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| CSIRO | SOLVE | Issue 11 | MAY 07 | |
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ARTICLE
ENERGY TRANSFORMED:
Forum Clears the Air on Climate Change By Heather Catchpole
An energy forum has found that deep cuts to greenhouse emissions are economically feasibleDespite the impact of carbon constraints as energy bodies attempt to address climate change, a new report* concludes there is no reason why reductions in greenhouse gas emissions should lead to more expensive electricity. The report, released by a forum focusing on Australia’s energy future, has also found that the economy could continue to grow even if Australia’s greenhouse gas emissions were reduced to 50 per cent of 1990 levels by 2050, by capturing carbon dioxide and using alternative energy sources such as wind and solar.
The CSIRO-led Energy Futures Forum is the first of its kind to look at economic responses to future changes in the energy mix. CSIRO’s Paul Graham, the Energy Transformed Flagship’s Energy Futures theme leader, says one of the most important outcomes of recent research is that it is economically feasible to make deep cuts in emissions in Australia. Even the scenario that looked at cutting emissions to 50 per cent of 1990 levels showed that the economy would continue to grow strongly. “That’s more or less accepted and that’s an important outcome, because we can shift the focus from ‘can it happen’ to ‘how to make it happen’,” he says. “The economy won’t be ruined if we choose to do this.” Established in 2004, the Energy Futures Forum involves nationwide energy and transport companies, energy-generation industries and groups representing social and environmental concerns. Some of the forum members include Origin Energy, mining and minerals processing group Rio Tinto, oil and gas companies such as BHP Billiton and Woodside, and the environment group WWF Australia. Social-change organisations such as the Public Interest Advocacy Centre and the Australian Council of Social Service are also involved in the forum. Nine scenarios were created by the group, with CSIRO and the Australian Bureau of Agricultural and Resource Economics (ABARE) independently modelling the economic outcomes. For the most part, the scenarios stabilised atmospheric greenhouse gas concentrations at 575 parts per million of carbon dioxide by 2100. This requires a reduction in greenhouse gas emissions of about 35 per cent. For simplicity, a carbon tax was the price signal used in the economic modelling. In one scenario there was a deeper cut to emissions (to 50 per cent of 1990 levels), another factored in higher oil prices, and another looked at the compliance of non-OECD countries to a global carbon tax. In all the scenarios greenhouse emissions were reduced by carbon sequestration (burial) by coal-fired power generators, or by nuclear power, renewables such as wind or solar, or a combination of all technologies. Mr Graham says CSIRO wanted to get diverse groups involved in the forum, essentially to describe the possible range of futures Australian energy was facing and establish facts based on those projections. “We started asking what is certain about the future and what is uncertain,” he says. All involved agreed that climate change is the biggest challenge for the energy sector and that carbon constraints would be a big issue for Australia. However, Mr Graham says that even if low-emission technologies such as carbon capture were ready in 2010, these would not necessarily be the first to be used. Instead, low-cost options such as a transition to gas would be one of the first steps to cutting emissions, he says. Part of the positive projections of future effects stems from the fact that 70 per cent of Australia’s gross domestic product comes from the service industry, which gives the economy a degree of robustness in the face of climate change. The continued move towards services and away from manufacturing will further influence the power needs of businesses in the future, Mr Graham says, and adds that costs to the consumer would also be bearable. Although increased costs in electricity would be borne by consumers, this would be offset by rising incomes. “Basically the issue is that when there is a shift into low-emission technologies, they obviously cost more, so there’s a jump in cost to the consumer,” he says. This price jump could be as much as 50 per cent of wholesale electricity prices, but Mr Graham adds that only one-third of household electricity prices comes from the cost of wholesale electricity. The main component is infrastructure costs, company profits and taxes. Mr Graham estimates that a 50 per cent rise in wholesale electricity prices would translate to only a 10 to 15 per cent increase in household electricity bills. “With an expected doubling of income by 2050, the retail price increase is easily bearable.” The forum report states that although a shift to low-emission energy production could provide the biggest drop in greenhouse gas emissions, an accompanying drop in the way households and businesses use energy remains a crucial factor in addressing climate change. This shift in energy efficiency is already reflected in the government’s move to phase out the use of incandescent lights in favour of the more energy-efficient fluorescent lights. Using more energy-efficient devices in homes and businesses, and raising consumer awareness, is expected to contribute to a drop in electricity demand of about 20 per cent. However, Mr Graham says that factoring in energy efficiency is difficult in real numbers and was one of the limiting factors of the modelling. He adds that home energy efficiency is one of the areas that CSIRO hopes to address with a second forum to be more focused on the challenges of climate change. There is also the issue of local power generation, which the forum was not able to fully address. “We think there might be more savings we could discover.” Greg Bourne, CEO of WWF Australia, says the forum’s modelling was also limited by the fact that 550 parts per million of carbon dioxide in the atmosphere was the lowest emissions level that could be factored in. “We need to go down to 450 or even 400 parts per million,” he says. “Our modelling does not yet have that capacity and we need to build it.” Despite this, Mr Bourne says that the report is the best of its kind to come out of Australia and it echoes the findings of the Stern report released in the UK in October last year. “The science of those documents is so sound that all of us who were partners in it can say it is definitive,” he says. “Of course there are limitations, but we don’t live in an absolutely perfect world.” One of the likely negative effects of energy transformation that the report identifies is the effect on energy-intensive processes in Australian industries and regions, particularly those that depend on metals production. The report says agriculture, iron, steel and aluminium industries in particular are expected to feel the greatest effect from responses to climate change. It suggests that agricultural production will drop by one to three per cent, iron and steel output by four to nine per cent and aluminium production by 22 to 39 per cent in most scenarios. If countries such as China and India do not implement carbon taxes, or if deeper cuts are made to emissions in Australia, these figures could increase, with projected drops in the output of non-ferrous minerals reaching 75 per cent. The global minerals processing and mining company Rio Tinto was part of the Energy Futures Forum. The company’s Energy and Sustainable Development manager, Alex Zapantis, says the effects on intensive energy users, such as mineral processing, would depend on the price of carbon emissions and whether a company’s competitors were also required to pay for emissions or meet other related costs. “In principle, if industry is subject to a price on carbon emissions it just comes off the bottom line,” Mr Zapantis says. “A high price could mean that a company can’t compete with its competitors, and would either go out of business, run at a loss or move offshore. That’s the challenge of climate change. It comes back to the price and how to apply it equitably.” Mr Zapantis says Rio Tinto welcomed the report as filling a gap in knowledge about how energy in Australia would be affected by measures such as carbon taxes or emissions trading.
Although discussion in the forum, held over a few days every two months for 21 months, was “difficult at times, in the end the level of agreement that was achieved was very encouraging”, Mr Zapantis says. Paul Graham says the object of the forum was not to provide policy directions, but to establish a set of data that shows the outcome of various future scenarios and how they might affect Australia’s economy and industry. And while the energy forum provided facts, it is a long way from providing answers, he says. “Getting a handle on the cost of climate change if we do not act now to change the way we use energy, for instance, is one of the issues a second forum could look at.” * The forum’s report, The Heat Is On, released in December 2006, is a culmination of two years of discussion and modelling by CSIRO and ABARE that looks at how individuals and the economy would fare in a range of future energy scenarios. It is available at www.csiro.au/science/EnergyFuturesForum.html. For further information contact: |
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