World: The Need for a New Agenda, conditions for entry into force of a treaty are stipulated in the treaty itself Resolution 53/77Y, 13 November 1998. and entail the ratification by a minimum number of states. CRAMRA will only 27. Comprehensive Nuclear Test Ban Treaty, UN GA RES No. A/RES/50/245 (10 enter into force after its ratification by 16 of the Antarctic Treaty consultative September 1996). parties which participated in the final session of the fourth Special Antarctic 28. See Guy Pearse, ““If we don’t export it someone else will” etc: Debunking Treaty Consultative Meeting, provided that that number includes all the the excuses for Australia’s precious place in the coal industry’s world”, School states necessary to establish all of the institutions of the Convention in of Political Science and International Studies, The University of Queensland respect of every area of Antarctica, including five developing countries and (2011) p 5-6. 11 developed countries: CRAMRA art 62(1). The decision by Australia and 29. Joseph LaDou, Barry Castleman et al, “The Case for a Global Ban on Asbestos” France not to ratify CRAMRA made it unlikely that it will ever enter into force: 118 Environmental Health Perspectives (2010) Vol.118, p 897, http://dx.doi. Philippe Sands and Jacqueline Peel, Principles of International Environmental org/10.1289/ehp.1002285. Law (3rd Ed, 2012) p 582. 30. Ibid, p 899. 9. Protocol on Environmental Protection to the Antarctic Treaty, Secretariat of 31. Rotterdam Convention on the Prior Informed Consent Procedure for certain the Antarctic Treaty (1991) Preamble and arts 2 and 4. hazardous Chemicals and Pesticides in international trade, opened for 10. Ibid. Arts 2 and 7. signature 10 September 1998 (entered into force 24 February 2004). 11. Sands and Peel (2012) p 586. 32. LaDou and Castleman et al (2010), “Case for a Global Ban on Asbestos”, p 12. “Interview: Bob Hawke on Conserving Antarctica”, YouTube. 899-900. 13. Bob Carr and Tony Burke, “Uniting in the protection of the great frozen 33. Various occupational health and safety statutes control asbestos use in continent”, The Age (11 June 2012) http://www.theage.com.au/opinion/ Australia. The importation of asbestos into Australia is prohibited unless society-and-culture/uniting-in-the-protection-of-the-great-frozen-continent- certain conditions are met: Customs (Prohibited Imports) Regulations 1956 20120610-2041d.html. (Cth) s 4C. The exportation from Australia of asbestos is prohibited unless the 14. Stephen Smith, “Building Momentum: Australia, Nuclear Non-Proliferation asbestos is, or goods in which it is contained are, hazardous waste as defined and Disarmament” (Tange Lecture, August 2009) http://www.foreignminister. in section 4 of the Hazardous Waste (Regulation of Exports and Imports) Act gov.au/speeches/2009/090812_tange.html. 1989 (Cth); Export Control Act 1992 (Cth) ss 7(1)-(3); Customs (Prohibited 15. South Pacific Nuclear Free Zone Treaty, opened for signature 6 August 1985 Exports) Regulations 1958 (Cth) Div. 1, s 4. (entered into force 11 December 1986). The Treaty prohibits the use, testing 34. In 1898 there was an initial reference to the dangers posed by asbestos dust and possession of nuclear weapons within the zone and members are in a British Government Annual Factory Inspectors’ Report: Jock McCulloch, Part 8: Ending the Growth in Fossil Fuels: Australia’s Contribution Laggard to Leader

“Asbestos: It’s Human Cost”, University of Queensland Press (1986). 55. “Coal mining assistance”, Department of Climate Change and Energy 35. Morris Greenberg, “Biological Effects of Asbestos: New York Academy of Efficiency (2012) http://www.climatechange.gov.au/government/initiatives/ Sciences 1964”, American Journal of Industrial Medicine (2003) 43(5), p 543- coal.aspx. 552; Jock McCulloch and Geoffrey Tweedale, Defending the Indefensible: The 56. Stephanie Peatling, “UNESCO report scathing of Great Barrier Reef Global Asbestos Industry and it’s Fight for Survival (2008) p 89. management”, Brisbane Times (2 June 2012) http://www.brisbanetimes.com. 36. McCulloch and Tweedale (2008) Defending the Indefensible, p 14. au/environment/conservation/unesco-report-scathing-of-great-barrier-reef- 37. Sid Maher, “$14 million loan to save asbestos mine”, The Australian (1 January management-20120602-1zo0m.html. 2009) http://www.theaustralian.com.au/in-depth/cabinet-papers/millions-to- 57. Brian Williams, “Australia has failed to protect Great Barrier Reef, says United keep-mine-going/story-e6frgd9o-1111118449743. Nations report”, The Courier-Mail (21 June 2012) http://www.couriermail. 38. J Leigh and T Driscoll, “Malignant mesothelioma in Australia, 1945 – 2002”, com.au/news/un-attacks-state-failures/story-e6freon6-1226403583149. International Journal of Occupational Environmental Health (2003) 9(3) p 206. 58. Giles Parkinson, “Woodside’s Carbon Challenge”, Business Spectator (1 39. “46th National Conference: National Platform”, Australian Labor Party October 2012) http://www.businessspectator.com.au/bs.nsf/Article/CLIMATE- (December 2011) p 204, http://www.alp.org.au/australian-labor/our- SPECTATOR-Finding-the-tipping-point-pd20101001-9STLM?OpenDocument. 87 platform/. 59. James Leaton, “Leaving fossil fuels in the ground”, Carbon Tracker Initiative 40. “Developing a massive coal mine in South Africa”, Resource Generation (14 September 2011) http://www.carbontracker.org/infobox/leaving-fossil- (27 July 2010) http://resgen.com.au/static/files/assets/59adaa79/ fuels-in-the-ground. Presentation_100727.pdf. 60. “Unburnable Carbon – Are the world’s financial markets carrying a carbon 41. Jason West, “Mining magnate, property tycoon – politician? Just who is Clive bubble?”, Carbon Tracker Initiative(2011) http://www.carbontracker.org/ Palmer?”, The Conversation (30 April 2012) http://theconversation.edu.au/ linkfileshare/Unburnable-Carbon-Full-rev2.pdf. mining-magnate-property-tycoon-politician-just-who-is-clive-palmer-6646. 61. James Carrington, “Fossil fuels are sub-prime assets, Bank of England 42. See Indonesia’s plans to ban low-grade coal exports: “Indonesia’s Coal Sector governor warned”, The Guardian (19 January 2012) http://www.guardian. Could Take a Hit From Planned Export Ban, Fitch Says”, Jakarta Globe (8 co.uk/environment/2012/jan/19/fossil-fuels-sub-prime-mervyn-king. March 2012) http://www.thejakartaglobe.com/economy/indonesias-coal- 62. Nicholas Stern, “A profound contradiction at the heart of climate change sector-could-take-a-hit-from-planned-export-ban-fitch-says/503427. policy”, Financial Times (8 December 2011) http://www.ft.com/intl/cms/ 43. “War on coal participants all lose out”, Wyoming Business Report (1 June s/0/52f2709c-20f0-11e1-8a43-00144feabdc0.html. 2012) http://www.wyomingbusinessreport.com/article.asp?id=63354. 63. Paddy Manning, “Old king coal gets knocked off its throne”, Sydney Morning 44. See Sierra Club, Locked-in (2012) http://www.sierraclub.org/international/ Herald (28 April 2012) http://www.smh.com.au/business/old-king-coal-gets- lockedin/. knocked-off-its-throne-20120427-1xpzf.html. 45. Syed and Penney, “Australian Energy Projections 2034-35”. 64. Data from “Statistical Review of World Energy 2012”, BP (2012) http://www. 46. See Pearse, “‘If we don’t export it someone else will’”, 2011. bp.com/sectionbodycopy.do?categoryId=7500&contentId=7068481. 47. Ibid. 65. Du Juan, “Coal sector focus of upgrade”, China Daily (24 May 2012) http:// 48. Ruth Greenspan Bell et al., Building International Climate Cooperation: www.chinadaily.com.cn/cndy/2012-05/24/content_15372611.htm. Lessons from the weapons and trade regimes for achieving international 66. AAP, “Coal sector to be hit by China cap: Milne”, Sydney Morning Herald (14 climate goals (World Resources Institute, 2012) pp 30, 105. March 2012) http://news.smh.com.au/breaking-news-national/coal-sector- 49. James G. March and Johan P. Olsen, “Institutional perspectives on political to-be-hit-by-china-cap-milne-20120314-1v1ld.html; Giles Parkinson, “China institutions”, Governance (1996) 9(3) p 247–64; James G. March and Johan threatens to pierce coal export bubble”, Renew Economy (12 March 2012) P. Olsen, “The institutional dynamics of international political orders”, http://reneweconomy.com.au/2012/china-threatens-to-pierce-coal-export- International Organization (1998) 52(4) p 943–69; Steven Bernstein and bubble-47613. Benjamin Cashore, “Complex Global Governance and domestic policies: Four 67. Huo, “China to cap energy use for 2015”, China Coal Resource (4 May Pathways of Influence” (2012) 88(3) p 585, 591. 2012) http://en.sxcoal.com/618/73101/DataShow.html; “Energy use may 50. See also the following letter penned by: George Shultz, William Perry, be capped for 2015”, China Daily (3 May 2012) http://www.china.org.cn/ Henry Kissinger, and Sam Nunn, “Towards a Nuclear Free World”, The business/2012-05/03/content_25288835.htm. Wall Street Journal (15 January 2008) http://online.wsj.com/article/ 68. “Beijing to cap coal use to reduce pollution”, China Daily (30 August 2011) SB120036422673589947.html - The group’s advocacy prompted both major http://www.china.org.cn/environment/2011-08/30/content_23310182.htm. party Presidential candidates, Obama and McCain, to voice their support 69. Philip Wen Resources, “China coal demand set to drop”, Sydney Morning for that goal and, following his election President Obama announced the US Herald (12 July 2012) http://www.smh.com.au/business/china-coal-demand- Government’s ambition to achieve the goal of “nuclear zero” and persuaded set-to-drop-20120711-21wex.html. many other world leaders to express support for that goal: Bell et al, Building 70. “Low Carbon Strategies for Inclusive Growth”, Government of India Planning International Climate Cooperation (2012) p 87-89. Commission (May 2011) http://moef.nic.in/downloads/public-information/ 51. See e.g. Ian Brownlie, Principles of Public International Law (7th ed, 2008). Interim%20Report%20of%20the%20Expert%20Group.pdf. 52. See March and Olsen, “Institutional Perspectives” (1996). 71. See especially videos at: Justin Guay “Sierra Club India Environment Post: 53. Ben Cubby, “Miners get $4b in direct subsidies, says think tank”, Sydney India’s Coal Crisis”, Sierra Club (5 July 2011) http://sierraclub.typepad.com/ Morning Herald (18 April 2012) http://www.smh.com.au/environment/ compass/2011/07/india-coal-crisis.html; Justin Guay, “The Spark That Ignited conservation/miners-get-4b-in-direct-subsidies-says-think-tank-20120417- India’s Grassroots Anti-Coal Movement”, Sierra Club (29 March 2012) http:// 1x5m8.html. sierraclub.typepad.com/compass/2012/03/the-spark-that-ignited-indias- 54. Andrew Fowler and Peter Cronau, “Casualties of the Boom”, ABC grassroots-anti-coal-movement.html; “Move Beyond Coal, Now!”, Sierra Club Four Corners (28 May 2012) http://www.abc.net.au/4corners/ (September 2011) http://www.sierraclub.org/coal/narratives/; Makarand stories/2012/05/25/3510948.htm. Gadgil, “R-Power wants to scrap Raigad power project”, livemint.com (10 Part 8: Ending the Growth in Fossil Fuels: Australia’s Contribution Laggard to Leader

September 2011) http://www.livemint.com/2011/09/10000526/RPower- 85. “Business Outlook March quarter 2012: Mining investment in overdrive wants-to-scrap-Raigad.html. reinforces two speed split for Australian economy”, Deloitte Access Economics 72. Joel Rebello and Anup Roy, “Bankers face loan default risk in power sector (24 April 2012) available from http://www.deloitte.com/. exposure: analysts”, livemint.com (26 Jun 2011) http://www.livemint.com/ 86. Neil Hume, “Australia: Mine, all mine”, Financial Times (17 June 2012) http:// articles/2011/06/26203823/Bankers-face-loan-default-risk.html. www.ft.com/intl/cms/s/0/f88223fe-b6d7-11e1-8c96-00144feabdc0.html. 73. Natalie Obiko Pearson, “Tata Shuns Coal for Clean-Energy Projects in Chase 87. Colebatch, “Our economic irrationalism” (13 March 2012). for Growth”, Bloomberg (7 March 2012) http://www.bloomberg.com/ 88. Denniss, “An analysis of the economic impacts of the China First mine” (Dec news/2012-03-07/tata-favors-wind-solar-as-coal-fed-plants-impossible-to- 2011). build.html. 74. Sanjeev Choudhary, “UPDATE 1-India’s Tata to shelve new imported- coal projects” Reuters (14 June 2012) http://www.reuters.com/ article/2012/06/14/india-tatapower-idUSL3E8HE3QV20120614. 88 75. David Richardson and Richard Denniss, “Mining the truth: The rhetoric and reality of the commodities boom”, The Australia Institute(8 September 2011) https://www.tai.org.au/index.php?q=node%2F19&pubid=913&act=display. 76. Tim Colebatch, “Our economic irrationalism”, Sydney Morning Herald (13 March 2012) http://www.smh.com.au/opinion/politics/our-economic- irrationalism-20120312-1uwde.html; Richard Denniss, “Mining boom ‘trickle down’ a myth, ANU professor”, Mining Australia (5 September 2011) http:// www.miningaustralia.com.au/news/mining-boom-trickle-down-a-myth-anu- professor. 77. Michael Stutchbury, “How mining helped Australia avoid recession” The Australian (10 June 2012) http://www.theaustralian.com.au/ business/opinion/how-mining-helped-australia-avoid-recession/story- e6frg9if-1225877644676; Dana Robertson, “Henry refutes mining glory”, ABC Lateline (27 May 2010) http://www.abc.net.au/lateline/content/2010/ s2911571.htm. 78. Emma Rodgers, “Mining tax won’t hit babies’ bums: Henry”, ABC News (27 May 2010) http://www.abc.net.au/news/2010-05-27/mining-tax-wont-hit- babies-bums-henry/843230. 79. Pater Martin, “Mines jobs peak, but still just 1.6%”, The Age (18 June 2010) http://www.theage.com.au/national/mines-jobs-peak-but-still-just-16- 20100617-yjsi.html. 80. Shane Oliver “Australia — the RBA, the economy and shares”, Switzer (24 April 2012) http://www.switzer.com.au/the-experts/shane-oliver/australia- the-rba-the-economy-and-shares/; “RBA minutes show reason for rate cut”, The Examiner (16 May 2012) http://www.examiner.com.au/news/local/news/ general/rba-minutes-show-reason-for-rate-cut/2557271.aspx; “Weak data, bank hikes led to cut: RBA”, Business Spectator (15 May 2012) http://www. businessspectator.com.au/bs.nsf/Article/Weak-data-bank-hikes-led-to-cut- RBA-pd20120515-UB36X?OpenDocument. 81. Richard Denniss, “An analysis of the economic impacts of the China First mine”, The Australian Institute (December 2011) https://www.tai.org.au/ index.php?q=node%2F19&pubid=939&act=display. 82. Tim Boreham, “How hard is it to find workers?”, The Australian (30 May 2012) http://www.theaustralian.com.au/business/opinion/how-hard-is-it-to-find- workers/story-e6frg9lo-1226374089939. 83. Gemma Jones and Simon Benson, “As Australians lose jobs, Gina Rinehart imports 1700 foreign workers”, The Daily Telegraph (26 May 2012) http:// www.dailytelegraph.com.au/business/companies/as-australians-lose-jobs- gina-rinehart-imports-1700-foreign-workers/story-fndfr3g3-1226367540365; Cynthia Koons, “Two-speed economy sparks job spat”, The Australian (29 May 2012) http://www.theaustralian.com.au/business/wall-street-journal/two- speed-economy-sparks-job-spat/story-fnay3x58-1226371213186. 84. Cara Waters, “New wave of foreign workers in mining will “take the choke off” small business”, SmartCompany (28 May 2012) http://www.smartcompany. com.au/resources-and-energy/049907-new-wave-of-foreign-workers-in- mining-will-take-the-choke-off-small-business.html. Laggard to Leader

Part 9 Conclusion Part 9: Conclusion Laggard to Leader

In the months leading up to the 1990 federal By contrast, we have shown how a wide range of election, Liberal Party opposition leader Australian actions relating to renewable energy and fossil Andrew Peacock made a commitment to reduce fuels could dramatically reduce emissions, shift the energy Australia’s domestic greenhouse gas emissions calculations of rapidly industrialising countries and start to build international consensus about the need to phase out by 20% by the year 2000. “The choice available fossil fuels. At the very least, these actions would shift the to future generations depends entirely on odds closer toward a sufficient global response to preserve the decisions we make today,” he said in his a safe climate. Millennium Address. “If we foul up, our children pay the price”.1 It is this material influence our actions will have on the probabilities of sufficient climate action that provides the Over the 22 years that have since passed, Australia’s fossil greatest justification for Australian leadership, and against 2 90 fuel emissions have risen by 44%, and the decarbonisation business as usual. Yet, tragically, this calculus is rarely task before us has become that much harder. Yet still factored-in to current debates about Australia’s policy Australia wrestles with the temptation to delay, to abrogate choices; it remains buried under a suffocating blanket of responsibility, and to decide that its children really ought tired incantations about our inability to make a difference. to pay the price. This report will have achieved much of its aim if future debates about Australia’s choices in the critical decade are This hesitation is not without cause. Australians are told predicated on an understanding that our actions do have constantly that the task of decarbonisation is technically global implications; that we do matter. unattainable; that escape from fossil fuels is an illusion; that even the most insignificant costs are unmanageable Of course, the benefits to Australia of leading the world and will spell the end of Australia’s prosperity; and that in Cooperative Decarbonisation extend well beyond Australian leadership would be a meaningless gesture with improving the chances of avoiding the impacts of climate no real impact. change. There are good reasons to think that the measures we propose in this report would result in a healthier, While Australia waits for other countries to find solutions more equitable, less environmentally destructive, more in the critical decade, our governments and industries are economically prosperous and more internationally busy betting on failure. By enabling such extraordinary respected nation. A strong case can be made that these growth in coal and gas exports, Australia is catapulting benefits outweigh the costs of Australian leadership. humanity towards the limits of a safe carbon budget while deepening our dependence on industries whose national Leadership in world affairs is, however, about much more benefits are overstated and costs under-appreciated. than the dispassionate weighing of costs and benefits. Indeed, BZE’s case for Australian leadership rests on This report has shown that we can make a better bet. a convergence of both national interest and ethical By decarbonising our domestic economy, leading global responsibility grounds. In Chapter 5 we explained why efforts to develop and deploy zero carbon technologies, Australia’s approach to climate change should be anchored foreswearing new coal and gas developments and putting in a new paradigm of Cooperative Decarbonisation. In the phase-out of fossil fuels squarely on the international Chapter 6, we showed that in the case of Australia, which is agenda, Australia can place its chips squarely behind already emitting way above its fair share of global emissions, efforts to restore a safe climate. Critically, we have shown there is a great responsibility to lead. This responsibility that Australia cannot remain neutral: whether we choose derives not only from our high past and current emissions to continue on a path to exporting almost twice as much and our relative wealth, but from our special capabilities

CO2 as Saudi Arabia or decide to accelerate the global to contribute to the global decarbonisation task. transition to renewable energy, our actions will materially change the odds. Global leadership, it turns out, is something we’re pretty good at — and widely known for in other contexts. Under business as usual, the continuation of Australia’s Whereas many countries would recoil at the thought of already high domestic emissions and the massive growth being an international leader, Australia has often relished in our exported emissions will chew up an exorbitant the challenge. And we have not only done so when proportion of the world’s remaining carbon budget. It is our vital or immediate interests were at stake. Indeed, difficult to imagine a scenario where this course of action on many occasions throughout our history, Australian does not virtually guarantee that world temperatures are governments have looked beyond the next election cycle pushed to dangerous levels — an outcome that would be — beyond even the next generation — and opted for the devastating for all Australians and fatal to countless people more difficult, but ultimately right, course of action. In a around the world, especially the poorest. series of case studies presented through the final chapters, we highlighted a number of such occasions — moments in our history of which Australians can rightly be proud. Part 9: Conclusion Laggard to Leader

But each of these historical triumphs of Australian be left behind; warning us that we may not succeed; but leadership could have turned out differently had a more reminding us that history would judge us harshly if we did conservative attitude prevailed. Prime Minister Hawke not even try. could have accepted the advice of his cabinet and ratified the Antarctic mineral resources convention, paving the We can imagine it — and this report shows how that vision way for a new growth industry in Antarctic mining. Today, can be put into practice. Australian mining companies could have been earning billions in additional profits from the exploitation of It’s time for Australia to stop fuelling the problem. It’s time Antarctic mineral resources. Likewise, we could have to stop making excuses. It’s time to stop pretending we sought to exploit our remaining stocks of asbestos, can’t have an impact. selling into the market of willing buyers in the developing world while waiting for other countries to agree on an It’s time to lead. international solution. “After all”, we could well have 91 said, “if we don’t supply the demand, other countries will simply fill the gap”.

We could have waited on the sidelines of the seemingly intractable negotiations over nuclear and chemical weapons, blaming the great powers for their intransigence and shrugging our shoulders because we thought ourselves too insignificant to make a difference. And we could have sat idly by as Cambodia was ravaged by conflict, content in the knowledge that our security interests were not immediately threatened and with an eye to the dollars we could have saved by keeping our troops at home and our diplomats in Canberra.

What was it that our leaders mustered when confronted by each of these challenges that is so lacking when it comes to climate change?

In a speech given in 2009, then Australian Foreign Minister Stephen Smith made a telling observation about Australia’s efforts toward nuclear disarmament. The reason for Australia’s leadership, he explained, “lies in the Government’s approach to Australia’s role in the world, how seriously we take the threats posed by nuclear weapons and nuclear proliferation, and how strong our ambition is for the ultimate abolition of nuclear weapons”.3 Amid all the arguments about interests, costs, benefits and responsibilities in international affairs, Smith’s remark invokes a simpler truth: if something is important enough to you, you do everything in your power to make it happen. If you care, you lead.

In this, the critical decade on climate change, is it so difficult to imagine an Australian leader, with gravitas and passion, standing at a podium, addressing the nation on a bold new plan for Australian global leadership towards a References zero carbon world? — Describing the gravity and urgency of the threat; acknowledging that we are a large part of 1. Andrew Peacock quoted in Guy Pearse, High & Dry (2007) p 127. the problem; persuading us that we have the capability 2. “National Greenhouse Gas Inventory — Kyoto Protocol Accounting and the responsibility to lead the world toward a different Framework”, Department of Climate Change and Energy Efficiency, http:// future on a safe and flourishing planet; explaining that ageis.climatechange.gov.au/. leadership will require sacrifices from all of us, but that 3. Stephen Smith, “Building Momentum: Australia, Nuclear Non-Proliferation with those sacrifices will come exciting new opportunities and Disarmament” (Tange Lecture, August 2009). and more creative paths to prosperity; credibly promising that, in the process of our transformation, no-one will

“Australia is only a small part of the climate problem” “We shouldn’t act before the rest of the world” “Our actions won’t make a difference, anyway”

How many times have we heard these claims?

This game changing new report from Beyond Zero Emissions makes the case for Australian leadership on climate change. Laggard to Leader: • highlights the true extent of Australia’s influence over global emissions; • demonstrates how the practical, problem-solving approach to decarbonising every economic sector advocated in the Zero Carbon Australia Plans can be leveraged by Australia to achieve major emissions reductions globally while the UN negotiations remain deadlocked; and • outlines a series of domestic and foreign policy initiatives that Australia should implement to steer the world’s trajectory towards zero carbon prosperity.

About the Lead Authors: Fergus Green is a researcher specialising in climate change law and policy. He is Chairman of the Centre for Sustainability Leadership and a 2012 General Sir John Monash Scholar. Reuben Finighan has a multidisciplinary background spanning the physical, life and social sciences. He is a 2012 Fullbright Scholar and a 2012 Frank Knox Scholar at the Harvard Kennedy School.

Published by Beyond Zero Emissions Kindness House Suite 10, Level 1 288 Brunswick Street Fitzroy, Victoria 3065 www.beyondzeroemissions.org