Chapter 9
Complementary measures
9.1 The committee heard evidence of a variety of views on the role of complementary
measures in achieving climate change reductions and what these measures should
be.
9.2 The Department of Climate Change noted:
Everyone recognises that price is not the only mechanism you
use. That is why there is a suite of other complementary measures – for
example, the insulation measure that was in the stimulus package.[1]
9.3 The draft legislation under consideration does not specifically put in
place any complementary measures, although revenue raised by the scheme will be
used to fund some initiatives (such as the Climate Change Action Fund).
However, the White Paper clearly identifies that the government's
climate change strategy includes a number of complementary measures. The
interaction between the legislation and these measures should therefore be
considered.
What are 'complementary' measures?
9.4 In the White Paper, the government identifies a number of
measures which will complement the scheme in achieving the scheme's goal of
reducing emissions. 'While the Scheme will be the primary mechanism to achieve
low-cost abatement, additional measures will be needed to assist the transition
to a low-carbon economy.'[2]
The principles the government has adopted towards identifying complementary
measures are:
-
measures should be targeted at market failures not expected to be
addressed by the scheme or that impinges on its effectiveness;
-
complementary measures should adhere to principles of efficiency,
effectiveness, equity, and administrative simplicity;
-
complementary measures should be 'tightly targeted' to market
failures which are amenable to government action, and in the case of regulatory
measures, be guided by best practice regulatory principles;
-
complementary measures may be targeted to manage impacts for
particular sectors of the economy; and
-
measures should be implemented by the level of government best
able to deliver the measure.[3]
9.5 According to this approach, a 'complementary' measure may be seen as an activity
which either targets a sector not covered by the scheme, or which is intended
to improve its effectiveness.
The Government's measures to complement the CPRS
9.6 In the White Paper, the Government announced that the main
complementary measures it will pursue would include energy efficiency, the
Renewable Energy Target, and carbon capture and storage.
9.7 The Committee notes that these measures are not specifically provided
for in the exposure draft legislation. However the White Paper indicates
that some measures will be funded from the sale of permits under the scheme,
and to that extent, will be affected by the passage or non-passage of the
legislation. For example, the Climate Change Action Fund is expected to have an
allocation of $300 million in 2009-10, rising to $700 million in 2010-11
and 2011-12, respectively.[4]
9.8 Other complementary measures (such as the Global Carbon Capture and
Storage Initiative announced in September 2008, or Energy Efficient Homes
package announced in February 2009) are not listed in the White Paper budget
summary and do not appear to be dependant on the proceeds of sale of permits.
Energy Efficiency Measures
9.9 Several submissions highlighted the role that may be played by energy
efficiency initiatives in achieving carbon abatement. For example, the Energy
Users Association of Australia noted the role complementary measures, including
energy efficiency, can play in mitigating emissions:
In order to reconcile the need for emission reductions with
the desire to limit the economic impact, complementary measures may therefore
be useful, beyond their commonly accepted role in compensating for market
failure.
For this reason, the EUAA suggests that there may be a role
for complementary measures including building and product standards to reduce
energy demand, energy efficiency programs, and policies to promote low emission
electricity production.[5]
9.10 However, whilst providing incentives for energy efficiency was generally
supported, some questioned the cost of mandating such schemes. The Housing
Industry Association noted:
...it is vital that any complementary environmental regulation
or measures linked to the CPRS be considered in greater detail. In respect to
the building products and residential construction industry, there remains a
lack of detail on the potential impact for businesses and on the cost of
housing... HIA recommends that greater industry consultation be undertaken to
assess the potential impact of complementary environmental measures and their
interaction with the CPRS on business activity and the cost of supplying new
housing product.[6]
9.11 Other submissions argued that more could be done through the
introduction of the scheme to promote energy efficiency:
the strategic use of the CPRS auction revenue may be as
important in driving emission reductions from energy use as the carbon price
signal itself. It will be an extremely important tool and, if used wisely, the
Climate Change Action Fund may be as important as the carbon price. The
business sector consumes approximately 75 per cent of Australian energy, and
therefore it is business that will initially feel the impact of the carbon price
and pass it on to consumers, and efforts to improve efficiency of business will
pay off in terms of there being less of an inflationary impact of the CPRS. So
we believe that a larger proportion of the permit auction revenue needs to go
to the Climate Change Action Fund to deliver an additional range of business
engagement and emission reduction programs.[7]
9.12 The committee notes that the government has undertaken other initiatives
to promote energy efficiency, including through the National Strategy for
Energy Efficiency adopted by COAG in October 2009. Given the not insignificant
demands being placed on permit revenue from other sources, the committee regards
this strategy and other measures as being the best avenue for pursuing energy
efficiency goals, rather than through the further hypothecation of permit
revenue.
Renewable Energy Target
9.13 Several submissions questioned the compatibility of the Government's
proposed increase of the Renewable Energy Target (RET) to 20 per cent of
Australia's energy to be sourced from renewable resources by 2020 with the
Scheme. Such submissions argued that as the purpose of the Scheme is to impose
a price on the emission of carbon, then this should be sufficient to make less
carbon intensive forms of energy attractive without imposing an additional
obligation on industry. For example, the Australian Industry Group argued:
...it is a comparatively expensive approach to emissions
reduction; because it adds an additional layer of costs to business and because
there is no current proposal to protect Australia's trade exposed businesses
from these additional costs.[8]
9.14 This does not take into consideration the main goal of the RET, which
may be seen as development of an industry which will play a critical role in
mitigating climate change, rather than bringing down emissions in itself:
The RET is an important transitional measure that will
support the development of a domestic renewable power industry and prepare the
electricity sector for its contribution to the significant emission reductions
needed to tackle climate change. The measure will help ensure that renewable
energy technologies can be readily deployed when the price signal under the
Scheme makes those technologies more competitive.[9]
9.15 Several submissions and witnesses representing the renewable energy
sector supported this goal:
I think a 20 per cent MRET by 2020 is a fair and challenging
target and will drive a lot of investment in this sector. And, again, we are
seeing that already through the large utilities making investments in this
sector.[10]
The Renewable Energy Target (RET) is essential to support the
immediate deployment of least cost renewable energy technology until the full
cost of carbon is reflected in the wholesale electricity market. This is
essential to meet the Government's emission reduction objectives.[11]
9.16 However, one association argued that the RET might advantage renewable
technologies already in operation, as opposed to those at an early stage of
development:
We are an emerging technology. Wind is a mature technology,
so wind is ready to build tomorrow on any site where it can get its hands on
turbines and a power purchase agreement. It also will be an early beneficiary
of the national renewable energy target. In fact, one of our concerns about the
operation of the renewable energy target is that, by the time we are ready to
build projects at large scale and deliver large chunks of power, most of the
incentives under that scheme will be taken up by existing technologies.[12]
9.17 The RET will promote the development of low emission technologies, and
in doing so, could assist in meeting the CPRS target. In doing so, the
committee regards the RET as playing an important role in promoting transition
to a low carbon economy.
Carbon capture and storage
9.18 The committee heard about two forms of Carbon capture and storage (CCS), namely geosequestration and biosequestration.[13]
Both forms could play a significant role in the reduction of carbon emissions. The
government has labelled CCS as a 'foundation element' in the Government's
climate change strategy[14]
and has provided support through the Low Emissions Technology Demonstration
Fund. Professor Ross Garnaut noted the opportunities that CCS may offer:
It is not certain that renewables will be the low-cost form
of low-emissions energy. If it were the case that geosequestration of carbon dioxide
from fossil fuel combustion through carbon capture and storage turned out to be
economically successful, then it may very well be that we will be a low-cost
producer of energy and competitive in the production of energy intensive goods.
We probably are the best located country on earth in relation to
geosequestration opportunities, so if that is the way the world goes we are
likely to be very competitive. We cannot be certain now which of all these
technologies will turn out to be the successful ones, but we are pretty well
placed across quite a wide range of them.[15]
9.19 However, the committee heard evidence that geosequestration of carbon is
still in early stages of development:
Mr Rowley—We do have a reasonable amount of experience
in carbon capture and storage. We are the largest carbon capturer in Australia at the moment, so far as I am aware. We captured about a million tonnes of CO2 at
Moomba, when we separated that CO2 from the stream of sales gas. We have
our own views on the costs of capturing carbon and also for storing gas on the
ground. It is very dependent on geology and where the operations occur. We
would share some of Griffin’s concerns around that.
Senator JOYCE—Carbon sequestration, to the best of my
knowledge, has not occurred anywhere yet, has it?
Mr Rowley—Certainly not on a commercial basis, but it
is certainly occurring, particularly in the North Sea. The Norwegians are doing
that ... but that is due to large incentives, or should I say disincentives, from
the government for venting CO2. Again, it is from the gas that has
come out of the North Sea that they are basically reinjecting into aquifers.
Senator JOYCE—Is it commercially viable? Anything is
possible, but is this commercially viable?
Mr Rowley—Our view is that you would need a
carbon cost north of $100 a tonne to make it viable.[16]
9.20 The Committee does not expect that sequestration will provide a short
term solution to climate change, or that the price imposed on carbon emissions
by the scheme alone will be sufficient to see CCS adopted on a large scale in
the immediate future.
9.21 Shell Australia proposed that additional government assistance be given
to the development of CCS technology:
It is, however, becoming increasingly clear that deployment
of CCS technology will not happen sufficiently quickly without an additional
policy intervention, as a carbon price alone will not provide a sufficient
incentive for the large scale commercialisation of CCS in the timeframe
required... In order to accelerate the deployment of CCS, Shell recommends the
government provides a greater level of support for CCS demonstration facilities
in Australia.[17]
9.22 The National Farmers Federation noted the role that agriculture can play
in the sequestration of carbon, including through the sequestration of carbon
in soils:
When we are talking about agriculture we are talking about a
biological system. We acknowledge there is an emissions element of our
production system, but there is also a sequestration element. When you are
talking about the ability to offset, if there was acknowledgement for the
sequestration element that occurs through our production systems, there may be
some scope to partially offset those additional costs, but that is not there
right now.[18]
9.23 The Committee notes that the government has provided support for
research into the potential for soil carbon, including biochar, as a means of
sequestration of carbon. At this stage, the committee understands that there is
doubt about how such approaches might be recognised internationally. The
committee supports further investigation of this approach.
9.24 As with energy efficiency measures, the committee notes that there is
already significant allocation of revenue from the sale of permits from the
scheme. At this stage, the committee would not support the use of permit
revenue to support research into CCS technology.
Expanded role for complementary measures
9.25 Several organisations appearing before the Committee opined that the
CPRS on its own would not be effective for various reasons. As a consequence,
additional measures to the CPRS will be required to see significant cuts in
emissions. The suggestion that a number of measures may need to be 'bolted
onto' the CPRS is closely linked to concern about the cap and voluntary
abatement activities.
9.26 For example, Mr Matthew Warren of the Clean Energy Council
argued, 'the political and technical uncertainty over
deployment of the CPRS makes the deployment of complementary measures even more
important.'[19]
9.27 Professor Tim Flannery made a similar point:
...other legislative initiatives to go alongside the ETS, and
they would include an increased focus on biological carbon and elimination of
conventional coal burning, so a shift to CCS or to other technologies, within a
reasonable time frame, and that if we do that we will be in a much better position
to deal with this very significant threat.[20]
Committee comment
9.28 As noted in previous chapters, the benefit of a cap and trade scheme is
that, unlike a carbon tax, carbon emissions beyond that imposed by the cap will
not be allowed. Assuming that the scheme is adequately enforced, total
emissions are capped and liable entities are required by law to hold permits
for all their emissions. If the cap is set at an appropriate level, the Committee
does not see any significant problem with the adoption of measures (such as the
Energy Efficient Homes package) which will assist the consumers make the transition
to a low carbon economy within that cap.
Greater support for renewable energy
9.29 Other submitters noted that there are a range of climate change related
policy objectives which may not be achieved as a result of the CPRS alone.
While the CPRS will create incentives for increased investment in renewable
energy and other abatement technologies, additional government investment in
research, development and deployment of these technologies will also be
necessary. Other forms of industry development assistance may also be required.
9.30 Several witnesses and submissions argued that the bills could provide
further assistance to promote the development of renewable fuels (in addition
to that provided by the RET and setting a price on carbon).
With regard to the allocation of funds
raised by the CPRS, the main draft bill goes into considerable detail on how
the sectors of the economy that produce greenhouse gases are to be compensated
but provides no direction on how the emerging technologies will be assisted.[21]
9.31 A common theme in such submissions was that the Climate Change Action
Fund (see Chapter 6) could be expanded to include further funding for
supporting the uptake of renewable energy:
The Federal Government estimates that in the first two years
of the scheme the auctioning of permits could bring as much as $11-12 billion
dollars of revenue to the government. The way that the Government distributes
the income that it receives from the auctioning of permits will have a
significant impact on the rate and efficiency of the transition to a low carbon
economy. We strongly urge that permit income be used to reduce energy demand
through demand-side efficiency measures, to reduce the emission intensity of
energy consumption and to increase the supply of low emission electricity
production.[22]
But the key advantage in the renewable energy industry is the
security of supply. It is about distributed generation and the diversity of
jobs that that brings with it across regions and all across Australia. And so there are some great opportunities, I think, to specifically target some projects
into places that do need economic assistance in terms of the transition from a
carbon economy. Does that mean in some cases picking winners? Well, kind of. I
do not believe the government should pick a winner. But I do not have a problem
with government attempting to pick a dozen winners all at once. That does not
show favouritism; it shows a logical rollout.[23]
9.32 Other approaches proposed to improve the take up of renewable
technologies were feed in tariffs, although one witness noted that such schemes
should not focus only on solar panels.[24]
Renewable Energy Demonstration
Programme
9.33 The Renewable Energy Demonstration Program (REDP) is a $435 million
competitive grants program designed to accelerate the commercialisation and
deployment of new renewable energy technologies for power generation in
Australia.
9.34 The program provides grants for eligible renewable energy power
generation demonstration projects of up to one third of the eligible
expenditure on the projects. The grants are expected to be in the range of $50
million to $100 million and is targeted at project proposals that are
relatively mature and at the stage of commercial demonstration.[25]
9.35 The committee commends the Government on the REDP and believes such
programs will be crucial in fast tracking the successful commercialisation of
renewable energy projects.
Committee comment
9.36 The Committee believes that opportunities for further development in the
renewable energy sector should be explored and supported by government,
including the commercialisation of research and prototypes. The Committee notes
that significant support is already being provided for this sector, including
the introduction of an expanded RET and the Renewable Energy Demonstration
Program.
Recommendation 5
9.37 The Committee recommends that the Government continues to seek
ways to assist the commercial scale development of renewable energy sources and
sequestration technology as a priority.
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