1. www.csiro.au Greenhouse gas abatement, complementary policies and oil prices Paul Graham Manager Energy Futures Research, CSIRO IEW 2009, 19 June 2009

2. Presentation overview Australian Background Greenhouse gas emissions Climate policy Emission trading scenario overview Modelling framework Impact of complementary renewables policy and oil prices assumptions

3. Australia: high emissions per capita Source: World Resources Institute (2006) CountryTons CO 2 -eRank Qatar67.91 United Arab Emirates36.12 Kuwait31.63 Australia25.64 Bahrain24.85 United States24.56 Canada22.17 Brunei21.78 Luxembourg219 Trinidad & Tobago19.310 New Zealand18.911 Japan10.439 China3.999 India1.9140

4. Australia: high emissions per capita Why? Electricity production is over 90% fossil fuel, most of which is coal High proportion of energy intensive mining and metals manufacturing, mostly for export e.g. 80% of all aluminium is exported but it accounts for 12 percent of Australian electricity consumption High ownership of relatively less fuel efficient road vehicles Relatively wealthy population and therefore able to have high material consumption

5. Australia’s carbon footprint : small in global terms Source: World Resources Institute (2006)

6. Australian greenhouse gas reduction policies Australian emission trading proposals The Garnaut Review examined 450ppm and 550ppm CO 2 -e concentration mitigation paths The Australian Government proposed two paths consistent with 510-550ppm CO 2 -e concentration Major complementary policies The Mandatory Renewable Energy Target (MRET) is proposed to require 20% renewable electricity generation by 2020 Low emission technology funding

7. Carbon Pollution Reduction Scheme The government’s emission cap and trading scheme Target between 5 and 15% reduction below 2000 emission levels in 2020 and 60% reduction by 2050 (called CPRS-5 and CPRS-15) Final legislated targets depend on outcome of international negotiations The government recently announced it is now prepared to reduce emission to 25% below 2000 levels by 2020 if other developed countries agree to similar cuts

8. Mitigation : Treasury / Garnaut abatement paths Source: Commonwealth of Australia (2008) 60% 80% 90% (below 2000 levels)

9. Carbon prices projected to achieve the abatement Source: Commonwealth of Australia (2008)

10. Mitigation : where will we reduce emissions (CPRS-5) Source: Commonwealth of Australia (2008)

11. Study objectives Focus on electricity and transport sector abatement Examine how abatement in those sectors is effected by The 20% by 2020 renewables target Oil price assumptions Determine the implications for scenario construction and model result reporting

12. Model framework Using CSIRO’s Energy Sector Model (ESM) A partial equilibrium model of the electricity and transport sectors Other parts of the energy sector not included Electricity and transport account for 36 and 14 percent of Australia’s GHG emissions respectively

13. Electricity generation projection – No 20% target Source: CSIRO projection

14. Electricity generation projection – with 20% target Source: CSIRO projection

15. Sources of abatement or abatement “wedges” No 20% renewables target With 20% renewables target The CPRS-5 policy appears to achieve more abatement in the left hand side (LHS) diagram because reference case emissions are higher 30% more abatement in 2020 on LHS

16. Level of emissions

17. Impact of 20% renewables policy Undoubtedly accelerates abatement to 2020 and reduces total cumulative emissions Can have the unintended effect of making the emission trading policy appear to have less impact – in wedges diagram No long term emission reduction projected but this is a deficiency of the model which does not include endogenous technological change (ETC) Although ETC effect might be small effect unless Australia can impact global learning

18. Oil price assumptions Gap between EIA (2008) and IEA (2008) equivalent to $A200/tCO 2 e in 2030

19. Impact of oil price assumptions on technology market shares in 2050

20. Sources of abatement or abatement “wedges” EIA price IEA price The higher oil price leads to more abatement relative to the reference case when combined with an emission trading scheme Oil price impact is different because it is sustained where as MRET policy is not

21. Level of emissions

22. Conclusions The oil price assumption had a greater impact than the MRET policy Oil price change was equivalent to doubling carbon price The MRET policy can be expected to accelerate the uptake of renewable electricity generation technologies Long term impact could not be fully assessed in this modelling framework. Care must be taken when presenting emission levels and relative or abatement ‘wedge’ diagrams Reference case assumptions are important Reporting both types of diagrams is desirable