Under the Abbott Government, Australia signed the Paris climate agreement, committing to reduce carbon emissions by 26-28% below 2005 levels by 2030. The electricity sector will play a significant role in meeting these targets, as it accounts for 35% of the country’s total emissions.
A central question concerning the electricity sector’s role in meeting Australia’s mitigation targets is whether it should reduce its emissions by 26-28%, consistent with the national target, or whether it should shoulder a larger part of the abatement task.
While an equal proportion approach has the benefit of simplicity, it is inefficient because it will push the abatement task onto other industries, where the costs of abatement are higher. The electricity sector can turn to renewable energy which is already commercially available, while other sectors such as agriculture, construction and manufacturing do not have similarly available and cost-effective options. Because of this it has long been assumed that the electricity sector would reduce emissions by more than other parts of the economy.
Alternatives to a proportional approach include setting policy with reference to costs of abatement, or to incentives for long term investment.
Government agencies have conducted modelling exercises that consider the size of the task of the electricity sector, what policies could help achieve this and what level of renewable energy generation would result from these policies. This report collates and compares the results of these modelling exercises, showing the likely outcomes from current policy options.
A key result is that under the more efficient abatement cost and long-term investment signal approaches, the electricity sector will need to reduce emissions by between 40%-55% below 2005 levels in 2030.
The level of renewable energy penetration required to achieve emissions reductions of this magnitude under a CET-like policy have been estimated in separate assessments by well-known consultants Jacobs Group and RepuTex, with results summarised in the chart below:
These studies show that if an abatement cost approach is used to set the 2030 electricity sector target, and a CET-like policy is used to achieve it, renewable penetration is likely to be in the order of 66-75% by 2030.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
