Future lies within a wide band of possibility
FOR a long time now we’ve known that it might come to this. We’ve known that the days of sending our carbon emissions skyward for free were numbered. But with the release of the report of the Prime Minister’s Task Group on Emissions Trading the reality is upon us — there is nowhere left to hide.
Public awareness has pushed the issue to the forefront of the political agenda. The risk in this is that policy decisions will be taken to demonstrate a commitment to decisive action without fully understanding the consequences.
To illustrate, one needs only reflect on the work undertaken by the National Emissions Trading Taskforce ( NETT), appointed by state and territory governments under the banner of the Council for the Australian Federation, during 2006. The NETT commissioned analysis that considered a ‘‘ business as usual scenario’’ ( BAU) together with two abatement scenarios under which emissions from Australian electricity generation would be limited to between 150 and 175 million tonnes of carbon dioxide equivalent per year by 2030, compared to a BAU case of more than 260 million tonnes.
The NETT analysis assumed that the abatement profiles could largely be achieved, with appropriate pricing signals provided by a carbon trading regime, through a mix of rapid uptake of renewable energy technologies, biosequestration and strong demand- side reduction. Under this view of the world there would be little increase in the requirement for gas for power generation; most of the targeted emission abatement would be achieved by using more renewable energy and reducing demand. The problem with this analysis is that electricity demand is not falling and will not fall without major structural adjustment in the Australian economy. The National Electricity Market Management Company, NEMMCO, in its most recent analysis of electricity demand in eastern Australia forecast median demand growth of around 1.9 per cent per year through 2015- 16. While higher prices with carbon trading will have some dampening effect on demand, the design principles proposed by the NETT would see energyintensive, trade- exposed industry exempted from the carbon pricing regime.
There may well be sound economic justification for such a policy. However, the fact is that exempting our largest energy consumers from paying for carbon emissions places the burden of abatement targets squarely on the shoulders of smaller industrial, commercial and residential consumers that for the most part display low demand elasticity. Thus it can be argued that the strong demand- side response postulated in the NETT analysis is unlikely to emerge.
As a result, the challenge in adopting an abatement target such as the NETT scenarios investigated is to reduce the absolute level of CO2 emission by almost half — from around 950kg of CO2 for every megawatt of power generated to about 500kg, while electricity demand continues to grow at around 1.9 per cent per year. How might this be done? Reducing emission intensities means adopting power generation technologies that emit less CO2 for each unit of power produced. To achieve this, the alternatives among existing technologies include renewables, hydroelectricity, nuclear power and natural gas.
Emerging clean coal technologies such as integrated gasification combined cycle with carbon capture and storage ( IGCC- CCS) may offer effective alternatives in the future. However, such technology combinations are not yet commercially established.
The uptake of renewable technologies such as wind, solar and geothermal will continue to grow strongly, but coming off a low base will account for a relatively small part of total energy supply. Opportunities for more hydroelectric power are very limited. Nuclear energy could offer a nil- CO2 solution, but will political opposition and deep- seated public concerns be overcome to allow a nuclear contribution?
Right now — and for perhaps the next decade — the only well- established, commercially proven technology capable of delivering large reductions in carbon intensity for bulk power generation is combined cycle gas turbine ( or CCGT) technology. Gas- fired generation is seen as the bridging technology that can provide a transition from conventional coal- fired power generation to nearzero emission coal based technologies such as IGCC- CCS. So here perhaps lie the bones of a solution: use CCGT to meet electricity demand growth until such time as clean coal technologies can take over.
As with so many of the areas of uncertainty in relation to energy supply and carbon abatement, the future reality lies within a broad band of possibility. The range of possible outcomes and associated costs is wide. In designing an Australian carbon trading regime, uncertainties need to be recognised. Locking into binding targets could be disastrous.