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Laggard to LeaderHow Australia Can Lead the World to Zero Carbon Prosperity

© NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

> Australia must stop using the promise of a global treaty that won’t eventuate to duck responsibility for its ballooning coal and gas exports.

> A moratorium on coal and gas expansion followed by a phasedown will drive a massive increase in global renewable energy investment.

> Australia can lead the world to cheap, abundant renewable energy by deploying off-the-shelf, zero carbon technology that will grow Australia’s prosperity.

Laggard to Leader

Laggard to LeaderHow Australia Can Lead the World to Zero Carbon Prosperity

LEAD AUTHORS

Fergus Green and Reuben Finighan

> Australia must stop using the promise of a global treaty that won’t eventuate to duck responsibility for its ballooning coal and gas exports.

> A moratorium on coal and gas expansion followed by a phasedown will drive a massive increase in global renewable energy investment.

> Australia can lead the world to cheap, abundant renewable energy by deploying off-the-shelf, zero carbon technology that will grow Australia’s prosperity.

Acknowledgements

Lead Authors: Fergus Green and Reuben Finighan

Researchers: Josh Brown • Lisa Caripis • Tom Dreyfus • Lisa Evans • Ashley Fletcher • Patrick Hearps • Cameron Jewell • Gillian King • Jay Lewis • Marina Lou • Tristan Maddocks • Cassidy Prent • Russell Stubbs • Michelle Tran • Liem Truong • Daniel Wiseman

Graphic Design: Phuong Le • Alice Liu • Claire Miller • Tracey Nguyen • Angeline Yannopoulos • Guyang Chen (The Climate Group)

Expert Reviewers: We are grateful to the following people who peer-reviewed the entire report: Associate Professor Peter Christoff • Professor Robyn Eckersley • Martin Jones • Dr Greg Picker

We are grateful to the following people who peer-reviewed individual chapters of the report: Dr Richard Denniss • Declan Kuch • Professor Malte Meinshausen • Guy Pearse • Mick Power • Cédric Philibert

BZE Production Support and Review: Hannah Aulby • Pablo Brait • James Bramwell • Ben Courtice • Gerard Drew • John Fisher • Vicky Fysh • Margaret Gaita • Pierre Grimaud • Patrick Hearps • Lucy Luo • Liem Truong • Michael Waters • Sally Wilmott • Matthew Wright

Supporters: We are grateful to the following people and organisations that provided in-kind support to this project: Kate Nicolazzo, Nicolazzo Consulting • Luke Hockley, Midnightsky

© 2012

This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License. To view a copy of this license, visit http:/ creativecommons.org/licenses/by-nc-sa/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA.

Published by Beyond Zero Emissions Kindness House Suite 10, Level 1 288 Brunswick Street Fitzroy, Victoria 3065 Phone: 03 8383 2232 www.beyondzeroemissions.org

July 2012

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Laggard to LeaderContents

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ContentsExecutive Summary v

Glossary vii

Part 1 Introduction 1

Part 2 The Current Global Predicament 52.1 Introduction 62.2 The Rapidly Diminishing Global Carbon Budget 62.3 The Deadlocked UN Climate Negotiations 9References 12

Part 3 Australia’s Carbon Footprint: The “Sphere of Influence” Approach 153.1 Introduction 163.2 The “Sphere of Influence” Approach 163.3 Australia’s Domestic Emissions 17

3.3.1 Australia’s Absolute and Per Capita Domestic Emissions 173.3.2 Australia’s Domestic Emissions in a Global Context 18

3.4 Australia’s Exported Emissions 203.4.1 Australia’s Exported Emissions Today 203.4.2 Australia’s Growth in Exported Emissions 20

3.5 Australia’s Carbon Footprint Under the “Sphere of Influence” Approach 20References 22

Part 4 Australia’s Current Policy Settings: Explaining our Ballooning Carbon Footprint 23

4.1 Introduction 244.2 Six Problems with Australian Climate and Energy Policy 24

4.2.1 Arbitrary Targets, Low Ambition 244.2.2 Over-Reliance on Offsets: Green Carbon and Overseas Credits 244.2.3 “Transition Gas” 264.2.4 Hoping Against Reason for Carbon Capture and Storage 284.2.5 Insufficient Deployment Support for Renewables 294.2.6 Fossil Fuel Promotion Policies: Betting the Other Way 29

References 31

Part 5 Cooperative Decarbonisation: A New Paradigm for International Climate Policy 33

5.1 Introduction 345.2 The “Bottom-Up” Reality 34

5.3 Cooperative Decarbonisation 355.3.1 The Fundamentals 355.3.2 Small Group Cooperation 365.3.3 Unilateral Action 38

References 41

Part 6 Australia’s Role in Cooperative Decarbonisation 436.1 Introduction 446.2 Cooperative Decarbonisation: What Should Individual Countries Do? 446.3 Australia’s Responsibilities under Cooperative Decarbonisation 45

6.3.1 The Case for Australian Climate Leadership 456.3.2 International Equity 476.3.3 Australia’s National Interest 48

6.4 From Responsibility to Action 50References 51

Part 7 Renewable Energy: Australia’s Contribution 537.1 Introduction 547.2 The Problem: Severe Underinvestment in Zero Carbon Innovation 55

7.2.1 The Case for Public Investment in Zero Carbon Deployment 567.2.2 The Case for Public Investment in Renewable Energy Research and Development 56

7.3 What Should Australia Do and What Effect Would it Have? 587.3.1 Unilateral Action: Australia Leading by Example 587.3.2 Coordinating With Like-Minded Countries 63

7.4 The National Interest in Renewable Technology Deployment and Development 667.4.1 Sizing the Zero Carbon Economy 667.4.2 Australian Opportunities in Clean Tech Markets 68

References 71

Part 8 Ending the Growth in Fossil Fuels: Australia’s Contribution 758.1 Introduction 768.2 The Problem: More Fossil Fuels Than We Can Safely Burn 768.3 What Should Australia Do? 778.4 What Effect Would These Actions Have? 80

8.4.1 Australia’s Moratorium 808.4.2 Bringing Global Attention to the Issue 81

8.5 Fossil Fuels: Really in Australia’s National Interest? 828.5.1 Understated Risk: A Global Carbon Bubble? 828.5.2 Overstated Value: The Minor Role of Coal 848.5.3 Further Research 85

References 86

Part 9 Conclusion 89

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Contents

Laggard to Leader

Executive Summary

Laggard to LeaderExecutive Summary

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To allow this to occur would be catastrophic for global efforts to avoid dangerous climate change: it would mean Australia would be causing more than 1 in every 10 tonnes of the greenhouse gas emissions that can be emitted into the atmosphere in 2030 consistent with a 2°C warming trajectory.

Australia is the steward of its natural resources. They belong to all Australians and we can choose what to do with them. When our exports of coal and gas are burned, the carbon dioxide released into the atmosphere is the product of these choices. The fact that these emissions are not counted in Australia’s “carbon accounts” under UN carbon accounting rules has previously been used as an excuse for us to ignore their consequences.

But these rules are based on the idea that all countries will have emissions reduction targets, the achievement of which will “add up” to the global cuts necessary to stay within the 2°C limit. With the UN negotiations deadlocked and no foreseeable prospect of such an international regime emerging in the necessary timeframe, this excuse is not acceptable.

Hoping, against all probability, that the negotiations will reach a breakthrough just in time, while at the same time making the problem they are trying to solve significantly worse is a dangerous, counterintuitive and counterproductive approach for Australia to take.

It is well beyond time to approach the global challenge of preserving a safe climate in a very different way. It is time to put leadership towards zero carbon prosperity at the heart of our response.

In this report, Beyond Zero Emissions proposes a new way forward: a practical, problem-solving approach to the decarbonisation of the global economy within the timeframe necessary to preserve a safe climate — driven by national leadership and accelerated through international cooperation.

The logic of “Cooperative Decarbonisation” is simple. Each country must phase down to zero or very near zero the greenhouse gas emissions associated with every economic and social process over which it has control or influence. Instead of drawing lines at national borders, this approach recognises that, in a globalised economy, countries have shared responsibility for many of the emissions that occur in any one place. As such, countries should use every lever they have to eliminate those emissions within their “sphere of influence”, including the fossil fuels they export and the goods they import.

Clearly, international cooperation will be required — particularly to ensure that the goals of sustainable economic development are achieved and that wealthier countries assist low income countries to make this

Australia has the power to lead the world towards zero carbon prosperity.

Australia, along with the rest of the world’s nations, has formally adopted the objective of restraining global average temperatures to no more than two degrees Celsius (2°C) above pre-industrial levels. The 2°C goal is a proxy for avoiding dangerous and irreversible changes to the world’s climate — an outcome that the vast majority of Australians support.

Even a 2°C average temperature rise would worsen climate change impacts that are already being felt across Australia. Yet the world’s breakneck growth in fossil fuel supply and consumption is causing greenhouse gas emissions to rise at such a rate that, as the International Energy Agency warned this year, “the door to a 2°C trajectory is about to close”.

To keep the door open, global emissions must peak and begin to decline by 2020 at the absolute latest and then keep declining to zero by between 2040 and 2050. We are in “the critical decade”. Decisions we make today will largely determine the state of the climate system within which all subsequent generations must live.

The world’s nations gathered in Durban in late 2011 to continue long-standing negotiations towards a comprehensive international treaty to cut greenhouse gas emissions. The best they could agree was that they would aim to negotiate by 2015 an agreement requiring some countries to start reducing emissions beginning in 2020. These negotiations cannot be relied upon to secure the emissions cuts that are required. “It is clear”, argue the editors of the world’s preeminent scientific journal, Nature, “that the science of climate change and the politics of climate change ... now inhabit parallel worlds”.

Australia, too, is operating in a parallel world. Having introduced a carbon price that it claims will usher in a “Clean Energy Future”, the Federal Government and its State Government counterparts are aggressively supporting a massive programme of investment in new mines, wells, pipes and ports. These projects will see Australia export a staggering amount of highly emissions-intensive coal and gas during — and well beyond — the critical decade.

Australia is already the world’s largest coal exporter, responsible for more than a quarter of the world’s traded coal, and is the fastest growing exporter of liquefied natural gas. The emissions embodied in Australia’s fossil fuel exports already total much more than our “domestic” emissions. Based on data accumulated by Australian Government agencies, Australia’s combined coal and gas exports are projected to more than double between now and 2030.

essential transition. But instead of trying to do it all in one “grand bargain” as they are today, countries should work in smaller groups, focusing their efforts on the individual sectors and processes that cause emissions — working to leave fossil fuels in the ground, preserve the world’s forests and make renewable energy affordable for all.

Australia, one of the world’s wealthiest nations, is one of only a small handful of countries that can lead this process. The main reason for this is simple: our sphere of influence over global emissions is immense. Our high domestic emissions make us an important player, on par with nations like France, Spain and South Korea. But it is our ballooning coal and gas exports that make us a truly critical influence on global emissions.

We can use this position to focus the attention of world leaders on the most important, yet least discussed part of the climate problem: the fact that only one eighth of the world’s remaining fossil fuel reserves can safely be burned. Australia can help make that which is currently “unthinkable” — a global fossil fuel phase out — a reality. We propose an Australian moratorium on new fossil fuel developments: a bold move from the world’s largest coal exporter that can serve as the centrepiece for a wider call to action. Such a move would maintain the current global price of coal and stop it from falling by an expected 30% this decade. It would be one of the few conceivable ways that any single country could jolt world leaders into action, creating the economic and political momentum to commence immediate global discussion on the best and fairest means to phase-out fossil fuels.

Thankfully, Australia’s global power does not arise only from our ownership of the resources that are fuelling the problem. As the beneficiary of world class solar and wind resources, we also hold the key to the most important solutions.

Solar photovoltaics (PV) and wind energy are essential to decarbonising the world’s energy system. Thanks largely to the targeted investments made by Germany and other European countries when these technologies were more expensive, they have sailed down the “cost curve” and are now price-competitive with fossil fuel energy in many markets. Germany’s installation of almost 30GW of solar PV brought PV prices down by an incredible 65% over the past six years.

The other crucial technology is concentrating solar thermal (CST) with storage. This technology, which is operating today in other countries, produces 24 hour energy from the power of the sun. The Zero Carbon Australia Stationary Energy Plan showed that powering the Australian economy using predominantly CST is technically and economically achievable, starting now, in ten years. The greatest gift that sunny Australia could give to the world is to repeat for CST what cloudy Germany did for solar PV: through smart

policies and targeted investments, enable the deployment across Australia of enough CST to make this game-changing technology cost-competitive with fossil fuels everywhere.

Cheap renewable energy will solve some of the most challenging problems facing humankind this century — from climate change, to oil scarcity, to energy poverty — and allow us to build a global economy on foundations as reliable as the rising sun.

Australia has the power to make it happen.

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Glossary

Glossary

Acronym/Abbreviation

Definition

BZE Beyond Zero EmissionsCCS Carbon Capture and StorageCD Cooperative Decarbonisation

CDM Clean Development MechanismCEF Clean Energy FutureCO2 Carbon dioxide

CO2-e Carbon dioxide equivalentCSG Coal Seam GasCST Concentrating solar thermalGt Gigatonne (1 billion tonnes)IEA International Energy AgencyIISD International Institute for Sustainable

DevelopmentIPCC Intergovernmental Panel on Climate

ChangeLNG Liquefied Natural Gas

LULUCF Land Use, Land Use Change and ForestryMt Megatonne (1 million tonnes)

ppm Parts per millionPV PhotovoltaicUN United Nations

UNDP United Nations Development Program UNEP United Nations Environment Program

UNFCCC United Nations Framework Convention on Climate Change

ZCA Zero Carbon Australia

Laggard to Leader

Part 1Introduction

Laggard to LeaderPart 1: Introduction

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export income. In this report we show how the practical, problem-solving approach to sectoral decarbonisation advocated in the Zero Carbon Australia Plans can be leveraged to achieve major emissions reductions globally. In particular, we explain how Australia can exploit its world class renewable energy resources and its unique position in the global market for internationally traded coal and gas to steer the world’s trajectory away from breakneck growth in fossil fuel exploitation and toward a truly clean energy future.

Chapter 2 of this report describes the current climate change predicament in which humanity finds itself. It surveys the latest science and notes the necessity of reducing global emissions this decade if we are to stay in the “safe” range of 2˚C warming or below. The urgency of emissions reductions is contrasted with the deadlocked UN negotiations, which are extremely unlikely to yield a comprehensive agreement in the timeframe required. We explain why the Durban Roadmap is no cause for genuine hope and why a different approach to international cooperation is urgently required to supplement the UN process. The challenges discussed in this chapter pose the question: what should Australia’s role be in this “critical decade”?

Chapter 3 illuminates the true extent of Australia’s contribution to the climate problem. Whereas we typically conceive of Australia’s “carbon footprint” purely in terms of emissions released within Australian territory, we explain why this approach grossly understates the tonnage of emissions caused by Australian economic activity. We make the case that considering Australia’s carbon footprint in terms of the emissions within Australia’s “sphere of influence” — in particular our domestic emissions plus emissions embodied in our fossil fuel exports — provides a far more realistic picture of Australia’s contribution to climate change in world without a functional UN process. Given the extraordinary scale of Australia’s coal and gas export boom, the picture presented is not a flattering one: Australia’s combined domestic and exported emissions are on track to consume, by 2030, 11% of the remaining yearly global carbon budget required to keep below 2°C of warming.

It is widely perceived that Australia’s current policy settings — including the “Clean Energy Future” package and carbon price — will have a major impact on Australia’s emissions, restructure our economy towards clean energy and make Australia a global leader on climate change. In Chapter 4 we analyse Australia’s current domestic and international policy settings on energy, resources and climate change to demonstrate the inaccuracy of these perceptions. While Australia is certainly undertaking some welcome initiatives to reduce its emissions below “business as usual”, including the carbon pricing scheme, we show that Australian climate the Clean Energy Future package depends upon paying other nations to cut emissions for us, and on “silver bullet”

1. Introduction

“I do not accept”, proclaimed Professor Ross Garnaut at the launch of his 2011 Review of Australian climate change policy, “that Australia is a pissant country”.1

With less than one third of one per cent of the world’s population, Australia has built the world’s 13th largest economy and enjoys one of the highest incomes per person of any country.2 Historically, Australian governments of both political stripes have used our influence to lead the world on issues of global and regional importance. Prime Minister Hawke led the successful push to ban mining in Antarctica. The Hawke, Keating, Howard and Rudd Governments have led global efforts to stem nuclear proliferation and ban the testing of nuclear weapons. Under each of these governments, Australia played a central role in regional peace and security initiatives in Southeast Asia and the Pacific. Our diplomatic reach is substantial, and we enjoy a seat at the most important global decision-making table, the G20 — an institution we helped elevate to that status.

Yet when it comes to climate change — a phenomenon that profoundly threatens our safety, prosperity and natural environment — we are strangely content to play down our potential role and to let others take the lead. “We are too small to make a difference”; “Aren’t we only 1.5% of the world’s emissions?”; “Australian leadership would be pointless”, for “only the big emitters — China and the US — can ever play a leadership role”. Our political leaders actively reinforce these ideas — from Tony Abbott’s claim that Australian emissions reductions “will not make a difference for 1000 years”,3 to the Gillard Government’s veneration of followership (Australia’s carbon pricing scheme puts us in the “middle of the pack”).4 Claims such as these tend to go uncriticised and have come to set the boundaries of mainstream debate about the desirability and effect of Australian climate action.

The purpose of this paper is to refute the notion that Australian action is globally insignificant and to make the case that Australia can, and should, lead the world towards “zero carbon prosperity”.

The ground-breaking Zero Carbon Australia Stationary Energy Plan showed that there are no technical or economic barriers to a complete decarbonisation of Australia’s stationary energy sector, for the first time disproving the conventional wisdom that “renewable energy cannot provide baseload power”. The full series of Zero Carbon Australia Plans will set out in similarly technical terms how Australia can decarbonise its transport, industrial, land-use and agricultural sectors, revolutionise the energy efficiency of its built environment and replace its coal and gas


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examine the decisions we are now making about the shape of our economy over the next decade and beyond. While a comprehensive cost-benefit analysis of Australian decarbonisation is beyond the scope of this report, each of Chapters 7 and 8 highlights a number of reasons why these actions will serve Australia’s national interest. Beyond the clear value of lessening the odds of dangerous climate change, we argue that on raw economic terms, building Australia’s future around fossil fuels bears substantially greater risks and far fewer benefits than are currently acknowledged. Investing such wealth in the rapidly growing clean tech sector is a much wiser option given our natural advantages in renewable energy innovation and our world class solar and wind resources.

Everything proposed in this report is technically possible, legally permissible and economically viable. All our proposals can be implemented now using commercially available technologies and processes. All can be encouraged or mandated through laws and policies that have been successfully implemented before, in other contexts, and which the Commonwealth Government has the Constitutional authority to pursue. Moreover, given the diversity of industries that comprise Australia’s multi-faceted, service-based economy, it is inconceivable that anything we propose individually or in totality would significantly retard the projected growth of Australia’s economy, or make Australia a less equitable society, in the many decades to come.

We are nevertheless cognisant of the political, economic, social, and cultural barriers that stand in the way of Australia implementing reforms and policies along the lines we propose on these pages. It is because of these barriers that the scope of Australian action that can be imagined, discussed and analysed in detail is currently so limited. An alternative vision is required. Instead of projecting our current norms and structures forward over forty years and thinking about what could be tweaked, we believe it is preferable to articulate a vision for the future we want, informed by the realities and projections of the best climate change science we have at our disposal, and forge a pathway to that future.

Climate change poses extraordinary threats to our collective future and Australia is a huge part of the problem. Yet, we have immense capacity to contribute substantially toward global climate solutions, dramatically reducing the risks posed by climate change, at a time when our leadership is urgently required. There has never been a better time for Australia to shed its laggard skin and lead the world to zero carbon prosperity and a safe climate.

technologies like CCS that look unlikely to ever arrive. This extremely risky policy approach comes at the expense of measures that would induce the deep, structural change needed for a zero emissions economy. When considered alongside the wide range of state and federal policies promoting the rapid exploitation of Australian coal and gas for export, the conclusion is inescapable: Australian policy is, on balance, fuelling the problem.

Chapter 5 introduces a new way of thinking about international climate action — Cooperative Decarbonisation. This entails a more practically-oriented, problem-solving approach to decarbonising the global economy, sector by sector, using a wide range of policies, measures, investments and cooperative structures. This chapter explains why approaching climate action in this way is more likely to yield progress on emissions cuts and structural transformation than the UN negotiations.

Chapters 6-8 make the case for Australian leadership towards a zero carbon world within a Cooperative Decarbonisation paradigm.

Chapter 6 argues the case that Australia should not only decarbonise its domestic economy rapidly but do so in such a way as to provide global leadership, co-operating intensively with like-minded countries to provide affordable, zero emissions solutions globally — particularly in the developing world. This Chapter also outlines the kinds of practical international actions and policies that Australia could implement to ensure its domestic decarbonisation efforts are leveraged for maximum impact on global emissions.

Chapter 7 explains why large-scale investment in the rapid deployment of commercially-available zero emissions technologies should be the focus of Australian climate policy, alongside increased investment in research, development and demonstration of new technologies. It describes the actions Australia should take in this regard and demonstrates that such efforts would make an immense contribution to making zero carbon technologies cheap and accessible for people everywhere.

The second area where Australian leadership could make a great difference to the global emissions trajectory relates to the exploitation and export of coal and gas. Chapter 8 explains why a global fossil fuel phase-out, currently a sensitive topic in mainstream discussion, is necessary to preserve a safe climate. Accordingly, it outlines a series of steps that Australia should take to put the issue squarely on the international agenda, including a moratorium on new Australian fossil fuel developments, and explains the important effect on global energy markets and political action that such steps could have.

The underlying message of Chapters 6-8 is this: in light of Australians’ desire for a safe climate, we must critically


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References1. Ross Garnaut, quoted in Tom Arup, “We’re Not Pissants”, The Age (1 June

2011) http://www.theage.com.au/national/were-not-pissants-garnaut-

20110531-1feq1.html. A “pissant” is a type of ant found in Europe. Used in its

adjectival form, it is a pejorative that means insignificant and annoying: see

“Pissant”, Oxford Dictionaries, http://www.oxforddictionaries.com/definition/

english/pissant.

2. World Bank, “Gross national income per capita 2010, Atlas method and PPP”,

World Development Indicators Database (1 July 2011) http://siteresources.

worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf; “Gross Domestic

Product 2011” (9 July 2012) http://databank.worldbank.org/databank/

download/GDP.pdf.

3. See, e.g., Tony Abbott as quoted in Lauren Wilson and Matthew Franklin,

“1000 year vision fuels climate fight”, The Australian (29 March 2011) http://

www.theaustralian.com.au/national-affairs/year-vision-fuels-climate-fight/

story-fn59niix-1226029695904 and “Rio Meet Another International Talkfest:

Abbott”, Business Spectator (21 June 2012) http://www.businessspectator.

com.au/bs.nsf/Article/Rio-another-international-talkfest-Abbott-

VG6WD?opendocument&src=rss.

4. See, e.g., Wayne Swan, “The Role of Government in a Changing

Economy” Address to the Economic and Social Outlook Conference,

Melbourne (30 June 2011) http://www.treasurer.gov.au/DisplayDocs.

aspx?doc=speeches/2011/021.htm&pageID=005&min=wms&Year=&DocTy

pe.

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Contents

2.1 Introduction 06

2.2 TheRapidlyDiminishingGlobalCarbonBudget 06

2.3 TheDeadlockedUNClimateNegotiations 09

References 12

Part 2The Current Global Predicament

Laggard to LeaderChapter 2: The Current Global Predicament

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• BecauseofnumerousdesignflawsintheUNapproach,anewtreatyisunlikelytoemergeanytimesoon.

• Evenifagreed,anynewtreatywouldlikelyimposeonlymodest restrictions on key countries’ emissions andonlywitheffectfrom2020attheearliest—fartoolittleand far too late to achieve science-based emissions cuts inthiscriticaldecade.

• Relying on the UN process alone is dangerous — atleastintheshort-mediumterm,adifferentapproachtocooperativeclimateactionisurgentlyrequired.

2.2 The Rapidly Diminishing Global Carbon Budget

Climate scientists tell us that greenhouse gas emissionsare warming the world and that a temperature rise ofmore than 2˚Cwould pose catastrophic risks for humanpopulationsandecosystemsalike.Morethan100countries— Australia included— have formally recognised thesefactsbyadoptingaglobalwarming limitof2˚Corbelowasaguidingprincipleforclimatechangemitigationefforts.

This2˚ClimithasbeenequatedwithaCO2-econcentrationof no more than 450 parts per million (ppm) in theatmosphere (comparedwith around 390ppm today and280ppm pre-industrially), which is estimated to give a50/50 chance of a temperature rise of 2˚C ormore. AsdiscussedinBox2.1,thereismountingevidencethateven450ppmmayposeseriousrisks,andassuchitrepresentsanextremeupperlimitforCO2-econcentrations.

2.1 Introduction

Earlierthisyear,theInternationalEnergyAgency(IEA) gave itsmost stridentwarning yet that asafe climate is about to slip out of reach. Global energyemissionsrosemorerapidlyin2011thanexpected,toanall-timehighof31.6billiontonnesofcarbondioxideequivalent(CO2-e),leadingIEAChief Economist Fatih Birol to announce that“the door to a 2°C trajectory is about to close.”1

For20yearstheUNclimateprocesshasbeenworkingtokeep this door open. While countries have striven to limit global warming to safe levels through the developmentof a comprehensive international climate treaty, globalenergyemissionshave soaredby50%.2 In 2012 there isstillnosuchtreatyonthehorizon.Theworld’skeyemittersremain irreconcilable, the negotiations are deadlocked,and the tough decisions keep being postponed. In the wordsoftheeditorsoftheworld’spre-eminentscientificjournal,Nature,thelatestroundofnegotiationsinDurbanwas“anunqualifieddisaster.Itisclearthatthescienceofclimatechangeandthepoliticsofclimatechange...nowinhabitparallelworlds.”3

As a result, humankind finds itself in an extraordinarypredicament:weareabouttostepoverdangerousclimaticthresholds,towardsaworldthatnobodywants,becausewecannotfindawaytocooperate.

This chapter elucidates that predicament. First, it brieflyexaminesthepresentscienceregardingwhatconstitutesa“safe”degreeofglobalwarmingandtheimplicationsofourcurrent emissions trajectory. Using data and analysis from the International Energy Agency, the German AdvisoryCouncil on Climate Change and Nature,itconcludesthat:• Thelatestscienceprovidesincreasinglyseriouswarnings

abouttherisksassociatedwitheven2°Cwarming.• To give a likely chance of avoiding warming above

2°C, global emissions need to peak before 2020 anddeclinerapidlythereaftertozeroby2050(however,fordeveloped countries, the deadline ismuch earlier, asdiscussedinChapter3).

• Only one eighth of the world’s remaining fossil fuelreserves can be burned before the 2°C limit is breached.

• Currentinternationalemissionstargetsfallwellshortofthe2°Cgoal,andtheworldispresentlyontracktouseupitscarbonbudgetby2025andraiseglobalaveragetemperatureby6°C.

The chapter then explains why the current UN climatenegotiations — and the “top-down” paradigm ofinternationalclimateactionwithwhichtheyareassociated— are not the solution. While recognising that the UNprocesshaslaudableaimsandisworthpersistingwith,thechapter concludes that:


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From the perspective of emission scenarios, these feedbacks imply that an increase in emissions can no longer be assumed to result in a pro-rata incremental increase in impacts. Put another way, a decision to relax climate policy and aim for a higher temperature target, such as 2.5°C or 3°C, may not actually allow much room for an increase in emissions, given the likelihood of further emissions and warming being triggered by feedbacks. For example, Schaefer et al. (2011) calculate that under conditions similar to the New Policies Scenario (which stabilises the atmospheric concentration at around 650ppm CO2-eq), emissions from melting permafrost would lead to a further increase of 58 to 116ppm in CO2 concentrations, resulting in further warming and more feedbacks.

The 450 Scenario, by definition, achieves a long-term atmospheric concentration of 450ppm CO2-eq (resulting in average warming of 2°C). Such a temperature increase (even without allowance for additional feedback effects) would still have negative impacts, including sea-level rise, increased floods, storms and droughts.

The new evidence has led some researchers to conclude that even keeping the temperature rise to 2°C may risk dangerous climate change, and that an even lower temperature threshold and corresponding stabilisation target (such as 350 ppm) should be set (Anderson and Bows, 2011; Hansen et al., 2008; Rockström et al., 2009; Smith et al., 2009). The uncomfortable message from the scientific community is that although the difficulty of achieving 450 ppm stabilisation is increasing sharply with every passing year, so too are the predicted consequences of failing to do so.”

Beyond Zero Emissions advocates a return to 350ppmor below as the necessary long-term outcome. Thiswillrequire a rapid decline in global fossil fuel emissions by2020 and emissions draw-down in following years toreverse our overshoot. Nevertheless, like the IEA, thispaper regularlymakes reference to theconventional2˚Cscenario simply because it is themostwidelymodelled,andit isnotwidelyknownthattheworldiscurrentlyontrack to completely overshoot even this risky target.

Box2.1:450ppmand2˚C:ARiskyLegacy?

The 2˚C and 450ppm guardrails are the product of along history of climate sensitivity analysis leading upto the 2007 International Panel on Climate Change(IPCC)Report.Althoughmuchof today’s climate changepolitics is conducted around these targets, they are notchiselled in stone. Science continues to improve uponourunderstandingoftheclimate,andwhatconstitutesarationalpolicyresponsewillideallymoveintandem.

Estimates of climate sensitivity (or the amount globaltemperatures rise from a doubling of atmospheric CO2 concentrations) have remained remarkably constant formore than a century, with Svante Arrhenius arguing in1896thatdoublingatmosphericCO2wouldincreaseglobaltemperatureby4˚C.Today,adoublingisexpectedtocause3˚Cofwarming,witharangeof2to4.5˚C.Buttheriskofclimatefeedbacksand“tippingpoints”transforming2˚Cofwarmingintomuchmore—suchaspermafrostthawing,changingvegetationpatternsandice-albedofeedbacks—are becoming an increasing concern.

In light of the latest science, is there anything specialabout2˚C?TheIEA’sWorldEnergyOutlook2011providesthefollowinganswer:4

“The expected warming of more than 3.5°C in the New Policies Scenario [note that the IEA’s “New Policies Scenario” assumes substantially increased investment compared with today, but only achieves stabilisation at 650ppm and 3.5°C of warming] would have severe consequences: a sea level rise of up to 2 metres, causing dislocation of human settlements and changes to rainfall patterns, drought, flood, and heat-wave incidence that would severely affect food production, human disease and mortality.

Alarmingly, research published since the International Panel on Climate Change’s Fourth Assessment Report in 2007 suggests that this level of temperature change could result from lower emissions than those of the New Policies Scenario, due to climate feedbacks (IPCC, 2007a). For example, drying of the Amazon would release CO2 that would then lead to further warming (Lewis et al., 2011) and rising arctic temperatures would lead to extra emissions from melting permafrost (Schaefer et al., 2011). These feedbacks have not yet been characterised with certainty, but they are expected to be triggered by temperature rises between 2°C and 5°C (Smith et al., 2009). The threshold for large-scale sea level rise may be similar, between 1.8°C and 2.8°C (Lenton et al., 2008 ; Hansen et al.,2008).


8

The 2°C limit can be expressed in terms of our remaining “carbon budget”, or the amount of CO2 in gigatonnes (Gtorbillion tonnes) theglobal community ispermittedto release into the atmosphere before this temperature guardrailisbreached.Ifweaimfora75%chanceofstayingwithin the2˚Cguardrail, theworld’scarbonbudgetoverthe2000–2050periodisaround1,000GtofCO2.

Asat2012,wehavealreadyemittedaround450GtCO2—almosthalfofthe2˚Ccarbonbudgetwithinonly12years5

—leavingonly550Gtfortheremainderoftheperiodto20506.Thesmallsizeofourremainingcarbonbudgetsitsincontrasttotheimmensityoftheworld’sremainingfossil

0 500 1,000 1,500 2,000 2,500

Pro

babi

lity

of e

xcee

ding

2 °

C

100%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Pro

babi

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of s

tayi

ng b

elow

2 °

C

Very likely

Like

lyU

nlik

ely

Less

like

ly

than

not

Mor

e lik

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than

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Emitted, available carbon (Gt CO2)

0 500 1,000 1,500 2,000 2,500

a

b

Carbon budget for 2°C

Land use

Gas including unconventional

Oil

Coal

Cumulative total CO2 emissions 2000–49 (Gt CO2)

Total reserves >3500 Gt

Unburnable carbon >3000 Gt

2000 - 2012 emissions already released

FIGURe 2.1Totalglobalprovenfossilfuelreserves,comparedtotheprobabilityofexceeding2˚CglobalwarmingasafunctionofcumulativeCO2emissions2000-20497

fuelreserves.Currentreservesareequivalentto3,500GtofCO2.Giventhatsomeoftheglobalcarbonbudgetwillbe consumed from non-energy sources of emissions, atmost only 1/8 (equivalent to around 450Gt CO2) of ourremainingfossilfuelreservescanbeburnedupto2050.

Figure2.1,adaptedfromMeinshausenetal(2009),showsthe relationship between the amount of carbon dioxideweemitduringthe2000-2050periodandourlikelihoodofexceeding2˚Cofwarming.

Keepingglobalemissionswithinthecarbonbudgetrequiresenergy(fossilfuel)emissionstopeakwithinthelatterhalf

Belowthecurve,thefigureshows:• 2000-2012 emissions — These have already been

released, and so are subtracted from the 2000-2050budget. emissions over these 12 years have already takenusalmosthalfwaytothecarbonbudget.

• Fossil fuel reserves — Also shown is the size ofremainingglobalgas,oilandcoalreservesintermsoftheir CO2 potential. These come to 3,500Gt in total,

withcoaltakingthelion’sshare.8 • Unburnablecarbon—Thefigureshowsthattoremain

withinthe2°Ccarbonbudget,onlyafractionoftheseresources—lessthan500Gtworth—canbeburned.This assumes very low emissions from non-energysourcesofemissions(e.g.industrialprocesses,land-use,land-usechangeandforestry).


9

Underthecurrentnegotiations,countriesarealsotryingtoreachagreementonreducingemissionsfromdeforestation,internationalaviationandshipping,andoncomplexissuesofinternationalequity(includingtheprovisionoffinancialand technological transfers to developing countries to assistwithmitigationandadaptationtoclimateimpacts)16 —allaspartofthesame“grandbargain”.

This top-down paradigm is an ambitious, theoreticallyelegant response to the technical and moral challenges posed by climate change — but it has been unableto deliver the results it has promised. Since countries began negotiating this grand bargain, global CO2 energy emissionshaverisenbyaround50%.24TheKyotoProtocol,thefirstcommitmentperiodofwhichexpiresattheendof2012,hasfailedtomakeasignificantimpactontheglobalemissionstrajectory(seeBox2.3)andnocomprehensiveregime forcuttingemissionshasbeenagreed to replaceit. Successive conferences are hailed as important

of this decade,with theheight of thepeakdeterminingthe rate at which emissions need to decline thereafter.TheGermanAdvisoryCouncilonClimateChangeprovidesa number of scenarios: if emissions peak by 2015, thenglobalemissionsneedtoreacharoundzerobythe2050mark; if emissions peak later, by 2020, then the rate ofdeclinebecomesmoresevere—emissionsmustdeclinebyanunlikely9%peryeartoreachzeroby2040.

Whichever curve one chooses, global energy emissionsneedtopeakatnomorethan34Gtbefore2020andfalltolessthan20GtofCO2by2030.

9Theurgencyofeffortstoturntheglobalemissionstrajectoryaroundbefore2020has led numerous governments, Australia’s included, tonotethatwehaveentered“thecriticaldecade”.10

Oncurrenttrends,theworldwilluseupitscarbonbudgetbyassoonas2025.Weare“perfectlyontrackforasix-degreeCelsiusrise intemperature,”concludedBirol—apath that “will have catastrophic implications for all ofus.”11

2.3 The Deadlocked UN Climate Negotiations

Since the adoption of the United Nations Framework Convention on Climate Change (UNFCCC)12 in 1992, theinternational community has been trying to agree oncooperativeinternationalclimateactionthatwouldpreventtheseafore-mentionedcatastrophesfromeventuating. Ithas beendoing sowithin a top-downparadigm thatwerefertoas“treaties,targetsandtrading”.13 This paradigm aims to “prevent dangerous anthropogenic interference withtheclimatesystem”14asfollows:• all193PartiestotheUNFCCC(nearlyeverycountryinthe

world) negotiate, agree by consensus, and eventuallysignandratifyabindinginternationalagreement(s);

• the agreement imposes on each country an emissions reductiontargetentailingareductionofthatcountry’stotaldomesticemissions(i.e.thoseproducedwithinitsborders)againstahistoricalbaseline;

• those individual country targets add-up to a level of emissions reduction that stabilises concentrations ofgreenhouse gases in the atmosphere to an agreed level (e.g.350,450or550ppm),whichtranslatestoanagreedmaximum level of warming (average temperatureincreasesabovepre-industriallevels);15

• each country’s target leaves it with an emissionsentitlement (an amount they are allowed to emitwithoutexceedingtheirtarget)andtheseentitlementscan be tradedbetween countries via an internationalemissions trading mechanism;

• compliance with targets and related obligations isenforcedthroughcentralisedinternationalinstitutions;

Box 2.2: Brief History of the UN Climate Process

The UNFCCC,17 negotiated in 1992, established amultilateral framework for international climategovernancewithintheUNsystem.TheUNFCCCenshrinedthe long-term goal of avoiding dangerous anthropogenic interference in the climate system and established a suite of institutions and rules for the negotiation anddevelopmentofmoredetailedemissionsreductionsandrelated commitments.

Notable developments over the UNFCCC’s twenty yearhistory have included: • thenegotiation(in1997)andentryintoforce(in2005)

of the Kyoto Protocol, in which developed countriesaccepted binding emissions limitation targets to beachievedover thefirst commitmentperiod,between2008-2012;18

• the Bali Action Plan (2007),19 which established two“tracks” for negotiating, by 2009 at Copenhagen, asuiteofagreementstocommencefollowingtheendofthefirstKyotocommitmentperiod;20

• the Copenhagen Conference (2009) at which partiesfell well short of reaching any such agreements butinsteadproducedathreepagesetofhigh-levelpoliticalcommitments known as the Copenhagen Accord,21 which were translated into formal decisions onperipheral issues (not includingemissions constraintsforindividualcountries)ayearlaterinCancun(2010);22

• the Durban Platform(2012),bywhichcountriesagreedto start another new negotiating process towardsa treaty or other “outcome with legal force” to benegotiatedby2015andtakeeffectin2020.23


10

There are important political, economic and culturalreasonswhycountriesarenotmakingambitiousemissionsreductionpledgesandwhythemajoremitters(particularlydeveloped countries including the United States) arenot providing political leadership.32 These issues are beyond the scope of this report but, undoubtedly, the“game of chicken” being played by the United States and China — the world’s two largest emitters — has beena major barrier to progress.33 TheUS insists that itwillnotacceptemissionsreductiontargetsunlessChina(andothermajorindustrialisingcountrieslikeIndiaandBrazil)also accept binding targets.Meanwhile, China and Indiaremain reluctant to accept such obligations until theUSand other developed emitters fulfil their “differentiatedresponsibilities” to lead, enshrined in article 3(1) ofthe UNFCCC. This crisis of leadership has crippled the negotiationsforyears.

There are no signs that this will change anytime soon.Promises of a comprehensive treaty in the near future should be regarded with a high degree of scepticism.The “Durban Roadmap” (the latest international plantonegotiatesucha treaty) inparticularprovidesno realcause for hope that the deadlock can be broken.

TheRoadmap commits theparties to a newprocess forthe negotiation by 2015 of “a protocol, another legalinstrument or an agreed outcome with legal force” (aformulation that has been interpreted to mean verydifferent things by different countries34), with theassociated emissions reduction obligations to come intoeffect from 2020.35 But the Roadmap is nothing more thana(non-binding)“agreementtonegotiate”an“agreedoutcome” of unknown content and form. The last suchroadmap— the Bali Action Plan agreed in 2007—wasmeant to result in a binding agreement by the end of 2009inCopenhagen.WhenitbecameclearthatnosuchagreementwouldbereachedinCopenhagen,thepartiessimplyextendedindefinitelythenegotiatingtimetableandultimately abandoned it in 2011. The process launchedat Durban could likewise extend well beyond 2015 —

“steps forward”,but thepositivespinbarelyconcealsanincreasingly stark reality.

Box2.3TheFlawsintheCurrentParadigm:TheCaseof the Kyoto Protocol

Theflawsinthecurrentparadigmofclimateactionhavebeen empirically demonstrated via the Kyoto Protocol. The Kyoto targets were meant to be a “first step” fordevelopedcountriesinreducingtheiremissionsandwereonlyintendedtoresultinanaverage5%cutindevelopedcountryemissionsbelow1990levelsoverthe2008–2012period.Withthe2012end-datefastapproaching,wenowknowhowitwillturnout:25

• Russia and other former Soviet countries will beattheirtargetsbyalongwayduetothecollapseoftheireconomies in the transition from Communism after1990,giftingthemmillionsoftonnesworthofsurplus(or “hot air”) emissions allowances which they cantradewithothercountries (thatthiswouldresultwasknownatthetimeofthenegotiationsin1997—infact,itwasseentobeanimportantinducementforcertaincountriestosign).26

• A number of eastern European economies were alsoaffected by the post-Soviet collapse,which hasmadeitmuch easier for the EU tomeet its EU-wide Kyototarget — an achievement also helped by the use ofinternational offsets and the outsourcing of heavyindustry andmanufacturing to China (though Europemustreceivesomecreditformeetingitstargetspartlythroughclimatepolicy).27

• Australiaisontracktomeetitstarget(ofan8%increaseonits1990levelemissions),albeitlargelythankstoanaccountingprovisionitinsertedintotheKyotoProtocolat the 11th hour of the negotiations. The so-called“Australiaclause”allowsAustraliatoclaimtheemissionsreductionbenefitofpost-1990land-clearingreductionsonprivateland,whichmaskthefactthatourfossilfuelemissionshaverisenbyaround44%since1990.28

• JapanwillfailtomeetitsKyototargetthroughdomesticreductions,butmadepurchasesofhotairallowancestomake-uptheshortfall.29

• Canada is on track to increase its emissions by around 30% since 1990, putting it way in excess of its Kyototarget. Faced with the threat of enforcement actionunder the Protocol (additional obligations in thehypothetical second commitment period, post-2012)ithassimplyrepudiateditsobligationsandwithdrawnfrom the Protocol altogether.30

• The US, having been instrumental in weakening thecontentoftheProtocolduringthenegotiations,neverratified it at all and has increased its emissions wellbeyonditsnominal7%reductiontarget.

FIGURe 2.2ThedelegateforHaitirestsbeforetheseconddayofnegotiations,December2009,Copenhagen,Denmark31


11

perhapstobereplacedbyanothernewroadmapinfourorfiveyears’time.

Even if an agreement were to be reached by 2015 andcome intoeffectby2020, it is likely tobe too little, toolate. Currently pledged emissions targets (on which anyfuture treaty is likely to be based) come nowhere nearto plugging the enormous disparity— estimated by theUNEnvironmentProgramtobeupto18billiontonnes—between business as usual emissions and science-basedestimatesofthereductionsrequired.36

Moreover,asdiscussed,thelatestclimatesciencesuggeststhatglobalemissionsmustpeakwithinthesecondhalfofthecurrentdecade—theearlierthebetter—ifwearetohave any chance of restraining global average temperature risestowithin2°C.Holdingoutforinadequateemissionsreductionobligations thatmightbegin in2020 isnot anacceptableinternationalpolicyresponse.

Finally, even the inadequate commitments countriesmaymake can easily be hollowed-out through complexaccounting loopholes and through the provision ofinternational offsets, many of which are of dubiousquality,astheKyotoexperiencehasshown.37Inanycase,

ifsuchlegallybindingcommitmentsbecometooonerous,countries can simply ignore them as Canada has ignored itsKyotoobligations.

Of course, it is possible that, sometime in the future,countrieswillbeable toagree toacomprehensive, top-downregimeoftargetsthatadduptoasufficientlyrisk-averse climate stabilisation goal, backed by effectiveverification and enforcement mechanisms. For this andother reasons, including the need to have a centralisedrepositoryofemissionsdatatotrackcountries’emissions,theUNprocessshouldcontinue.

However, Australia and other countries cannot dependsolely upon that process to deliver a sufficient solution.To do so would be a dangerous policy response to theextraordinary threat to Australian and global welfareposed by climate change. Countries must urgently develop new models of cooperation outside the UN process iflarge-scaleemissionsreductionsaretobeachievedinthetimeframerequiredtopreserveasafeclimate—athemewereturntoinChapter5.

FIGURe 2.3Delegatesrestduringanallnightplenarysession,December2009,Copenhagen,Denmark38


12

(14May2012)http://www.newyorker.com/reporting/2012/05/14/120514fa_

fact_specter?currentPage=all.

12. UNFCCC,Openedforsignature4June1992,1771UNTS107(enteredinto

force21March1994).

13. SeeFergusGreen,“TheFailureof‘Treaties,TargetsandTrading’andthe

FutureofAustralianClimatePolicy”,Inside Story(2February2012)http://

inside.org.au/the-failure-of-treaties-targets-and-trading/and“TimetoMove

Beyond‘Treaties,TargetsandTrading’”,Inside Story(6March2012)http://

inside.org.au/time-to-move-beyond-treaties-targets-and-trading/.

14. UNFCCC(1992),art2.

15. Forthearchetypicalexplanationofhowthisprocessissupposedtoworkin

theory,seeRossGarnaut,“TheGarnautClimateChangeReview”(2008)Ch

12.Thecausalrelationshipbetweeneachoftheselogicalstepsis,however,

extremelycomplexandcountrieshavestruggledtodefineandagreeona

precisesetofobjectives.Forexample,whilemanynationshaveclungto

thegoalofrestrainingglobaltemperatureincreasestolessthan2°C,the

AllianceofSmallIslandStatesandanumberofothercountriesinsistthat

thegoalshouldbetokeepincreasesbelow1.5°C.Thisdisparityofobjectives

isreflectedin,forexample,theCopenhagenAccordparagraph1(which

recognises“thescientificviewthattheincreaseinglobaltemperature

shouldbebelow2degreesCelsius”)andparagraph12(whichcallsfora

considerationofstrengtheningthegoalto1.5°C)andtheDurbanPlatform

preamble(whichreferstoholdingtemperaturesincreasesinglobal

temperaturetobelow“2°Cor1.5°C”).

16. ForasummaryoftheissuesontheUNnegotiatingagenda,seeFergusGreen

andGregPicker,“ComprehendingCopenhagen:AGuidetotheInternational

ClimateChangeNegotiations”(Lowy Institute for International Policy,

November2009).

17. UNFCCC(1992).

18. “KyotoProtocoltotheUnitedNationsFrameworkConventiononClimate

Change”,openedforsignature16March1998,2303UNTS148(enteredinto

force16February2005)art3.1,AnnexB.

19. ConferenceoftheParties,“ReportoftheConferenceofthePartiesonIts

ThirteenthSession,HeldinBalifrom3to15December2007,Addendum

—PartTwo:ActionTakenbytheConferenceofthePartiesatItsThirteenth

Session”,UNFCCC, 13thsess,UNDocFCCC/CP/2007/6/Add.1(14March2008)

p3(Decision1/CP.13—BaliActionPlan).

20. Onetrackwasfocusedonachievingasecondcommitmentperiodunder

theKyotoProtocolandtheotherconcernedwithabroaderrangeofissues,

includingemissionsreductionobligationsfordevelopingcountries(and

relatedfinancialandtechnicalassistancefromdevelopedcountries)and

reducingemissionsfromdeforestation.

21. ConferenceoftheParties,“ReportoftheConferenceofthePartieson

ItsFifteenthSession,HeldinCopenhagenfrom7to19December2009,

Addendum—PartTwo:ActiontakenbytheConferenceofthePartiesatIts

FifteenthSession”,UNFCCC,15thsess,UNDocFCCC/CP/2009/11/Add.1(30

March2010)p4-9(Decision2/CP.15—CopenhagenAccord).

22. SeetheformaldocumentationfromtheCancunmeetingatUNFCCC,“Cancun

ClimateChangeConference—November2010”,http://unfccc.int/meetings/

cancun_nov_2010/meeting/6266/php/view/reports.php.

23. ConferenceoftheParties,“ReportoftheConferenceofthePartiesonIts

SeventeenthSession”,UNFCCC,HeldinDurbanfrom28Novemberto11

December2011,Addendum—PartTwo:ActionTakenbytheConferenceof

thePartiesatItsSeventeenthSession,17thsess,UNDocFCCC/CP/2011/9/

Add.1(15March2012)p2(Decision1/CP.17—EstablishmentofanAdHoc

WorkingGroupontheDurbanPlatformforEnhancedAction)paras2,4.

24. AnalysisofUSEIA“InternationalEnergyStatistics”.

25. DatarelatingtothebelowpointscanbeaccessedfromUNFCCC,“Kyoto

References1. JessicaShankleman,“IEAWarnsTimeisRunningOuttoPreventCatastrophic

ClimateChange”,Business Green(25May2012)http://www.businessgreen.

com/bg/news/2179906/iea-warns-running-prevent-catastrophic-climate-

change.

2. BasedonacomparisonofCO2emissionsfromenergyconsumptionbetween

1992and2010:US Energy Information Administration,“InternationalEnergy

Statistics”,http://205.254.135.7/cfapps/ipdbproject/iedindex3.cfm?tid=90&pi

d=44&aid=8&cid=regions&syid=1980&eyid=2010&unit=MMTCD.

3. Editorial,“TheMaskSlips”(2011)Nature,Vol.480,p292,http://www.nature.

com/nature/journal/v480/n7377/full/480292a.html.

4. International Energy Agency,WorldEnergyOutlook2011(2011)p209,

http://www.scribd.com/doc/72512781/World-Energy-Outlook-2011.

5. Extrapolatedfrom, MalteMeinshausenetal,“Greenhouse-gasemission

targetsforlimitingglobalwarmingto2°C”(2009)Nature,Vol458,p1158-

1162,http://www.nature.com/nature/journal/v458/n7242/full/nature08017.

html.

6. Ibid.

7. AdaptedwithpermissionfromMeinshausenetal(2009).Estimatesofglobal

gasreservesinMeinshausenetal(2009)werebasedonend-2005figures

ofprovengasreservesatthemostconservativeconfidencelevelofproven

reserves(WER2007)-176trillioncubicmetres(TCM),correspondingto

360GtCO2ofemissionsifcombustedtoCO2(ignoringpotentialfugitive

methaneleaks).Since2005,newtechnologyemployedbytheoil&gas

industrysuchasadvancedfracturingtechniqueshaveledtosignificant

developmentsofunconventionalgasresourcessuchasshalegasand

coalseamgas,leadingtotheIEAfeaturingaspecialissuewiththeWorld

EnergyOutlook2011asking‘AreweenteringaGoldenAgeofGas?’.IEA

WEO2011estimatesJanuary2010UltimatelyRecoverableReservesof404

TCMconventionalgas,andafurther406TCMunconventionalgas.Thisis

equivalentto1655GtCO2.TheauthorsnotethatURRisalessconservative

estimationthan‘proven’reserves,howeverthisgascouldpotentiallybe

exploitedwiththenewtechniquesmentionedearlier.Forthemid-range

estimatewehavetaken50%ofthedifferencebetweenIEA’sURRof810

TCMandtheWERestimateof176TCM,addedtotheoriginal176TCM,

givingamid-rangepotentiallyrecoverablereserveof493TCM,equivalent

to1008GtCO2.See:MalteMeinshausenetal.“Greenhousegasemission

targetsforlimitingglobalwarmingto2°C:Supplementarymaterial”,Nature

(April2009)TableS3,doi:10.1038/nature08017;“2007SurveyofWorld

EnergyResources”,World Energy Council,(2007)Table5-1,p161,http://

www.worldenergy.org/documents/ser2007_final_online_version_1.pdf;

“AreweenteringaGoldenAgeofGas?”,International Energy Agency

(2011)Table2.1,p49,http://www.iea.org/weo/docs/weo2011/WEO2011_

GoldenAgeofGasReport.pdf.

8. CarbonTracker,“UnburnableCarbon–Aretheworld’sfinancialmarkets

carryingacarbonbubble?”(2011),p6http://www.carbontracker.org/wp-

content/uploads/downloads/2011/07/Unburnable-Carbon-Full-rev2.pdf.

9. WBGU–GermanAdvisoryCouncilonClimateChange,“SolvingtheClimate

Dilemma:TheBudgetApproach”(2009)p16,http://www.wbgu.de/

fileadmin/templates/dateien/veroeffentlichungen/sondergutachten/sn2009/

wbgu_sn2009_en.pdf.

10. AustralianGovernment,“Australia’sSubmissiontotheRio+20Compilation

Document”,(2012)p10,http://www.environment.gov.au/rio/pubs/

compilation-draft-submission.pdf;AustralianClimateCommission,“The

CriticalDecade:ClimateScience,RisksandResponses”(2011)http://

climatecommission.gov.au/report/the-critical-decade/.

11. FatihBirolquotedinMichaelSpecter,“TheClimateFixers”,The New Yorker


13

ProtocolData”,http://unfccc.int/ghg_data/kp_data_unfccc/items/4357.php.

26. DieterHelm,“Climate-ChangePolicy:WhyhasSoLittlebeenAchieved?”,

Oxford Review of Economic Policy(2008)24(2),p211,218;GwynPrinsand

SteveRayner,“TheWrongTrousers:RadicallyRethinkingClimatePolicy”

(2007)p10-11;DavidVictor,TheCollapseoftheKyotoProtocolandthe

StruggletoSlowGlobalWarming(2001).

27. Helm,“Climate-ChangePolicy:WhyhasSoLittlebeenAchieved?”,p218;

PrinsandRayner,“TheWrongTrousers:RadicallyRethinkingClimatePolicy”,

p10-11.

28. AndrewMacintosh,“ReducingEmissionsfromDeforestationandForest

DegradationinDevelopingCountries:ACautionaryTalefromAustralia”,The

Australia Institute,PolicyBriefNo.12(April2010).

29. See,e.g.,AdamEaston“PolandSignsDealtoSellJapan4MillionAAU

EmissionsCredits”,Platts (10December2010)http://www.platts.com/

RSSFeedDetailedNews/RSSFeed/ElectricPower/6663640;DavidPillingand

FionaHarvey,“JapantoStartBuyingCarbonCredits”,Financial Times(22

November2007)http://www.ft.com/intl/cms/s/0/b45ad96c-9929-11dc-

bb45-0000779fd2ac.html;“GreenhouseGasEmissionsinFiscal2010up

4.2%”,The Japan Times Online(18April2012)http://www.japantimes.co.jp/

text/nn20120418f3.html.

30. “CanadaPullsOutofKyotoProtocol”, The Guardian(13December2011)

http://www.guardian.co.uk/environment/2011/dec/13/canada-pulls-out-

kyoto-protocol.

31. GhaliHassan,“COP15-A-Haitian-delegation”,2009,http://homepagedaily.

com/Pages/article8757-cop15-copenhagen-a-road-to-ecocide--by-ghali-

hassan.aspx.

32. Foradiscussionofthesereasons,seeRobertFalkner,HannesStephanand

JohnVogler,“InternationalClimatePolicyafterCopenhagen:Towardsa

‘BuildingBlocks’Approach”(October2010)Global Policy,1(3),p252,256-

257.

33. Ibid.

34. See,e.g.,thedifferinginterpretationsoftheDurbanoutcomebyAustralian

ClimateChangeMinisterGregCombet(‘’Certainly,inourview,itmeanswe

arenegotiatingalegallybindingagreementthatwouldbindalldeveloping

anddevelopedcountries”)andIndianEnvironmentMinisterJayanthi

Natarajan(“ItdoesnotimplythatIndiahastotakebindingcommitments

toreduceitsemissionsinabsoluteterms”):GregCombetquotedinAdam

Morton,“AccordWononClimateDeal”,The Age(12December2011)

http://m.theage.com.au/environment/climate-change/accord-won-on-

climate-deal-20111211-1opu4.html;JayanthiNatarajanquotedin“No

BindingPactsInkedinDurbanClimateMeet:JayanthiNatarajan”,The Times

of India (22December2011).SeealsoLisaFriedman,“IndiaHitsBrakeson

DurbanPledges;PoorerNationsWantClimateTalkstoAccelerate”,Climate

Wire(8March2012).

35. “ReportoftheConferenceofthePartiesonItsSeventeenthSession”,

UNFCCC, WorkingGroupontheDurbanPlatformforEnhancedAction.

36. SeeUNEP,The Emissions Gap Report(2010)http://www.unep.org/

publications/ebooks/emissionsgapreport/.

37. SeealsobelowChapter4.2.

38. “DevelopingCountriesCondemCopenhagenClimateAgreement”,San

FranciscoSentinel(18December2009)http://www.sanfranciscosentinel.

com/?p=53124.


14

Laggard to Leader

Contents

3.1 Introduction 16

3.2 The“SphereofInfluence”Approach 16

3.3 Australia’sDomesticEmissions 183.3.1 Australia’sAbsoluteandPerCapitaDomestic

Emissions 183.3.2 Australia’sDomesticEmissionsinaGlobalContext 18

3.4 Australia’sExportedEmissions 203.4.1 Australia’sExportedEmissionsToday 203.4.2 Australia’sGrowthinExportedEmissions 20

3.5 Australia’sCarbonFootprintunderthe “SphereofInfluence”Approach 20

References 22

Part3Australia’sCarbonFootprint:The“SphereofInfluence”Approach

Laggard to LeaderPart 3: Australia’s Carbon Footprint

16

emissionsand itsexportedemissionsfromfossil fuels—thischapterconcludesthat:• Australia’scombineddomesticandexportedemissions

account for 4% of total global emissions. Coal isresponsible for some80%of this combined footprint.When export emissions are added to domesticemissions,Australiajumpsfromthe15thto6thbiggestpolluterglobally.

• Ourexportedemissionsaregrowing rapidly:Australiaisontracktoexportfossilfuelsequivalentto1.8billiontonnes of CO2-eperannum,almost twiceasmuchasSaudiArabiadoes today,andequivalent to theentireemissionsofIndia’s1.2billionpeople.

• Australia’scombineddomesticandexportedemissionsare on track to grow to 2.2 billion tonnes of CO2-e per yearby2030. Thiswouldbeequal to11%of theallowable global carbon budget (for 2˚C warming) inthatyear(showninFigure3.1).

In sum, Australia bears remarkable responsibility forclimate change given its size – and therefore has adisproportionately high potential to alter the globalemissionstrajectory.

3.2 The“SphereofInfluence”Approach

Inourglobalisedeconomy,acountrycanengageinawholerangeofactionsthatareexclusivelyorpartiallyresponsiblefor causing greenhouse gas emissions somewhere intheworld.Considertheexampleof“CountryA”andtheemissionsinthefollowingthreeactivitiesinitseconomy:1. Acompany inCountryAextractsandcombusts some

ofitsowncoaltoproduceelectricitythatissuppliedtonearbyhouseholds.

2. AnothercompanyinCountryAexportssomeofitscoaltobecombustedinCountryB.

3. A citizen of Country A imports a consumer productfromCountryC,theproductionofwhichrequiredthecombustionofcoalinCountryC.

The emissions from which of these activities should beconsidered “Country A’s emissions”? Clearly, emissionsfromthefirstactivityareattributabletoCountryA,sincenoothercountrieswereproximatelyinvolvedinthesupplychainof theelectricity.1Butwhatabout thesecondandthirdactivities?AttheveryleastwecanclaimthatcountryAisapartialorcontributorycauseoftheemissionscreatedinthecourseofbothactivities(alongwithcountriesBandC,respectively).

As these examples illustrate, there are many differentprinciples or approaches that could be devised forattributingresponsibilityforaparticulartonneofemissionstoaparticularcountry.

3.1 Introduction

How much does Australia contribute to theglobalclimatecrisis?

Contrarytopopularbelief,thereisnosinglewaytodetermineacountry’s“carbonfootprint”.Thesize of Australia’s carbon footprint, therefore,depends on which sources of emissions wecount,andwhichonesweexclude.

It is often said that Australia causes “only 1.5%” of theworld’s emissions. This statistic refers only to Australia’sdomestic emissions (those emissions released into theatmosphere within our borders). As we show in thischapter,eventheseareveryhighbyworldstandards:• Of193nations,Australia’sdomesticemissions(around

540million tonnes of CO2-e per annum) are the 15th largestintheworld.

• Australia’spercapitadomesticemissionsarethehighestinthedevelopedworld.

• Basedonanequal apportionmentamong theworld’speopleoftheglobal2°Ccarbonbudgetfor2000–2050,Australiansconsumedtheirfull50-yearshareinthefirsttenyears.

Even these figures seriously under-represent Australia’struecontributiontoclimatechange.Australiaisthebiggestexporterofcoalintheworldandalargeexporterofgas,withsignificantinfluenceonglobalfossilfuelmarkets.Thedomesticemissionsstatisticsignore,amongotherthings,theemissionsembodiedintheseexportedfossilfuels.

In this chapter, we advocate a different model forconceptualisingacountry’scarbonfootprint—thesphere of influence approach— and explainwhy it results in amore realistic characterisationofAustralia’s contributionto climate change. Through a detailed examination oftwo of the biggest categories of emissions sources thatfallwithinAustralia’s sphereof influence— itsdomestic

FIGurE3.1Australia’scontributiontothe2030carbonbudget

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17

goodsandservicesthatitimports.Alloftheseemissionsfallwithinacountry’ssphereofinfluence—andthisisthecaseirrespectiveofwhethertheyalsofallwithinanothercountry’ssphereofinfluence.

Australia is todayundertakingan immense,government-backed expansion of coal and liquefied natural gas(LNG) exports. Australia has sovereignty over its naturalresources, and State and Commonwealth Governmentspossess the legal authority to determine whether, andthe extent towhich, those resourcesmay be extracted,used and exported.2 Australian governments also havethecapacitytodeterminehowmuchtosubsidiseresourceexploitation.FossilfuelexportsthereforeclearlyfallwithinAustralia’s sphere of influence. Similarly, Australia hasthe capacity to control and regulate the range of goodsthat enter through its borders, for example by requiringimporters to hold licences, imposing quotas or tariffson imports, or prohibiting the import of certain goodsaltogether (though its ability to affect the emissions-intensityofthosegoodsthatitallowsintothecountryisless direct). The emissions associated with our importsthereforealsofallwithinoursphereofinfluence.

Inconclusion,underthe“sphereof influence”approach,Australia’scarbonfootprintshouldbedefinedasthesumofitsdomesticemissions,emissionsembodiedinitsfossilfuelexportsandemissionscausedasaresultofitsimports.

Consistentwiththisapproach,belowweoutlineAustralia’sdomestic and exported emissions — two of threecategories3 of emissions sources in Australia’s sphere ofinfluence— to develop amore accurate account of ourcontributiontoglobalwarming.

AsexplainedinChapter2,theuNclimateprocesshasbeenbuilt aroundone such approach, bywhich each countryis responsible for accounting for its domestic emissions.Therearegoodreasonswhyonemightwanttodrawthelineat thewater’sedge. If therewereacomprehensive,legally binding and effectively enforced global regimeof domestic emissions reduction targets in place, itwould make sense for countries to concern themselvesonly with their respective domestic emissions. In thesecircumstances, for example, Australia could export fossilfuelstotheworldwithfullconfidencethatothercountrieswere engaging in this fossil fuel trade in the context of“safe”limitsonemissions.

Butnosuchregimeexists.Therearenocontrolsensuringthevolumeoffossil fuelsbeingtradedisconsistentwithasafeclimateoutcome.Nor,asweargued inChapter2,is such a regime likely to arise in the timeframe withinwhichemissions reductionsare required. It thereforenolongermakessenseforustoconfineourconceptionofacountry’scarbonfootprinttoitsdomesticemissions.

Forthepurposeofascertaininghowmuchasinglecountrycontributes toclimatechange,amore realisticapproachis to consider that country’s carbon footprint in termsof the emissions within its “sphere of influence”. Everytonne of greenhouse gas emitted in the world can beconceptualisedaslyingonaspectrumthatmeasuresthedegreeofcontrolorinfluenceaparticularcountryhasoveritsproduction.Inthecaseof“purelydomestic”emissions(suchasexample1,above),acountryhasfullcontroloverthoseemissions.Similarly,acountryhasfullcontrolovertheemissionsembodiedinitsfossilfuelexports.Acountryalso has influence, though not full control, over theemissionscausedoverseasasaresultoftheproductionof

FIGurE3.2Nationalinventorytotal(excludingLanduse,LanduseChangeandForestry-LuLuCF),CarbonDioxideequivalent4

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Land use, Land use Change and Forestry).8 At around540milliontonnesofCO2-e(energyandotheremissions,excluding LuLuCF), Australia is directly responsible foraround1.5%oftheseemissions.9Atfirstglancethismayseemlikeaninsignificantcontribution—butthisislargelydue to the number of players involved. There are 193countriesrecognisedbytheuN,themajorityofwhichhaveemissions contributions closer to 0.1%. In fact, Australiaisthe15thbiggestdirectemitterofCO2-e intheworld.

10 Manycountriesthatwewould instinctivelyassumehavean important contribution to make in reducing globalemissions—countriessuchasFrance,ItalyandSpain—haveemissionsataroundthesamelevelasourown.

Thenationsoftheworldcanusefullybedividedintothreegroups:11

• The gigatonne emitters,withtotalemissionsmeasuredin the gigatonnes (billions of tonnes). This list iscomposedofChina,India,Japan,russiaandtheunitedStates(andtheEu,ifitisimaginedasoneentity).Theiremissionsrangefromaround4%to23%oftheglobaltotal.

• The middle emitters, which are clustered around halfagigatonne.Australiaisinthemiddleofthiscategory,alongside countries such as Germany, South Korea,Mexico,andSpain.Theiremissionsrangefromaround1%to2%ofglobalemissions.

• The minor emitters, a long list of countries that emitfromas littleas tensof thousandsof tonnesofCO2-e (New Zealand, Sudan, Lebanon) up to a couple ofhundred millions of tonnes (Kazakhstan, Malaysia,Venezuela).Theiremissionsrangefrom0%to1%oftheglobaltotal.

The20countrieswiththehighestemissions—includingall the gigatonne and middle emitters — account foraround81%ofworldCO2-eemissionswhiletheremainingcountriesaccountforonly19%(seeFigure3.3).InaworldwheretheuNrecognises193nations,Australiasitsclearlywithinthismostimportantgroup.

Looking at emissions per citizen shows that Australia’semissions are immense in proportion to our smallpopulation. Australia’s domestic energy emissions percapitawere18.4tCO2-eperperson in2011,morethan2timestheOECDnationaverageof9.0tCO2-epercapitaandthehighestamongallcountriesintheTop20(seeFigure3.4).12Chinamaybetheworld’sbiggestemitter,buttheaverageAustraliancitizenstillemitsmorethan3timesasmuchCO2-eastheaverageChinese.

13

Ourhighemissionspercapitameanthatwehavealreadyexceededourportionoftheglobal450ppmcarbonbudgetfor2000to2050.Inthefirst10yearsofthiscentury,weemitted all the emissions that would be allowed to usfor thefirst50years (ifwewere to shareoutemissionsquotasevenlybetweentheworld’speople,seeBox3.1).As a result, we are now rapidly eating into the carbon

3.3 Australia’sDomesticEmissions

3.3.1 Australia’sAbsoluteandPerCapitaDomesticEmissions

In2011,Australiareleasedatotalof540milliontonnesofCO2-e into the atmosphere (see Figure 3.1). Since 1992,whentheuNFCCCwasadopted,Australia’semissionshavegrownalmost30%.

Emissions from energy production contribute the lion’sshareofAustralianemissions,accountingforalmost80%ofdirectemissionstoday.Intotal,theyreacharound417million tonnes of CO2-e, representing growth of around44%since1990.5

The emissions intensity of Australia’s energy system ismorethan30%higherthantheworldaverage.Therearebut five countries in the world with a more emissions-intensive energy system: Bosnia Herzegovina, Estonia,Mongolia,NorthKoreaandPoland.6

This is largely due to our dependence on coal-firedelectricity. Transition countries like China and India arealso coal-dependent and have electricity generationsystems that are almost as emissions-intensive as thoseinAustralia.Nevertheless, theirper capitaemissionsarewellbelowtheOECDaverageduetohighratesofenergypoverty — around 300 million Indians still go withoutelectricitytoday.7

3.3.2 Australia’sDomesticEmissionsinaGlobalContext

How do Australia’s domestic emissions compare withthoseofothercountries?

In2010,theworld’snationsreleasedaround33.4billiontonnes of CO2-e (energy and other emissions, excluding

81%

19%

CO2 emissions

20 top emitters

Rest of world

FIGurE3.3CO2emissions(fromfuelcombustion)shareofthe20highestemittingcountries14


19

Box3.1:Australia’sCarbonBudget

The global carbon budget for 2000-2050, explored inChapter2,canbeapportionedtothenationsoftheworldtoguideeachnationon itsemissions responsibilityoverthe period. The method recommended by the GermanAdvisoryCouncilonClimateChange(WBGu)istodistributethebudgetequallyaccordingtopopulation—that is, tosplititintoanallowanceoftonnesperpersonperyear.15

under the conventional 2°C scenario, with a carbonbudgetof1000Gtoverthe50years(seeChapter2), thedistribution of the global carbon budget proposed from2000–2050amountstoaverageyearlyemissionallowancesofaround3tCO2-epercapita.Globalpercapitaemissions

FIGurE3.5Exampleemissionreductioncurves(selectedcountries)fora2010-2050carbonbudgetonanequalpercapitabasis18

are well above that level, at 7tCO2-e.When populationgrowthto2050isfactoredin,realemissionswillneedtofallto1tCO2-epercapitaorlessby2050.

Australia’s share in this global carbon budget is 0.33%,or 3.3GtCO2-e. With our own domestic emissions ofaround 0.5Gt per year since 2000, Australia exceededits 2000–2050 carbon budget 43 years early, in 2007. AmoregenerousapportionmentbytheWBGu(seeFigure3.5) recalculates the carbonbudget from theyear2010,givingAustraliaaround2.5Gt.16Stayingwithinthisbudget(without international carbon trading) requires a rapidreduction of emissions to zero by 2020. On our currenttrajectory,wearesettoblowourbudgetby2016.

budgets of other nations. This demonstrates how unfairourgreenhousegasemissionsareon thosenations that

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20

FIGurE3.6Emissionsfromfossilfuelconsumptionandexports28

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Asaresultof thecoalandgasexpansion, theAustralianGovernment forecasts a multiplication of our alreadyimmense export emissions by as much as 2.2.25 Thatwould see Australia export 1.8 billion tonnes of CO2-e every year26—around the entireemissions releasedbyIndia’s1.2billioncitizenstoday,orequivalenttotheexportemissionsofalmost2SaudiArabias.

3.5 Australia’sCarbonFootprintunderthe“SphereofInfluence”Approach

If we add Australia’s domestic emissions and exportemissions together, Australia’s total carbon footprinttodaycomestoaround1.2billiontonnesofCO2-e,or4%oftheglobaltotal,givingAustraliatheworld’s6thlargestcarbonfootprint(whencountries’emissionsareadjustedtoincludeexportedemissionsandnetoutemissionsfromfossilfuelimports).

On a per capita basis, Australia’s combined footprint isthe largest among all of the top 20 emitters. Excludingcountrieswithapopulationof5millionorless,Australiahasthehighestcombinedfootprintpercapitaintheworld(seeFigure3.6).27

Coal contributes some80%ofAustralia’s total footprint,accounting for a total of 935 million tonnes of CO2. This represents around 7% of the world’s coal-relatedemissions,andisaround50%oftheentireuScoal-relatedfootprint.

Including the effect of the Clean Energy Future packageandassumingthecurrentfossilfuelexportprojectpipelineisfullyrealised,Australia’scombined(domestic+export)energyemissionsareontracktogrowashighas2.2billion

3.4 Australia’sExportedEmissions

3.4.1 Australia’sExportedEmissionsToday

FewAustraliansareawarethattheirnationalreadyexportscarbonemissionsequivalenttotheentiredirectemissionsofGermany, theworld’s fourth largest economy. In fact,Australia exportsmore emissions through fossil fuels, at800million tonnes of CO2-e each year, than any nationexceptrussiaandSaudiArabia.19

Theoverwhelmingmajorityoftheseexportemissionsareintheformofcoal.With27%oftheglobaltrade,Australiaistheworld’snumberonecoalexporter.20

In 2010Australia also exported 872 billion cubic feet ofgasintheformofLNG,equaltoaround48milliontonnesof CO2-e—enoughtomakeAustralia theworld’s fourthlargestLNGexporter.21

3.4.2 Australia’sGrowthinExportedEmissions

Australia’s coal exports aregrowing rapidly,projected todoublefrom2009levelsby2020andincreasebyafurther50% to 2035. In the near term, coal port expansions inNewcastle, Kooragang Island andHayPointwill increasecoalexportcapacitybysome100milliontonnes-equaltoaround240milliontonnesofCO2-e.22

LNG is growing in importance as Australia’s easternseaboardbecomespepperedwithcoalseamgaswellsandotherprojectsofftheNorth-Westshelfalsocomeonline.Anannualgrowthrateof5.5%from2009to2030willseetotalLNGexportsmultiplybyafactoroffour.23By2020,Australia is set toovertakeQataras theworld’snumberoneLNGexporter.24


21

Box3.2:EmissionsWithinAustralia’sSphereofInfluence:Summary

EmissionswithinAustralia’ssphereofinfluenceinclude:• Domesticemissionsof540milliontonnesofCO2-e(or

around417million tonnesofCO2-e from fossil fuels).under the Clean Energy Future Package, these areprojectedtoriseabove600milliontonnesofCO2-eby2030(withenergyemissionsstayingattoday’slevel).32

• Export emissions of 800 million tonnes of CO2-e. Currentprojectionsforecastexportemissionsrisingupto1.8billion tonnesofCO2-eby2030 (or around3.5timestoday’sdomesticemissions).33

If ranked alongside all other countries in the world,Australiais:• Theworld’s15thlargestemitter(domesticonly).• The 1stintheOECDforemissionspercapita(domestic

only).• The 3rdintheworldforexportemissions,withtoday’s

export emissions equal to more than 75% of SaudiArabia’s.Currentfossilfuelprojectpipelinessuggestwemaygrowtobecomethelargestexportemitter,equaltoalmosttwoSaudiArabiasby2030.

• The 2ndinexportemissionspercapita(ofcountrieswithapopulationabove5million)

• The world’s 6th largest emitter (domestic and exportemissionscombined).

Australia’s combined carbon emissions (domestic plusexported emissions) equate to around 4% of globalemissions. Coal is responsible for around 80% of thiscombinedtotal,accountingfor935milliontonnesofCO2 in 2012. This represents around 7% of theworld’s coal-relatedemissionstoday,andcomestoaround50%oftheentireuScoal-relateddomesticandexportemissions.

By 2030, Australia’s combined domestic and exportemissions are on track to grow to 2.2 billion tonnes ofCO2-e. This would equate to 11% of the total globalemissions allowable in that year for the 2˚C pathwayoutlinedinChapter2.

tonnes of CO2-eby2030.Thiscomestoaround11%ofthetotalglobalemissionsallowableinthatyearforeventherisky2˚CpathwayoutlinedinChapter2.29

These figures demonstrate that, far frombeing a “smallpart of the problem”, Australia’s contribution to globalemissions is large, growing rapidly, and in remarkabledisproportiontoitspopulation.AnimportantimplicationofthisfindingisthatAustraliahasconsiderablepotentialto influencetheglobalemissions trajectory—forbetterorforworse.

Country 2010(tonnes) C02-e(tonnes) (%)Australia 297,000,000 709,000,000 27

Indonesia 287,000,000 660,000,00031 26

russia 111,000,000 263,000,000 10

unitedStates 75,000,000 179,000,000 7

FIGurE3.7Coalexportsbycountry30

FIGurE3.8Australia’sfossilfuelemissionsnowandin2030

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22

Australian Bureau of Agriculture and Resource Economics(2011)http://www.

bree.gov.au/documents/publications/energy/Australian-Energy-Projections-

report.pdf.

23. Ibid.

24. DavidWinning,“Australiaadjuststonewenergyrole”,The Australian(21

May2012)(fromThe Wall Street Journal)http://www.theaustralian.com.

au/business/wall-street-journal/australia-adjusts-to-new-energy-role/story-

fnay3ubk-1226362016587.

25. CoalandLNGprojectionssourcedfromSyedandPenney,“Australian

EnergyProjectionsto2034-25”.ConversionfactorssourcedfromAustralian

DepartmentofClimateChangeandEnergyEfficiency,National Greenhouse

Accounts (NGA) Factors(2010)http://www.climatechange.gov.au/~/media/

publications/greenhouse-acctg/national-greenhouse-factors-july-2010-pdf.

pdf.

26. Ibid.

27. DatafromuSEIA,CarbonTrust,WorldBank,asperfootnote11,above.

28. Ibid.

29. Consideringthatallemissionspathwaysforstayingwithinthe2˚Climit,as

discussedinChapter2,requireemissionstohavefallento20GtofCO2-e or

belowby2030.At2.2GtofCO2-e,Australia’stotalfootprintwouldaccountfor

11%oftheemissionsallowableinthatyear.

30. “InternationalEnergyStatistics”,uS Energy Information Administration(2012)

http://www.eia.gov.“Conversionfactors”,Carbon Trust(2011)http://www.

carbontrust.co.uk/cut-carbon-reduce-costs/calculate/carbon-footprinting/

pages/conversion-factors.aspx.“PopulationData”,World Bank(2012)http://

data.worldbank.org/indicator/SP.POP.TOTL.

31. NotethatIndonesia’sslightlyloweremissionspertonneofcoalratioisdueto

thelowergradeofitscoalexports.TheIndonesianGovernmentisconsidering

legislationtobanlow-gradeexportcoalunlessprocessedintohigher-value

forms.Seethe US Energy Information Administration,http://www.eia.gov

and“Indonesia’scoalsectorcouldtakeahitfromplannedexportban,Fitch

says”,The Jakarta Globe(2012)http://www.thejakartaglobe.com/economy/

indonesias-coal-sector-could-take-a-hit-from-planned-export-ban-fitch-

says/503427.

32. AustralianTreasury,Strong Growth, Low Pollution(2011)http://cache.

treasury.gov.au/treasury/carbonpricemodelling/content/report/downloads/

Modelling_report_Consolidated.pdf.

33. CoalandLNGprojectionssourcedfromSyedandPenney,“Australian

EnergyProjectionsto2034-25”.ConversionfactorssourcedfromAustralian

DepartmentofClimateChangeandEnergyEfficiency.

References1. Ofcourse,therearefewtransactionsthataretruly“domesticonly”.For

example,CountryAcouldhaveimportedthemachinerythatcomprisesits

coal-firedpowergenerator,andthemanufactureofthatmachinerycould

haveresultedingreenhousegasemissions.

2. Mineralresourcesarevestedinstategovernments,howeverthe

CommonwealthGovernmenthasthepowertomakelawswithrespectto,

amongotherthings,tradeandcommercewithothercountries,corporations,

and“externalaffairs”:Commonwealth Constitutions51(i),(xx),(xxix).

3. Becauseofthecomplexitiesassociatedwithcountingemissionsassociated

withimportedgoods,wehavenotsoughttoquantifythoseemissionsinthis

Chapter.However,weadvocatethatAustraliaintroducepoliciesintendedto

reducetheemissionsintensityofAustralianimports.

4. “QuarterlyupdateofAustralia’sNationalGreenhouseGasInventory,

SeptemberQuarter2011”,Australian Department of Climate Change and

Energy Efficiency, AustralianGreenhouseEmissionsInformationSystem

(2012)http://ageis.climatechange.gov.au/.

5. “NationalEmissionsInventory”,Australian Department of Climate Change

and Energy Efficiency(2012)AustralianGreenhouseEmissionsInformation

System,http://ageis.climatechange.gov.au/.

6. rossGarnaut,The Garnaut Climate Change Review(2008)Ch7.

7. “WBCSDleadsbusinessengagementonsustainableenergyforallinAsia”,

WBSCD(2012)http://www.wbcsd.org/Pages/EDocument/EDocumentDetails.

aspx?ID=14271&NoSearchContextKey=true.

8. GlenPetersetal.,“rapidgrowthinCO2emissionsafterthe2008-2009global

financialcrisis”,Nature Climate Change,Correspondence(2012)2,p2-4

http://www.nature.com/nclimate/journal/v2/n1/full/nclimate1332.html.

9. “Shapingaglobalsolution”,Australian Department of Climate Change and

Energy Efficiency(2012)http://www.climatechange.gov.au/government/

international.aspx.

10. Ibid.

11. “‘InternationalEnergyStatistics”,US Energy Information Administration(Data

Only)(2012)http://www.eia.gov;“Conversionfactors”,Carbon Trust(2011)

http://www.carbontrust.co.uk/cut-carbon-reduce-costs/calculate/carbon-

footprinting/pages/conversion-factors.aspx;“PopulationData“,World Bank

(2012)http://data.worldbank.org/indicator/SP.POP.TOTL..

12. Ibid.

13. Ibid.

14. “CO2EmissionsFromFuelCombustion:Highlights(2011edition)”,

International Energy Agency(2011)http://www.iea.org/co2highlights/

co2highlights.pdf.

15. “SolvingtheClimateDilemma:TheBudgetApproach”,WBGU – German

Advisory Council on Climate Change(2009)p16,http://www.wbgu.de/

fileadmin/templates/dateien/veroeffentlichungen/sondergutachten/sn2009/

wbgu_sn2009_en.pdf.

16. Ibid.


18. Adaptedfrom:HansJoachimSchellnhuber,“TerraQuasi-Incognita:Beyond

the 2oCLine”,PresentationattheInternationalClimateConference:

4DegreesandBeyond(September2009)p10,http://www.eci.ox.ac.

uk/4degrees/ppt/1-1schellnhuber.pdf.


20. Ibid.

21. KeithSchaefer,“HowexportingLNGcouldbringseriouswealthtothe

uS”,Resource Investor (9April2012)http://www.resourceinvestor.

com/2012/04/09/how-exporting-lng-could-bring-serious-wealth-to-th.

22. ArifSyedandKatePenney,“AustralianEnergyProjectionsto2034-35”

Laggard to Leader

Contents

4.1 Introduction 24

4.2 SixProblemswithAustralianClimateandEnergyPolicy 244.2.1 ArbitraryTargets,LowAmbition 244.2.2 Over-RelianceonOffsets:GreenCarbonand

OverseasCredits 244.2.3 “TransitionGas” 264.2.4 HopingAgainstReasonforCarbonCapture

andStorage 284.2.5 InsufficientDeploymentSupportforRenewables 294.2.6 FossilFuelPromotionPolicies:Bettingthe

OtherWay 29

References 31

Part4Australia’sCurrentPolicySettings:ExplainingourBallooningCarbonFootprint

Laggard to LeaderPart 4: Australia’s Current Policy Settings

24

4.2 SixProblemswithAustralianClimateandEnergyPolicy

4.2.1 ArbitraryTargets,LowAmbition

The first problem with Australia’s climate policy is thearbitrary nature of, and low level of ambition implicitin, Australia’s emissions reduction targets. Australia hasaccepted: a medium-term target of a 5% reduction inAustralia’sdomesticemissionsbelow2000levelsby2020(with anoffer to raise the2020 target to15%or25% ifcertain stringentconditionsaremetbyothercountries);andalong-termtargetof80%below2000levelsby2050.2However,thesetargetsarenotconsistentwiththescience-based global carbon budget to 2050 to achieve the 2°Cgoal that the Australian Government has itself adopted— letaloneany reasonablecalculationofAustralia’s fairshareofthatbudget(seeChapters2and6).

Moreover, these targets only cover Australia’s domesticemissions. Emissions embodied in fossil fuel exports areexcluded, consistent with the UN’s accounting rules (asexplainedinChapter2).ThisenablesAustraliatoclaimitspoliciesareinternationallycompliantwhilefuellingglobalwarming through its coal and gas exports, aswe saw inChapter3.

4.2.2 Over-RelianceonOffsets:GreenCarbonandOverseasCredits

TheestablishmentofAustralia’scarbonpricingschemeisthe Government’s primarymeans ofmeeting Australia’smedium and long-term emissions targets. Critically, thetargetsdeterminethestringencyofthe“cap”onemissionsthatwill apply to sectors coveredby the schemeduringthefloatingprice,or“cap-and-trade”phaseoftheschemethat begins on 1 July 2015. The weaker the target, thelooser thecap; the looser thecap, thehigherAustralia’semissionswillbe.ItcanthereforebeseenhowAustralia’slow-ambitiontargetstranslateintothewrongpricesignalsto the Australian economy, triggering “solutions” thatare not sufficient to meet Australia’s decarbonisationimperative.

Additionally,theschemehasnumerousdesignflawsthataffect the level and quality of abatement Australia willachieve.Theseflawsincludetherelianceonoffsetsfromgreencarbon(seeBox4.1)andfromothercountries.

International emissions trading

Internationally, Australia has strongly advocated thatcountriesbeallowedtoachievetheiremissionstargetsbybuyingunlimitedamountsofinternationaloffsets(creditsthat representemissions reductions thathavenominally

4.1 Introduction

If measured by the volume of climate policyactivity and the extent of political and mediaattention, Australian policy makers have beenextremelybusywhenitcomestoclimatechange.Indeed, federal and state governments haveimplementedmorethan300emissionsreductionprograms and policies over the last 15 years.1 WiththerecentintroductionofAustralia’s“CleanEnergy Future” package, Australia now has acarbonpricingschemetoaddtothisvastarrayofexistinginitiatives.DoesthismeanAustraliaisnowdestinedforleadershiponclimatechange?Is a clean energy future the new business asusual?Canwecanswitchoff,sitbackandletthemarketsdo the rest, confident thatAustralia is“doingitsbit”?

The Chapter 3 analysis of Australia’s carbon footprint,includingourfossilfuelexports,showsthattheanswerisa resounding “no”. This chapterexplainswhy that is thecaseby focusingonsixproblemswithcurrentAustralianclimateandenergypolicy.Itconcludes:• Australia’s emissions reduction targets are not

consistent with the global carbon budget to 2050 toachieve the 2°C goal that the Australian Governmenthasadopted—letaloneanyreasonablecalculationofAustralia’sfairshareofthatbudget.

• TheGovernmentisrelyingexcessivelyoninternationaloffsets, green carbon (see Box 4.1) and the muchvaunted “gas transition”. This “least cost abatement”mentality privileges more risky and less effectiveformsofabatementandundermineseffortstodeployrenewabletechnologiesthatareessentialforAustralia’surgentdecarbonisationtask.

• Reliance upon Carbon Capture and Storage (CCS)as a future solution to climate change is a risky anddangerousstrategy—ifwecontinuetoburnfossilfuelsthroughout this critical decade only to find that CCSisnotthesaviour itwashopedtobe,thewindowforactionwillhaveclosed.

• TakingintoaccountthewiderangeofstateandfederalpoliciespromotingtherapidexploitationofAustraliancoalandgasforexport,Australianclimateandenergypolicyiscurrentlydoingmuchmoreharmthangood.


25

its targets, while minimising the sources of land-basedemissions that would count as “debits”. Specifically,Australia:• hastakentheleadonthenegotiationof land-useand

forestry rules on behalf of its UN negotiating bloc,the Umbrella Group (a group of non-EU developedcountrieswhichadvocates for international rules thatallow theutmostflexibility in the typesofabatementthatcounttowardscountries’emissionstargets);7

• was influential in securing agreement to rules in theKyotoProtocol that allow countries to count,withoutrestriction, net removals from green carbon activitiestowardcompliancewiththeiremissionstargets;8

• negotiated the inclusion in the Kyoto Protocol of aclausethatallowedAustraliatoreceiveahugewindfallgainfromreductions in land-clearingthathadalreadyoccurred,makingtheachievementofitsKyototargeta“3inchputt”;9and

• has made its acceptance of a higher-than-5% 2020target conditional on the international agreement ofland use and forestry accounting rules that it deemsacceptable,10 which would likely allow Australiaconsiderablescopetocontinuetominimisethedebitsandmaximisethecreditsfromtheforestrysector.11

Backhome,Australiancompanieswillalsobeabletoenjoythe fruits of green carbon accounting. Kyoto-compliantgreencarbonabatementthatiscreditedunderthefederalgovernment’s Carbon Farming Initiative will be able tobeusedforcompliancepurposesbyliableentitiesunderAustralia’s carbon pricing scheme. While a 5% cap perliableentityontheuseofsuchcreditsappliesduringthefixedpricephaseofthescheme,therewillbenolimitonthenumberofsuchcreditsthatliableentitieswillbeabletouseunderthecap-and-tradephaseofthescheme.12

The problem with offsets

Undoubtedly, reducing deforestation, increasing treeplantings and supporting overseas abatement arevaluable components of global emissions reductionefforts. Indeed, if Australia is to go truly beyond zeroemissions, we must necessarily remove more CO2 fromtheatmospherethroughincreasedforest(andotherlandsector)abatementthanweemitfromallsources.Similarly,financingemissionsreductionsindevelopingcountriesis,in and of itself, an important contribution that Australiacan and shouldmake to the global emissions reductioneffort,asweexplain insubsequentchapters.But there’stherub:theseeffortsneedtobeadditionaltoAustralia’sreductionsinfossilfuel,industrialandotheremissionsinordertobeconsistentwiththe2°Ccarbonbudget.

According to Treasury modelling of the carbon pricingscheme, Australia’s domestic emissions (which includesbothgreenandbrowncarbon)willincreaseoverthenext20 years andwill return to their current levels by 2050,even if Australia implements the 80% “reduction” target

occurredoverseas)asopposedtobeingrequiredtoachievethemthroughreductionswithintheirownborders.3

ConsistentwithAustralia’sinternationalposition,itscarbonpricingschemewillallowtheextensiveuseofinternationaloffsetsbyliableentitiesforcompliancepurposeseachyearfrom1July2015:upto50%ofanentity’sliabilitybetween2015 and 2020 and an unrestricted amount thereafter.4

So far theGovernmenthasprescribed that internationaloffsets from the UN’s Clean Development Mechanism(CDM)willbeallowedforthispurpose.5Creditsfromthehighly over-supplied CDMmarket are currently at “rockbottom”pricesand,accordingtoclimateeconomistFrankJotzo, are likely to remain so for the restof thedecade,leaving Australian companies with cheap and easycomplianceoptionsundertheAustralianscheme.6

Green carbon

Australiahastakenasimilarly“flexible”approachtogreencarbon(seeBox4.1).Throughitsinternationalnegotiatingpositionsanditsdomesticclimatechangepolicies,Australiahas sought to prioritise “green carbon” abatement overreductionsinfossilfuelsandothersourcesofemissions.

In international climate negotiations, Australia has beeninfluentialinmaximisingthescopeofland-basedemissionsremovalsforwhichitcanobtain“credit”towardsmeeting

Box4.1:GreenCarbonvsBrownCarbon

By“greencarbon”wereferbroadlytoremovalsofCO2fromtheatmosphere,oremissionsofCO2intotheatmosphere,fromthenaturalenvironments suchas forestsandsoils.Under the UN carbon accounting system, green carbongoesbythenameofLULUCF,referringtoLand-Use,Land-Use Change and Forestry. Activities within this categoryinclude:• removals of emissions from afforestation and

reforestation(plantingtrees)since1990;• emissionsfromdeforestation(cuttingdowntrees);and• emissions and removals from forest management,

croplandmanagement,grazing landmanagementandrevegetation (accounting for which is optional undertheKyotoProtocolfirstcommitmentperiod).

This can be contrasted with “brown carbon” or “blackcarbon”,whichincludesgreenhousegasemissionscausedfromtheburningoffossilfuels,suchasemissionsofCO2fromthesmokestacksofapowergeneratoror fromthetailpipeofacombustionenginevehicle.Otheremissionsthat could be within this category include: fugitiveemissionsfromtheextractionandtransportoffossilfuels,industrial process emissions (such as per fluorocarbonsemittedfromthesmeltingofaluminium);emissionsfromlandfill waste and waste-water treatment facilities; andemissionsfromtheagriculturesector.


26

4.2.3“TransitionGas”

The general expectation in government and industry isthat the carbon pricing schemewill drive a switch fromcoaltogas-firedpower.Whiletherewillbeanincreaseinrenewableenergygeneration,until2030,itwillbedrivenprimarily by the Renewable Energy Target, not by thecarbonprice.

When burnt in efficient combined cycle gas turbines,electricity from fossil gas can have in the order of onehalftoone-thirdoftheemissionsthanthesameamountofelectricityfromcoal.Giventhematurityofgasturbinetechnology and the abundance of gas in Australia, thishasmadeitappeartobeanattractiveoptionforreducingemissionsfromelectricityintheshort-mediumterm.Thefact that it ismarginallymoreexpensivewithmarginallyloweremissionsmeansitfitsperfectlyintotheparadigmoflowestcostabatement.Thetheorybeingagraduallyrisingcarbonpricewillatsomepointbecomejusthighenoughto tip the economic balance from coal to gas. ClimateChangeMinisterGregCombethasmadeitclearthatthisis one of themain goals of the carbon pricing scheme:“For baseload electricity generation it will be gas-firedelectricitythatweseeemerge,andforthatinvestmenttobecommitted,weneedacarbonpriceintheeconomy.”17

The term “transition gas” is often used to refer to theidea that gas can be used to displace coal until somepointinthefuturewhensomeothertechnologybecomescommercially and technically viable.18 However, for anumberofreasons,therelianceongasasatransitionfuelisnonsensical.

Fugitive emissions risk

While gas generation technologies are typically lessemissions-intensive than coal-fired equivalents, themore relevant comparison is between the full life-cycleemissions of coal-fired and gas-fired power. When life-cycleemissionsareconsidered,thefuelswitchfromcoaltogasisunlikelytoresultinasignificantcutinAustralia’semissions.

The life-cycle emissions of gas fired power depend ona range of factors, including fugitive emissions rates,the particular source of the gas and the extractionmethodused,andthespecifictypeofpowergenerationtechnology. In Australia, new sources of gas are mostlikelytocomefromcoalseamgas(CSG).Little isknown,however, about the fugitive emissions from the drilling,extractionandprocessingofCSG,whichisarelativelynewformofextraction.

Recent analysis of the full life-cycle emissionsof naturalgashasshownthat,duetoadditionalemissions,suchasfugitivemethaneemissions—some25timesmorepotent

by 2050. The only way this is possible is through theimportation of billions of overseas offsets— enough toequal half of our abatement below “business as usual”(seeFigure4.2).

Proponents of “lowest cost abatement”, includingthe Australian Government, would argue that this isunproblematic;theonlyrelevantoutcomeisthatAustralianactioncausesa tonneofemissions tonotbeemittedorto be removed from the atmosphere somewhere in theworld.Buttherearetwoproblemswiththisview.

First, international offsets (and green carbon) typicallyhave a higher risk profile thanmost forms of Australianbrowncarbonabatement,eventhoughtheyaretreatedasequivalentforaccountingpurposes.13Thismeanstheyareunreliable. Offsetting can produce higher net emissionsthan domestic brown carbon abatement. The possibility(albeitdistant)ofAustraliarelyingoninternationaloffsetsfromavoideddeforestation(REDD)schemesindevelopingcountriespresentsanevengreaterthreattotheintegrityofAustralia’scarbonmarket.14

Second, and more importantly, relying on offsets willdelay and undermine the roll-out of technologies thatare essential for Australia’s urgent decarbonisation task.Allowing internationaloffsetswilldampentheAustraliancarbon price and increase its volatility — problemsexacerbatedbythe lackofa long-termpricefloor.15Thiscreates substantial uncertainty for businesses looking toinvest inrenewableenergytechnologiesthatwill lastfordecades.

FIGURE4.1PlantationsinGippsland,Australia16


27

atwarmingtheglobethanCO2ona100yeartimescale—aswitch tonaturalgashasnoadvantagesovercoalandwouldhavenoimpactinreducingtemperaturestoatleast2100.19Theauthorsconcludethat:20

“Conservation, wind, solar, nuclear power, and possibly carbon capture and storage appear to be able to achieve substantial climate benefits in the second half of this century; however, natural gas cannot.”

TheUSNationalOceanicandAtmosphericAdministrationobservedaveragemethane fugitiveemissions rates fromUS oil and gas production fields of 4% (considerablyhigher than industry estimates), reaching as high as7.7%.21Thismeansthatalternativegassourcescanhaveastrongerwarmingimpactthanbrowncoal.Theabsenceof independent testing of actual fugitive emissionsfrom Australian gas operations means the true life-cycle emissions from Australian gas are unknown, withunreliable industry estimates being the only source ofmethaneemissionsdata.22BecausegasistheprincipalfuelonwhichtheAustralianGovernmenthashingedAustralia’senergyfuture,itishighlyquestionablewhethereventheminor reductions in emissions projected to be achievedfrom2025onwardarelikelytoberealised.

Dirty infrastructure lock-in

Theeconomiclifetimeofanewpowerplantisintheorderofatleast25years,whilethetechnicallifetimecanstretchto over 50 years. Building new gas-fired power stationsnot only locks in fossil fuel burning on-site, it will driveinvestmentelsewhereinthegassupplyindustry,requiring

extraction,processingandtransportofacontinualsupplyofgastothepowerplant.TheInternationalEnergyAgencyhaswarnedintheirWorldEnergyOutlook2011thatlock-in of fossil energy infrastructure is an urgent problem.23On our current trajectory, by 2017 the world will havebuiltenoughfossilenergyinfrastructurethatifallowedtorunitwillburntheentireallowableglobalcarbonbudget,meaningthatallnewpowerplantsbuiltafter2017needtobezeroemissions—nogas,nocoal,nooil.Whilefossilpowerplantscouldbeshutdownbeforetheireconomiclifetimetoavoidbreachingthecarbonbudget,itwouldbeinefficientandexpensive.TheIEAestimatesthatitwouldcostmorethanfourtimesasmuchtocompensateforthehighemissionsinfrastructure.24

The implication for Australia is that if we need to havezero-emissionsenergyinfrastructureinplacein20years’time,weneedtobuildittoday,notin20years.

The transition to nowhere

In summary,while the “gas transition” is a key plank oftheAustralianenergysectorabatementplan in theeyesof government and industry, it is incompatible with thedeepemissionscutsrequiredtoactuallyavoiddangerousclimate change. As explained in the following section,while this incremental step is taken, the strategy formakingdeepcutsistowaitanothertwodecadesuntilyet-to-be-invented technologies such as carbon capture andstorage come through to save the day. This “delay-and-hope”strategy(combinedwiththepoliticalrebrandingoffossilgasas“cleanenergy”)iswellcapturedbycommentsin May 2012 from Energy Minister Martin Ferguson,responding tocriticismsof the incompatibilityofcurrent

94

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463

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Without carbon pricing With carbon pricing Including overseas abatement

Domestic abatement

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Mt CO2-e Abatement 2020 2050 152 897

FIGURE4.2Treasurycarbonpricemodelling:domesticvsinternationallysourcedabatement25


28

energyandclimatepolicywiththenecessityofimmediatedeepcutsinemissions:26

“The challenge on climate change is to reduce emissions. Gas is clean energy. Carbon capture and storage is the potential solution to coal-fired power internationally.”

4.2.4 HopingAgainstReasonforCarbonCaptureandStorage

In order to avoid the required changes to Australia’sfossil fuel-based economy, the Government has chosento support highly risky technologies. CCS has not beentechnicallydemonstratedatcommercialscale, isunlikelyto be a viable solution to global fossil fuel emissions, isunlikelytobecheaperthanrenewablealternativesbythetime it iscommercialised (ifever),andentails significantlegacy risks. Yet, the Australian Government is one ofits most vigorous proponents. As the promise of CCShas diminished in the last few years with attempts todemonstratethetechnologyonpowerstationsbecomingmiredintechnicalandfinancialchallenges,it istimelytoconsiderwhyandhow ithasoccupiedaspecialplace inAustralia’sapproachtoclimatechange.

CCS has been a longstanding priority area of Australianclimatepolicy.Toutedasameansofcontinuingourreliance

on fossil fuel-based energy sources by capturing carbondioxideemissionsattheirsourceandstoringthemindeepunderground geological reservoirs — the “silver bullet”—CCShasbeenheavilysupportedandpromotedbythefederalgovernmentthroughitsdirectfundingofdomesticand overseas CCS projects and through its vigorous andwell-fundedadvocacyofCCStechnology.27

Australian federal and state governments have pouredhundredsofmillionsofdollarsintofundingforCCSprojects,infrastructure and research.28 Internationally, the federalgovernment has invested in bilateral CCS partnershipsthat fund demonstration projects and provide capacity-building in developing countries, particularly China,throughnumerousfederalagencies.29

While the industry claims that individual componentsofCCS—separatingCO2fromgasstreams,CO2compressionand transport, and geological storage of CO2 — areindividually proven, the reality is that combining theseonafossilpowerplantrepresentsanumberofsignificantchallenges. To date there are still no examples of evendemonstration-scaleprojectscapturingandstoringevenasignificantfraction,letaloneall,oftheCO2fromapowerstation.

As a technological solution, CCS is still on the startingblocks.ArecentexpertreviewofCCSprogress intheUKrecognised that while the process appears technically

FIGURE4.3ArtistimpressionoffailedZerogenCCSproject,Queensland,Australia30


29

workable on paper, a key reason for delays and failuresof recent projectswas neither government nor industrybeingwillingtoacceptthemultiplelayersofriskassociatedwithasingleproject.31CCSdemonstrationprojectsaroundthe world have facedmajor setbacks and delays as thechallengeswith combining and scaling up the individualelements have become apparent, andmany have fallenoveraltogether.32

Moreover, CCS carries significant storage risks. Recentresearch published in the Proceedings of the NationalAcademyofScienceshaspointedtothe“highprobabilitythat earthquakes will be triggered by injection of largevolumes of CO2 into the brittle rocks” commonly foundin continental storage sites. “Because even small-tomoderate-sizedearthquakesthreatenthesealintegrityofCO2repositories”,theauthorsofthestudyconcludethat“large-scaleCCSisarisky,andlikelyunsuccessful,strategyforsignificantlyreducinggreenhousegasemissions”.33

Despite the failures, setbacks and risks of CCS, theAustralianGovernmenthasremainedastaunchadvocateofthetechnology,spendingasimilaramountofmoneyonpromotingitssupposedbenefitsasitdoesonactualCCSprojects.Mostnotably,Australiabankrollsanorganisationcalled the Global Carbon Capture and Storage Institute.EstablishedbytheRuddGovernmentin2008,theInstitutehasalready received$253million in federalgovernmentfunding34—anamounttheInstitute’sownchiefexecutive,BradPage,concedesis“impossible”tospendresponsibly.35AlthoughtheInstituteemployssome78staff,aSunday Age investigationrevealedthattheInstitute’smembersremainconfusedastotheorganisation’sobjectivesandfrustratedby its lackof tangibleachievements.36Whenaskedwhatthe Institutehasactually achieved,Page responded that“the Institute runs some very advanced, internet-basedwebsites” on which it publishes information from CCSprojectsaroundtheworld.37

Insum,relianceuponCCSasafuturesolutiontoclimatechangeisariskyanddangerousstrategy.IfwecontinuetoburnfossilfuelsthroughoutthiscriticaldecadeonlytofindthatCCSisnotthesaviouritwashopedtobe,thewindowforactionwillhaveclosed.

4.2.5 InsufficientDeploymentSupportforRenewables

Australia’sexistingpolicymixdoesnotfacilitatethekindof large-scale renewable energy deployment necessaryforAustraliatodecarboniseitsenergysystem.Thecarbonprice will not lead to renewables deployment within aforeseeabletimescale, andweexplain in Chapter 7whytheRenewableEnergyTargetandSolarFlagshipspoliciesareinadequate.

ThenewCleanEnergyFinanceCorporationhasamandate

to invest $10 billion into renewable energy, energyefficiency and other “low carbon” projects with a viewtoovercomingsomeofthebarrierstocommercialisationanddeploymentofassociatedtechnologies.BeyondZeroEmissionshaspointedoutthaton itsown,theCEFCwillbe limited in its ability to affect the type of technologydeployed.Moreover,thefundswillnotactuallyaddtothetotalamountofrenewableenergygenerationinAustraliaand are open to being used for investment in projectsusingfossilfuelsasanenergysource.38Itisnotimpossiblethat the CEFC may be able to finance deployment oftechnologies suchas concentrating solar thermalpower,however initiatives like the CEFC are more appropriatewhencombinedwithothersupportpolicies.Forexample,while Germany’s KfW state bank provides finance torenewableenergy(AU$30billionin2010alone39comparedtotheCEFC’s$10billionover5years),theprimarysupportmechanismisfeed-in-tariffs(FiTs)forrenewableenergy.

It is worthwhile pointing out that despite the negativeattention in themedia, Australia’s FiTs for rooftop solarphotovoltaics (PV) have been quite successful in theirgoalofenablingdeployment.Infinancialyear2010-2011alone,AU$4billionwasinvestedinsolarPVinAustralia.40Whilethestate-basedFiTshavenotbeenmanagedaswellasGermanyhasmanaged theirnational FiT systemoverthelastdecade,theydoshowthatthepolicyiseffective.

In Chapter 7 we advocate a much more targeted andsophisticated set of deployment support policies toenable Australia to decarbonise its energy sector in theappropriatetimeframe.

4.2.6 FossilFuelPromotionPolicies:BettingtheOtherWay

TheAustralianclimatepolicypicturewouldnotbecompletewithout some consideration of Australia’s policies thatincentivisetheproductionanduseoffossilfuelsandassistenergy-intensiveandemission-intensiveindustries.WhenAustralia’s climate policy efforts are balanced against itsfossil fuel promotion policies, the true priorities of thefederalandstategovernmentscomeclearlyintofocus.

Asweexplained inChapter3,Australia isundergoinganextraordinaryboom incoalandgasexportswithequallyextraordinaryemissionsconsequences.Theseprojectsandtheemissionsthatstemfromthemhavebeenfacilitatedby Australian federal, state and territory governments.Farfromstrictlyregulatingfossilfuels,resource-richstategovernmentsarepursuingaggressivelyexpansionistfossilfuel development policies.41 The federal government,meanwhile, offers considerable incentives to foreigninvestors to “facilitate” investment intomajorAustralianfossil fuel-related projects. The Government designatesthoseprojectsitconsiderstobeof“strategicsignificance”as a having “major project facilitation” (MPF) status,


30

whichmeanstheGovernmentactsasaone-stopshoptoshepherd proponents through key regulatory approvalsprocesses and into relationships with local suppliers.42 Technically,theschemeisindustryagnostic,buttheresultsspeak for themselves: of the 17 projects that currentlyenjoyMPFstatus,12areenergy/resourceprojectsand11ofthesearefossilfuelsprojects.43

Australiangovernmentsalsospendbillionsofdollarseveryyearonsubsidiesforthefossilfuelindustryandforenergy-intensiveindustries(despiteAustraliapromisingtoabolishsuchsubsidiesattheG20Leaders’SummitinSeptember200944).AnAustraliaInstitutestudyin2011estimatedthatthefederalgovernmentspendsaround$10billionayeardirectlysubsidisingtheproductionorconsumptionoffossilfuels.45Stateandterritorygovernmentsprovideadditionalsubsidies that benefit fossil fuel power generators andenergy-intensiveindustries—rangingfromsubsidisedcoalpricesforblackcoalpowerstationsinNewSouthWales46 toheavilysubsidisedelectricityforaluminiumsmeltersinVictoria—alongwithsupportforfossilfuelinfrastructuredevelopment.47

Australia currently offers around 8 to 12 timesmore insubsidiesandrebates to fossil fuels than toanyclimate-relatedpolicies(seeFigure4.4).48

When Australia’s expansionist fossil fuel policies arecompared with Australia’s weak climate policies, itbecomes patently clear how Australia is choosing to

utiliseitsabundantnaturalresourceofboththefossilisedand renewablevariety. It’sone small step for renewableenergy;andonegiantleapforfossilfuels.

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FIGURE4.4Australianspendingonfossilfuelsubsidiesvsclimatechangeprograms49


31

References1. GrattanInstitute,Learning the Hard Way: Australia’s Policies to Reduce

Emissions(2011)p3,http://grattan.edu.au/static/files/assets/35ea95b7/077_

report_energy_learning_the_hard_way.pdf.

2. “FactSheet:Australia’sEmissionsReductionTargets”,Commonwealth

Government,http://www.climatechange.gov.au/en/government/reduce/

national-targets/factsheet.aspx.

3. InternationalInstituteforSustainableDevelopment(IISD),“COP6,27

November2000”,Earth Negotiations Bulletin(2000)12(163),p12;Matthew

Coghlan,“ProspectsandPitfallsoftheKyotoProtocoltotheUnited

NationsFrameworkConventiononClimateChange”Melbourne Journal

of International Law, (2002)3(1)p165.Countriesultimatelyagreeda

compromiseposition,bywhichtheuseofinternationaloffsetsforKyoto

compliancepurposesmustbe“supplemental”todomesticreductions:Kyoto

Protocolart6(1)(b),(d).Thereisdisagreementastowhat“supplemental”

meansinpractice.

4. Clean Energy Act 2011(Cth)s133(7).

5. CommonwealthGovernment,Securing a Clean Energy Future(2011)p107;

CleanEnergyAct2011(Cth)s5;Australian National Registry of Emissions

Units (ANREU) Act 2011(Cth)s4.

6. FrankJotzo,“WhytheGovernmentMustKeeptheCarbonPriceFloor”,

Climate Spectator(18May2012)http://www.climatespectator.com.au/

commentary/why-australia-must-keep-carbon-price-floor.

7. See,e.g.,IISD,“ReportoftheThirdConferenceoftheParties”,Earth

Negotiations Bulletin (13December1997)12(76)p6-7.OntheUmbrella

Group,seeFarhanaYaminandJoannaDePledge,The International Climate

Change Regime: A Guide to Rules, Institutions and Procedures(2004)p45-46.

8. IISD,“ReportoftheThirdConferenceoftheParties”,p6-7;KyotoProtocol

arts3.3,3.4.

9. DuncanKerr,Labor’sEnvironmentSpokesmanatthetime,quotedinClive

Hamilton,Scorcher: The Dirty Politics of Climate Change(2007)p75.

10. CommonwealthGovernment,“FactSheet:Australia’sEmissionsReduction

Targets”.

11. Forexample,measuringandaccountingforemissionsandremovalswithin

thecategoryof“forestmanagement”isextremelytechnicallycomplexand

willinevitablyleavecountriesincludingAustraliawithconsiderablescope

todevelopself-interestedapproachestoaccountingforforestmanagement

emissionsandsinks.See,e.g.,Australia’ssubmissionson“forestmanagement

referencelevels”(FMRL)andtheindependentsynthesisreportoftechnical

assessmentsofanumberofcountries’FMRLsubmissions(showingwide

variations):CommonwealthGovernment,“SubmissiontotheSBIandSBSTA

—February2011ForestManagementReferenceLevelSubmission”,http://

unfccc.int/files/meetings/ad_hoc_working_groups/kp/application/pdf/

awgkp_australia_2011.pdfandCommonwealthGovernment,“Submission

totheSBIandSBSTA—September2011ForestManagementReference

LevelSubmission”,http://unfccc.int/files/meetings/ad_hoc_working_groups/

kp/application/pdf/australia_290911.pdf;UNFCCC,Synthesis report of the

technical assessments of the forest management reference level submissions,

FCCC/KP/AWG/2011/INF.2,http://unfccc.int/resource/docs/2011/awg16/

eng/inf02.pdf.

12. Clean Energy Act 2011(Cth)s1336(b).ThelegislationgivingeffecttotheCFI

istheCarbon Credits (Carbon Farming Initiative) Act 2011(Cth).

13. Regardinginternationaloffsetssee,e.g.,SørenELütken,“PennyWise,

PundFoolish?IstheOriginalIntentionofCostEfficientEmissionsReduction

throughtheCDMBeingFulfilled?”(UNEPRisøClimateWorkingPaperSeries

No.1,June2012)p17-18;CDMWatch,“HFC-23andN2OProjects”http://

www.cdm-watch.org/?page_id=451;LambertSchneiderandLennartMohr,

2010 Rating of Designated Operational Entities (DOEs) Accredited under the

Clean Development Mechanism (CDM)(Öko-Institute.V,2010);RoddyBoyd,

“SGS-theDesignatedOperationalEntityofChoice?”Climatico(24January

2010)http://www.climaticoanalysis.org/post/cdm_sgs-the-doe-of-choice/.

Regardinggreencarbonsee,e.g.,LeeGodden,etal.,“ReducingEmissions

fromDeforestationandForestDegradationinDevelopingCountries(REDD):

ImplementationIssues”,Monash Law Review (2010)36(1)p139,146-149;

GovindasamyBala,etal.,“CombinedClimateandCarbon-CycleEffectsof

Large-ScaleDeforestation”,Proceedings of the National Academy of Sciences

(PNAS),(2007)104(16)6550;NicolaDurrant,“LegalIssuesinCarbon

Farming”,Climate Law(2011)4(2)p515-533.

14. See,eg.,ErikOlbreiandStephenHowes,“AVeryRealandPractical

Contribution?–LessonsfromtheKalimantanForestsandClimate

Partnership”(AustralianNationalUniversityDiscussionPaper#16,1March

2012)http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2041832;

ErikOlbreiandStephenHowes,“Forpeat’ssake,weneedanoverhaulof

forestryaid”,Reneweconomy,22March2012,;“AustralianREDD#Failin

Indonesia’sKalimantanForests”,ABC Radio Australia,20April2012,http://

www.radioaustralia.net.au/international/radio/program/asia-pacific/

australian-redd-fail-in-indonesias-kalimantan-forests/931280;TomArup,

“$30mSumatraforestdealindoubtafterconcernsoverfunding”,The Age,

15May2012,http://m.theage.com.au/environment/conservation/30m-

sumatra-forest-deal-in-doubt-after-concerns-over-funding-20120514-1yn48.

html;MichaelBachelard,“NoCreditsDueasForestsPlundered”,The Age,9

June2012http://m.theage.com.au/environment/no-credits-due-as-forests-

plundered-20120608-201dy.html;SidMaher,“$30mIndonprojecta‘failure’”,

The Australian(4June2012);“REDDyandWaiting”,The Economist,11June

2009.

15. FergusGreen,“Don’tMentiontheFloor”,Inside Story(14June2012)http://

inside.org.au/don%E2%80%99t-mention-the-floor/.

16. MichaelRyan,“PlantationsofPinusradiataandEucalyptusnitensin

Gippsland(Victoria,Australia)”,http://www.globalcarbonproject.org/news/

ManagingForests.htm.

17. “Combet:Anearlyannouncementwasappropriate”,ABC Lateline,9March

2011,http://www.abc.net.au/lateline/content/2011/s3159809.htm.

18. Asistypicallythecaseelsewhere,theCEFmodellingassumesthatthese

futuretechnologieswillprimarilybeCCSandenhancedgeothermal.See,

forexample,theelectricitysectorgenerationmodellingcarriedoutbythe

AustralianEnergyMarketOperatorintheir“NationalTransmissionNetwork

DevelopmentPlan(2010)”http://www.aemo.com.au/en/Electricity/

Planning/2010-National-Transmission-Network-Development-Plan.

19. NathanMyhrvoldandKenCaldeira,“GreenhouseGases,ClimateChange,and

theTransitionfromCoaltoLow-CarbonElectricity”,Environmental Research

Letters(2012)7(1).

20. Ibid.

21. SeeJeffTollefson,“AirSamplingrevealsHighEmissionsfromGasField”,

Nature – News(7February2012),http://www.nature.com/news/air-

sampling-reveals-high-emissions-from-gas-field-1.9982.

22. BZE,“WorleyBaseCaseBaselessbutCoalSeamGasStillWorsethanCoal”(28

March2012)http://beyondzeroemissions.org/media/releases/worley-base-

case-baseless-coal-seam-gas-still-worse-coal-120328.

23. IEA,World Energy Outlook 2011(2011)http://www.iea.org/w/bookshop/add.

aspx?id=428.

24. Ibid.

25. “Australianemissionsinthecorepolicyscenario”,Australian Department

of the Treasury(2011)Chart5.2,http://archive.treasury.gov.au/

carbonpricemodelling/content/chart_table_data/chapter5.asp.

26. MartinFerguson,quotedinDavidCrowe,“Charitieswarnedoff‘demonising’


32

coalandgasindustry”,The Australian (14May2012)http://www.

theaustralian.com.au/news/nation/charities-warned-off-demonising-coal-

and-gas-industry/story-e6frg6nf-1226354884254.

27. ForanexcellentoverviewandcritiqueofAustralia’ssupportforCCS,seeGuy

Pearse,Quarry Vision,QuarterlyEssay33(2009).

28. Seeforexample“NationalLowEmissionsCoalInitiative”,Department of

Resources, Energy and Tourism(2011)http://www.ret.gov.au/resources/

resources_programs/nleci/Pages/NationalLowEmissionsCoalInitiative.aspx.

29. See“InternationalCarbonCaptureandStorageProject”,Geoscience

Australia, Australian Government (2012)http://www.ga.gov.au/ghg/projects/

international-ghg.html;CSIRO,“CSIROTechnologyCapturesChina’sCO2”

(2011)Australian Government.http://www.csiro.au/en/Portals/Multimedia/

CSIROpod/Capturing-CO2-Emissions.aspx;DepartmentofResources,Energy

andTourism,“NationalLowEmissionsCoalInitiative”;“AustralianEnergy

EngagementwithChina&India”,International Energy Agency(2009)http://

www.iea.org/papers/roundtable_slt/australia2_mar09.pdf;Ministerfor

Resources,EnergyandTourism,MediaRelease,“Australia-ChinaJointStudy

forCommercialScaleCCSProject”(17December2010)http://minister.ret.

gov.au/MediaCentre/MediaReleases/Pages/Australia-ChinaJointStudyForCom

mercialScaleCCSProject.aspx.

30. “AnnaBligh’steamwastesanother$116moncontroversialZeroGenclean-

coaldebacle“,Courier Mail(2011)http://www.couriermail.com.au/news/

queensland/clean-coal-plan-goes-to-zero/story-e6freoof-1226178916182.

31. StuartHaszeldine,“UKcarboncaptureandstorage,whereisit?”,Energy and

Environment(2012)Vol.23,p448.

32. Ibid;ClairGoughandSarahMander,“Arewenearlythereyet?Areviewof

progressagainstCCSroadmapsintheUK”,Energy and Environment(2012)23

p367.TheGlobalCCSInstitutehasonlyidentified15large-scaleCCSprojects

inoperationorunderconstruction,capturingamere35.4MtCO2perannum:

GlobalCCSInstitute,Global Status of CCS – Update to the 3rd Clean Energy

Ministerial(March2012)http://cdn.globalccsinstitute.com/sites/default/

files/publications/37901/globalstatusofccsmarch2012final-opt.pdf.Compare

theseresultswithIEA’s“roadmap”forCCS,whichenvisages100projectsby

2020andmorethan3000by2050tomakeevenamodestcontributionto

globalemissionsreductionefforts:IEA,Carbon Capture and Storage Road

Map(2010)http://www.iea.org/papers/2009/CCS_Roadmap.pdf.

33. MarkZobackandStevenGorelick,“Earthquaketriggeringandlarge-scale

geologicstorageofcarbondioxide”,Proceedings of the National Academy of

Sciences(2012)109(26),p10164.

34. Afurther$80millionoffederalgovernmentfundingoverthenextfiveyears

hasbeenallocated:LenoreTaylor,“WasteofEnergyorFineChancefora

BallroomBlitz?”,The Age(17June2012)http://www.theage.com.au/opinion/

political-news/waste-of-energy-or-fine-chance-for-a-ballroom-blitz-20120616-

20h1t.html.

35. LenoreTaylor,“CarbonMillionsSquandered”,The Age(17June2012)http://

www.theage.com.au/opinion/political-news/carbon-millions-squandered-

20120616-20h4x.html.

36. Ibid;andTaylor,“WasteofEnergyorFineChanceforaBallroomBlitz?”.

37. “UpinSmoke”videocontainingtelevisedinterviewofBradPagebyLenore

Taylor,Fairfax Media,availableathttp://www.theage.com.au/opinion/

political-news/carbon-millions-squandered-20120616-20h4x.html.BZEcan

confirmthattheInstitute’sadvancedwebsiteisindeed“internet-based”and

canbelocatedathttp://www.globalccsinstitute.com/.

38. BZE,“CEFCBillSenateCommitteeSubmission”(2012)http://

www.aph.gov.au/Parliamentary_Business/Committees/Senate_

Committees?url=economics_ctte/clean_energy_corporation_bill_2012/

submissions.htm.

39. “Energyturnaroundinnumbers”,KfW,http://www.kfw.de/kfw/en/KfW_

Group/About_KfW/thematic_dossier/index.jsp.

40. CleanEnergyCouncil,Clean Energy Australia 2011(2011)Table6,p14,

http://www.cleanenergycouncil.org.au/dms/cec/reports/2011/Clean-Energy-

Australia-Report-2011/Clean%20Energy%20Australia%20Report%202011.pdf.

41. See,e.g.,LNP,“The‘CANDO’LNPResourcesandEnergyStrategy”(2012)

http://lnp.org.au/policies/grow-a-four-pillar-economy/resources-and-energy-

strategy;TomArup,“BaillieuSettoBoostBrownCoal”,The Age(20March

2012);PaddyManning,“NSWtoPressonwithCoalSeamGas:Hartcher”,

Sydney Morning Herald(15May2012)http://www.smh.com.au/business/

nsw-to-press-on-with-coal-seam-gas-hartcher-20120515-1yo6c.html.

42. CommonwealthDepartmentofInfrastructureandTransport,“MajorProject

Facilitation:Overview”(2012)http://www.majorprojectfacilitation.gov.au/

overview.aspx.

43. CommonwealthDepartmentofInfrastructureandTransport,“Major

ProjectFacilitation:CurrentMPFprojects”(2012)http://www.

majorprojectfacilitation.gov.au/projects/index.aspx.Thetwelfthisanalgal

biofuelsproject.

44. G20,Pittsburgh Summit Declaration,para24,http://www.g20.org/images/

stories/docs/eng/pittsburgh.pdf.

45. RichardDenniss,Complementary or contradictory? An analysis of the design

of climate policies in Australia,TheAustraliaInstitute(February2011)https://

www.tai.org.au/index.php?q=node%2F19&pubid=831&act=display.

46. GilesParkinson,“NSW’sgreatbigcoalsubsidyscandal”,Climate Spectator (1

November2011).http://www.climatespectator.com.au/commentary/nsws-

great-big-coal-subsidy-scandal.

47. Pearse,Quarry Vision;BernardKeane,“AluminiumSmelting:TheBest

BangforyourFossilFuelBuck”,Crikey(10March)http://www.crikey.com.

au/2011/03/10/aluminium-smelting-the-best-bang-for-your-fossil-fuel-

subsidy-buck/.

48. TheAustralianConservationFoundation(ACF)estimatesthatfossilfuel

subsidiesoutnumbergovernmentsupportforclimatechangemitigationand

cleanenergybyaround12to1:“MediaRelease:AustraliaSpends$11Billion

moreEncouragingPollutionthanCleaningItUp”,Australian Conservation

Foundation(1March2011)http://www.acfonline.org.au/news-media/

releases/australia-spends-11-billion-more-encouraging-pollution-cleaning-

it;BernardKeane,“Ourcarbonaddicttaxsystemisstrongerthanacarbon

price”,Crikey,(3March2011)http://www.crikey.com.au/2011/03/03/our-

carbon-addict-tax-system-is-stronger-than-a-carbon-price/.

49. “ComparisonoftheACF’sidentifiedfossilfuelsubsidiesversusclimatechange

programs,inmillionsofdollars”,Australian Conservation Foundation(2011)

http://www.crikey.com.au/2011/03/03/our-carbon-addict-tax-system-is-

stronger-than-a-carbon-price/?wpmp_switcher=mobile.

Laggard to Leader

Contents

5.1 Introduction 34

5.2 The“Bottom-Up”Reality 34

5.3 CooperativeDecarbonisation 355.3.1 TheFundamentals 355.3.2 SmallGroupCooperation 365.3.3 UnilateralAction 38

References 41

Part5CooperativeDecarbonisation:ANewParadigmforInternationalClimatePolicy

Laggard to LeaderPart 5: Cooperative Decarbonisation

34

The UN process adopts one particular paradigm ofinternationalcooperation,asweexplained inChapters2and3. To recap, theunderlying logicof Treaties, TargetsandTrading isthat internationalclimatecooperationwillevolveinatop-downwaytowardsthecreationofasingle international solution.The“solution”willbe in the formof a comprehensive international treaty containing aregimeoftargets that add-up toasafeclimateemissionsreduction objective. Under this paradigm, each countryfocuses on technical compliance — meeting its targetfor domestic emissions reductions while ignoring otheremissionswithinitssphereofinfluence.

Theoverarching“sharedvision”of theUNFCCCprovidesa valuable contribution to raising the political profile ofclimatechange.Inadifferentgeopoliticalcontext,theUNprocessmayhavesucceededinproducingausefultreaty.But, as discussed, theprocess is deadlocked andunableto produce the urgent turnaround in global emissionsrequired. The focus of international cooperation in thenear-termshouldthereforemoveawayfromthequesttocreate a perfect, comprehensive regime and ontomorepragmatic cooperative efforts: a “bottom up” approachthatinvolvesarangeofdifferentactionsbystates.1

Many climate activists abhor the notion of a bottom-upapproach,claimingitcannotguaranteethatsufficientcutswill occur toensurea safe climate,or that itwill simplyallowthebigemitterstocontinuetoemitwithimpunity.But these criticismsmiss the point. As has been shownby the last 20 years of failure, the UN system does notguaranteeasufficientoutcomeeither.Nordoesitholdthebigemitterstoaccount;itmerelyallowsthemtopointtothefailureoftheprocessitselfasanexcusefortheirowninaction.

Inanycase,whetheritisdesirableornot,thebottomupapproachisthereality—fornowandfortheforeseeablefuture. Climate change is an extremely complex, global,inter-generationalproblemthatmustbeaddressedunderconditionsofsignificantuncertaintyinahighlyimperfectworldofsovereignstates.Inthiscontext,itisnothelpfulfor countries simply to keep acting as if the top downapproachwillworkeventuallybecause it“just has to”. Itmay do one day, but, aswe have shown, even the bestcasescenarioundertheUNnegotiationswouldestablishatreatythatdoesfartoolittle,fartoolatetoachievesafeclimate objectives. It is time to embrace the complexityof climate change mitigation and figure out how to dobottom-upactioninawaythatdramaticallyincreasesthechancesofpreservingasafeclimate.Inshort,wehavetomakebottom-upwork.

5.1 Introduction

ThatAustraliacanclaimtobecomplyingwithitsKyotoProtocolobligationsandactingconsistentlywith UN rules on carbon accounting, despiteits strong recent growth in domestic fossil fuelemissionsanditsextraordinaryfossilfuelexportboom, illustrates how the lofty goals of theTreaties, Targets and Trading paradigm havebeensubvertedbythetechnocraticimperativesoflegalcomplianceandleastcostabatement.

It is time for these noble goals to be met with nobleactions. It istime toput leadership towards zero carbon prosperityattheheartofglobaleffortstoavoiddangerousclimatechange.

This chapter introduces a new way of thinking aboutinternational climate action — the CooperativeDecarbonisationparadigm.Thisentailsamorepractically-oriented, problem-solving approach to decarbonisingtheglobaleconomy,sectorbysector,usingawiderangeof policies, measures, investments and cooperativestructures.Itconcludesthat:• With the UN process deadlocked, the reality of

addressing climate change at present is one of“bottom-up”action.

• Cooperative actions among small groups of countriesfocused on particular climate solutions providesignificant potential for generating the emissionsreductionsrequiredtoavoiddangerousclimatechange.

• Countriesshouldbepreparedtotakeunilateralactionwhere cooperation fails, employing a much widerrangeofmechanismstoequitablyinfluencetheglobalemissionstrajectory.

• As the ZCA Stationary Energy Plandemonstrated, thecostsofunilateralactionareoverstatedandthebenefitsunderstated.

• Throughactionsofthisnature,smallgroupsofcountriesorevenindividualnationscanactascatalystsforglobalcooperation.

5.2 The“Bottom-Up”Reality

Climate change presents a challenging collective actionproblem. Since no country alone can reduce emissionssufficiently to ensure a safe climate, countries mustcooperatetoensuretheprovisionofapublicgood(asafeclimate)thatbenefitseveryone.Buttherearemorethanonemeansofachievinginternationalcooperation—afactthat 20 years of UN climate conferences seems to haveobscured.


35

Secondly, the actionsmust genuinely be consistentwithachievingzeroemissionswithinthetransitiontimetablesnecessarytopreserveasafeclimate.Crucially,thisimpliesa focus on peaking global emissions before 2020 andrapidly phasing down thereafter, not waiting until 2049andhopingforabreakthrough.

Thirdly the approach must be practical and solutions-oriented, entailing systems thinking, collaboration, trial-and-error and adaptive learning focused on genuinedecarbonisationoutcomes;nottechnicalcompliancewithopaqueaccountingrulesatthelowestpossiblecost.

Thelasttwopointsofthedefinitionrefertotheagentsofthisaction.Sincethefocusofthisreportisoninternationalcooperation, we emphasise the national leadershipactions of individual state actors (countries), which canbe accelerated through cooperation of various degreeswithotherstateactors.Ofcourse,wealsoenvisagewide-rangingcooperationbetweenstatesandnon-stateactors,including corporations, research institutes, universities,NGOs and citizens. But we argue that this must largelybedriventhroughlaws,investmentsandotheractionsofstates,albeitinwaysthatenablemoreintensecooperationamongnon-stateactorstooccur.2

Bynationalleadership,weenvisagecountriestakingactionthat is above and beyond both what they are requiredtodobylaw,andevenbeyondwhattheir“fairshare”ofthesolutionsmightbe.First,weenvisagecountriesusingwhatever levers at their disposal to decarbonise all of

5.3 CooperativeDecarbonisation

5.3.1 TheFundamentals

Inthinkingaboutabottom-upresponse,weneedanewparadigm that provides the underlying logic by whichinternationalclimatecooperationshouldevolve.

TheparadigmweadvocateisCooperative Decarbonisation (CD)—• apractical,problem-solvingapproach• to the decarbonisation of every emissions-intensive

economicandsocialprocessacrosstheglobe• within the timeframe necessary to preserve a safe

climate• drivenbynationalleadership,and• acceleratedthroughinternationalcooperation.

The first three of these points refer to the action thatis required and the mindset with which it must beapproached. Consistent with this broad definition, weenvisage a wide range of policies, measures and otheractionsfallingwithinthisparadigm.Toqualify,actionsmustfirstbedirectedtowardthedecarbonisationofaparticulareconomicorsocialprocess.Thatis,theymustbefocusedonphasingdownthegreenhousegasemissionsassociatedwithanysuchprocesstozeroorverynearzero,oronthedevelopmentoftechnologiesandprocessesthatresultinzeroorverynearzeroemissions.

FIGURE5.1CooperativeDecarbonisationcomparedwithTreaties,Targets&Trading

Treaties,Targets&Trading CooperativeDecarbonisationEvolutionofinternational

cooperationTop-down Bottom-up

Onesolutionormultiple Onecomprehensivesolution/“grandbargain” MultiplesolutionseachofwhichispartialLocusofpower(ideal) Centralisedinstitutions Polycentric(multiplecentresofpower)Focusofpolicymodel GHGemissionsper se Economicandsocialprocessesthatdirectly

andindirectlycauseGHGemissionsPolicymechanism Legallybindingtreaties,emissions

reductiontargetsandemissionstradingWidearrayofgeneralandspecific

policiesandmeasuresDominantmentality Managerialist,technocratic,legalistic,coercive Systemsthinking,problem-solving,

structuralchange,cooperativeFocusofeachcountry Technicalcompliancewithlegal

liabilitytoachievedomesticemissionstarget/“lowestcostabatement”

Decarbonisingeacheconomicsectorthroughwhatevermeansattheirdisposal,unilaterally

andthroughcooperationwithothersOutcomeofeachcountry’sefforts

Mutuallyexclusiveefforts(eachcountryassumesresponseswill

add-uptoprecisetarget)

Overlappingefforts(eachcountrycannotassumeresponseswilladd-upsomusttakeindividualorsharedresponsibilityforallemissionswithinsphereofinfluence)

Underlyingethicalprinciples(seeChapter6)

FairShares(basedonequalpercapitaentitlements;modifiedbyhistorical

responsibilityforemissionsandcapacitytopay(“CommonbutDifferentiatedResponsibilities”)

Fairsharesbasedonemissionswithinsphereofinfluence;modifiedbyspecialresponsibilities(basedonscopeofsphereofinfluence,capacitytopay,capabilitiesforclimatesolutionsandleadershipcapacity)


36

Examples of cooperative groupings

One typeof groupingwould focuson tacklingparticularcauses of climate change. These groups would drawmembership from countries that aremajor contributorsto a particular problem, alongwith those that have thegreatest interest in and capacity toprovide resources totackle the problem. The Climate and CleanAir Coalition(see Box 5.1) provides a good, albeit small, illustrationof this typeof grouping. Theglobal conferenceon fossilphase-out we advocate in Chapter 8 could evolve intogroupsalongtheselines.

Box5.1:TheClimateandCleanAirCoalition

The Climate and Clean Air Coalition is focused onpractical, sector-based efforts to reduce Short-LivedClimate Pollutants, including soot, methane and somehydrofluorocarbons (HFCs), which cause harmfullocalised health and environmental impacts as wellas contributing significantly to climate change.4 The Coalition’s membership includes donor countries anddeveloping countries that are especially affected by thelocalisedimpactsofsuchpollutants.Takingpracticalstepstoreducesuchpollutantsisaclassicexampleofaclimatechange mitigation strategy that draws on “co-benefits”.According to theCoalition, short-livedclimatepollutantsaffectfoodandwatersystemsandaretheprimarycauseof3.1millionairpollution-relatedprematuredeathsperyear. Accordingly, quick actions such as the widespreadadoption of advanced cookstoves and clean fuels havethe potential not only to reduce climate-warming gasesbut dramatically reduce morbidity and mortality in thedevelopingworld.5

Another type ofmultilateral groupingwould be focusedon the development and deployment of zero emissionstechnologiesandprocesses.Thesegroupingswoulddrawmembership only from countries that have the greatestinterest in cooperating on a particular issue,whichmayderive from a high capacity to innovate ormanufactureparticular technologies (derivingbenefits fromsupplyingthem)orahighcapacitytoreapbenefitsfromdeployingthe technologies (derivingbenefits fromdeploying thematlowercosts).

By limiting membership to such countries, obstacles toprogressareremovedanda“racetothetop”culturecanbe fostered among those countries that have naturally-aligned incentives to make progress toward particularclimate solutions.6 Meanwhile the upfront costs andrisks (of research, development, demonstration and/or deployment) are shared among such countries. WediscussinChapter7howgroupingssuchasthesecouldbeharnessedtodevelopanddeployrenewableenergy.

the emissions-causing processes within their sphere ofinfluence.Thisislikelytoinvolveawiderangeofpoliciesandmeasures, investments and initiatives. Frommarketmechanisms that enable thewidespread deployment ofrenewable energy to regulations prohibiting new fossilfuel developments; from changes to electricity marketincentives to large-scale investments in public transportinfrastructure.

Second,weenvisagecountriescooperatingtoaccelerateglobaldecarbonisationeffortsandprovidingassistancetoother countries todo the same. Thiswill beparticularlycritical in relation to trans-national emissions-intensiveprocesses(suchasfossilfuelandprimaryproductimportsandexports,andaviationandshippingemissions)andintheprovisionofassistancetodevelopingcountries.

Ourexpectation isthatmanyofthesolutionswillbe ledbysmallgroupsofwillingcountriesfocusingonparticularissues associated with decarbonisation. However,countriesshouldbepreparedto“goitalone”ifcooperativeoverturesfail.Wediscussthenatureandbenefitsofthesedifferentapproachesinturn,below.

5.3.2 SmallGroupCooperation

A new focus for international cooperation

The primarymeans of international policy is state-statediplomacy—theexertionbyonegovernmentofinfluenceor pressure on the government of another country orcountries.3 This is traditionally done through eithermultilateral (many countries) forums or institutions,particularly in regard to global or regional issues, orthroughbilateralmeans(betweentwocountries).

Multilateralcooperationcan,butneednot,beuniversal,involvingall(ornearlyall)countriesintheworld.TheUNclimateprocessisaformofuniversalmultilateralismthatworkson thebasisofagreementbyconsensusbetweenall countries. Bilateral andmultilateral processes can bemoreorlessformal,involvinganythingfrommerepoliticalmeetings (e.g. the G20) to more formal arrangementsinvolving treatiesand legalobligationsand somecentralinstitutions (e.g. the UNFCCC), all the way through tohighly legalistic regimes with centralised institutionsand enforcement mechanisms (e.g. the World TradeOrganisationanditsDisputeSettlementBody).

We argue that countries should shift their focus ontocooperatingonparticular,tangibleaspectsoftheclimateproblem and its solutions (specific emissions-causing oremissions-reducingsectors,technologiesoractivities)andwithin smallergroupsof countries,withmorepragmaticmembershipcriteria.


37

Werecognisethattheideaofthistypeofcooperationisnotnew,butweexplainbelowwhatneedstochange inordertomakeitmoreeffective.

Why tackling climate change in this way is more likely to succeed than the UN process

While developing cooperative arrangements or forgingagreements under the CD paradigm would inevitablyinvolve considerable challenges (particularly in relationtofossil fuels), thebenefitsoftacklingsuchvexed issueson their own and in smaller, interest-based groups areconsiderable compared with trying to do so within theUNFCCC.7

First,theprocessof“decoupling”issuesintosmallpartsoftheproblem,tobedealtwith insmallergroups,enablesprogresstobemadeinareaswhereitisattainablewhilethecentralUNnegotiationsarestalled.8Becausethecurrentparadigmisall-encompassingandseekstoaddressclimatechange through a grand bargain, its success is entirelyhostage to politics (there is a saying in the UN climateprocessthat“nothingisagreeduntileverythingisagreed”).Thesmallgroupapproach is inherentlymore resilient topolitical deadlocks, as political disputes in one processneednotinfectprogressinotherareas.Suchcooperativeprocesses have been shown in other contexts such astrade and arms control to yield technical breakthroughswhilst generally building trust and confidence amongparticipantsanddemonstratingthebeneficialpossibilitiesofcooperation(seeBox8.2inChapter8).9

Second, the smaller, interest-basedmembershipensuresdisinterested parties are unable to interfere or diluteprocessesastheytrytoadvancetheir interests,asoftenoccursintheUNFCCC.10Oilexportingstates,forexample,haveformanyyearsheld-upmultilateralnegotiationsonreducing shipping and aviation emissions because theyaredissatisfiedwiththelackofcompensationdevelopedcountries are offering them for importing less of theiroil as a result of climate changemeasures! This type ofbehaviourbegsasimplequestionthatproponentsoftheUNprocessstruggle toanswer:why letglobalemissionsreductionbeheldhostagebythelaggards?

Third, the smaller membership and more intensive,single-issuefocusallowsgreaterscopefor:thecollectionof information and the development of expertise; theidentification of co-benefits for participating countries;and the provision of targeted technical assistance andincentivepaymentsbydevelopedcountriestodevelopingcountries.11

Fourth, progress in smaller groups can result in thedevelopmentofinternationalnorms(standardsofconduct)thathavelegitimacyandbecomeinstitutionalisedbeyondthegroup’smembership—historyhasshownthatthiscanoccur even in the absenceof universal participation, for

example nuclear testing, anti-personnel land mines andlawofthesea.12AnexampleofhownormsregardingfossilfuelscouldevolveisdiscussedinChapter8.

Possible Objections to the CD Paradigm

Despite being convinced of the superiority of the CDparadigmgivenpresentgeopoliticalrealities,werecognisethat there are challenges. First, the CD paradigm doesnotnecessarilyentailaglobal framework formeasuring,reportingandevaluatingprogress towardsagreedglobalclimate objectives. However, the UNFCCC and decisionsmade under it provides an adequate (if not perfect)frameworkforaccountingforemissionsforthepurposesof providing this information and tracking progress.As explained in Chapter 2, we do not argue for theabandonmentofthisprocess,butratherthedevelopmentof complementary cooperativeactionswithinadifferentparadigm.

Assuch,theemissionsmonitoringandreportingprocessunder theUNFCCCshouldcontinue. In fact, it shouldbestrengthened.Inparticular,thereisagreaterneedforaninternationalcapabilitytosynthesiseglobalemissionsdatafromallsourcesandprovideup-to-dateinformationaboutthegapsbetweendecarbonisationeffortsandemissionstrajectories,cumulativeemissionsandtherisksofclimateimpacts.13

Second, the CD paradigm does not entail a centralisedmeans by which countries’ efforts can be calibrated totheachievementofaglobalgoalandenshrinedinbindinglegalobligations toachieveemissions targets.Abottom-upparadigmbydefinitioncannotdependonallcountriesagreeing specific, long-term responsibilities up-front,once-and-for-all.Again,wesimplynotethattheconditionsforsucharegimedonotcurrentlyexist,butthatthroughactionswithintheCDparadigmtheycouldbefostered.Thiscould occur, for example, through building social capitalin smaller cooperative groups, and through initiatives tobringdownthecostofrenewableenergyandotherzerocarbontechnologies.

It can readily be seen how the sort of cooperativemechanisms we advocate can lead to opportunitiesdown the track formorecentralised, top-down formsofcooperation.Indeed,thisisexactlywhybothparadigmsareneeded:achievementsineachparadigmshouldultimatelymakesuccesswithintheothermorelikely.Moreover,itisnotasthoughtheCDparadigmnecessarilyignoresbindingcommitments that reduceemissions, it is just that thesecommitments aremore likely to focus on the economicand social processes that cause emissions (such as coalandgasexports).

Third, similar types of partnership arrangements havebeen triedbeforeandhavenot fundamentally “changedthegame”,thereforeitcouldbearguedthatgoingdown


38

this pathwould be a distraction. For example, theAsia-PacificPartnershiponCleanTechnologyandClimate(APP),inauguratedbytheBushAdministration,establishedeightpublic-private“taskforces”thataimedtoreduceemissionsthrough a practical focus on particular industry sectorssuch as steel, aluminium, concrete and fossil fuels.14TheMajor Economies Forum takes a similar, practically-orientedapproachtocleantechnologies.15

ThenoveltyofCDisthatthesetypesofinitiativesarenolongerviewedas“peripheral” inthewaytheyaretoday.Theymustbecomeextremelywell-resourcedandfocusedondeliveringscalablezero-carbonsolutions,suchasthoseexamined in the ZeroCarbonAustralia Plans,within thetimeframesrequired.

Moreover, the focusof thesepartnerships hasnot beensufficientlyambitious.TheAPP,forexample,hasa“CleanerFossil Energy Task Force” which is focused on CCS andscaling-upLNG,whichtheAPPwebsitereferstoasa“lowemissionsfuel”.Patently,thiswouldnotmeetthecriteriaforCooperativeDecarbonisationoutlinedabove.AnotherexampleistheForestCarbonPartnershipsFacility,whichbrings together donor countries to provide funding toforested developing countries that undertake “REDDreadiness” programs and, eventually, protect forests.16 There is an unfortunate emphasis within REDD-relatedinstitutionson thepreparationof countries for inclusionin carbon markets with a view to offset generation foruse by developed countries (we explain in Chapter 4why this is problematic).Whilewe recognise that REDDis extremely complex, the emphasis needs to shift ontohaltingdeforestationasquicklyaspossibleinadditiontoactionsinotherareas.

CDisnotarecipeforcarte blanche(atleast,nomorethanthe status quo is). But it will, at least initially, entail anarrayofimpreciseeffortsatmultiplelevelsofgovernancefrom the local to the global, working separately butin complementary ways towards a safe climate.17 The resultingoutcomewillnotbetheprecisehittingofaglobaltargetatthelowestpossiblecost;itwillbefarlesselegantthan that. But as different approaches are trialled, failandsucceed,andascountriesandnon-stateactorslearnfromthesesuccessesandfailures,thefocuswillgravitatetowardsthemosteffectiveregimesandapproaches,whichcaninturnbeexpandedanddeepened.18

Ultimately,undertheCDparadigm,politicalleadershipisrequired.Below,weconsiderthesortsofleadershipactionsthatcountriescantakeevenintheabsenceofcooperationfromothers. Chapters 7 and8 furtherdemonstrate thatleadership under the CD paradigm canmake amaterialdifference to the global emissions trajectory. We turnnowtothinkingaboutthepossibilitiesofunilateralactionwithinthisparadigm.

5.3.3 UnilateralAction

If benigndiplomatic initiatives continue to fail to inducesufficiently transformative change then individualcountriesmust be prepared to lead on their own. Theymustusewhatevermeansattheirdisposaltodecarboniseemissions-intensive processes within their sphere ofinfluence and to pressure other countries into followingsuit.

Such “unilateral” action can only succeed if countriestakingitarticulateaclearsetofvaluesorgoalstowhichtheyaspire—suchasdecarbonisation,povertyalleviation,andsustainableprosperity(seeChapter6)—andbehaveconsistently with them, while expressing willingness toengagewithothercountriesinregardtohowthisoccursininternationalfora.Byleadingbyexampleandconformingto the standards they expect of others, countries gaincredibility,helptoestablishnewnormsofbehaviourandinfluencetheactionsofothers.

Unilateral actions by countries can range from thebenevolenttothepunitive.

Startingatthebenevolentend,theGermanGovernment’sworld-leadingpolicies aimedat rollingout solarPVoverthe lastdecadehavehadanextraordinaryglobal impactinbringingdownitsprice.WhileGermanyhasengagedinmultipleresearchcollaborationsrelatingtoPVthroughoutthisperiod,19itspolicieswerelargelyunilateral.Germany’ssolarrollouthasbeensoambitiousthat,by2010,Germanywashometoaroundhalftheworld’sinstalledsolarPV.20 Germany’s solar PV policies are directly targeted atreducing PV prices, and have brought costs downby anincredible65%since2006.21

This essentially amounts to Germany subsidising solarfortherestoftheworld:Germanyundertooktheburdenof investing in the technology when it was relativelyexpensive.Itseffortshaveallowedothersto“freeride”bygaining access to cheaper PV. A short-sighted rationalistmight have foregone those initial investments; instead,a far-sighted government saw a strategic opportunity.TheeconomicrewardsforGermanyhavebeenprofound(seeBox7.5inChapter7).Today,GermaninnovationhasspurredChina,theUSandothercountriestojointhePVrush,and its initialeffortshavesnowballed intoaglobalPVboom.

Another innovative example is the financial pledgesby Germany and others currently being made to theEcuadorianGovernment,viaaUNDevelopmentProgram-administeredfund,foritsconservationof,andforbearanceto exploit the oil reserves under, the richly biodiverseYasuniNationalParkintheAmazonRainforest.23

FinallyNorway’sstrategicuseofitssovereignwealthfund


39

emissions in the InternationalCivilAviationOrganizationand the International Maritime Organization, the EUrecently incorporated international aviation emissionswithintheEUEmissionsTradingSchemesothatflightstoand fromEuropewillneed topayacarbonpriceon thefuelused.26

The second type of unilateral measure involves theimpositionofbordertaxadjustmentsonimportsofgoodsthatarenotsubjectedtoequivalentcarboncostsintheircountry of origin. Such measures serve the combinedpurposeofmaintainingthecompetitivenessofindustrieswithinthe“leader”countrythataresubjecttoemissionsreduction policies such as carbon pricing (reducing theoft-cited, albeit typically remote, possibility of “carbonleakage”) while encouraging “laggard” countries toenact similar measures on equivalent goods.27 The USclimate protection legislation that passed the Houseof Representatives in 2009 contained border tariffadjustmentsofthisnature.28

The Grattan Institute recommends that Australia adoptsuch border adjustments for steel and cement because,compared with compensating industries through theissue of free carbon units, it would be amore efficientandeffectivewayofpreventingcarbonleakageintheonlytwoindustriesthatareatgenuineriskofsuchleakage.29 To address equity concernswhere the country of originisadevelopingcountry,therevenueraisedbytheleadercountryfromthetariffcanberecycledtothedevelopingcountryexporterintheformofinvestmentsinrenewable

furtherexpandsnotionsofhowstatescanacttoinfluenceissueslikeclimatechange.The$550billionfund,inwhichNorwaysavesitsoilandgasrevenuesfromtheNorthSea,hasbecomeso large that itnowownsmore than1%oftheworld’sshares,isEurope’sbiggestequityinvestorandspeaks for 1.7% of all listed European companies.24 The fundmanagerisputtingclimatechangeontheagendaofthecompaniesinwhichitownsstakes,requiringthemtoanalysetheimpactclimatechangehasonthecompanies’activities,measuringthegreenhousegasestheyemitandsetting clear targets for reducing them. It also investsdirectly in sustainability. The fund invested $1.2 billioninto 232 Indian companies that support environmentalsustainabilityandcleanenergyandhasmadebilliondollarinvestmentsinforestpreservation.25

At thepunitiveendof thespectrumofunilateralaction,two types of measures could be utilised by “leader”countries: pricing emissions from international aviationandshipping,andbordertaxadjustments.

The first type of unilateral impost that a leader countrycan apply is targeted at emissions from internationalflightsandshippingvoyagesthatarriveinordepartfromthecountry’sportsandairports. Suchemissionsarenotaccounted forbyanyonecountryunderUNrules, sincethey are “international” in nature. The policy measureinvolves subjecting those “bunker fuel” emissions tothatcountry’s carbonpricingschemeorotheremissionsreductionpolicy.Forexample,intheabsenceofprogresstowards international agreements to address such

FIGURE5.2TheYasuniNationalPark,Ecuador:Aworthyinvestment?22


40

energyorotherformsofsustainabledevelopment.

InboththeEUairlinecaseandtheUSbordertariffcase,themeasuresinquestionprovokedaninternationaloutcry.This is precisely the point. The EU decision provokedvigorous complaint from a number of non-EU countries(thoughultimately only China and India haveprohibitedtheircarriersfromcomplying).30ChinaandIndiawerealsostridentintheircriticismoftheproposedUSmeasures.31 Butthistypeofactionwillbecomeincreasinglynecessaryin the absence of international agreements to regulateemissions or international enforcement structures todisciplinelaggardstates.

While some commentators and politicians fret aboutthe free trade implications of unilateral action,32 these concerns typically imply a subversion of climate-relatedconcernstofreetradegoalsthatismorallydubiousgiventhethreatposedbyclimatechange.Onemightwellask,“howmanytradewarswilltherebeinaworldthat’s2-7degreeswarmer?” The foodprice spikes of 2008,whichprovoked riots inmore than 30 countries and led grainexporters to cut off exports to food-importing nations,providedanominousforetasteofthetenorofinternationalrelations in a warming world.33 In any case, concernsabouttradewarsarelargelyunwarrantedasitiseminentlypossibletodesigncarbon-relatedunilateralmeasuresthatare lawfulandconsistentwithWorldTradeOrganization(WTO)rules.34

Thoughtheycanbeundertakenunilaterally,thesetypesofrestrictionscanbeimposedbyagroupofleadercountriesin order to preserve benefits to the leader group andincentivise action by non-participating laggards.35 The more states that engage in this this type of action, themorelikelyotherswillwanttocooperate.


41

solar-idUSTRE60C4OS20100113;“ForhowlongwillGermanytheworld’s

largestPVmarket?”,Solarplaza(16August2011)http://www.solarplaza.com/

article/for-how-long-will-germany-remain-the-worlds-large.

21. “PreisindexPhotovoltaik”,Bundesverband Solarwirtschaft(2012)http://www.

solarwirtschaft.de/preisindex.

22. “SanRafaelFalls,locatedintheYasuniNationalPark,Ecuador”,ZME Science

(2010)http://www.zmescience.com/ecology/environmental-issues/ecuador-

will-receive-3-6-billion-not-to-drill-for-oil-in-a-historic-pact-06082010/.

23. Seehttp://www.mdtf.undp.org/yasuni;MelissaFyfe,“MeetCashDeadline

ortheDrillersMoveIn”,Sydney Morning Herald,(29October2011);Sophie

Vorrath,“Amazon:1,FossilFuels:0”in“MixedGreens:Australia(Still)Lagson

Cleantech”,RenewEconomy(5June2012).

24. GladysFouché,“Norway’sSovereignWealthFund:£259bnandgrowing”The

Guardian(20September2009)http://www.guardian.co.uk/business/2009/

sep/20/norway-sovereign-wealth-fund;SophieBaker,“NorwaySWFtoldto

investinlandasclimatechangehedge”Financial News(21May2012)http://

www.efinancialnews.com/story/2012-05-21/norway-swf-told-to-invest-in-

land-as-climate-change-hedge.

25. Ibid.

26. Council Directive 2008/101/EC of 19 November 2008 Amending Directive

2003/87/EC so as to Include Aviation Activities in the Scheme for Greenhouse

Gas emission Allowance Trading within the Community[2008]OJL8/3.

Whilenocountrieshaveasyetundertakenunilateralmeasurestoputaprice

onemissionsfrominternationalshipping,theEUhasestablishedaformal

workinggrouptoaddresstheissueandarecentReport,jointlyprepared

bytheUniversityofManchesterandtheTyndallCentreforClimateChange

Research,outlinesthepotentialscopeforunilateralactionbytheUnited

Kingdomtoaddresssuchshippingemissions:seePaulGilbert,AliceBowsand

RichardStarkey,Shipping and Climate Change: Scope for Unilateral Action

(August2010)http://www.tyndall.ac.uk/publications/research-report/2010/

shipping-and-climate-change-scope-unilateral-action.

27. JohnDaleyandTristanEdis,“RestructuringtheAustralianEconomytoEmit

LessCarbon”, Grattan institute(April2010)p12http://www.grattan.edu.au/

publications/026_energy_report_22_april_2010.pdf.Themeasurescould

operatesothatimportersofgoodscompetingwithequivalenttradeexposed

industriesinthe“leader”countrycouldberequiredtopayapricebasedon

theleader’sindustryaverageemissions.Thispricecouldthenbeadjusted

ifimporterscoulddemonstratethattheiractualproductionemissionswere

lowerthantheleadercountryaverageorthattheywerealreadysubjectto

anequivalentcarbonpriceorequivalentintheircountryoforigin:seeJohn

DaleyandTristanEdis,“TheRealCostofCarbonPricing”,Inside Story(23

September2010)http://inside.org.au/the-real-cost-of-carbon-pricing/.

28. American Clean Energy and Security Act of 2009,H.R.2454,111thCongress.

29. DaleyandEdis,“RestructuringtheAustralianEconomy”(2010) .

30. See,e.g.,“EuropeagainsttheWorld”,The Economist(16May2012)http://

www.economist.com/blogs/gulliver/2012/05/airlines-and-pollution;Tania

Branigan,“ChinaBansitsAirlinesfromPayingEUCarbonTax”,The Guardian

(online)(6February2009)http://www.guardian.co.uk/world/2012/feb/06/

china-airlines-european-carbon-tax.TheEuropeanCourtofJusticerecently

foundtheEuropeanschemetobelawful:Air Transport Association of

America and Others v Secretary of State for Energy and Climate Change (C-

336/10)[2011]OJC49.

31. InternationalCentreforTradeandSustainableDevelopment,“China,India

lashoutattalkof‘carbontariffs’”,China Programme(2009)13(25)http://

ictsd.org/i/news/bridgesweekly/50301/;“Chinasayscarbontariffswillharm

globaltrade”,China Daily(16December2012)http://www.chinadaily.com.

cn/business/2009-12/16/content_9189672.htm;AmyKazim,“IndiaattacksUS

carbontariffplan”,Financial Times(online)(1July2009)http://www.ft.com/

References1. SeeRuthGreenspanBelletal.,Building International Climate Cooperation:

Lessons from the weapons and trade regimes for achieving international

climate goals,WorldResourcesInstitute(2012)p38.

2. See,e.g.,AdamBumpus,“Startacarbontax?That’sso1991.Clean

innovationandpartnershipsiswhereit’sat”,The Conversation (2July2012)

http://theconversation.edu.au/start-a-carbon-tax-thats-so-1991-clean-

innovation-and-partnerships-is-where-its-at-8009.

3. “Indifferentsocialsettings,influencemaybeexertedbyavarietyofdifferent

means,includingsettinganexample,skilfulpersuasion,providinginstitutional

support,thepossessionandcommunicationofsuperiorexpertiseor

experience,theexerciseofaformalpositionofauthority(including

traditionalauthority),and/orsimplythepossessionofqualitiesthatare

admiredbyothers”:RobynEckersley,“DoesLeadershipMakeaDifference

inInternationalClimatePolitics?”InternationalStudiesAssociationAnnual

Meeting,SanDiego,(1-4April2012)p6.

4. “About”,Clean Air and Climate Coalition,http://www.unep.org/ccac/About/

tabid/101649/Default.aspx.

5. “Short-LivedClimatePollutants”,Clean Air and Climate Coalition,http://www.

unep.org/ccac/ShortLivedClimatePollutants/tabid/101650/Default.aspx.

6. Belletal.,Building International Climate Cooperation(2012)p5,45,48.

7. Ibid.,p39-40,43-44;RobertOKeohaneandDavidGVictor“TheRegime

ComplexforClimateChange”,The Harvard Project on International Climate

Agreements: Discussion Paper(January2010)p12,13.

8. SeegenerallyBelletal.,Building International Climate Cooperation(2012)

Chapter1andspecificallypage50.

9. Ibid.,p5,40-41,44-45,56(Chapter1generally).

10. Ibid.,p39-40,43-44.

11. Ibid.,p17-19,23-24,44-45.

12. Ibid.,p35-36.

13. FergusGreen,WarwickMcKibbinandGregPicker,“ConfrontingtheCrisisof

InternationalClimatePolicy:RethinkingtheFrameworkforCuttingEmissions”

Lowy InstitutePolicyBrief(6July2010),p10,14-17.

14. APP,“APPPublic-PrivateSectorTaskForces”,http://www.

asiapacificpartnership.org/english/about.aspx.

15. “About”,Major Economies Forum,http://www.majoreconomiesforum.org/

about.html.

16. “Home”,The Forest Carbon Partnership Facility,http://www.

forestcarbonpartnership.org/fcp/.

17. ElinorOstrom,“Polycentricapproachestoclimategovernance”Development

and Economics Research Group, World Bank(2010)p39.SeealsoThomas

Heller“ClimateChange:DesigninganEffectiveResponse”,inErnestoZedillo

(ed.),Global Warming: Looking Beyond Kyoto(2008)p115-144;MikeHulme,

“MovingbeyondClimateChange”,Environment(2010)52(3),p15-19.

18. DanielBodanskyandElliotDeringer,The Evolution of Multilateral Regimes:

Implications for Climate Change(December2010)p3-12;Ostrom,“A

PolycentricApproach”,p11,35;KeohaneandVictor,“TheRegimeComplex

forClimateChange”,RobertFalkner,HannesStephanandJohnVogler,

“InternationalClimatePolicyafterCopenhagen:Towardsa‘BuildingBlocks’

Approach”,Global Policy,(October2010)1(3),p252,256-257;GwynPrins

andSteveRayner,The Wrong Trousers: Radically Rethinking Climate Policy

(2007).

19. See,e.g.,“Australia-GermanyCollaborativeSolarResearchand

DevelopmentProgram”,Sydney University,http://sydney.edu.au/news/84.

html?newsstoryid=9046.

20. “Germanymovestowardtrimmingsolarpowerincentives”,Reuters(13

January2010)http://www.reuters.com/article/2010/01/13/us-germany-


42

cms/s/0/3b180c9a-65d4-11de-8e34-00144feabdc0.html#axzz20lnw8I00.

32. See,e.g.,TimWilsonandCaitlinBrown,“Costly,ineffectualandprotectionist

carbontariffs”,The Institute of Public Affairs(December2009);Frédéric

Simon,“FranceplanstoreviveEUcarbontariff”,The Guardian(18May2012)

http://www.guardian.co.uk/environment/2012/may/18/france-eu-carbon-

tariff.

33. “Riots,instabilityspreadasfoodpricesskyrocket”,CNN World(14April

2008)http://articles.cnn.com/2008-04-14/world/world.food.crisis_1_food-

aid-food-prices-rice-prices?_s=PM:WORLD;JavierBlas,“UNBodyWarnsof

‘FoodPriceShock’”,Financial Times(5January2011)http://www.ft.com/intl/

cms/s/0/524c0286-1906-11e0-9c12-00144feab49a.html;JavierBlas,“Trade:

ExportBanPromptsReviewsofSecurityofSupplies”,Financial Times (14

October2010)http://www.ft.com/intl/cms/s/0/89dfdf36-d65a-11df-81f0-

00144feabdc0.html.

34. AccordingtoarecentjointreportfromtheWTOandtheUnitedNations

EnvironmentProgramme,bordertaxadjustmentmeasureswillbeWTO-

compliantsolongas:theydisplayacloseconnectionwithessentialclimate

changepolicy;theyarenon-discriminatoryinapplication,soasnotbe

a“disguisedrestrictiononinternationaltrade”;andadministrativedue

processisproperlyfollowed:LudivineTamiottietal,Trade and Climate

Change: A Report by the United Nations Environment Programme and the

World Trade Organization,WTOPublications(2009)p98–103.Seealso

RudiKruse“ClimateChangeRegulationinAustralia:AddressingLeakage

andInternationalCompetitivenessConsistentlywiththeLawoftheWTO”,

Environmental and Planning Law Journal (2011)28p297;Benjamin

Eichenberg“GreenhouseGasRegulationandBorderTaxAdjustments:the

CarrotandtheStick”,Golden State University Environmental Law Journal

(2010)3,p283.

35. KeohaneandVictor,“RegimeComplexforClimateChange”(2010) p12-13.

Laggard to Leader

Contents

6.1 Introduction 44

6.2 CooperativeDecarbonisation:WhatShouldIndividualCountriesDo? 44

6.3 Australia’sResponsibilitiesunderCooperativeDecarbonisation 456.3.1 TheCaseforAustralianClimateLeadership 456.3.2 InternationalEquity 476.3.3 Australia’sNationalInterest 48

6.4 FromResponsibilitytoAction 50

References 51

Part 6Australia’sRoleinCooperativeDecarbonisation

Laggard to LeaderPart 6: Australia’s Role in Cooperative Decarbonisation

44

thisinvolvesdomesticdecarbonisation,butthinkingaboutourcontributionintermsofoursphereofinfluenceinvitesus to consider amoreexpansive setof policy responses— aimed at the full range of global emissions overwhichwecanexercisecontrolor influence.This includesresponsibilityforinfluencingtheemissions-relatedactionsofothers(whiletakingequityconsiderationsintoaccount),and recognising thatwealready influence these actionsthrough our extensive participation in global fossil fuelmarkets.

This approach accepts that, as with most internationalissueswefacetoday—fromfinancialcrisestoglobalpovertyto nuclear proliferation — responsibility for emissionsin a globalisedworld cannotbe soeasilyquantifiedanddemarcated at national borders. Addressing climatechange in this context requires forms of internationalcooperationthatareconcernedmuchmorewiththe(oftentrans-national)economic and social processes that cause emissions thanwith tonnesofemissions thathappen tofallwithinoneoranothercountry’sborders.

Noneofthisistosaythateverycountryshoulddecarboniseatthesame paceorcontributeequal resources toglobaldecarbonisation efforts. Rather, we emphasise that thisshould be the basic guiding logic applicable to everycountry’sclimateactions—inthesamewaythat lowestcost domestic abatement provides the guiding logic forindividual country actions within the current paradigm,eventhoughnoteverycountryapproachesthisinexactlythesamewayortothesameextent.

Themorepreciseresponsibilitiesofanyparticularcountrywith regard to the timing of decarbonisation and theextent of their contribution of resources to their ownand global effortswill necessarily depend on a range offactors.1 These include, with regard to any country: itshistoricalcontributiontoclimatechange;thescopeofitssphereofinfluenceoveremissions-intensiveprocesses;itsfinancialresources;itsspecialcapabilitiestocontributetodecarbonisationefforts;anditscapacitytolead.2

6.1 Introduction

Having articulated the basic concept and logicofCooperativeDecarbonisation,wenowturntoask:whatshouldasinglecountrydo?And,morespecifically,whatshouldAustraliado?

Within theCooperativeDecarbonisationparadigmstatesmust assess their responsibility to contribute as a basisfordeterminingtheactiontheyshouldtake.Thischapteroutlines the basic principles that should guide countriesunderabottom-upparadigmofclimateactionandappliesthesetoAustralia.Itconcludes:• The precise responsibilities of a particular country

with regard to the timing of its decarbonisation andits contribution of resources to the global effort willdepend on a range of factors, including: its historicalcontributiontoclimatechange;thescopeofitssphereof influence over emissions-intensive processes; itsfinancialresources;itsspecialcapabilitiestocontributetodecarbonisationefforts;anditscapacitytolead.

• WhenthesecriteriaareappliedtoAustralia,thereisastrong case that Australia should decarbonise rapidly,contribute substantially to global decarbonisationefforts and play a leadership role in facilitatinginternationalcooperation.

• The imperative to act consistently with internationalequity considerations strengthens the case forcooperative action by Australia and other developedcountries.

• WhilemuchisrequiredofAustraliaunderCooperativeDecarbonisation, these actions are consistent withAustralia’snationalinterest.

6.2 CooperativeDecarbonisation:WhatShouldIndividualCountriesDo?

As applied to a single country, the basic logic of the CDparadigmisthateachcountrytakesresponsibilityfor:1. decarbonising those emissions-intensive economic

andsocialprocesseswithinitssphereofinfluence(i.e.domesticemissions,exportedemissionsandemissions-intensiveimports);and

2. cooperating with other countries to facilitate thatdecarbonisationbywhatevermeansismostappropriate.

For an individual country, including Australia, operatingundertheassumptionsoftheCDparadigmnecessitatesasubstantialshiftinthewaywethinkaboutourcontributiontoclimatechange.AsarguedinChapter5,undertheCDparadigm, countries should reduce emissions whereverpossiblewithintheirsphereofinfluence.Attheveryleast,


45

measure causal responsibility for emissions on a sphereof influence basis, apportioning shared responsibilityfor imports and exports, the case that Australia mustdecarboniserapidlyisevenstronger.

Special Capabilities to Provide Climate Solutions

Australia, as we have shown, has immensely high andgrowingemissionsfromthefossilfuelsitexports.Thefactthat we have full control over these emissions enlargesAustralia’s responsibility todecarboniserapidly,asnotedabove.ButthescaleofAustralia’sexportedemissionsalsohighlightsAustralia’s unique capabilities to influence theglobal fossil fuel trade.ThescaleofAustralia’s fossil fuelexportsalsomakesAustraliaacentralplayerintheglobalcoal and LNG trade, conferring on it unique capabilitiesto influence the supplyandpriceof those commodities.ThoseabilitiesarguablygiverisetoaspecialresponsibilityforAustralia to contribute to global emissions reductioneffortsassociatedwithcoalandgas.InChapter8,weshowhowAustraliacandischargethisspecialresponsibilityandtheprofoundimpactsthatsuchactionislikelytohaveinreducingglobalemissions,shapingglobalenergymarketsandstrengtheningrelevantinternationalnorms.

Australia also has world class renewable energyresources in solar andwind and excellent capabilities ininfrastructure services (finance, project management,engineering and construction). As such, Australia hasan immense capacity to contribute to the deploymentof zero emission technologies and associated services,givingrisetoaspecialresponsibilityforAustraliatomakeglobal contributions in those areas. In Chapter 7, weexplainhowAustraliancouldplayaleadingroledeployingcommercially available technologies, particularly CST, athomeandabroad,therebysignificantlyreducingthecostofthosetechnologiesforenergyusersallovertheworld.

While the focus of Australia’s decarbonisation effortsshould be on deployment, as we discuss in Chapter7 there is also a strong case for global research,development and demonstration (RD&D) of new zeroemissions technologies. Australia’s strong researchand technical capabilities arguably extend Australia’sspecial responsibilities to encompass the provision of aconsiderableshareoftargetedinvestmentintoRD&Dfornew zero emissions technologies. Australia’s immensecapacity to gain advantages from low cost renewableenergytechnologiesshouldprovidemorethanadequateincentivesforAustraliatoinvestinthisrealm.

6.3 Australia’sResponsibilitiesunderCooperativeDecarbonisation

Below,weexplainthereasonswhyAustraliashouldtakealeadershiproleinglobaldecarbonisationefforts.Inmakingthis argument, we recognise that there aremany otherimperatives and goals that must be taken into accountin advocating this typeof leadership.3 As such,wealsoaddresstwooftheseadditionalconsiderations,namely:• international equity: the imperative for developed

countriestodecarbonisemorerapidlythandevelopingcountries, and to provide assistance to developingcountries so that decarbonisation contributes tosustainabledevelopmentandpovertyalleviation;and

• the national interest: the imperative for Australia toensure that its actions serve Australia’s long-termnationalinterest.

We argue that, far from making trade-offs betweenachieving decarbonisation, international equity andactinginthenational interest,thesethreeobjectivesareintertwinedandmutuallyreinforcing.

6.3.1 TheCaseforAustralianClimateLeadership

There is a strong case thatAustralia shoulddecarboniserapidly,contributesubstantiallytoglobaldecarbonisationeffortsandplayaleadershiproleinfacilitatinginternationalcooperation.

Domestic Decarbonisation

The conclusion that Australia has a responsibilityto decarbonise rapidly is evident even from a strictapplication of the traditional, “fair shares” approach,basedonitsdomesticemissionsaloneanditscapacitytopay.4 Despite having a relatively small population (0.3%ofthecurrentworldtotal,the52ndbiggestintheworld),Australia is historically responsible for a high level ofdomesticemissions.AsdiscussedinChapter3,Australiaiscurrentlytheworld’s15thlargestdomesticemitterandisthehighestdevelopedcountrypercapitaemitter.Itisalsothe14th largestemitter in termsof cumulativehistoricalemissions.5Moreover,astheworld’s13thlargesteconomybyGDPwithoneoftheworld’shighestlevelsofGDPpercapita,weenjoyveryhighwealthbyglobalstandards.6

Australia’shighcurrentpercapitaandhistoricalemissions,and its capacity to pay, Australia has a responsibility todecarbonise rapidly compared with other countries.Underthecalculationof“fairshares” inthecontextofa2°C carbon budget developed by the German AdvisoryCouncilonClimateChange,countrieswithhighpercapitaemissionssuchasAustraliamustreduceemissionstozeroby2020(seeFigure3.5onpage19ofChapter3).7 Ifwe


46

promote peace and security, or respond to commonthreats, Australia has on many occasions risen to thechallenge — despite the fact that in narrowly definedterms,ournational interesthasoftennotbeenatstake.Aresourcefuland influentialmiddlepower,Australiahasshown itself capable of mobilising coalitions, injectinggood ideas, establishing new norms, cajoling othercountriesandindustriesand,mostimportantly,producingresults on the international stage that serve the long-term interests not only of Australians, but of peopleeverywhere.16 Importantly these examples also attestto the fact thatAustralia isgenerallywell respectedandtrusted in international affairs and is often looked uponby the international community as a source of moralleadership,particularlywhenthegreatpowersarefoundwantingoraremistrusted.17

Ofcourse,aswehaveshownabove,Australiaismuchmorethana“middlepower”whenitcomestoclimatechange:itisamajorplayer.Althoughitcurrentlyusesitsinfluencelargelytofueltheproblem,ithasenormouspotentialtouseitspowerforgood.

Capacity to provide leadership

Australiaisinanoutstandingandnear-uniquepositiontoplayagloballeadershiproleincooperativedecarbonisationefforts. This position arises largely fromAustralia’swidesphere of influence over global emissions-intensiveeconomic and social processes, high capacity to payand numerous special capabilities for providing climatesolutions,allofwhicharediscussedabove.

Additionally,Australiahasanhistoricalidentityasaleaderand is socially recognisedbyotherstatesasa legitimateleader in international affairs.8 Each of these attributesis evident from Australia’s rich tradition of creative andeffective “middle power” diplomacy, forwhich it has anunusual flair (see Box 6.1).9 Spanning fields as diverseas environmental protection, human health and safety,internationalsecurityandregionalpeacekeepingoverthelastquarterofacentury,bipartisanexamplesofboldandeffectiveAustralianleadershiparepresentedintextboxesbelowandinChapter8.

Thesecase studies show thatwhenhistoryhas requiredfar-sightedleadershiptoprotectournaturalenvironment,

Box6.1:RegionalPeacekeeping:CementingtheCambodiaPeaceProcessandBeyond

Australia’sleadershiproleintheCambodianpeaceprocessof the late 1980s and early 90s stands out as an earlyexampleoffar-sightedleadershipincircumstanceswhereoursecurityinterestswerenotdirectlythreatened.

IntheaftermathofPolPot’sbrutalKhmerRougeregime,Cambodia remained politically divided and racked byinternal conflict. The conflict was characterised byextremely complex internal and international dynamics:most of Cambodia was under the control of a regimesupported by Vietnam and the Soviet Union; and themainmilitaryoppositionwascomposedofthreeseparateKhmer factions, supported to varying degrees by China,theASEANcountriesandtheUS.10In1989,followingyearsof unsuccessful peace negotiations between the majorstakeholders, the negotiations around the Cambodiapeaceprocessseemedintractable.WithVietnameseforcesleavingthecountryandnoagreementonthecompositionofafuturegovernmentorthepotentialroleoftheKhmerRouge,ongoingconflictseemedinevitable.

The breakthrough in the negotiations was a productof Australian diplomacy.11 The Australian Governmentdraftedapeaceplanbasedon itsproposal foragreaterrole for theUnitedNations in the civil administrationofCambodia for a brief, transitional period. The ‘AustraliaPlan’wassuccessfullypromotedbyAustraliatothepartiesto the conflict and to the international community.12

Having built consensus around the plan, Australia then

providedstrongsupporttotheUNTransitionalAuthorityinCambodia(UNTAC),supplyingthemilitarycommanderfor the UNTAC operation and over 500 communicationspersonnel,policeofficersandelectoralsupervisors,alongaid and humanitarian support.13 The UN peacekeepingprocessultimatelyproducedaneffectiveresolutiontotheconflict.

“Being of secondary size does not mean being second-rate in international affairs”, affirmed Australian ForeignMinisterGareth Evans at thetime: “we can as amiddlepowereffectivelydeployourresourcesnotonlyinawaythatadvancesourowninterests”,butinawaythathelpsto “make theworld a better and safer place”. AmiddlepowerlikeAustralia,saysEvans,candoagreatdeal“usingtechniques of coalition building and niche diplomacy,paying careful attention to priorities and credibilitymaintenance,exercisingintellectualcreativityattherighttimes,andthroughsheerpersistenceandstamina”.14

Political leaders expressed similar sentiments incharacterisinglaterAustralianinterventionsintheregion.AsthenforeignministerAlexanderDownernotedin2007,Australia’sinvolvementinthePacificregionhasbeenaboutmorethanpursuing“narrowlydefinednationalinterests…thereisalargeelementofaltruisminwhatwedo”.15


47

6.3.2InternationalEquity

We unashamedly take the position that achievingthe imperative of a safe climate through CooperativeDecarbonisation must be the starting point for, andhighestpriorityof, countries’energyandclimatechangepolicies this decade and beyond. The reason for this issimple: without climate stabilisation at safe levels, allother benevolent or progressive goals of internationalpolicywouldbecomeunattainable.18

Thereare,ofcourse,otherinternationalpolicyimperativesworth striving for, and to which resources should beallocated. One of these worth highlighting is povertyalleviation.Some1.4billionpeoplearoundtheworldlivebelow the international poverty line of $1.25 per day.19 One of the UN’s Millennium Development Goals is toreducethatnumberto900millionby2015.20Moreover,therearesome1.3billionpeoplearoundtheworldwhodonothaveaccesstoelectricityand2.7billionwithunsafecookingstoves—morethan95%ofthesepeople live inSub-SaharanAfricaordevelopingAsiaand84%liveinruralareas.21“Thelackofaccesstomodernenergyservicesisaserioushindrancetoeconomicandsocialdevelopment,andmustbeovercomeiftheUNMillenniumDevelopmentGoalsaretobeachieved”,arguestheInternationalEnergyAgency.22

Makingreliableenergyavailabletotheworld’senergypooris important, butmaking reliable clean energy availableto all theworld’speople is thegoalwe should reallybestrivingfor.Yetthisraisesaconundrum:intheshortterm,addressingclimatechangenecessitatesthatglobalenergyprices rise tobetter reflect thedamage costs associatedwith burning fossil fuels and to facilitate the essentialgrowth in renewable energy. As we show below, manyoftheworld’senergypoorarenotespeciallyaffectedbyfossil fuel prices because they are not connected to thegrid.But,totheextenttheywouldneedto,isitrightthatpeopleindevelopingcountriesshouldpayrelativelyhigherprices for clean energy in order to address a problemlargelycausedbydevelopedcountries?Arguablyitisnot.

Sowhatshouldbedone?

Oneargumentisthatweshouldsupplyevermorecoalandgastodevelopingcountriesbecauseitisacheaperwayofalleviatingpovertyandpoweringeconomicdevelopmentin lower-income countries. There are three reasonswhythisapproachisflawed(seeBox6.2).

Rather, to ensure that decarbonisation efforts areconsistent with international equity considerations,Australia and other countries should undertake threetypesofmeasures.

Box6.2:WhySupplyingCoalandGastoDevelopingCountriesonPovertyAlleviationGroundsisFlawed

First, it is patently false for some applications. Even atcurrent prices, renewable energy can provide cheaperhousehold power than fossil fuels for more than 1billion people. As discussed further in Chapter 7, solarphotovoltaicpowerisnowacheaperenergysolutionforremote, off-grid areas, where the vast majority of theworld’s energy poor actually lives.23 As such, allocatingcapital to coal and gas at the expense of distributedrenewable energy solutions actually prolongs the harmssufferedbytheworld’smostenergypoorpopulations.

Second, in thosemarketswhere fossil fuels are cheaperthanrenewableenergy,thepricedifferentialsubsistspartlybecausethefullcostsoffossilfuelsarenotincorporatedinto their price. Fossil fuel prices do not incorporatelocal “externalities” (to say nothing of the externalisedclimate damage costs) which typically include largepublic health impacts from fossil fuel combustion thataffectlocalcommunitieswhereelectricityisgenerated.24 Decarbonising electricity generation in developingcountrieswouldhaveconsiderableandimmediatehealthco-benefitsforlocalpopulations.

According to one study of alternative climate policyscenariospublishedintheworld’spreeminentinternational

medical journal, The Lancet, the health benefits ofmitigation policies to reduce fossil fuel electricityconsumption “greatly offset costs of greenhouse-gasmitigation,especiallyinIndiawherepollutionishighandcosts of mitigation are low”, with modelling suggesting“clear health gains (co-benefits) through decarbonisingelectricityproduction”.25Whileitisreasonabletoexpectdiffering results from different locations, it seems likelythat in urban mega-city situations (which is largely thedestinationofAustraliancoalexports)thehealthcostsofcoalwouldbesubstantiallyhigher,andthereforetheco-benefitsofdecarbonisationsubstantiallygreater.

Third, the “fossil fuels alleviate poverty” argumentis dangerously short-sighted because it ignores thedevelopmental (andobviouslyall theother) implicationsof climate change resulting from the continued burningof fossil fuels. According to a report produced by aCommission comprising The Lancet and the UniversityCollegeLondonInstituteforGlobalHealth,“climatechangeis the biggest global health threat of the 21st century”:“vector-bornediseaseswillexpandtheirreach”and“theindirecteffectsofclimatechangeonwater,foodsecurity,andextremeclimaticeventsarelikelytohavethebiggesteffect on global health”.26 Moreover, the Commissionreinforced previous conclusions that climate changewilldisproportionately affect theworld’s poor.27 Fossil fuelsprovide cheaper energy (in some contexts) in the shorttermbutthreatenlivesandlivelihoodsinthelongerterm.


48

First, globaldecarbonisationpolicies shouldbedesignedsothatdevelopingnationsare lessexposed in the initialperiods,consistentwiththeir justifiedlongertimeframesfordecarbonisation.

Second, theprovisionbydevelopedcountriesoffinancefor zero emissions technologies and services, otherfinancial payments and technology transfers, technicalexpertiseandcapacity-buildingwillneedtobebuilt intoglobaldecarbonisationeffortsinordertoensuretheydonotcompromiseequityandpovertyalleviationobjectives.In the case of low-income developing countries,such assistance can complement existing sustainabledevelopmentpolicies,forexamplebyfinancingdistributedrenewable energy generation systems that can assistin reducing energy poverty. The Climate and Clean AirCoalition, discussed in Chapter 5, is a good exampleof developed country financial assistance directed tothe achievement of both socially and environmentallyprogressivedevelopmentgoals.

Developedcountriesmustalsolooktowaysofdevelopinga more cooperative framework for sharing the benefitsof proprietary technologies, goods and services thatare essential for reducing emissions. This remains asignificant challenge for the international community.28 Facilitating the diffusion into developing countries ofsuch technologies, without jeopardising private sectorincentives to invest inmaking them in the first place, islikelytonecessitatetheprovisionofadditionalresourcesby developed countries as a component of their globaldecarbonisationresponsibilities.Harnessing internationaltradeandinvestmenttopromotethefreerflowofgoodsandservicesthatcanassistinemissionsreductioneffortswouldgenerallyassistwiththisgoal.29

Thirdly,throughtheirowndeploymentpolicies,developedcountries should bring about low-cost, “on demand”renewable energy so that decarbonisation becomesmoreaffordabletodevelopingcountriesbythetimetheirdecarbonisationtimelinesstarttobite.

Ultimately, all countriesmust decarbonise. If dangerousclimatechange is tobeavoided, thedelay in thephase-out timeline for major developing nations such asChina must be short-lived. Over the long term, globaldevelopmentgoalssimplycannotbeachievedotherwise.With developing nation emissions rapidly rising, thephase-outoffossilfuelsandcontinuedeconomicgrowthin developing nationsmust be achieved together. Thesetwin objectives are recognised by the UN DevelopmentProgram, the International Energy Agency and leadinginternational development NGOs such as Oxfam.30 It is why the UN’s Sustainable Energy for All initiative isfocused on expanding global access to modern energyservicesprimarilythroughrenewableenergydeploymentandenergyefficiencyimprovements31—notthroughevergreateramountsofcheapcoalandgasfromAustralia.

The following chapters on Australian decarbonisationinitiatives recognise the importance of internationalequityandpovertyalleviationaspartofbroaderstrategiesto assist developing countries transition away fromfossil fuels (including those thatweshouldno longerbeexporting to them) and scale-up renewable energy. Forexample, we explain the international aid and povertyalleviation benefits of Australian measures to deployrenewableenergyinAustraliaandoverseas.

6.3.3 Australia’sNationalInterest

Uptonow,wehavefocusedonAustralia’sresponsibilitiestotherestoftheworld,butAustraliaclearlyalsohastheresponsibility to serve the interests of its own citizens.Policymust,forpracticalifnotethicalreasons,alsoservethenationalinterest.32

Preserving a safe climate is manifestly in Australia’snational interests. Without sufficient global action, thesocial, economic and environmental impacts of climatechange on Australia will range from highly damaging todevastating.

This sits in contrast to many mainstream, rationalistaccounts of international climate policy. Such accountstypicallytreatclimatechangeasaglobalcollectiveactionprobleminwhichactionbyonecountryentailsaninternalcost to that country but confers an external benefit onall countries. The standard conclusion is that unilateralaction,or “leadership”, is irrational because the costs to that countryof suchactionoutweigh thebenefits in theabsence of sufficient action by all to realise the globalbenefitofclimateprotection.33

Successive Australian governments (from both majorparties)andtheirpolicyadvisershaveacceptedthislogicwithout reservation, albeit with two slightly differentimplications.SomeleadershavedonesotojustifyinactiononthebasisthatAustralianmitigationactionwillimposelocalcostsonAustraliawhileconferringnolocalorglobalbenefit in the absence of sufficient action by other keyemitters.34 Others, including the current government,havedrawnontherationalistaccountofclimatepolicytojustifymoderate,incrementalactionthataccordswiththeperceived levelofactionbyotherkeycountries.35 Inthecalculationsofthelatter,the“nationalbenefit”islocatedin the advancement of cooperative action—andhenceimprovement in the probability of eventually sufficientaction—throughthecontributionofgloballyproportionatemitigationbyAustralia.36Again,onthisview,thecostsofleadershipactionareassumedtooutweighthebenefits.

The differences in the interpretation of the rationalistaccount of climate policy by Australian politicians andpolicymakersoutlinedaboverevealanobviouspoint:“thenationalinterest”isnotobjectivelydeterminable;itisnot


49

“outthere”,awaitingdiscoverythroughtheapplicationofsome rational, scientific process. Rather, it is subjectiveandcontested;vieweddifferentlybydifferentpeopleandgroupsandindifferentcircumstances,andchangingovertime.

In a practical sense, the national interest is determinedultimately by the federal government of the day andis embodied in the decisions of the executive and thelawspassedby theparliament.37 But the judgementsofpoliticians and political parties are, in turn, affected bymanycomplexfactors,including:theirvaluesandbeliefs;their political calculations; powerful interest groups,personalitiesandinstitutions;internationalcircumstancesandevents;ourdomesticsituation(geography,economy,politicalsystem);socialandethicalnorms;andmuchmore.Inotherwords,suchjudgementsaresociallyconstructed.

Moreover,asEckersleyargues:38

In the case of climate change, the social construction of the costs and benefits of action or inaction vary enormously between different national jurisdictions depending on different local circumstances, different cultures of risk assessment, what kind of discount rate is adopted, what kinds of benefits and risks are costed or ignored and whether risks are appraised in the context of economic, security, environmental or justice frames. These assessments can also vary markedly over time in the same jurisdictions due to contingent events (extreme weather), or depending on which parties are in government.

In Australia, the calculation and expression of thecosts and benefits of climate action has been framedoverwhelminglybythefossilfuelindustry.39Theinfluenceof these industries on Australian political leadershiphas contributed to a myopic conception of the costsand benefits of action — one in which small costs areexaggerated into large costs, costs to a relatively smallfew are extrapolated to national costs (to a far greaterextentthanisjustified),andinwhichbenefitsofactionareconstruedextremelynarrowly,ifatall.40Itisalsotypicallythecasethatthebenefitsandcostsofbusinessasusualare not articulated, even though “doing nothing” is achoicethatalsoentailscostsandbenefits.

We firmly believe that Australian leadership ondecarbonisation is in Australia’s national interest. Ineachof the followingChapters,we setout anumberofargumentsthatexplainsomeofthekeyeconomic,socialandenvironmentalbenefitstoAustraliaoftheactionswepropose,whilerecognisingthattheywillalsoimposecosts.In our view, these arguments suggest that the specificpoliciesweadvocatearenotonlyeconomicallyaffordable,butwouldalsoservethenationalinterestwell.

Our purpose in this regard is to articulate some of themost significant benefits of leadership action with aview to prompting deeper discussion about the choicesAustralia faces. Quantifying every cost and benefit isbeyond the scope of this paper. Aside from lacking theresources to undertake such an exercise (it would likelycostshundreds of thousands of dollars to commissioneconomicconsultants todo thismodelling inaway thatenjoysmainstreamcredibility),wehaveavoidedattemptsat crude quantification because many of the costs andbenefitsthatwehighlight—includingthosethatmattermost— are either unquantifiable in financial terms, or,to the extent thatmethods exist to quantify such costsand benefits, those methods are themselves open tocontestation on normative grounds (for example, thedeterminationofthediscountratetoapplytovaluationsof future benefits; themeans for ascribing value to thepreservationofananimalspecies;andthedollarvalueofanAustralian’ssensethattheworldisasafeplacetoraisechildren).41

This is not to suggest that attempts at modelling areunhelpful,ratheritistorecognisethatquantificationscanonly ever be partial, imperfect and contestable — partoftheconversation,nottheanswertoallourquestions.Ultimately,whethercooperativedecarbonisationisinthenationalinterestwilldependonwhatwevaluemost,nothowwequantifyeverycostandbenefit.


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6.4 FromResponsibilitytoAction

How should Australia go about fulfilling its greatresponsibilitiestoleadtheworldtozerocarbonprosperity?

Put simply, it should start with its own decarbonisationandthenleverageitsdomesticpoliciesandmeasuresonthe international stage, seeking to draw other countriesinto cooperative arrangements that accelerate globaldecarbonisationefforts.Thisisnotpie-in-the-sky:showingexactly how this can be done is the raison d’être of theZeroCarbonAustraliaProject.TheZeroCarbonAustralia(ZCA) series is demonstrating that the task of 100%decarbonisationistechnicallyachievablewithinadecadeusing existing technologies and processes, and thatthe long-term cost (ignoring climate-related costs andbenefits)iscomparabletothatofbusiness-as-usual.

The 2010 Stationary Energy Plan was the first ZCA Planreleased, in recognition of the importance of Australia’scoal-dominated electricity grid, and other forms ofstationaryenergy, inourdomesticemissionsprofile.ThePlan examines in significant detail a pathway towards azeroemissionsenergysystemwhere:• Thecoalandgas-firedgeneratorsoftodayarereplaced

predominantly with wind energy and concentratedsolar thermalwith energy storage,with hydroelectricand biomass backup. This technologymix is favouredbecause it is available off-the-shelf, it allows theintegrationofthevariabilityofwindwiththedispatch-as-needed power of solar thermal. It will also allowAustralia to develop an advantage in solar thermal –oneofthemostflexiblerenewableenergytechnologies,with the capacity to provide solar-powered baseloadandtherebydisplacecoal.

• Nationwideenergydemandisreducedthroughenergyefficiency, but total electricity demand is assumed torise due to electrification of transport and heating,replacingoilandgasusethatiscurrentlynotrelatedtoelectricity.

• The transition time is 10 years, requiring a totalinvestmentofAU$370billion,oraround3.0%ofGDPperyear.Therequired investment,timeline,materialsandworkforcerequirementsareexaminedindetail,andfoundtobewithinAustralia’scapacitytomeet.Duetosavingsonfuelcostsalone(ignoringotherfactors,suchashealthimprovements),withasocialdiscountrateof1.4% there is no difference between the net presentvalueof theStationaryEnergyPlanand theBusiness-As-Usualpathway.

• Emissionsinthestationaryenergysectorfallfrom417milliontonnesofCO2-etodaytozero.

• Large-scale renewable energy deployment andintegrationservesthesecondarypurposeofsubstantiallyreducingzerocarbontechnologycostsforbothAustraliaandtherestoftheworld(exploredfurtherinChapter7onAustralia’s research,developmentanddeployment

strategy)andofestablishingAustraliaasaleaderinzerocarbonenergysystemdesign,managementandfinance(and,toalesserextent,manufacturing).

ThetechnologymixintheStationaryEnergyPlanhasbeenmodelled using years of real solar insolation and windspeeddatafromsitesaroundAustralia.Thesystemisabletosuccessfullymeet100%ofAustralia’selectricityneedsthroughoutallseasonsoftheyear.

Following the Stationary Energy Plan, the ZCA Projecthas turned its attention to releasing Plans for Buildings,TransportandLand-Use.FutureplanswillcoverIndustrialProcessesandReplacingFossilFuelExportIncome.

ThecriticalbenefitofAustralia’sdecarbonisationeffortliesinitspotentialtoreduceglobalgreenhousegasemissionsand steer the world onto a zero carbon trajectory. Byphasingouttheemissionsfromthoseprocesseswithinitssphereofinfluence,Australia’seffortswouldhaveadirectimpact on global emissions. But the greatest potentialbenefitofAustralia’sdecarbonisationwouldbethechangesitwouldinducefromothers.AsProfessorGarnautputit:“Each country’s evaluation of whether some mitigationaction of its own is justified depends on its assessmentoftheinteractionbetweenitsowndecisionsandthoseofothers”.42

By enacting policies that enable the widespreaddeployment of CST and other technologies, we wouldenable companies to achieve economies of scale andsparkacycleofinnovationandcostreductionssimilartoGermany’sPVrevolution,makingrenewableenergymoreaffordabletopeopleeverywhere.Byraisingbuildingandproduct efficiency standards,we stimulate thedesignofhighlyefficientproducts.Byhaltingtheexpansionofourcoal and gas exports and investing in renewable energydevelopment, we influence global energy markets andacceleratethetransitiontorenewableenergyacross theworld.

The technologies, products, processes, services, skills,knowledge and experience developed by Australiancompanies, researchers and governments in theprocessofdecarbonisingAustralia’s$1.5 trillioneconomywillbeextremelyvaluable inaworldcryingout forzerocarbonsolutions.Australiashouldaimtobecometheworld’sgo-tocountryforzero-carbonproducts,zero-carbonservices,zero-carbon finance and zero-carbon systems planning.The global benefit, in terms of facilitating emissionsreductionsoverseas, ofAustralia’s zero carbon ingenuityand experiencewould be considerable. And the benefittoAustraliaofcapturingwhatHSBCisforecastingtobeamulti-trilliondollarmarketby2020wouldbeenormous.43


51

Inthefollowingtwochapters,weillustratetheimmensepotential for Australian leadership by showing how thedecarbonisationofAustralia’sdomesticandexportenergyindustriescansteertheworldawayfromfossil fuelsandtowards renewableenergy,whilealleviatingpovertyandservingAustralia’snationalinterest.

We focus on energy for two reasons. The first reason isthatenergy is thearea inwhichAustralia leadershipcanmakethegreatestglobaldifference,asweexplainaboveinourdiscussionofAustralia’sspecialcapabilitiesinregardtoclimatesolutions.ThesecondisthatitallowsustodrawontheworkdoneintheZeroCarbonAustraliaStationaryEnergyPlantodemonstratetheaffordabilityandtechnicalviability of powering theAustralian economywith 100%renewableenergy.

References1. See,e.g.,JamesGarvey,The Ethics of Climate Change: Right and Wrong

in a Warming World(2008)p114-118;MladaBukovanskyetal.,Special

Responsibilities: Global Problems and American Power(2012)p229-236;

WBGU–GermanAdvisoryCouncilonClimateChange,Solving the Climate

Dilemma: The Budget Approach(2009).

2. CfGarvey,Ethics of Climate Change(2008),p114-118;Bukovanskyetal.

(2012),p229-236;PeterSinger,One World; The Ethics of Globalisation(2002)

30-55.

3. See,e.g.,Bukovanskyetal.(2012),p231-232.

4. See,e.g.,Garvey,Ethics of Climate Change(2008),p114-118.

5. StephanLewandowsky,“HistoryShowsAustraliaisNoPissantwhenitComes

toEmissions”,The Conversation(1June2011)http://theconversation.edu.

au/history-shows-australia-is-no-pissant-when-it-comes-to-emissions-1589,

basedondatafromtheCarbonDioxideInternationalAnalysisCentre,http://

cdiac.ornl.gov/.

6. WorldBank,WorldDevelopmentIndicatorsDatabase:“Grossnationalincome

percapita2010,AtlasmethodandPPP”(1July2011)http://siteresources.

worldbank.org/DATASTATISTICS/Resources/GNIPC.pdfand“GrossDomestic

Product2011”(9July2012)http://databank.worldbank.org/databank/

download/GDP.pdf.

7. WBGU(2009).

8. See,e.g.,TimothyLHMcCormack,“SomeAustralianEffortstoPromote

ChemicalWeaponsNon-ProliferationandDisarmament”,Australian Yearbook

of International Law (1992)14,p157.

9. See,e.g.,ibid.

10. SeeFrankFrost,The Cambodia Conflict(ParliamentaryResearchService,

BackgroundPaper,2May1991).

11. Ibid,p21.

12. Ibid.

13. FrankFrost,The Peace Process in Cambodia: The First Stage(Parliamentary

ResearchService,BackgroundPaper,24June1992)p19.

14. GarethEvans“Australia’sForeignRelationsintheWorldofthe1990s”

(SpeechtotheNationalPressClubfollowingthelaunchofEvansand

Grant,Australia’s Foreign Relations: in the World of the 1990s,Canberra,4

November1991)5-6,http://www.gevans.org/speeches/old/1991/041191_

fm_australiasforeignrelations.pdf.

15. AlexanderDowner“Australia’sCommitmenttothePacific”(Speechforthe

Biennial Sir Arthur Tange Lecture on Australian Diplomacy,Canberra,8August

2007)http://www.foreignminister.gov.au/speeches/2007/070808_tange.

html.

16. See,e.g.,McCormack(1992);Frost(1992);“Interview:BobHawkeon

ConservingAntarctica”,availableonYouTube(uploaded19February2012)

www.youtube.com/watch?v=iH9l7VmSarU.

17. See,e.g.,McCormack(1992);Frost(1992).

18. SeegenerallyUnited Nations Development Program,“Climate

Change”,http://www.undp.org/content/undp/en/home/ourwork/

environmentandenergy/strategic_themes/climate_change.html;Oxfam,

“ClimateChange”,https://www.oxfam.org.au/explore/climate-change/.

19. UNMillenniumDevelopmentGoals,Fact Sheet(2010)http://www.un.org/

millenniumgoals/pdf/MDG_FS_1_EN.pdf.

20. Ibid.

21. “EnergyPoverty”,International Energy Agency,http://www.iea.org/topics/

energypoverty/.

22. Ibid.

23. Ibid.

24. Onexternalitiesinelectricitygenerationgenerallyandcoal-firedpower


52

specifically,seeAustralianAcademyofTechnologicalSciencesand

Engineering,The Hidden Costs of Electricity: Externalities of Power Generation

in Australia(March2009);DavidShearmanandLindaSelvey,“Something

IntheAir:TimeforIndependentTestinginCoalAreas”,The Conversation(9

March2012);DoctorsfortheEnvironmentAustralia,DEA Position Paper on

the Health Impacts of Coal(14February2012)http://dea.org.au/images/

general/Briefing_paper_on_coal_2011.pdf.

25. AnilMarkandyaetal.,“PublicHealthBenefitsofStrategiestoReduce

Greenhouse-GasEmissions:Low-CarbonElectricityGeneration”,The Lancet

(12December2009)374(9706),p2006.

26. AnthonyCostelloetal.,LancetandUniversityCollegeLondonInstitutefor

GlobalHealthCommission,“ManagingtheHealthEffectsofClimateChange”,

The Lancet,73(16May2009)p1693.

27. Ibidp1694-1696.

28. See,e.g.,LethaTawneyandLutzWeischer,WorldResourcesInstitute,“From

CopenhagentoCancun:TechnologyTransfer”(19November2010)http://

www.wri.org/stories/2010/11/copenhagen-cancun-technology-transfer.

29. WTOnegotiationsonthereductionoreliminationoftariffandnon-tariff

barrierstoenvironmentalgoodsandservicesarecurrentlyasubjectof

negotiationswithinthelongstanding“DohaRound”launchedin2001:WTO

MinisterialConference,FourthSession,Doha,9–14November2001,WT/

MIN(01)/DEC/W/1,“MinisterialDeclaration”(adopted14November2001)

at para 31.3.

30. UNDP,“ClimateChange”;Oxfam,“ClimateChange”;IEA, “EnergyPoverty”.

31. SeeTheSecretaryGeneral’sHigh-LevelGrouponSustainableEnergyforAll,

Sustainable Energy for All: A Global Action Agenda (April2012),availablefrom

http://www.sustainableenergyforall.org/#.

32. CfBukovanskyetal.(2012)p231-232.

33. See,e.g.,RossGarnaut,The Garnaut Climate Change Review(2008)Ch12;

PeterCramtonandStevenStoft,“InternationalClimateGames:FromCaps

toCooperation”,Global Energy Policy Research Paper No. 10-07(20August

2010).SeealsothediscussionofthismentalityinRobynEckersley,“Does

LeadershipMakeaDifferenceinInternationalClimatePolitics?”,Paper

presentedattheInternationalStudiesAssociationAnnualMeeting,San

Diego,USA,1-4April2012(1April2012)p9-11.

34. See,e.g.,TonyAbbottquotedinJamesMassola,“Coalition,Greensattack

Durbanclimatepact“,The Australian(12December2011)http://www.

theaustralian.com.au/national-affairs/climate/coalition-greens-attack-durban-

climate-pact/story-e6frg6xf-1226219726745;JohnHoward,“Transcript

ofthePrimeMinister,theHonJohnHowardMP,AddresstoQueensland

MediaClub,SofitelHotel,Brisbane”(23April2007)http://parlinfo.aph.gov.

au/parlInfo/search/display/display.w3p;query=Source%3A%22PRIME%20

MINISTER%22%20Speech_Phrase%3A%22yes%22%20MajorSubject_

Phrase%3A%22economic%20growth%22;rec=4;JohnHowardquotedin

GrahamLloyd,“IPCC’s‘folly’writlarge:JohnHoward”, The Australian(24

November2011)http://www.theaustralian.com.au/national-affairs/carbon-

tax/ipccs-folly-writ-large-howard/story-fn99tjf2-1226204100938.

35. See,e.g.,WayneSwan,“TheRoleofGovernmentinaChanging

Economy”,AddresstotheEconomicandSocialOutlookConference,

Melbourne(30June2011)http://www.treasurer.gov.au/DisplayDocs.

aspx?doc=speeches/2011/021.htm&pageID=005&min=wms&Year=&DocTy

pe;GarnautReview2008.

36. SeeGarnautReview2008Ch12forthebestdescriptionofthislogic.http://

www.garnautreview.org.au/chp12.htm.

37. Thisisdistinctfromthepositivistconceptionofthenationalinterest,inwhich

thedecisionsoftheexecutiveandthelawspassedbytheParliamentcanbe

seenasnecessarilyinthenationalinterestbecausetheyoriginatefromour

electedrepresentativesandarethereforeultimatelytheexpressionof“the

willofthepeople”.Onthisview,thenationalinterestisdevoidofsubstance;

itismerelyaproductofalawfulandrightfulprocess.

38. Eckersley,“DoesLeadershipMakeaDifferenceinInternationalClimate

Politics?”.

39. GuyPearse,High & Dry (2007);CliveHamilton,Scorcher: The Dirty Politics

of Climate Change (2007);GuyPearse,Quarry Vision,QuarterlyEssay33

(2009);RossGarnaut,“LaunchoftheGarnautClimateChangeReview2011

FinalReport”,AddresstoNationalPressClub(31May2011)NewsCentre

Transcript,http://www.garnautreview.org.au/update-2011/events-speeches/

transcript-final-report-launch.pdf.

40. Pearse, Quarry Vision.

41. Ondiscountrates,seeWBeckermanandCameronHepburn,“Ethicsofthe

DiscountRateintheSternReviewontheEconomicsofClimateChange”,

World Economics(2007)8(1),p187–210;GarnautReview2008,Ch1.7.

42. GarnautReview2008Ch1.5.

43. CatherineAirlie,“HSBCSaysLow-CarbonMarketWillTripleto$2.2Trillion

by2020”,Bloomberg(6September2012)http://www.bloomberg.com/

news/2010-09-06/hsbc-sees-market-for-low-carbon-energy-tripling-to-2-2-

trillion-by-2020.html.

Laggard to Leader

Contents

7.1 Introduction 54

7.2 The Problem: Severe Underinvestment in Zero Carbon Innovation 557.2.1 The Case for Public Investment in Zero Carbon

Deployment 567.2.2 The Case for Public Investment in Renewable Energy

ResearchandDevelopment 56

7.3 WhatShouldAustraliaDoandWhatEffectWoulditHave? 587.3.1 UnilateralAction:AustraliaLeadingbyExample 587.3.2 CoordinatingwithLike-MindedCountries 63

7.4 TheNationalInterestinRenewableTechnologyDeploymentandDevelopment 667.4.1 SizingtheZeroCarbonEconomy 667.4.2 AustralianOpportunitiesinCleanTechMarkets 68

References 71

Part 7Renewable Energy:Australia’sContribution

Part 7: Renewable Energy: Australia’s Contribution Laggard to Leader

54

7.1 Introduction

Initiatives to achieve price parity betweenrenewable energy and fossil fuels are oftenheralded in lofty terms: the US roadmap forreaching low-cost large-scale solar energy by2020,forexample,waschristenedthe“Sunshot”initiative;whileBloombergNewEnergyFinanceposed the shorter-term “Golden Goal” ofcompetitivesmall-scalesolarPV.Thishighstatusis well deserved: cheap renewable energy will solve some of the most challenging problems facing humankind this century— from climatechange, to oil scarcity, to energy poverty —and allow us to build a global economy upon foundationsthatareasreliableastherisingsun.

Cheap renewable energy will be achieved — but, oncurrent deployment trajectories, it will come far too late to avert catastrophic climate change. The rapid price reductionsachieved for solarPVandwind turbinesoverthe past decade are cause for significant optimism, butthesetwotechnologiesalonecannotbeexpectedtomeet100% of our energy needs.

Tocomplete the transition,weneedzerocarbonenergytechnologiesthatcanprovideenergystorageandflexible,dispatchable-on-demand power to “firm” the variableoutput of wind and PV. Key commercial technologiesthat are ready for deployment include batteries andconcentrated solar thermal (CST). Yet, in early 2012, the IEAwarned that global innovationprograms formostoftheseemergingtechnologiesarefallingofftrack—largelydue to shortfalls in commercial-scaledemonstrationanddeployment.

The recent successes of wind and PV confirm what isrequired to accelerate the arrival of these commercially available but less mature technologies: substantialand stable investment in research, development and demonstration(RD&D),andparticularlydeployment(seeBox7.1foranexplanationoftheseterms).ForAustralia,countrieslikeGermanyandDenmarkcanserveasmodelsofhowmuchonenationcancontribute.

ThischapterexamineshowAustraliacanworktoacceleratethe maturation of renewable energy technologies andtheir arrival at price parity with fossil fuels. It argues that Australia should: • Increase investment in commercial deployment to

at least$15billionperyear in linewithbaseline“fairshare” requirements specified by IEA analysis, rising

Box7.1:TheInnovationChain:ABriefOverview

Thischaptermakesreferencetoanumberofstagesoftheinnovationchain,withwhichreadersmaynotbefamiliar.These include:• R&D, or research and development. This denotes

research, from basic and prototype development, which provide advances that can enhance the performance of existingproductsorbeusedinentirelynewproducts.

• Demonstration.Thisreferstothetestingofprototypedtechnologies in-the-field, at a scale or level ofperformance similar to that required to effectivelyparticipateinmarkets—forexample,amulti-megawattdemonstrationofanovelwavepowerproject.Whilepilotdemonstrations tend toprove the functionality of the technologyat scale, commercial-scaledemonstrationsattempttoprovethecapacitytoprovide a return.Bothprovideessentialin-the-fieldlearningthatfeedsbacktoR&Dandforwardtoindicateprospectsfordeployment.

• RD&D isresearch,developmentanddemonstration,atermthatcomprisesthestagesoftheinnovationchainthatpertaintomore“immature”technologies.Itissplitintooneofitsconstituentterms,R&Dordemonstration,whereveradistinctionisnecessary.

• Deploymentiscommercial,to-scaleimplementationofrelativelymatureprojectsinthefield.Earlydeployment,via a range of market mechanisms, is crucial fordriving technology cost reductions such as increased

manufacturingscaleandstandardisation(eachofwhichprovidesitsowninnovationopportunities),butrequiressubstantialpublicsupport.Effectivedeploymentpolicieshave been crucial for driving the rapid wind and solar pricereductionsobservedoverthepasttwodecades.

The stages of innovation listed above are inter-linkedand mutually supportive. For example, acceleratingPV deployment may stimulate R&D into strategiesfor improving PV value chain efficiency, reducing thecosts of further deployment. Supporting commercialdemonstrations provides a real-world laboratory toenhancebasicR&D,whilealsobuildinginvestorconfidencein the technology at the deployment stage.

The vocal minority that promotes an “R&D only”solutiontozerocarbon innovation (e.g.BjornLomborg1) fundamentally misunderstands the integrated nature of the various stages of the innovation chain: theimportanceofdeployment fordriving innovationaroundmanufacturingefficiency,financing,productdevelopmentandarangeofothermarketfactors;and,asthischapterdiscusses, the need to provide zero carbon innovationinvestors confidence that there exists amarket for zerocarbonproducts.ThisisaparticularlyimportantpointforAustralia,giventhatdeploymentisitsweakestlinkinzerocarbontechnologyinnovation.


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7.2 The Problem: Severe Underinvestment in Zero Carbon Innovation

Despite the importance of innovation for long-termeconomic prosperity, a cocktail ofmarket failures causeprivate companies to systematically underinvest in zerocarbon deployment and RD&D. Figure 7.1 from Ernst &Young outlines the chain of activities that make up theinnovationprocess,extendingfromearlyresearch,throughdemonstration and commercialisation, to deployment,andfinallytomaturity.

Capitalavailabilitydeclinesasinnovationprojectsproceedintodevelopment,demonstrationandcommercialisation,yet the need for capital progressively increases. Manytechnologies that hold significant promise becomemaroonedby capital shortfalls at theprototype,pilotorearlycommercialphases—inwhathasbecomeknownastheinnovation“ValleyofDeath”.

The Valley of Death is especially wide for zero carbonenergy technologies due to the large amounts of capital needed to meaningfully demonstrate and deploy them. LargecommercialCSTprojectswithstorage,forexample,are at the top of their technology cost-curves and willtypically require investment running over a billion dollars.

Apersistentchallengefornations interestedinachievingeconomicallyefficientlevelsofinnovationisthatwhatarein fact judicious long-term investments (see Figure 7.2) arederidedwiththepoliticallychargedterm“subsidies”.Oftenthesecomplaintscomefromtheoldguardoffossilfuel industries, ignoring the fact that oil, gas and coal

to$37billionperyear in linewith theZCAStationaryEnergyPlan;

• increaseannualRD&Dexpenditure in theorderof$3billionperyear, in linewith“fair share” requirementsidentifiedbytheIEAandProfessorRossGarnaut;

• introducecomprehensiveinnovationsupportmeasuresalong the innovationchain,withaparticular focusonacceleratingdeploymentof technologies that are lessmature but have high promise (with CST highlighted as theprimaryexample);

• coordinateeffortswithother likemindednationsandwith a wide range of non-state actors, establishingsharedroadmapsfortechnologyadvancement;

• contributetothedesignofprogramstobuildRD&Danddeploymentcapacityindevelopingnations;and

• seek to develop its natural advantages in renewableenergyresourcestobecomea“zerocarbontechnologysuperpower”,especiallyinareasAustraliacanstronglycompete— fromfinance to software,manufacturing,projectdevelopmentandoperation&maintenance.

FIGURE7.1The wide valley of death for cleantech2


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FIGURE7.2Stylizedreturnoninvestmentinrenewableenergy3

have historically received— and continue to receive—subsidies in vast excess of those granted to renewableenergy. Indeed, this long history of public support has helpedthembecomethecheapestformsofenergytoday;aprocessthatnowneedstoberepeatedforzerocarbontechnologies.

Here,weexaminetheoriginandscaleofmarketfailuresin zero carbon technology innovation to explain thedimensionsoftheshortfallsweface.

7.2.1 The Case for Public Investment in Zero Carbon Deployment

According to the IEA, to achieve even the risky 2˚Cpathway, an additional investment of around US$36.5trillion in energy infrastructure is required globally from nowto2050—anaverageofUS$950billionperyear(theIEA recommends starting slowly in the first decade andramping up from there).4Aslargeasthisfiguresounds,itisonly35%moreinvestmentthanrequiredtomeetgrowingdemand under the business-as-usual, 6˚C warmingpathway.5

The IEA’s projection that fossil fuel subsidies will reachUS$660 billion per year by 2020 shows that much ofthe money is there, it is just in the wrong business.6 In fact, subsidies promoting fossil fuel use dwarf those forrenewable energy. In the US, oil industry subsidies from 1950to2010totalledUS$369billion,around19timestheUS$20billionallottedforsolarpower.7

Just as fossil fuels have enjoyed high levels of subsidies throughout their history, so too will large scale renewable electricity generators require significant deploymentsupportiftheIEA’s2˚Cpathwayistobeachieved.

The market barriers to large-scale zero carbon energydemonstration and deployment — particularly foremergingformsofgenerationlikeCST—areconsiderable.Whileaccesstorenewableresourcesiseffectivelyinfinite,the cost of producing energy from renewable technologies is currently more than the fossil alternatives due toregulatorybarriers,higherriskpremiums,higherup-frontcostsandoftenhighermarketcostsoverall.Whilecarbonpricingcanintheorybridgethegapbymakingfossilfuelsmore expensive, carbon pricing schemes in all majorjurisdictions are currently far too weak, yielding carbonprices too lowandunpredictable to properly incentiviserenewableenergyinvestments—arealitythatisunlikelyto change in the near future. Policies like feed-in tariffs(explored furtherbelow)areneededto level theplayingfieldandacceleratedeployment.

The purpose of the IEA’s recommended deployment is both to achieve emissions reductions now, and achievecostreductionstomakefuturedeploymentandemissionsreductionscheaper.Thechallengeistoinvestsufficientlyin deployment to cut emissions today, while aligning these investmentswithalonger-terminnovationstrategy.Whatthismeansisthatchoosingleast-costzerocarbonenergydeployment today (as seen with Australia’s focus on wind energy)willnotresultinleast-costdeploymentinthelong-term.

7.2.2 The Case for Public Investment in Renewable Energy Research and Development

There are two causes of private sector underinvestment in zerocarbonresearchanddevelopment(just“R&D”).• First, zero carbon R&D suffers from the usualmarket

failures afflicting all R&D: the non-excludability ofresearch (or its rapid “leakage” into other companiesandcountries);therisksinvolvedin“bluesky”research(basic research that lacks any immediate commercialapplications);andtheshort-termisminherentinprivatesector value calculations. In other words, while R&Dmaycreateenormoussociety-wideeconomicvalue, itisoftenhardforaprivatecompanytotranslatethisintoits own commercial success.

• Secondly, zero carbon technologyR&D inparticular isaffectedby the failureofmarkets toadequatelypricecarbon emissions and other public harms caused by the fossil fuel energy system.18 If these harms were properly pricedatavaluethatreflectedthetruecoststosocietyofclimatedamage,therewouldbeagreaterincentiveforprivatecompaniestoperformzerocarbonR&D.

In thewordsof theOECDEnvironmentDirectorate, zerocarbon technology R&D is “twice a public good” anddeservessubstantialpublicsupportasaresult.19

Because private companies chronically underinvest inR&D—thatis,theyspendlessonR&Dthanisjustifiedby


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Box7.2:DeploymentWorks

Photovoltaics

Eventherelativelysmallpublicsubsidiesgrantedtosolarphotovoltaics (PV) have led to massive price reductionsover the past decade. The price tag of installing enough PV to supply 11% of the world’s energy (which the IEAspecifiesasPV’srole incuttingglobalemissionsby50%)hasdeclinedfromUS$53trillionin1982toaroundUS$3.5trilliontoday—afallofUS$50trillion,oralmost95%,over30 years.8

PV has received unprecedented deployment supportin economies such as Germany over the past decade,triggeringexplosivegrowthininstalledcapacity.From2000to2011,annualgrowthintheyearlyglobalinstallationratewas40%.In2011,thetotalamountofglobalPVcapacityinstalledwas27GW,anastonishing60%growthon2010levels. Priceshave responded in tandem. Full PV systempriceshavefallenasmuchas75%insomecountriesoverthe past 3 years,9and siliconwafer (themost expensivecomponent used to build solar modules) prices have fallen by 70% in just the past year.10 At the industrial scale, levelised solar PV prices are already as low as 15c/kWhin sunny areas,11competitivewithgridelectricityinmanycountries around the world.

As shown in Figure 7.3, price declines per watt of PVgeneration(alongtheverticalaxis)closelytrackinstallationvolume in MW (along the horizontal axis). Given theincrease in deployment has been driven by policy (i.e. this is notacaseofpricereductionsdrivingfurtherdeployment),theimplicationisclear:toachievegridparity,installmorePV.

Windpower

A general trend of increased wind power capital costs in the 2000s has been used to counter the idea that deployment helps bring down production prices, butrecent University of California Berkeley analysis showsthis argument to be spurious. Capital costs have generally increased since 2000, but improvements in wind turbine project performance have accompanied and outpaced these cost increases. Theoverall costofwind-generatedenergyperkWhhasdecreasedby17%to31%since2002,driven by increased capacity factors, reduced operationandmaintenancecosts,andimprovedfinancing.13

Theestimatedpriceofwindasofearly2012wasUS$60-85 perMWh (at average wind speeds from 8 m/s to 6m/s respectively). Similar pricing has come to Australia,with a recent Snowtown project achieving AU$80/ perMWh.14 With average new coal power plants pricing at US$60-80perMWh,windenergyisnowapproachingcost-competitivenesswithoutsubsidies.15,16Afurtherreductionofonly10-20%overthenextdecadewillenablewindtounseatfossilfuelsinmostlocationsacrosstheworld.

Theincreaseinwindturbinecapacityfactorshasparticularpromise for increasing the number of sites rated as possessing good wind resources and for reducing total wind power variability. The land area of the US that can support wind projects with a capacity factor above 30% hasdoubled,whilelandareasupportingveryhighcapacityfactors of above 40% has increased by up to 1400%(due to new wind turbine designs). This bodes well for the continued expansion of wind farms into previouslymarginal locations, and the goal of high penetration ofwind into grids across the world.

FIGURE7.3CostCurveofPVmodulesasafunctionofdeployment12

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Side Analysis: Impact of Improvements in O&M, Financing, and Availability (without PTC/MACRS)

Core Assumptions only varies capital cost and capacity factor

Side Analysis Assumptions also varies O&M, availability, and financing

Assumed improvements in O&M costs, financing rates, and availability lead to substantial additional estimated LCOE reductions from 2002-2003 to 2012-2013 in

comparison to core analysis that only varies capital cost and capacity factor

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FIGURE7.4EstimatedreductionsinLCOEofwindpowerintheUSAovertenyearsfrom2002-03,duetocapitalcost,capacityfactorO&M,availabilityandfinancingimprovements17

Part7:RenewableEnergy:Australia’sContribution

itseconomicvalue—they leavea significantamountofpotentialwealthuntapped.Asaresult,publicinvestmentinR&D, forexample, tendstoprovideexceptionallyhighratesofreturn,withestimatesrangingfrom30%toupto160% and beyond, compared to attractive private ratesof return in the general economy of 8-15%.20,21,22 In an idealmarketthatproducesthegreatestwealthovertime,investment inR&D fundingwouldbe increaseduntil themarginalreturnoninvestmentfelltotheaveragemarketrate.

Estimatesofoptimalglobal“clean”energyR&DinvestmentrangefromUS$50billion23 to US$100 billion24per annum, or3-7timescurrentglobalinvestment.Anincreaseofthissizemaysoundfar-fetched,butitisaroundtheproportionof GDP expended on energy R&D in 1980. Despite themounting of our energy challenges over the past twodecades, investments in R&D have fallen 30-50% below1980 levels and the share of energy R&D expenditurein total R&D has declined by around two thirds. It isremarkablethatinaUS$70trilliondollarglobaleconomyfacingsevereenergyandclimatecrises,onlyUS$15billion—0.02%,ortwodollarsineveryUS$10,000ofglobalGDP—isinvestedgloballyincleanenergyR&Deachyear.25 To putthatinperspective,thisislessthan1%ofannualglobalmilitaryexpenditures.26

7.3 What Should Australia Do and WhatEffectwoulditHave?

Thedeficitinzerocarboninnovationisaglobalproblem,anditneedsaglobalscalesolutiontomatch.

Accordingly, alongside its public announcement of the fossil fuel moratorium proposed in Chapter 8, theAustralian Prime Minister should announce Australia’sintentiontopursueadomesticandinternationalprogramof unprecedented renewable energy deployment and RD&D to provide replacements for fossil fuels in energygeneration, industrial processes and transport. ThisambitiousdeclarationshouldbeaccompaniedbyadetailedsetofcommitmentsthatAustraliawillundertaketokick-startdeploymentandresearchprogramsdomesticallyandenhancecollaborationinternationally.

The suite of unilateral measures that Australia should take to advance innovation is set out below, alongwithanexplanationofthecatalyticeffecttheseeffortswouldhave on renewable energy globally. We then show how Australia’s leadership should be leveraged to foster widespread, cooperative international engagement ininnovation efforts,multiplying thebenefits ofAustralia’sdomesticaction.

7.3.1UnilateralAction:AustraliaLeadingbyExample

This section sets out the domestic measures AustraliashouldtaketoinvestinzerocarbonRD&Dandespeciallydeployment. These measures are grouped under four categories of increasing specificity, beginning withbroad investment targets, moving to general innovationpolicydesign, through to identifyingnational technologypriorities,andfinallyexaminingsomeoftheseprioritiesincloser detail.

Investmenttargets

Firstandforemost,Australiashouldcommittoundertakea significant share of the global investment consideredoptimalforachievingclimatestabilisationgoals.

Currently projected investment under Australia’s Clean Energy Future package represents an improvementover previous years, but nevertheless remains in serious shortfall. The Clean Energy Future package providesAU$3.4 billion in R&D support over the five years, orAU$680 million per year.27 This represents only 23% of the R&D investment recommended by the IEA and theAustralian Government-commissioned Garnaut Reviewon the economics of climate change.28The recommended AU$3 billion per annum should be regarded as a minimum targetfordedicatedzerocarbonenergytechnologyRD&D.

For deployment, the Clean Energy Future package andotherGovernmentpolicies, suchas the2020RenewableEnergy Target of 20%, are expected to deliver a total ofAU$20billionindeploymentof“clean”energytechnologyto 2020.29Thiscomes toaroundAU$2.5billionperyear,oraround0.16%ofGDP,andtheGovernment’sdefinitionof “clean”allows this funding tobedrawn intogas-firedpower projects.30 This compares to the minimum of 1.2% recommended by the IEA (or around AU$15 billion perannum).

Leveraging a combined public-private investment of atleast AU$18 billion (AU$3 billion in RD&D and AU$15billion in deployment, in line with “fair share” IEAminimums) should be an immediate baseline goal. This should rise to an average of asmuch as $40 billion perannum, predominantly directed towards large-scaledeployment of both emerging and mature zero carbonenergy technologies, if the Zero Carbon Australia (ZCA) 10 yearStationaryEnergyPlanisimplemented.

Note that the ZCA Stationary Energy Plan as originallyconceived includes a cost-premium for extensiveinnovation arising from early deployment of CST — itachieves both 100%decarbonisation and the innovationgoals outlined in this chapter.

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Part7:RenewableEnergy:Australia’sContribution

Comprehensiverenewableenergyinnovationpolicy

Sizematters,butthereismoretoeffectiveinnovationthanthe volume of investment.

Australianzerocarboninnovationisoftenheavilycritiqued.Criticism typically focuses on the difficulty of attractingmeaningful investment in technology commercialisationwithinAustralia.Thisispartlyblamedonoursmallmarketsize,butmoreaccuratelyisduetotheadhocandpiecemealnature of Australian innovation support programs— inessence, their inability to support a pipeline of projects.

TheAustralianGovernment’sSolarFlagshipsprogramisacaseinpoint: itsgoalofbuildingthe“singlelargestsolarpowerstationintheworld”31 wasmoreaboutgeneratingpolitical fanfare than providing the long, stable pipelineof projects that would help establish an Australian solar industry. Theon-and-offnatureof solar PV feed-in tariffpolicies across most Australian states has been similarly counterproductive, generating brief booms and thencrippling the emerging industry by removing all support. The most stable policy has been the 2020 Renewable Energy Target (RET) of 20% but even the RET only supports lowest-costtechnologiessuchaswind—eliminatingthepotentialfortheschemetodriveinnovation.

Inshort,Australiahasadismaltrackrecordofinnovatingthrough deployment. Where Australia does deploy technologies, it tends to focus on “safe”, maturetechnologies such as wind; and where Australia doesdeployimmaturetechnologies,ithaslackedthelong-termcommitment that would produce a stable industry.

Driving emerging renewable energy technologies towards commercial competitiveness, and through the Valley ofDeath, requires a comprehensive policy program that meets the needs of innovators along the breadth of the innovation activity chain — from early R&D, throughprototypingandpiloting,commercialscaledemonstration,and theearly and late stagesofdeployment (seeFigure7.5).

Eachstagehaspoliciesthatsuitthebarriersparticulartoit:R&Dbenefitsfromtaxcredits,directpublicinvestmentinto “blue-sky” research and investment in nationallaboratoriesandnetworks.Successfulprototypesandpilotdemonstrations require grant funding and incentives toattractventurecapital.Atthecommercialdemonstrationstage, support can be structured in a way that recognises somereturnwillbegenerated,withloansandtaxbreakstwo of the preferred options. At the deployment stage,stable performance subsidies and energy portfoliostandardscancreatetheincentives,andtheconfidenceinthefutureofthemarket,neededtoattractlargelevelsofprivate investment.

Thenumberofpolicyoptionsisimmenseandanexhaustivetreatment is beyond the scope of this report. Ernst &Young point out two policies as playing a particularlyimportant role in addressing Australia’s weaknesses incommercialisation and deployment: loan guarantees toovercome funding risk and feed-in tariffs for revenuerisk.32 With these risks addressed, attracting up-frontequitybecomesamuchmorelikelyprospectforemergingclean tech companies.

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Navigating the valley of death Ernst & Young 41

The following diagram illustrates the role that these four mechanisms can take in supporting the availability of capital, ahead of the RET. Figure 4: Scope of government action to support emerging cleantech investment

How these mechanisms are designed and maintained to deliver breakthrough technologies within host industries, and improved policy certainty for investors, needs careful consideration. Economic analysis is needed to determine the optimal level for grants, subsidies, loan guarantees and other proposed mechanisms, recognising the costs involved. This analysis must include costing and pricing benchmarks of traditional technologies from host industries. Grant programs for scaling up demonstration

Moving from bench-to-business and developing a proof of concept is where targeted R&D grants are initially of most value. However, even at this stage the funding cannot be all grant money, and co-funding with private investment is needed to share some of the risk and to access the management skills and financial discipline needed for the future growth of the business. At the demonstration stage cleantechs are even more reliant on government support through grants such as the Renewable Energy Development Program. There is a significant change in risk profile at pilot and commercial scale demonstration, where the completion of project milestones heavily influences a cleantech‟s future investment attractiveness. The sizing of government grants, and their ratio to private investment, needs to be designed to support this transition in capital expenditure and risk.65

65 There are a range of issues around the effectiveness of grants that are outside the scope of this study, but which are fundamental to their success in supporting the cleantech market. These include the amount and timing of grants

FIGURE7.5Policiesfornavigatingthe“valleyofdeath”

Part7:RenewableEnergy:Australia’sContribution LaggardtoLeader

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Nationaltechnologypriorities

Each nation, according to its resources, expertise andwiderpolicygoals,hasa setofmore specific innovationadvantages and interests around which its support measures should be focused. This is partly of necessity: veryfewnations, ifany,havetheeconomicresourcestopursue a deep innovation program for every promisingzerocarbontechnology.Nationsshouldthereforedirectasubstantial shareof available resources towardsa setofnationaltechnologypriorities.

Australia’s RD&D program should prioritise technologiesaccording to the three policy imperatives outlined inChapter 6: decarbonisation; poverty alleviation; andAustralian prosperity.• 1. Renewable energy technologies that can provide

flexible,dispatchableelectricity and therefore replace

coal-fired generation, the most important source ofAustralia’sdomesticandexportemissions.TheseincludebutarenotlimitedtoCSTandbatterytechnologies;

• 2. Technologies that can reduce global energy poverty, especiallyforthe1.3billionpeoplethatcurrentlylackaccess toelectricity.These includesolarPV,batteries,bioenergysystemsandremotegridservicingstrategies;and

• 3. Technologies, applications and services whereAustralia can develop world-leading expertise andcaptureitsshareofzerocarbonmarkets.Broadlytheseinclude the above two areas, with a focus on intellectual property, project management, finance and otherservices expertise, along with some manufacturing.Opportunitiesfortechnologyapplicationsofhighvalueto Australia include renewable energy for mining, remotesettingsandpeakdemandmanagement.

Box7.3:Feed-intariffs

Feed-in tariffs have the best track record of success inbringing price reductions internationally, and are thepreferred deployment subsidy by clean tech companies and investors.34 Feed in tariffs have delivered the vastmajorityofwindenergy,andessentiallyallsolarPVenergy,intheEU(seeFigure7.6).

A feed-in tariff is, at its most basic level, a guaranteedpayment to a renewable energy generator per unit of electricity supplied to the grid. Typically, feed-intariff schemes are supported by imposing statutoryrequirements on electricity retailers to purchase electricity in priority to other supply sources and at the legislated rate, with the additional costs being passed through toelectricity consumers.

Advantagesoffeed-intariffsincludethat:• Differential tariffs can be applied to different

technologies, or the same technologies in differentapplications and different project sizes. For example,solar PV for mining would attract a different rate tosolar PV for residential rooftops, and different againto industrial-scale installations. This differentiationallowsinnovationacrossthedesiredrangeofpossibletechnologies/applications,ratherthanonlysupportingtheuptakeofthecheapesttechnology;

• Feed-intariffsareclearlydefined,transparentpaymentsthat are guaranteed well into the future. They are therefore able to support renewable energy industry growth over the long-term. In contrast to schemessuchasSolarFlagships,whichprovideaone-offgrantpayment to successful tenderers (following what is usually an opaque and lengthy tendering process) that creates perverse incentives for applicants toover-promise, feed-in tariffs are a market-based

mechanismthat“paysondelivery”ofenergy;35• Premium model feed-in tariffs can promote market

engagement by paying only a “premium” on top oftheelectricitymarketrate.Thisencouragesrenewableenergygenerators toparticipate inelectricitymarketsand produce electricity when it is most valuable (i.e. peak times), while enhancing system-wide learningabout integrating zero carbon energy with existingenergymarkets.

• Feed-in tariffs provide for predictable reduction, or“regression”, of support over time, including throughmethodssuchaslinkingregressiontospecificinstallationtargets. This allows the cost of the policy to be controlled and incentivises technology improvements withoutsacrificinginvestorcertainty.

Introducingstable,long-termfeed-intariffsforlarge-scaledemonstration anddeployment should be a top priorityfor any Australian Government interested in drivingrenewable energy technologies, mature and immature alike,towardsgreatermarketcompetitiveness.

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FIGURE7.6Installedrenewableenergycapacitysupportedbyfeed-ininstrumentsinEU-27countries36


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These technologies and applications span the gamut ofthe innovation chain: from R&D (battery technologies,renewableenergyintegration,newheatcarriermaterialsfor CST), to demonstration (advanced grid technologiesforpeakdemandmanagement,novelremoterenewablessystems), to deployment (power tower CST designs, wind turbines, solar for peak energy control, renewables formining). This emphasises the need for comprehensive innovationsupportalongthechain.

Some of these technology opportunities are exploredfurther below, including:• Solarthermaldevelopment;• Renewable-poweredminingandresourceindustries;• Remotecommunitymicrogrids;• Addressing peak power demand through distributed

renewablesandenergyefficiency;and• Technologies and services for integrating renewables

into the electricity grid.

Example technologies and applications that Australiashouldprioritise

Concentrated solar thermal

TheuniquecharacteristicsofCSTmakeitoneofthemostpromising technologies in the innovation pipeline: it isone of the few renewable energy sources that can provide energy “on-demand” (often referred to as “baseload”),with the Spanish Gemasolar power tower plant alreadyproducing electricity for 24 hours straight (see Figure7.10).37 It is dispatchable-on-demand and can therefore“firm” electricity generation from variable renewableenergy technologies suchaswind turbinesand solarPV.Finally, it has high export potential, with much of theworld’spopulationlivingnearareaswithsufficientsunlightto use the technology successfully.38

Australia’s advantages are already numerous: we have one of the best solar resources in the world (superior tothatofSpain,thecurrent leader inCST);enough land

area to sharply reduce co-variability of insolation (i.e.with multiple CST locations spread across Australia,simultaneous overcast conditions become unlikely); andareasonablyadvancedR&Dposition,asassessedbytheIEA.39 The University of South Australia, for example, isresearching high density solar thermal storage techniques that could cut the size of storage tanks by 80-90% andreducecostssignificantly.41Numerousstudieshaveagreedupon the high potential for solar thermal to power asignificant proportion of the Australian grid, from BZE’sownanalysis, to thatof the IEA (40%by2050),Siemens(~25%after2030),andtheUniversityofNSWInstituteofEnvironmentalStudiesresearchteam(40%).42,43,44,45

CST has been demonstrated at commercial scale and most forms are now at early stages of deployment. Global leadership in this technology is stillAustralia’s forthe taking: as of July 2012, Spain has just over 1.5GWinstalled,46andtheUSisapproaching1GW.47

Previous analyses of solar thermal technology on a component-by-component basis have argued that arelatively small level of installation may provide largegains indriving the technology tocompetitiveness.Onacomponent-by-component analysis, Sargent and Lundyestimatedaslittleas8.7GWofcapacitycouldbringCSTtoparity.48The IEAexpects thatwith sufficient investment,solarthermalwillbecomecompetitiveby2020.49,50

BZE endorses the following IEA recommendations foracceleratingsolarthermaldevelopment:• Ensuringlong-termfundingforadditionalRD&DinCST

technologies and their component parts, across a range ofapplicationsandscales;

• SupportCSTdeploymentthroughlong-term,predictablesolar-specificincentives—especiallyfeed-intariffs;

• Streamline procedures for obtaining permits for CST plants and grid access lines.

FIGURE7.7Combinationofstorageandhybridisationinasolarplant40


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Remotegridapplications

Mining and resource industries

Diesel-fuelledelectricitygenerationforminingprojectsinremoteregionscarriesafuelcostofaround$250–$500/MWh,around the sameprice range forenergyprovidedbysolarPV.Dieselis,however,currentlyheavilysubsidisedbytheAustralianGovernmentataroundAU$2billionperyear,51 reducing its cost to around $100-$175/MWh. Ifthis subsidywere removed, PVwould become themostcompetitiveoptionatmanymines today.According toaClimateSpectatoranalysis,replacing50%ofdieselcapacitywouldsee1900MWofsolarPVinstalled—morethanallthePVinAustraliatoday.52

Galaxy Resources’ Mt Cattlin lithium project alreadysources15%of itsenergyfromsun-trackingsolarpanelsand plans to source further solar and wind energy to increase this to 100%by 2014.53 At BHP’sOlympicDammine, geothermal and concentrated solar thermal are expected to become competitive diesel alternatives(although given the lack of incentives and the presenceofdieselsubsidies, their installation isnotyetcertain).54NationssuchasCanada,ChileandSouthAfricaarealreadypowering mines with wind and solar technologies.55,56,57,58Otheropportunitiesincludeelectricvehiclesinmining,withsomeCanadianminesadoptingelectricalternativestodieselminingtrucks.59

Australia already exports its resource sector projectmanagement and technical expertise around the world.Renewable-powered mining provides an opportunityto expand Australian mining expertise into new areas,clean up metals mining in Australia, and help the rest of the world to follow. In combination with a moratoriumon (and eventually a phase-out of) fossil fuel mining,the decarbonisation of metals mining would imbue theGovernment’s Rio+20 claim that Australia is a leader in“sustainablemining”withanairofcredibility.60

Remote community grids

Distributed renewable energy is a growing reality for the world’s energy planners. Some thought leaders in the energysector,suchasJeremyRifkinandDavidCrane,viewdistributed energy in a similar light to mobile telephony: developing countries surprised the telecommunicationsindustrybyleap-frogginglandlinetelephonesandheadingstraight to mobile phones.61,62Mobilephoneuptakeinthedevelopingworld is nowat 80%,63 and South Africa has more mobile phones per person than the United States.64Insomepartsoftheglobe,ananalogoustransformationinenergy systems ison thehorizon. Fossil fuelpower isbecomingmoreexpensiveandthecostofpole-and-wiregrid infrastructure is prohibitive formanyof theworld’spoorest communities. Itwill be increasingly passedoveras renewable distributed energy sources become cheaper and more reliable, especially as battery costs continuetheir decline.

FIGURE7.8PriceofsolarPVinvariousmarkettypes67


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The energy needs of grid-less developing nations aremirrored by those of remote settlements in Australia.Thesesettlementsareeitherconnected tomicrogridsorareoff-gridentirely.WhetherinAustraliaorelsewhereinthe world, they tend to face high energy costs and energy poverty,yetarealsolikelytobesituatedinareaswithhighgrade renewable energy resources. Carl Pope of the Sierra ClubprovidesanalysisshowingsolarPVisreadytoreplacekerosene for over a billion people around the world.“Over a decade, the average poor family spends $1,800onenergyexpenditures,”saysPope.“Replacingkerosenewith a vastly superior 40Wp (Watts peak) home solarsystem would cost only $300 and provide them not only light,butaccesstocell-phonecharging,fans,computers,andeventelevisions”.65Thenextstepisforthetechnologyto pass on to the further 2 billion people in developing countries who current relyonexpensive andunreliableelectricitynetworks.

McKinseyanalysishasshownthatsolarpower isalreadycheaper than fossil fuels in such remote settings, and50GW of potential (off grid and micro-grid combined)exists to 2020 (see Figure7.8). This is not far offall thesolarPVinstalledintheworldtoday—andtheadvantageofrenewableenergyinthissettingisonlysettoincrease.66

TheideaofpoweringremoteAustraliancommunitieswithrenewableenergyisnotnew.In2010,forexample,HorizonPowerproposedtotheAustralianGovernmentthathigh-penetration renewable energybe installed inmore than100 isolated Australian communities.68 But it has notbeen recognised for what it is: a genuine opportunity for sustainable economic development, providing financialreturns while helping to alleviate poverty.

Addressingpeakpowerdemand

TherapidgrowthexpectedinAustralianelectricitypricesoverthenextfewyearshaslittletodowithcarbonpricingandmuchmoretodowiththeAU$45billiongridupgradethat utilities argue is necessary to keep pacewith peaknetwork demand.69 In recent years, Australia’s peakelectricityusehasgrown260%fasterthantotalelectricitydemand,70puttingpressureonanaginggrid.Thistrendisevident in many economies across the world, developed anddevelopingalike,drivinghundredsofbillionsofdollarsin global grid investment.

Australiacouldinsteadresolveitsgridweaknessesthroughdistributed renewable energy, energy efficiency and so-called“smartgrid”technologiesthatallowgreatercontrolof the demand-side of the grid. Looking at PV alone,globally installed capacity directed at addressing peakdemand is likely toreach150-170GWby2020accordingto McKinsey (see Figure 7.8)71 — well over double theamountofPVcurrentlyinstalledworldwide.

Australian innovation in policy and regulatory systems,combined with deployment support, could dramaticallyreduce Australian grid costs while concurrently developing expertisethatcanbeusedinsellinggridservicestoothercountries. Advanced grid management technologies are alsohighincomplexity,providingopportunitiestodevelophardware,softwareandsurroundingservices—idealareasforexercisingAustralia’snaturaladvantagesintechnologyand service industries. Finally, technologies like solarthermal with even a small added storage component are particularly suited tomeeting the late afternoon powerpeak,whichtendstocomealittletoolateforPV,providingadditionalopportunitiesforAustralianleadershipinpeakpower management.

Renewablesintegration

Finally, the IEA identifies renewable energy integrationinto grids as a growing issue as renewables penetrationincreases—providinganotherareainwhichAustraliacanbuildlocalexpertise.72 Australia has the natural advantages ofexcellent resourcesacrossawide rangeof renewableenergysources,alargenationalgridtolimitco-variability,and thehighwindpenetrationthatalreadyexistswithinSouthAustralia(peakingataround31%recently),73 which has helped drive Australian research into renewables integrationtoaworld-leadingstandard.

There is currently a window of opportunity to install solar thermalpowerstationsinSouthAustraliaasareplacementforthePlayfordBandNortherncoalpowerstationsinPortAugusta.74Thiswouldavoidthemisstepofcommittingtoagas-firedfuturefortheregion,whilealsoallowingAustraliato build experience with solar thermal dispatchabilityalongside wind energy — a combination likely to be acrucialenergymix in the future,asdemonstrated in theZCAStationaryEnergyPlan.

7.3.2CoordinatingwithLike-MindedCountries

RD&Dcollaboration

Collaboration acts as a “multiplier” of lone researchefforts.75,76 An idealised global RD&D program wouldfacilitate immediate information and resource sharingbetween teamsworkingon commonproblems, allowingcross-fertilisationofskillsandideas,preventingduplicationof effort and providing for economies of scale. Such asystem is of course counter to the purposes of much private RD&D—toprotectdiscoveriesfromcompetitors—butisanidealthattheinternationalcommunityshouldstriveforinsolvingaglobalcommonsproblemlikeclimatechange.Asmanypolicymakershaveargued, it is important thatzerocarbonRD&Dprogramsarestructuredtoencouragebroad dissemination of the scientific and technologicaloutcomes.77


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ThemosteffectiveRD&Dnetworksdrawtheirmembershipfromavarietyof institutionsthathavean interestandarole to play in a successful innovation program: leadingtechnical institutions, funding agencies, private sectorleadersandinternationalorganisations.TheUnitedStatesARPA-E program, for example, funds high-risk, high-reward technology development that can then qualify for venturefundingwithinafewyears.ManyoftheextremelycompetitiveARPA-Eawardshavebeenwonbyuniversity-industry collaborations — a testament to the value ofcrossinginstitutionalboundariesforhigh-valueresearch.78

Australiashouldaimtoworkcloselywithothernationsthathold leadership positions across its national technologypriorities.Forexample,anAustralianCSTRD&Dnetworkwoulddeveloplinkswithuniversities,privatecompanies,and government agencies in countries such as Spain, the United States, Israel and the United Arab Emirates. The networkwould accelerate progress through holdingforums,sharingdataandmethods,exchangingresearchers,undertakingjointprojectsandpoolingresources.Todriveprogressattheacceleratedrateneeded,activitieswouldbe coordinated as part of an internationally agreed CSTroadmap, used to set targets and review progress on an annual basis. Similar collaborations could be formedaround photovoltaics; batteries; high-penetration wind;enhanced geothermal; biofuels; and zero carbon steelproduction.

Manynetworksandresearchcentresofthistypealreadyexistbutgapsremain.Manyareineffectiveduetoalackof clear purpose (Australia’s Global CCS Institute, forexample) or financial backing. The primary novelty ofthe approach we suggest is the extent to which thesearrangementsare supported. Fundingmustbe sufficienttoenableresearchpartnershipstodelivermultiplelarge-scaledemonstrationsacrossnumeroustechnologytypes.Regular to-scale demonstration and deployment willsignificantlyenricheffortstoacceleratepricereductions.

The first step for Australia would be to commission anassessment of present international RD&D networksacross its technology priorities, working to fill any gapsand expand the capacity of those networks alreadysuccessfully running— and draw their centre of gravitytowards Australia. Australia’s commitment to providing a comprehensivesupportenvironmentforRD&Dwithinitsborders— and leveraging the private capital needed toundertake meaningful demonstration projects — wouldattractworld-leadingexpertise.

Intellectual property concerns in the context of sharedtechnology programs remain a key barrier, but asurmountable one. The US National Renewable EnergyLaboratory (NREL) has developed the “CooperativeResearch and Development Agreements” (CRADA)process,80 which is executed whenever a partner andthe lab collaborate on a project. The proposed project is

18

Figure 1. Possible integrated framework for clean energy R&D cooperation.

As described in this section, the individual technology networks could have primary responsibility for conducting R&D programs with accountability to existing international energy agencies or partnerships (e.g., IEA, IPEEC, IRENA2

, and MEF energy technology partnerships) that provide overall management oversight and coordinate provision of resources for the work of the networks. The GEF, MDBs, and UN agencies could also manage delivery of programs focused specifically on developing countries (e.g., expanded demonstrations in those countries) and work in partnership with these international energy agencies and partnerships. In turn, the management agencies could report to an overall UNFCCC clean energy technology advisory group. These activities could be closely coordinated with bilateral programs. This is depicted in Figure 2.

2 The emphasis of IRENA is more on building developing country capacity on renewable energy policies and deployment than on R&D, so the IRENA role may be limited in this area.

Technology Networks Global and Regional

Strengthen Regional Centers & Networks Expert

Networks

Portals with R&D Data, Methods, & Tools

Researcher Exchange & Training Programs

Technology Roadmaps & Action Plans Global, Regional, & National

R&D Cooperation Emerging Technology Demonstration Programs

Joint R&D Solicitations

Multilateral & Bi-lateral R&D

Projects

Demonstration Partnerships

Expanded Developing Country

Demonstrations

Technology Standards, Testing, & Certification &

Training Programs

FIGURE7.9Cleantechnologycollaborationmodel79


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discussedwiththerelevantNRELtechnicalcontact,projectgoalsandIPissuesarereviewed,negotiated,andfinallytheagreement is signed, recognising the joint commitments of NRELanditspartnertoachievetheproject’sgoaltowardscommercialisation. It protects a company’s and NREL’sexisting intellectualproperty,andallowsthecompanytonegotiate for an exclusive field-of-use license to subjectinventionsthatariseduringtheCRADA’sexecution.81

Coordinatingassistancefordevelopingnations

Developingnations—andespeciallytheleast-developednations — face difficulties in promoting and financingRD&D, and in participating in collaborative networks,that developed countries do not. They are impeded by high-risk finance (due to higher levels of political andeconomic instability), lack of technology standards, and

Box7.4:TheSolarPACESCollaborativeNetwork

SolarPACES (or Solar Power and Chemical Energy Systems) is an international cooperative RD&D network that hasdrivenadvancesinCSTsince1977.It isoneofanumberof IEA Implementing Agreement programs that bringtogetherteamsofnationalexpertsfromaroundtheworldtoacceleratetechnologyinnovation.Ithastheexplicitaimof removing technicalbarriers tocommercialisation,andhasbeenperhapsthecentralinfluenceinthedevelopmentof CST over the past four decades.

Today, its membership of 20 countries includes countries from Australia to Spain, South Africa, the United Arab Emirates and the United States. Partnerships with private entitiesintheenergyindustryplayakeyrole,andindeedthe involvementof somenations—suchasAustralia—has been driven primarily by industrial consortiums. Inthe caseofAustralia,membershipwas initiated throughaconsortiumofstateenergyutilities,now joinedby theUniversityofNewSouthWales.

The SolarPACES network pursues three core strategicgoals:82,83• Support technology development by leveraging

national resources - through international RD&D

cooperationandindustrypartnerships.• Support market development to reduce hurdles to

commercialisation - through market assessment,intellectual property protection, promotion ofsupportivepolicy,undertakingmultilateralprojects.

• Expand awareness of CST’s potential to addressenergy and environmental challenges - throughinformation dissemination, membership expansion,andpartnershipswithotherorganisations.

ItstechnologydevelopmentprogramspecifiesaroadmapforCSTsplitintothematicareasofwork,or“Tasks”,thatSolarPACES teams cooperate to progress.

AsharedR&DplatformintheSpanishprovinceofAlmeria,the“PlataformaSolardeAlmeria”, ishometoanumberofSolarPACESmajor testprojects (suchas testingof thecomponents later used in commercial projects e.g. the PS10 power tower),85andisthelargestcentreforCSTRD&DinEurope.ThePlatform’swiderangeoftestprojectsenablein-the-field learning for international teams studyingCST systems. The SolarPACES program, and the RD&DplatforminAlmeria,isamodelforAustralianengagementin zero carbon technology innovation. Certainly, at thefundinglevelsrecommendedintheZCAStationaryEnergyPlan, Australia can rapidly become a world centre for deploymentandRD&DintechnologieslikeCST.

FIGURE7.10TorresolEnergyGemasolarThermosolarPlant84


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gapsinexpertiseacrosstherenewableenergyvaluechain,from initial procurement tooperationandmaintenance.Projectscanthereforeattractprohibitivelylargeadditionalcostsandoutcomesmaybeapoorfitforactualcommunityneeds. Getting developing nations on to even groundrequiressubstantialtechnologyandexpertisesharing.

Capacity building in developing nations should be a keysecondary goal of Australia’s international technologynetworks.Potentialsolutionsinclude:86• theNREL’sproposedfundingofdemonstrationprojects

indeveloping countries tohelpbuild localexperienceacrosstherenewableenergyvaluechain;

• the Carbon Trust’s proposal for establishing “LowCarbon Technology Innovation and Diffusion Centers”within developing nations, to operate as nodes forcoordinating training, demonstration projects andintegration of developing nation institutions intointernationalR&Dnetworks;and

• international finance mechanisms to de-risk privatesector investment in developing nations, throughproviding a special pool of funding to cover the country risk, currency risk and policy risk components ofdeveloping country investments.

7.4 TheNationalInterestinRenewableTechnology Deployment and Development

This section argues that Australian investment into zerocarbontechnologyinnovation,combinedwithapushfor100%economy-widedecarbonisationby2030,isnotonlya reasonable response to the threat of climate change but isalsoinourlong-termeconomicinterests.Australiacanuseitspresentwealthtotransformitselftoa“zerocarbonsuperpower”overthenextdecade,preparingforadeclineinthefossilfueltrade(seeChapter8)andsuccessinthemulti-trillion dollar global industry in clean energy andenvironmental goods and services.

Thissectionexamines:• Expected growth in clean tech markets: Zero carbon

technologymarket growthhasbeenexponentialoverthe past decade, and will soon reach into the trillions of dollarsinannualvalue.Competitionisbecomingfierce,andleadingnations,suchastheUSandGermany,arereapingdividendsinexportvalueandemployment.

• Australianopportunities:Australiahasahostofnaturaladvantages in clean tech markets, and significantpotential to capture its share. Australia can becomethe go-to country for expertise across the clean techvaluechain—fromfinancetosoftware,manufacturing,projectdevelopmentandoperationandmaintenance.

7.4.1 SizingtheZeroCarbonEconomy

Zero carbon products and services are forecast to become a major source of global value and employment: HSBCexpects the clean technologymarket to beworth up toUS$2.2trillionperannumby2020;87theIEAestimatesthattotal clean energy investment will need to reach at least US$36trillionto2050;88andrecent ILOanalysispredictsup to60million green jobsby2030.89 The savings from zero carbon investment — from avoiding the purchaseofoil, coalandgas—areestimatedby the IEAto reachas high as US$150 trillion by 2050.90 US Department of Energy analysis shows that clean energy technology could create 750,000 jobs in the US as early as 2020,91 while Germanyalreadyhasalmost400,000jobsacross itszerocarbon energy industries.92

The world’s major economies are racing to capture this value. China, Germany and the US have been vyingfor supremacy in renewable energy markets with anaggressionthathasledtotalkof“renewableenergytradewars”.93,942012hasbeenaparticularlyheatedyear: theUSwonitscaseagainstChinesePVexportdumpingintheWorld Trade Organisation and applied import tariffs of31%to250%onChinesesolarpowerimports.95Germanyis now preparing to bring similar claims.96,97 Japan and the

Box7.5:TheEconomicsofGermany’sRenewableEnergy Act

The investment represented by Germany’s RenewableEnergySourcesact issubstantial,at€9.4billionannually—andsoareitsbenefits:• Jobsgrowth:382,000jobs, includingsome125,000in

solar energy.106• Salesvalue:Around€25.3billionintotalsalesvalue,for

around€70,000(orAU$85,000)perjob.107Around50%ofisPVexported,108toberaisedto80%by2020,109 and 75% of wind turbines are exported.110 Wind exportsreach€4.7billionandPVexportsmorethan€8billioneach year.111,112

• Energy savings: Yearly savings from the Merit OrderEffect of around €3.5 billion, and avoided energyimportsworth€6.7billion.113

• Zero-carbonenergy.In2011,Germanymet16.8%ofitselectricity needs, 9.8%of heatingneeds, and5.8%oftransportneedswith renewableenergy.FourGermanstatesmet over 40%of their electricity demandwithwind alone.114

• Emissions avoidance. Germany avoided 107 milliontonnes of CO2 from electricity, heat and biofuels investmentsin2009.115

• Technology price reductions: Since 2006, solar PVsystem prices within Germany have declined anincredible65%.116


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EUjoinedtheUStofileagainstChinaovertraderestrictionson rare earth metals — materials that are, currentlyessentialformanufacturingzero-carbontechnologiesfromwind turbines toelectricvehicles toefficient lighting98—claiming billions of dollars worth of damages.99 And China haslashedbackwithacomplaintagainstUSimportdutieson 22 Chinese products, including solar panels and wind turbines, and claims that the US paid unfair subsidies for sixmajorrenewableenergyprojects.100

Chinese investment in renewable energy has reached stellar levels. As Hari Chandra Polavarapu, an analyst atAuriga, New York, put it, “[y]ou’re competing against asovereign when you’re talking about the Chinese solarindustry.It’seconomicwarfare.”101 Yet this is not an area in which China is the inevitable victor. With all the anger fromtheUS,onemightwellthinkChinawasdominatingsolar exports to the detriment of other nations, but in

reality,theUSiscompetingwellonbothpriceandquality.In2010theUSimportedUS$3.8billioninsolarproducts,butexportedUS$5.6billion.ItssolarbalanceoftradewithChinagavetheUSasurplusofUS$247million.102,103

Germany, too, is reaping significant rewards from itsrenewable energy policies: the nation has 367,000 jobsin renewable energy today, and a majority of its wind and solar products are exported. Even with “slow” growthof exports, the policies will create 150,000 more jobsthan a business as usual trajectory by 2030, or around 185,000undermoreoptimisticconditions.TotalGermanemployment in the renewable industry is estimated toreachupto600,000peoplebythistime(seeBox7.5).104

FIGURE7.11ThePVvaluechain105


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7.4.2 AustralianOpportunitiesinCleanTechMarkets

Australiahas,rathershortsightedly,leftthemtoit.Thisisa tragedy: the quality of renewable resources in Australia is unbeatable; our research talent is on par with theworld’s best; and public support for renewable energydevelopment is persistently high.117 Even in the absence of supportive policy for renewable energy deployment,Australiastillscoreshighlyonmanyinputstoinnovation,such as its entrepreneurial culture.118 Given theextraordinarygrowthpredictedforthecleantechmarket,and its long-term future, rational economic policy mustconsiderthisanexcellentareatobegininvestingintodaytoensureAustraliacansecurelastingadvantages.

The most common retort to the idea that Australia could lead in zero carbon technology is that Australia cannotcompete in manufacturing. The idea that Australia’s labour costs make zero carbon manufacturing untenable arecontradictedbythesuccessofothernationsthataresaidtohavelostcompetitivenessinmanufacturing,liketheUSinPVproduction (seeBox7.6 forabriefexaminationofthebarrierstoAustralianparticipationinmanufacturing).

Regardless,thisargument isadistraction:manufacturingis justonepartofa long,variedzerocarbontechnologyvalue chain. The US thin-film solar giant First Solar, forexample,saysthataround33%of its large-scaleprojectscosting is infinance, 33% in “balanceof system” (actualinstallationcostsandadditionalcomponentslikesupportracking), and 5% in development—only around 25% isin the solar PVmodules themselves.119 China’s Suntech, thelargestPVmanufacturerintheworld,agrees,pointingoutthat,unlikethecar industrywhere90%ofthevalueis inmanufacturing, “50% of the value of PV is createdlocally”.120

MuchofthevalueofthezerocarboneconomyisfoundinR&D,software,training,projectdevelopment, insurance,consulting,finance,operationandmaintenance(seeFigure7.11).121 Australia already excels inmany of these areasandhasstrongpotentialtodevelopfurtheradvantagesonthelong-term.

Consider renewable energy financial and insuranceproducts and services, for example. In the “ReimaginingUS solar financing” white paper, Bloomberg NewEnergy Finance details the proliferation of sophisticatedmechanisms being developed for solar PV projectfinancing.Giventherangeofdifferentrenewableenergytechnologies and applications (beginning with thoseidentifiedearlierasnationalpriorities),thereiswidescopeforAustraliatobecomeatestinggroundforthetechnicaland management expertise that converts projects fromhighrisktolowrisk—andtherebymakesthemattractiveto large and conservative sources of finance, such assuperannuationfunds(seeFigure7.13).124

Box7.6:AustralianCleanTechManufacturing

The argument that Australia cannot compete in clean tech manufacturing due to labour costs is contradicted by success in other countries that share this challenge, suchastheUS.ConsidertheUScompanyFirstSolar–in2009 thefirst solar company toachieveunderUS$1perwatt solar power, and now providing solar for a world-leadingUS$0.73perwatt.In2011,itrankedinfirstplaceonForbes’slistofAmerica’s25fastest-growingtechnologycompanies. First Solar competes in the same way that Australian companies would compete: on the leading edge ofinnovation.

Australia is in fact closely connected to the world’s largest solarPVcompany,theChinesegiant,Suntech.Dr.Shi,thefounderofSuntech,isanAustraliancitizentrainedinsolartechnologythroughaPhDattheUniversityofNewSouthWales (UNSW).He startedhis companyup inChinaanddrewmuchofhisSuntechteamfromcolleaguesatUNSW,and is now one of the wealthiest people in China, valued ataroundUS$3billiondollars.Dr.ShileftAustraliatostartSuntech in 2001— a story of lost talent that has beenrepeated again and again in Australian clean tech.

In 2011, Silex Solar, the last PV cell manufacturer inAustralia, sent its cell production offshore due to thewithdrawalofNSWsupportforthesolarindustry(althoughit still assembles the units in Australia). NSW EnergyMinisterChrisHartchersaidtheindustryhad“beenbuilton the back of government subsidies”, but neglected toexplainhowthisdifferedfromanyotherenergyindustryin history.122

Thisisnotafaitaccompli.Australiacanbuildadomesticzero carbon technologymanufacturing industry that cancapture global markets. The biggest difference betweenAustralian and US solar manufacturers is the degree of support required to push the Australian industry to reach competitivenessonaninternationalstage.BecauseofthesmallsizeoftheAustralianmarket,theleaptoparticipationin global markets requires additional assistance, afterwhich, prices converge with those of countries like theUSandtheindustrybecomessustainable(seeFigure7.12fromErnst&Young).

Navigating the valley of death Ernst & Young 19

5. Navigating the valley of death

5.1 What is the valley of death? The valley of death is not unique to cleantech or Australia. It has been used to describe the challenges in rolling out information technology and 3G networks where the characteristics are slow customer adoption, unmanageable platform and device complexity, and an explosion in operating expenses.20 The metaphor was rife in science policy in the late 1990s and has been described as the massive transformational change to address another market where you need new capital, new staff and have to become familiar with new foreign rules. In remote countries like Australia, it is considered partly a function of distance (distance begets an attitude of scarcity) and mindset (adopting a global market perspective).21

Figure 1: Defining the valley of death22

Commentators also offered the following explanations for the valley of death:

► The valley of death relates to moving from small to large scale finance. The challenge is that if you are not sufficiently advanced in terms of removing the technology risk, and do not have the right corporate partners on board, you end up having to seek all equity for large scale finance. This means that the cost of capital is higher than if it was a bankable project able to attract debt. In this scenario the investment dollars will usually go elsewhere.

► Borrowing money from a bank for commercial scale demonstration and deployment is currently restricted to major corporate players, and the shortage of capital from the global financial crisis has tightened balance sheets all over the world. However, to deploy cleantech someone has to wear the balance sheet risk until revenues occur and there are not many businesses prepared to put the money up.

20 Surviving the valley of death; P. William Bane and N. Blain; Connected Planet; 19 March 2001 (www.connectedplanetonline.com) 21 Going global from New Zealand; Rod Drury; 16 March 2007; www.drury.net .nz 22 Adapted from Going global from New Zealand; Rod Drury; 16 March 2007; www.drury.net .nz

FIGURE7.12Australian solar manufacturing123


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Softwareandmanagementservicesarefurtherareasripefor leadership, as shown by the global success of Sydney company CarbonSystems. CarbonSystems recently won an internationaltendertomanagetheenergy,emissionsandenvironmental performance reporting acrossMicrosoft’sglobal operations—more than 600 facilities across 110countries. CarbonSystems CEO, David Solsky, says thatAustraliais“thehottestmarketintheworld”forthesekindsofservices.ThiskindofsuccesshasbeenmadepossiblethroughexistingFederalGovernmentregulationssuchasthe National Greenhouse and Energy Reporting Scheme(which requires companies to report their greenhouse gas emissions, energy production and energy consumption)and the Commercial Building Disclosure regulations(which require sellers and lessors of commercial buildings to disclose building energy efficiency performanceinformation).126JustasmanagementguruMichaelPorterarguesthat“stringentenvironmentalregulationpromoteseconomic growth by boosting efficiency”, so too canregulation can boost growth by encouraging innovationintoentirelynewmarkets.

EachofthenationaltechnologyprioritiesidentifiedbyBZEearlier in this chapter has diverse value chains that will vary considerably across applications, especially in theirservice components— project development, consulting

andfinance.Torevisittheirpotentialmarketsizes:• Concentratedsolarthermalisexpectedtobeacrucial

globalrenewableenergysource,providingatleast40%ofenergyneedsinsunnyenvironments.Itsapplicationsrange from serving any national energy grids incountries that have reasonable sunlight resources —in otherwords,most of theworld’s population— toresources projects and industry demands for heat and steam.Inadditiontogrid-scalepowerproduction,theIEA identifies a wide range of nichemarkets for CST,from providing heat for industrial processes to the productionoffreshdrinkingwater.127

• PV applications for remote communities and peakdemandmanagementreachashighas400GWby2020according toMcKinsey—oraround3timesthesolarPV installed so far across the globe.128Both of theseareasprovideopportunities frombasicmanufacturingtonovelsystemdesignandfinancemechanisms.

• Addressing peak demand through PV and smart gridefficiency and demand-response programs couldforestall much of the AU$45 billion grid upgradecurrently underway. With widespread deployment in theUS, theBrattleGroupestimatespotential peakdemandsavingsofUS$176billion.129Novelsmartgridapplications range from household demand response(e.g.automaticallyreducedenergyuseattimesofpeak

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The most telling statement about this analysis is the absence of a compelling pattern linking solar project investment to other asset classes. Investors across a broad spectrum of risk/return profiles, who are otherwise active in investments that could bear resemblance to solar projects, have largely not dipped a toe in the water, likely because the asset has not yet been 'configured' to match a familiar asset class. The findings suggest that there could be meaningful appetite if solar project investments are structured to look like other classes.

4.2. Evolution of US solar financingThe US solar project finance landscape is shifting. Figure 15 illustrates one plausible scenario of how US solar financing could evolve.

Figure 15: Potential evolution of US solar financing

Source: Bloomberg New Energy Finance

Several fundamental changes appear likely:

• Participation from investors who have been historically active (banks and federal government) will likely diminish. European banks, which have for years provided construction debt to US clean energy projects, are grappling with the continent's ongoing credit crisis. At the same time, the set of financial regulations known as Basel III is further causing banks to reconsider their exposure to project finance. The regulations require that any loans longer than one year be backed by funding of at least one year (eg, a 20-year project loan must be matched by an asset with a maturity greater than one year, such as a long-term bond). This will result in higher capital requirements and will likely raise the cost and decrease the length of project finance debt. Though the European banks will feel the squeeze first, Basel III will reduce the

INSURANCE COMPANIES

BANKS

INFRASTRUCTURE DEBT FUNDS

INSURANCE COMPANIES

PENSION FUNDSDEB

TEQ

UIT

YTA

X EQ

UIT

Y

TodayDevelopment Construction Commission /

Operation

TomorrowDevelopment Construction Commi

-ssion

BANKS

VENTURE CAPITAL (VC)

COST

S O

F CA

PITA

L

• >20% cost of equity (unlevered)

• ~15% cost of equity (levered)

• ~7-9% tax equity yield (af ter-tax, unlevered), ~14-18% (levered)

• ~6-7% cost of debt

Spin-out of operating assets

VC

DEVELOPMENT PRIVATE EQUITY

SMALL/MED DEVELOPERS

LARGE DEVELOPERS / UTILITIES

BANKS (AND OTHER SELECTED

PLAYERS)

SMALL/MED DEVELOPERS

LARGE DEVELOPERS / UTILITIES

Bonds / ABS / ‘Crowdfunding’

High-liquidity investment vehicles

Syndicated tax equity

BANKS / NON-FINANCIAL CORPORATES

HIGH-RISK HEDGE FUNDS

• >20% cost of equity (unlevered)

• 9-13% cost of equity (levered)• ~7% tax equity yield (af ter-tax,

unlevered), ~11% (levered)• ~6% cost of debt (capital

markets debt f inancing)

• ~6% cost of equity (unlevered)

• <6% cost of debt

MUTUAL FUNDSRETAIL INVESTORS

HEDGE FUNDS

MLPs / ‘SREITs’ / ‘YieldCos’

• ~14% cost of equity (levered)

• ~6-7% cost of debt

INFRASTRUCTURE PRIVATE EQUITY

INFRASTRUCTURE PRIVATE EQUITY

ACQUISITION-ORIENTED UTILITIES

DEVELOPMENT PRIVATE EQUITY

There could be meaningful appetite to invest in solar projects if investments are structured to look like other asset classes

FIGURE7.13Reimaginingsolarfinancing125


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demand,tosaveresidentsfrompayingpeakprices)tointegrationwithelectricvehicles(e.g.chargingelectricvehiclesatlowprices,whenexcesswindenergyisbeingfed into the grid).

• UndertheZCAStationaryEnergyPlan,newmodelsofrenewables integration at penetrations never beforeseen would be developed, with a host of technical insights for grid and market design. Pike Researchestimates renewableenergy integration in2012tobeaUS$4billionglobalmarket,growingtoUS$18billionover the next 6 years— a compound growth rate of23%.

Innovation spurred as part of RD&Dactivities related totheotherZCAPlans—Transport,LandUseandBuildings—wouldprovideawealthoffurtheropportunities.

Australia can become the go-to country for any nationseekingtofollowthedecarbonisationandenergyefficiencypathway.Tobeconservativeandestimatethatthiscross-sectoralinvestmentonlyallowsustocapture2.15%oftheglobalcleantechmarketanticipatedbyHSBC in2020—ashare in linewithAustralia’sshare inworldGDP—wewould seeannual revenueof aroundUS$50billion. Thisis some AU$10 billion above the value of Australia’s total coalexports(aleadthatissettoincreasewithcokingcoalprices currently collapsing,130,131asexploredfurtherinthenext chapter),132 and would provide many, many more long-termjobs.133

Only when Australia’s fastest growing companies andhighestnet-worth individuals are, like First Solar andDr.Shi, drawn from renewable energy industries rather than coalmining canwe truly claim tobeworking towards aCleanEnergyFuture.


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References1. BjornLomborg,“SmartSolutionstoClimateChange:ComparingCostsand

Benefits”(2010).

2. “Thewideningvalleyofdeathforcleantech”,Ernst & Young(2010)Figure2,

http://www.cleanenergycouncil.org.au/mediaObject/Policy/Navigating-the-

valley-of-death-CEC/original/Navigating%20the%20valley%20of%20death%20

CEC.pdf.

3. “Short-termpricesupportforrenewableenergytechnologiestoachieve

economiesofscalewillresultinlongtermcostsavings.”,Climate Bonds

Initiative,(2009)http://climatebonds.net/what-we-do/encouraging-

investment/the-10-point-case/.

4. “WorldEnergyOutlook2011”,International Energy Agency, (2011)http://

www.scribd.com/doc/72512781/World-Energy-Outlook-2011.

5. Ibid.

6. “WorldEnergyOutlook2011Factsheet,”International Energy Agency, (2011),

p6.http://www.iea.org/weo/docs/weo2011/factsheets.pdf.

7. HowardH.BakerJr. Center for Public Policy,“AssessmentofIncentivesand

EmploymentImpactsofSolarIndustryDeployment”(1May2012)p4,http://

bakercenter.utk.edu/wp-content/uploads/2012/04/Solar-incentives-and-

benefits-_complete-report_May-1-2012-21.pdf.

8. World Resources Institute, 2011, ‘TheRoleofSolarPVinreducingemissions

50%by2050usingpast,present,andfuturetechnology,’http://www.wri.

org/stories/2011/11/fact-sheet-power-innovation-meeting-our-energy-

challenges-through-accelerated-innova.

9. International Energy Agency,“TrackingCleanEnergyProgress”(2012)p28,

http://www.iea.org/papers/2012/Tracking_Clean_Energy_Progress.pdf.

10. IMS Research, Press Release “PVModuleSuppliersSwitchTacticsasWafer

Pricesfall70%”(11April2012).http://www.pvmarketresearch.com/press-

release/PV_Module_Suppliers_Switch_Tactics_as_Wafer_Prices_fall_70/1.

11. SolarBuzz,”Solar Electricity Prices”(March2012)http://www.solarbuzz.com/

facts-and-figures/retail-price-environment/solar-electricity-prices.

12. “PVmodulecostcurve1976-2011”, BNEFBrazilianetal(2012)http://

theconversation.edu.au/newsflash-solar-power-costs-are-falling-below-fossil-

fuels-7215.

13. RyanWiseretal.,“RecentDevelopmentsintheLevelizedCostofEnergyfrom

U.S.WindPowerProjects”(February2012)p35,http://eetd.lbl.gov/ea/ems/

reports/wind-energy-costs-2-2012.pdf.

14. GilesParkinson,“Snowtownprojectshowswindcostsbelow$80/MWh”,

RenewEconomy(7May2012)http://reneweconomy.com.au/2012/

snowtown-project-shows-wind-costs-below-80mwh-17727.

15. SarahFeinberg,“Windturbinepricesfalltotheirlowestinrecentyears”,

Bloomberg New Energy Finance(7February2011)http://bnef.com/

PressReleases/view/139.

16. World Coal Association,“CostsofCoal-firedElectricity”(January2011)ECoal,

Vol.73.http://www.worldcoal.org/resources/ecoal/ecoal-current-issue/costs-

of-coal-fired-electricity/.

17. RyanWiser,EricLantz,MarkBolingerandMaureenHand,“Recent

DevelopmentsintheLevelizedCostofEnergyfromU.S.WindPower

Projects”,National Renewable Energy Laboratory (February2012)Pg35,

http://eetd.lbl.gov/ea/ems/reports/wind-energy-costs-2-2012.pdf.

18. SeeabovediscussioninChapter6.3.2andreferencestherecited.

19. CédricPhilibert,OECDEnvironmentDirectorate,International Energy Agency,

“InternationalEnergyTechnologyCollaborationandClimateChange”(2004)p

11,http://www.oecd.org/dataoecd/58/62/32138947.pdf.

20. CharlesJonesandJohnWilliams,MeasuringtheSocialReturnto

R&D(February1997)p1,http://www.federalreserve.gov/pubs/

feds/1997/199712/199712pap.pdf.

21. BronwynH.Halletal,“MeasuringtheReturnstoR&D”(10December2009),

Chapter prepared for Handbook of the Economics of Innovation,http://emlab.

berkeley.edu/~bhhall/papers/HallMairesseMohnen09_rndsurvey_HEI.pdf.

22. JeffreyBernsteinandMIshaqNadiri,“ResearchandDevelopmentandIntra-

industrySpillovers:AnEmpiricalApplicationofDynamicDuality”,Review of

Economic Studies (1989)p249-269,http://www.econ.nyu.edu/user/nadiri/

pub59.pdf.

23. ValentinaBosettia,CarloCarrarob,EmanueleMassettic,AlessandraSgobbia&

MassimoTavonic,“OptimalenergyinvestmentandR&Dstrategiestostabilize

atmosphericgreenhousegasconcentrations”,Resource and Energy Economics

(2009)31(2),p123-137.http://www.sciencedirect.com/science/article/pii/

S0928765509000025.

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pdf.

25. “GlobalGapsinCleanEnergyR&D:Updateandrecommendationsfor

InternationalCollaboration”International Energy Agency , (2010)p7,http://

iea.org/papers/2010/global_gaps.pdf.

26. According the Stockholm International Peace Research Institute (SIPRI),

worldmilitaryexpenditurein2011was$1.74trillion:SIPRI,“WorldMilitary

spendinglevelsoutafter13yearsofincreases,saysSIPRI”(17April2012),

http://www.sipri.org/media/pressreleases/17-april-2012-world-military-

spending-levels-out-after-13-years-of-increases-says-sipri.

27. “SecuringaCleanEnergyFuture”,Australian Government(2011)http://www.

cleanenergyfuture.gov.au/clean-energy-future/securing-a-clean-energy-

future/.

28. RossGarnaut,“TheGarnautClimateChangeReview”(2008)Ch10.1,http://

www.garnautreview.org.au/pdf/Garnaut_Chapter10.pdf.

29. “SecuringaCleanEnergyFuture”AustralianGovernment,(2011).

30. Ibid.

31. LenoreTaylor,“1.6bnNotEnoughtoBuildRudd’sSolarVision”,The

Australian(5September2009)http://www.theaustralian.com.au/

national-affairs/treasury/bn-not-enough-to-build-rudds-solar-vision/story-

e6frgd66-1225769698238.

32. “Navigatingthevalleyofdeath:Exploringmechanismstofinanceemerging

cleantechnologiesinAustralia”Ernst & Young,(2010)http://www.

cleanenergycouncil.org.au/mediaObject/Policy/Navigating-the-valley-of-

death-CEC/original/Navigating%20the%20valley%20of%20death%20CEC.pdf.

33. Ibid,Figure4.

34. Ibid,p34.

35. JohnDaleyandTristanEdis,“LearningtheHardWay:Australia’sPoliciesto

ReduceEmissions” Grattan Institute,(2011)http://grattan.edu.au/static/files/

assets/35ea95b7/077_report_energy_learning_the_hard_way.pdf.

36. DatafromRagwitz,M.,Winkler,J.,Klessmann,C.,Gephart,M.andResch,G.,

“Renewableenergydeploymentsupportedprimarilybyfeed-ininstruments,

EU-27countries”,(2012)http://www.feed-in-cooperation.org/wDefault_7/

download-files/9th-workshop/presentations/Ragwitz.pdf.

37. LisaZyga,“Gemasolarsolarthermalpowerplantsuppliespowerfor24hours

straight”,Phys.Org (11July2011)http://phys.org/news/2011-07-gemasolar-

solar-thermal-power-hours.html.

38. “TechnologyRoadmap:ConcentratingSolarPower”International Energy

Agency,(2010)http://www.iea.org/publications/freepublications/

publication/csp_roadmap.pdf.

39. Ibid.

40. Geyer,“Combinationofstorageandhybridisationinasolarplant”SolarPACES

Annual Report, Adapted by International Energy Agency (2010)http://www.

iea.org/publications/freepublications/publication/csp_roadmap.pdf.

41. GilesParkinson,“SolarThermal:TheSearchforCheaperStorageSolutions”,


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thermal-the-search-for-cheaper-storage-solutions-16595.

42. BenEllistonetal.,“Simulationsofscenarioswith100%renewableelectricity

intheAustralianNationalElectricityMarket”,Solar2011conference,

Australian Solar Energy Society,Sydney,(30November–2December2011),

http://www.ies.unsw.edu.au/docs/diesendorf-simulations.pdf.


Agency, (2010).

44. Siemens,“Whatwillthefutureofrenewableelectricitygenerationlooklike?”

(2010)http://www.siemens.com.au/files/PTF/energy/EnergyCasestudy_

renewables.pdf.

45. GilesParkinson,“CanSolarThermalEnergyCompeteonCostswithWind?”,

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thermal-energy-compete-on-costs-with-wind-41615.

46. SeeProtermoSolar,http://www.protermosolar.com/mapa.html.

47. “Renewable2011GlobalStatusReport”REN21,(2011)p25,http://www.

ren21.net/Portals/97/documents/GSR/GSR2011_Master18.pdf.

48. “AssessmentofParabolicTroughandPowerTowerSolarTechnologyCostand

PerformanceForecasts”Sargent & Lundy LLC Consulting Group, (2003),pEs-3

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nrel.gov/csp/pdfs/34440.pdf.


Agency, (2010).

50. “RenewableEnergyRD&DPriorities:InsightsfromIEATechnology

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51. BenCubby,“Minersget$4bindirectsubsidies,saysThinkTank”,Sydney

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52. TristanEdis,“Miningpoweredbysolar?”,Climate Spectator(7May2012).

53. JessicaBurke,“Australia’sfirst100%renewableenergy-poweredmine”,

Australian Mining(6April2011)http://www.miningaustralia.com.au/news/

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54. GilesParkinson,“BHP’sGreenTunnelVision”,Climate Spectator(17May

2011)http://www.climatespectator.com.au/commentary/bhps-green-tunnel-

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55. YolandiBooyens,“Companyonthebrinkofprovingsolarenergybenefits

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56. Editor,“Chile’sminingindustryhuntsforrenewableenergy”,Mining.com (23

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hunts-for-renewable-energy/.

57. “BarrickOpensWindFarminChile”,Elko Daily (18November2011)http://

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58. “Diavikminetobuildwindturbines”,CBC News (4November2011).http://

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60. SeeAustralianGovernment,Australia’sSubmissiontotheRio+20Compilation

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61. JeremyRifkin,“Thefuture’slateral:thenew(green)economy”,United

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62. GilesParkinson,“Wearemissingtheboatoncleanenergy”,The Australian

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63. ChandraSteele,“Howthemobilephoneisevolvingindevelopingcountries”,

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64. Per capita mobile cellular data by country, from Nation Master:http://www.

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65. CarlPope,“Solarpoweroffthegridenergyfortheworld’spoor”,Yale

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66. KristerAanesen,StefanHeck&DickonPinner, “Solarpower’snext

shining,”McKinsey(April2012)http://www.mckinsey.com/Client_Service/

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67. Ibid,Exhibit2,p7.

68. See Horizon Power’s submissiontotheFederalGovernmentonsupplying

solarenergyto100remoteAustraliancommunities:http://ret.gov.au/energy/

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69. GilesParkinson,“Our‘cheap’gridislettingusdown:That’snotsmart”,

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70. “2011ElectricityStatementofOpportunities:Update”Australian Energy

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71. AanesenandPinner,“Solarpower’snextshining,”McKinsey (April 2012).

72. “Trackingcleanenergyprogress”International Energy Association (2012),

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73. ClairePeddie,“Windpowersaheadofcoalinelectricityproduction”,

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74. “Reportshedslightonpowerstations’solarpotential”,ABC News(19-April

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75. RonBenioffetal.,“StrengtheningCleanEnergyTechnologyCooperation

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76. FacilitatingresearcherexchangeshasbeenshowntoincreaseRD&D

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whicharegenerallytakenasindicationsofresearchvalue.See,e.g.,

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77. DavidCMowery,RichardRNelsonandBenRMartin,“Technologypolicyand

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79. “PossibleintegratedframeworkforcleanenergyR&Dcooperation”,National

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73

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80. JohnPBenner,“MovingNRELtechnologytomarket:IndustrialCRADAs”,US

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81. NationalRenewableEnergyLaboratory,35YearsofInnovation(February

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82. “SolarPACES”Presentation,US Department of Energy,http://www1.eere.

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83. MichaelGeyer,GregoryKolb&PatriciaCordeiro,“SolarPACESSTARTMissions:

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84. GemasolarThermosolarPlant,usedwithpermissionfromTorresol Energy

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86. Benioffetal.,“StrengtheningCleanEnergyTechnologyCooperation,”US

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87. CatherineAirlie,“HSBCsayslow-carbonmarketwilltripleto$2.2trillion

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88. SteveHargreaves,“IEAcallsfor$36trillionmoreincleanenergyinvestments”,

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89. “Transitiontogreeneconomycouldyieldupto60millionjobs,ILOsays”

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90. SteveHargreaves,“IEAcallsfor$36trillionmoreincleanenergyinvestments”,

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91. “IncreasedEnvironmentalGoodsandServicesExports=MoreU.S.Jobs”

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92. “GrossemploymentfromrenewableenergyinGermanyin2011” German

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93. EhrenGoossens,JustinDoom&WilliamMcQuillen,“Tradewarseenlooming

asChinarebukesUSsupportforsolar”,Bloomberg(26May,2012)http://

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94. BruceStokes,“Emerginggreentechnologyposesthreatoftradewars”,Yale

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95. EhrenGoossens,BrianWingfield&WilliamMcQuillen,“USsolartariffson

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96. RichardRead,“SolarWorldcutsupto300jobsinEurope,blamingChinaas

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97. “Emerginggreentechnologyposesthreatoftradewars”,Yale Global Online

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98. Staff,“DoE:Rareearthshortagesdamagecleantechgrowth”, Business Green

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99. DougPalmer&SebastianMoffet,“U.S.,EU,JapantakeonChinaatWTO

overrareearths”,Reuters(13March2012)http://www.reuters.com/

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100. Ksenya,“ChinafilesWTOcomplainedagainstUSsolartariffs”,Solar Tribune

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101. EhrenGoossens,JustinDoom&WilliamMcQuillen,“Tradewarseenlooming

asChinarebukesUSsupportforsolar”,Bloomberg(26May,2012).

102. StevenLacey,“Solarstunner:Americaisa1.9billionexporterofsolar

products”, Renewable Energy World(29August2011)http://www.

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103. DavidNicklaus,“ChinesecompaniesseektariffsonUS-madesilicon”,STL

Today(20June2012)http://www.stltoday.com/business/columns/david-

nicklaus/chinese-companies-seek-tariffs-on-u-s--made-silicon/article_

d8d47826-bb1f-11e1-96bb-001a4bcf6878.html.

104.UlrikeLehr&ChristianLutz,“GreenJobs?Economicimpactsofrenewable

energyinGermany”,World Renewable Energy Congress(May2011)http://

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105.“ValueChainSegments&Activities”,Green Rhino Energy,http://www.

greenrhinoenergy.com/solar/industry/ind_valuechain.php.

106.“GrossemploymentfromrenewableenergyinGermanyin2011”,German

Government, (2011).

107. “Renewableenergysourcesinfigures:Nationalandinternational

development”German Government, Federal Ministry for the Environment,

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erneuerbare-energien.de/files/english/pdf/application/pdf/broschuere_ee_

zahlen_en_bf.pdf.

108.“Solarenergymarketdevelopment”German Government, Federal Ministry

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in-germany.com/en/renewables-made-in-germany-start/solar-energy/

photovoltaics/market-development.html.

109.“StatisticdataontheGermansolarpower(photovoltaic)industry”German

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IMG/pdf/factsheet_pv_engl.pdf.

110. “Windenergymarketdevelopment”German Government, Federal Ministry

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germany.com/en/renewables-made-in-germany-start/wind-energy/wind-

energy/market-development.html.

111. BeckyStuart,“BSW:Germanytoinvestover€5billioninitssolar

industry”,PV Magazine(10June2011)http://www.pv-magazine.com/

news/details/beitrag/bsw--germany-to-invest-over-5-billion-in-its-solar-

industry_100003320/.

112. JohannesSchiel,“OpportunitiesfortheWindIndustry”,VDMA Power

Systems(25November2010)http://www.giz.de/Themen/de/SID-A80F3DDC-

37B15698/dokumente/gtz2010-en-01-johannes-schiel-vdma-opportunities-

for-the-wind-industry.pdf;“WindIndustryinGermany”,GermanWind

IndustryAssociation(2011)http://www.wind-energy-market.com/fileadmin/

Bilder_und_Logos/Marktuebersicht/Windindustrie_in_Deutschland_ENG_

Branchenreport.pdf.

113. “Renewableenergysourcesinfigures:Nationalandinternational

development”German Government (2011).

114.“Renewable2011GlobalStatusReport”REN21, (2011).

115.“Renewableenergysourcesinfigures:Nationalandinternational

development”German Government (2011).

116.“PreisindexPhotovoltaik”,Bundesverband Solarwirtschaft (2012)http://www.

solarwirtschaft.de/preisindex.

117. SeediscussionandreferencesinDylanMcConnell,“Australiamustactnow

onrenewablesorbeleftbehind”,The Conversation(3August2011)http://


74

131. PeterCai,PhillipWen,“Chinafindingwaystocutbackoncoal”,Brisbane

Times(12July2012)http://www.brisbanetimes.com.au/business/china-

finding-ways-to-cut-back-on-coal-20120711-21w91.html.

132. “Australia’sCoalandIronOreExports:1999to2009”, Department of Foreign

Affairs and Trade,http://www.dfat.gov.au/publications/stats-pubs/australias-

coal-and-iron-ore-exports-1999-to-2009.pdf.

133. BasedonUSfigures:seeWWF,“GettingBackintheGame”,http://www.

worldwildlife.org/climate/Publications/WWFBinaryitem16415.pdf.

theconversation.edu.au/australia-must-act-now-on-renewables-or-be-left-

behind-2631;PetaAshworthetal,“Communicationandclimatechange:

WhattheAustralianpublicthinks”,CSIRO(May2011)http://www.csiro.au/

files/files/p11fh.pdf.

118.VinceKnowles,“TheGlobalCleantechInnovationIndex2012”,Cleantech

Group(2012)http://www.cleantech.com/wp-content/uploads/2012/02/

CleantechGroup_WWF_Cleantech_Innov_Index.pdf;GeorgeMason

School of Public Policy’s Center for Entrepreneurship and Public Policy,

“The2012GlobalEntrepreneurshipandDevelopmentIndex(GEDI)”

(2012)http://66.147.244.232/~lifeats1/cepp/files/pdfs/GEDI2012-

Austrailia%283%29%5B1%5D.pdf.

119.TristanEdis,“WhyAustraliamustbuilditsownsolarfuture”,Climate

Spectator(14June2012)http://www.climatespectator.com.au/commentary/

why-australia-must-build-its-own-solar-future.

120. “MarcusPriest,“Survivingthesolar-coaster”, Australian Financial Review(19

November2011)http://afr.com/p/national/surviving_the_solar_coaster_6Ca

AXWzWWHvq7feq7gi6iN.

121. Ibid;;TristanEdis,“FollowApple’sstrategyonsolarPV”,Climate Spectator

(30May2012)http://www.climatespectator.com.au/commentary/follow-

apple-s-strategy-solar-pv;VahidFotuhi,“AtradewarwithChinaoversolar

panelswillburnUS”,TheNational(30October2011)http://www.thenational.

ae/thenationalconversation/industry-insights/energy/a-trade-war-with-

china-over-solar-panels-will-burn-us;PatrickStafford,“AustralianSMEs

ripetobenefitfromrenewableenergypush,KPMGreportreveals”,Smart

Company(29May2012)http://www.smartcompany.com.au/resources-and-

energy/049931-australian-smes-ripe-to-benefit-from-renewable-energy-

push-kpmg-report-reveals.html.

122. AmosAikman,“Government’swithdrawalofsolarsubsidyscheme

leavesindustryintrouble”,The Australian (18August2011)http://www.

theaustralian.com.au/national-affairs/governments-withdrawal-of-solar-

subsidy-scheme-leaves-industry-in-trouble/story-fn59niix-1226117018314;

JamesMartinII,“SilexSolartooutsourcesolarcellproduction,modulesstill

tobeassembledinAustralia”,SolarChoice(30August2011)http://www.

solarchoice.net.au/blog/silex-solar-to-outsource-solar-cell-production-

modules-still-to-be-assembled-in-australia/.

123. “NavigatingtheValleyofDeath”Ernst & Young, (2010),Figure1,p19.

124.DanielPalmer,“SolarPV’snewdawnrising”,Climate Spectator(29May2012)

http://www.climatespectator.com.au/commentary/solar-pvs-new-dawn-

rising.

125.StefanLinderandMichelDiCapua,“Re-imaginingUSsolarfinancing”,

Bloomberg New Energy Finance (4June2012)Figure15www.bnef.com/

WhitePapers/download/84.

126.GilesParkinson,“TechFocus:Australia’snewexport–carboncontrols”,

RenewEconomy(13March2012)http://reneweconomy.com.au/2012/tech-

focus-australias-new-export-carbon-controls-45699;AustralianGovernment,

“CommercialBuildingDisclosure”(2010)http://www.cbd.gov.au/.

127. “TechnologyRoadmap:ConcentratingSolarPower,”International Energy

Association (2010).

128.KristerAanesen,StefanHeck,andDickonPinner,“Solarpower’snextshining”,

McKinsey&Company(April2012)http://www.mckinsey.com/Client_Service/

Sustainability/Latest_thinking/Solar_powers_next_shining.

129.USDepartmentofEnergy“SmartGrid:TheValuePropositionforConsumers”

(23October2008)http://www.nema.org/Policy/Energy/Smartgrid/

Documents/Assembled_Deck.pdf.

130. MattChambersandRickWallace,“Coalpricecrashdigsahugebudget

hole”,The Australian(14March2012)http://www.theaustralian.com.au/

business/mining-energy/coal-price-crash-digs-a-huge-budget-hole/story-

e6frg9df-1226298643045.

Laggard to Leader

Contents

8.1 Introduction 76

8.2 TheProblem:MoreFossilFuelsThanWeCanSafelyBurn 76

8.3 WhatShouldAustraliaDo? 77

8.4 WhatEffectWouldTheseActionsHave? 808.4.1 Australia’sMoratorium 808.4.2 BringingGlobalAttentiontotheIssue 81

8.5 FossilFuels:ReallyinAustralia’sNationalInterest? 828.5.1 Understated Risk: A Global Carbon Bubble? 828.5.2 OverstatedValue:TheMinorRoleofCoal 848.5.3 Further Research 85

References 86

Part 8Ending the Growth in Fossil Fuels: Australia’s Contribution

Laggard to LeaderPart 8: Ending the Growth in Fossil Fuels: Australia’s Contribution

76

This chapter hopes to stimulate much-needed publicdebate about the domestic and global implications ofAustralia’sextraordinaryinvestmentsinfossilfuelexportsduringthecriticaldecadeonclimatechange.Theinterestsof the Australian people can only be well-served by amorecompletediscussionofthecosts,benefitsandrisksof the coal and gas boom, and, consistent with this aim, BZE is undertaking deeper research into the structure of an Australian fossil fuel phase out — and the replacement ofexportrevenuewithzerocarbonproductsandservices.

8.2 The Problem: More Fossil Fuels Than We Can Safely Burn

The continued expansion of fossil fuels is incompatiblewith the preservation of a safe climate. In Chapter 2,we explained the size of the world’s remaining carbonbudget for a 2°C trajectory, and the extent to which that budgetwouldbeexceeded ifexisting fossil fuel reserveswere extracted and burned. To recap from Chapter 2, combustion of the world’s fossil fuel reserves wouldrelease3,500billiontonnesofCO2-e—enoughtoexceedtheworld’s 2°C carbon budget by around 8 times.Withnewdiscoveriesoccurringallthetime,eventhisdangerousover-abundanceoffossilfuelsisanunderestimate.

Australia’sreservesoffossilfuelsareasubstantialfractionof the global total:2

• 145 billion tonnes of potential CO2-e in currentlyeconomic coal and gas reserves — one third of theworld’s remaining fossil fuel carbon budget;

• 428 billion tonnes of potential CO2-e in recoverablecoal reserves (250billion tonnes fromblack coal, and178billiontonnesfrombrown)—aroundequaltotheworld’s remaining fossil fuel carbon budget.3

If we are to avoid severe climate changewell in excessof2°C,fossilfuelreserveswithinAustraliaandthewiderworldmustshareacommonfate:theymustbeleftintheground.

As discussed in Chapter 2, the current decade is widely regarded as “critical” (even, in fact, by the AustralianGovernment4)becauseoftheimplicationsofcurrentandnear-term decision-making for the prospects of a safeclimate. There are two reasons for this criticality. First,ifwedonot invertouremissions trajectory thisdecade,the challenge of keeping global temperature increases beneath2°Cwillbecomepracticallyimpossible.Secondly,because typical power stations have an operationallifespanofahalf-centuryormore,anynewhigh-emissionspower stations built today will continue to pollute formany decades.

Accordingly,inordertomeeteventheoverly-risky450ppm

8.1 Introduction

Australia’spotentialtoleadtheworldtowardtheessential goal of cheap and flexible renewableenergy presents an extraordinary opportunity to developworld-leadingAustralianindustriesanddecarbonise global energy supply. It would also pavethewayforAustraliatodrawinternationalattentiontotheothersideofthedecarbonisationcoin: phasing out fossil fuels.

This chapter highlights a stark reality at the heart of the world’s climate change problem: the world has far more fossil fuels than it can safely burn if we want to avoidcatastrophic climate change. Even Australian reservesalone can swallow up the entireworld’s carbon budget.Recognisingthat,atpresent,evenpresentingthisrealityasa problem for discussion is largely taboo both in Australia and the wider world, this chapter outlines a series of steps that our political leaders should take to put the issuesquarelyontheinternationalagenda.

It concludes that:• Australia, consistent with the need for it to decarbonise

rapidly as discussed in Chapter 6, should impose afederal moratorium on new fossil fuel developments— amove thatwould influence strategic calculationsaboutenergyinvestmentsinkeyemergingeconomies,during the“criticaldecade” inwhich fossil fuelpowerinfrastructure needs to avoid being “locked-in”. Forexample, an Australian moratorium would ensure that global coal prices are maintained at their current levels, rather than falling 20-30% below today’s levelas expected from 2015 to 20201 (a fall that wouldundermine attempts to slow investment in coal-firedinfrastructureduringthemostcriticalperiod).

• Australia, the world’s largest coal exporter and a major LNG exporter, is uniquely placed to focuspolitical attention on the need to move away fromfossilfuels.Leveragingitsexistingmarketpositionandits commitment to a moratorium, Australia should convene world leaders and prominent internationalexpertstodiscussoptionsfordecarbonisingtheglobalenergy system through the widespread deployment of renewableenergyandthephase-outoffossilfuels.

• Enacting a moratorium on fossil fuel developmentis in Australia’s interests, considering the obviousimplications of breakneck growth in our fossil fuelexportsforclimatechange(asdiscussedinChapter3,whereAustralia’sfootprintendsupas11%ofgloballyallowed emissions in 2030), and the growing numberofmainstreamvoices (Citibank,HSBC, IHSMcCloskey,and many others) that are warning of a fossil fuelinvestmentbubble—withsignificantconsequencesforthe Australian economy.


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Third, Australia should convene a high-level panel ofindependent experts from relevant fields to publish areportmakingthecaseforaglobalmoratoriumandphase-down of fossil fuels,within a timeline consistentwith aglobalcarbonbudgetforwarmingof2˚Cor less.Expertsshould be drawn from fields such as climate science,climatepolicy,energysystems,publichealth,internationalrelationsandotherfieldsrelevanttotheassessmentoftheimpacts of climate change and of fossil fuels. Their report should be widely publicised and promoted by Australia to theinternationalcommunity,includingthroughAustralia’smultilateral and bilateral diplomacy, and through publicdiplomacyinitiativestargetingcivilsocietywithincountriesthat are the key contributors to fossil fuel emissions. Australian has on numerous occasions done exactly this inthenuclearfieldtomakethecasefortheabolitionofnuclearweapons(seeBox8.2).

Fourth, following the publication and promotion of thereport, Australia should convene a summit of worldleaderstodiscussoptionstodecarbonisetheglobalenergysystem through the widespread deployment of renewable energyandthephase-outoffossil fuels.Recognisingtheinternational sensitivities associatedwith this issue, it isimportant that Australia emphasise: its intention for anopenandinclusivedialoguefromdevelopingcountryfossilfuel importers and exporters; its willingness to undertake therequiredactioninaninternationallyequitableway;theleadershipresponsibilitiesofdevelopedcountries;andtheessentialityofdevelopedcountryprovisionofassistancetodevelopingcountriesalongthelinesoutlinedinChapter6.

carbonbudget,globalinvestmentinfossilfuelgenerationneeds to decline to almost zero by 2020, with the vastmajorityofnew-buildenergy fromnowuntil thenbeingzero-carbon.

Given the global climate policy imperative (and thesignificant risks posed by depending on CCS technology,asdiscussedinChapter4),theonlysafepathistomovequickly to a world in which fossil fuel reserves remainunexploited.

8.3 What Should Australia Do?

Despite the urgent need to decarbonise the world’s economy,theideaofnotdevelopingtheworld’sremainingfossilfuelreserves,letalongphasingoutexistingusesoffossilfuels,isvirtually“unthinkable”formanyoftheworld’sinvestorsandgovernments.Australia, theworld’s largestcoalexporter,isuniquelyplacedtomaketheunthinkable,thinkable.Itisavexedandsensitiveissue,andwecannotpretendtohavealloftheanswers.Butbelow,weoutlinefour significant steps thatAustralia should take toput itfirmlyontheinternationalagenda.

First, Australia should publicly commit to a moratorium on new fossil fuel developments within Australia. Thisannouncement should bemade at the highest levels ofgovernmentandontheinternationalstage,forexample,bythePrimeMinisterataG-20meeting.Inthisdeclaration,Australia should indicate its strong commitment to work urgently at home and with other nations towards aworld beyond fossil fuels. The declaration of Australia’smoratorium on fossil fuel export development shouldbe framed as an important, concrete first step thatdemonstrates the seriousness of Australia’s commitment. Theextent towhich thiswouldattract immediateglobalattentioncannotbeoverstated.

Second, Australia should immediately follow through with its international commitment by implementing afederalmoratoriumonthedevelopmentofnewcoal,oiland gas deposits within Australia. Imposing moratoria onresourceexploitationissomethingAustraliahasdonenumerous times before. Australia’s policy regardinguranium developments, its ban on asbestos (see Box8.3),anditsgloballeadershiptobanmininginAntarctica(See Box 8.1) all reveal the potential for moratoria onresourcestogainpoliticalandsocialacceptancebecauseof overwhelming security, health and environmentalvalues.Therewillbeoutcryfromtheindustry,butnojobswillbelost.Concernoverreducedfutureearningsmustbetemperedbyrecognitionof therisksof investing furtherinaglobal“fossilfuelbubble”(asexploredinSection8.5)and the incompatibilityof the immenseexportsplannedby2030withasafeclimateoutcomethatthemajorityofAustralians want.


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Box8.1:ConservingtheEnvironment:SecuringaGlobalBanonMininginAntarctica

The establishment of a successful treaty to protect the Antarctic environment through a legal prohibition onmining stands as one of the proudest achievementsof Australian foreign policy in recent decades. It is also a powerful example of the potential for nationalenvironmentalactivismbyAustraliatobendthecourseofhistory towards resource conservation for thebenefitofhumankind and other species.

In response to increasing industry pressure to open up the Antarcticregiontomineralexplorationanddevelopmentinthelate1980s,thepartiestothe1959Antarctic Treaty5

adopted the Convention on the Regulation of Antarctic Mineral Resource Activities (CRAMRA) in June 1988.6The provisions of CRAMRA, while prescribing a strictregime of environmental regulation, ultimately envisageandpermit theopeningof theAntarcticenvironment tomining.PresentedwithajointrecommendationfromhisEnvironmentMinisterandAttorney-GeneralthatAustraliaratifyCRAMRA,thenPrimeMinisterBobHawkeexpressedgraveconcernsaboutthepotentialimplicationsofminingactivity for the region’s pristine natural environment.7Against the unanimous view of his cabinet colleagues,andcontrarytotheprevailingconsensusamongAntarcticnations,HawkerefusedtoallowhisGovernmenttoratifytheConvention.

Instead, Hawke launched a bold diplomatic initiativeto mobilise international support for an alternativeinternationallegalinstrumentthatwouldcomprehensivelyprotect the icy continent. Hawke convinced his Frenchcounterpart, Michel Rocard, to join Australia in refusing to ratify CRAMRA, thus precluding its entry into force,8

and the two nations spearheaded the development ofthealternativeagreement.On4October1991inMadrid,Spain,23ofthethen26consultativepartiestotheAntarcticTreatysignedtheAntarcticEnvironmentalProtocolanditsfourAnnexes,whichestablisheda50yearmoratoriumonAntarcticmineralresourceactivitiescommencingfromtheProtocol’sentryintoforceon14January1998.

TheProtocol’soverarchingobjectiveisthecomprehensiveprotection of the Antarctic Environment and dependentandassociatedecosystems,basedontheconvictionthatsuchagoalis“intheinterestofmankindasawhole”.9 It designates Antarctica as a “natural reserve, devoted topeace and science” and declares, in unqualified terms,that “[a]ny activity relating to mineral resources, otherthanscientificresearch,shallbeprohibited”.10Inadditiontothe50yearminingban, theProtocolprovides for theconservationofAntarcticfloraandfauna,theminimisationand management of waste, the prevention of marinepollution and the protection of “special areas” of thecontinent.AccordingtoProfessorsSandsandPeel,authorsofaleadingtextbookoninternationalenvironmentallaw,the Madrid Protocol and its Annexes “comprise the most comprehensive and stringent regime of environmentalprotectionruleseverestablishedundertherulesofpublicinternationallawanywhereintheworld”.11

InHawke’sview,theconservationofAntarcticaleftalegacyforfuturegenerationsandshowedthat“itwasnotbeyondthe powers of one or two people to change something that waswrong”.12 It is a legacy Hawke’s political successorsare equally proud to uphold. In an article published byTheAgeaheadof the35thAntarcticTreatyConsultativeMeetinginHobartinJune2012,ForeignMinisterBobCarrandEnvironmentMinisterTonyBurke invokedAustralia’s“globalcampaigntopreserveAntarctica”,placingHawke’sachievementsintheearly1990swithinalongertraditionofAustralianAntarctic leadershipdatingbacktoDouglasMawson’sheroic1911-1914Antarcticjourney:13

Today, as in 1911, Australia is a leading Antarctic nation... Through our scientific endeavours and international collaboration in Antarctica, we strive to understand our planet and our relationship with it. So what would Douglas Mawson make of it all? He would recognise in Australia’s modern Antarctic endeavours many elements of his legacy that resonate through the years, especially a dedication to scientific excellence and a willingness to lead from the front in Antarctica. It’s a proud legacy and one in which all Australians should take pride.

Box8.2:InternationalSecurity:RestrictingtheUseandProliferationofWeaponsofMassDestruction

Australia is widely recognised as a global leader for its efforts to improve international peace and securitythrough restricting the use and proliferation of nuclearweaponsandotherweaponsofmassdestruction.

Despitehavingnonuclearweaponsandnotsubjecttoan

imminent threat of nuclear attack, successive AustralianGovernments have prioritised nuclear disarmament andnon-proliferationasaforeignpolicyandnationalsecurityissue—andwehavepunchedwellaboveourweightontheworlddiplomaticstage.14

After a period in the 1960s and 70s inwhich Australiangovernmentsvacillatedoverwhethertoacquireanucleararsenal,theHawkeGovernmentusheredinaneweraofAustraliancommitmenttonucleardisarmamentandnon-


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proliferationinthe1980s.Duringthisperiod,Australialedthe way in developing the influential Raratonga Treaty, which created a nuclear free zone in the South Pacific.Extending over a vast area, the South Pacific15 nuclear freezonehasbeensuccessfulat limitingthespreadanduse of nuclear weapons within the region following years of extensive testing of nuclear weapons. In the contextof intractable international nuclear disarmament andnon-proliferation negotiations at the time, this was aninnovative concept that inspired the establishment ofsubsequent nuclear free zones among countries in theregions of South East Asia,16 Africa17 and Central Asia.18

Australia’s determined diplomacy on weapons of mass destruction continued throughout the 1980s and 90s.PersistentandcreativeAustralianarmscontrol initiativesinthisperiodwereinstrumentalinachievinginternationalagreement to the Chemical Weapons Convention in 1992. Important Australian interventions included theestablishment of international and industry-focusedstakeholder groups to address chemical weapons issues and foster cooperative action.19 Most crucially, to help breakthegridlockedmultilateralnegotiationsonthetextof the ultimate Convention, Australia took it upon itselfto prepare a complete draft text of the Convention textthat attempted to provide acceptable resolutions to allof the issues in dispute. Leading Australian arms control expert,ProfessorTimMcCormack,reflectedasfollowsonAustralia’s role:20

It is now clear that the negotiations would not have concluded in 1992 without the Australian initiative and Australia has justifiably received international acknowledgments for its efforts. The response of the members of the UN Conference on Disarmament and the references [to Australia’s influential efforts] by representatives at the signing ceremony in Paris reflect something of the standing Australia has attained internationally not only for the initiative of the draft Convention text but also for other contributions to the non-proliferation and disarmament of chemical weapons.

In1995,theKeatingGovernmentestablishedtheCanberraCommission on the Elimination of Nuclear Weapons.Sidestepping the time-consuming and bureaucraticmultilateralnegotiationprocess,theCanberraCommissionconvenedaselectgroupofauthoritativeandindependentexpertstoprepareareportthatwouldadvancetheagendaof eliminating nuclear weapons.21 Directly confrontingthe arguments in favour of nuclear arsenals, the Reportsoughttoreinforceandconsolidatetheviewthatnuclearweaponsposedanunacceptablerisktotheinternationalcommunity. Although this was not a new idea, the idea wastoprovideanauthoritativeplatformforthispositionattheinternationallevelandtomovethedebateforwarddespite the failings of multilateral negotiations. As PaulKeatingdescribedit,“everycountrywasdirectlyaffected

by the nuclear threat, but nothing could happen without thefivenuclearpowers.Wedecided,therefore,thatthemost useful thing we could do was to try to shape the internationaldebate.”22

The finished report was handed to the AustralianGovernment,whichinturnpromotedittotheinternationalcommunityandsubmittedittotheUNGeneralAssemblyand the UN Conference on Disarmament.23 A creativeexerciseininternationalnorm-building,thereporthadanimmediateeffect,transformingtheinternationaldebateonnuclearweaponsfromoneof“reduction”to“elimination”.It served as the catalyst for, andwas incorporated into,subsequent reports by awide range of other influentialbodies,includingtheUSNationalAcademyofSciences.24 A number of other States also publicly adopted the report’s key findings. Most influentially, a small group of like-mindedgovernmentscallingthemselvestheNewAgendaCoalition, led by Ireland and New Zealand,25 released a declarationin1998thatdirectlysupportedtheconclusionsoftheCanberraCommissionandservedasthebasisforaUNGeneralAssemblyresolutionadoptedlaterthatyear.26

In the same period as the Canberra Commission released its report, the Howard Government requested that theUNGeneralAssemblyrefocusitsattentiononestablishinga Comprehensive Nuclear Test-Ban Treaty (CTBT) andsubmitted a draft treaty to that effect. The GeneralAssembly adopted the CTBT on 10 September 1996.27 AndadecadelatertheRuddGovernmentestablishedtheInternational Commission on Nuclear Non-ProliferationandDisarmament(ICNND)on9July2008.AjointinitiativewiththeGovernmentofJapan,thereportsetoutafurtherseries of policy steps and guidelines for bringing about the eliminationofnuclearweapons.While theCTBThasnotyet entered in to force due to a failure of the necessary numberofcountries toratify itand it is tooearly to telltheimpactoftheICNNDReport,theseinitiativesprovidesfurtherevidenceofAustralia’sbipartisanpreparednesstoplaya leadershiproleonacomplexmatterof long-term,global importance.


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8.4 WhatEffectWouldTheseActionsHave?

8.4.1 Australia’s Moratorium

Australia’smoratoriumonnewdevelopmentswouldhavea significant effect on international energymarkets andtheenergycalculationsofcoalandgasimporters.

It is frequently argued that, despite the climateimplications,Australiashouldcontinuetoexportcoalandgas because there is a growing demand which someone else will supply if Australia doesn’t.28 The first problemwiththisargument—sometimesreferredtoasthe“dopedealer’s defence” — is that it is morally bankrupt. ThesamelogiccouldbeappliedtojustifyAustraliaexportinguranium to North Korea or asbestos to Africa, for example. Eventhoughthereisamarketforuraniumweapplystrictcontrolstoitsexport,andalthoughthereisstillalegalandprofitable export market for asbestos in the developingworld, Australia has banned its manufacture and export (seeBox8.3).

More to the point for present purposes, the argument doesnotreflectindustryrealities.

Australia’s projected coal and gas export growth is so large,andnewprojectstakesolongtobuildinpotentialalternative exporter countries, that the slack leftoverfrom an Australian moratorium cannot be taken up by other countries for many years. The Waterberg mine in SouthAfrica,forexample,willtakeatotalof12-15yearsfromtheapplicationforaminingpermit(in2008)tothecommencementoffullproductivity(in2020-2023).40 It is typicalforcoalminestotakeasmuchas10yearsbeforeachievingapositivecashflow.41

As for those nations that are currently increasing theircoal exports, they are doing so with Australia’s plans for export expansion inmind; no nation or investor hasforeseen the absence of Australian export growth. Other nations currently developing their coal export capacity,such as Indonesia and Columbia, lack the infrastructure of rail and ports to quickly meet potential demandand are themselves beginning to apply more stringentrequirements on investors,42 while the United States is facing growing internal resistance to increasing coal

Box8.3:ProtectingHumanHealth:LeadingGlobalEffortstoBanAsbestos

The struggle to eliminate asbestos provides a furtherexample of Australia’s willingness to lead global effortstobanharmful industrialactivities—albeit, inthiscase,a leadership role that was embraced too late for many workersaffectedbytheindustry.

Yet, despite the well-established dangers of asbestos,29 thereremainsasignificantglobalmarketfortheproductand it is not the subject of any global ban. More than 2 million tonnes of asbestos is produced each year, primarily forconsumptioninthedevelopingworld,withthesevenlargest producers — Russia, China, Kazakhstan, Brazil,Canada,ZimbabweandColombia—responsiblefor96%of production.30Owing to the determinedopposition ofasbestos mining and manufacturing countries, asbestos is not included on the list of materials subject to the Rotterdam Convention,31 the purpose of which is to protect developing countries from the importationof hazardouschemicals by ensuring their prior and informed consent.32

InAustralia,themanufacturing,tradeandimportationofasbestoshavebeenbannedsince2003.33 But the ban was a long time coming; the history of asbestos in Australiaillustratesthepotentialforpowerfulindustrieswithvestedinterests to delay the development of such principled,science-based regulatory regimes by lawmakers — atgreathumancost.Even thoughmanyof thehealth risksof asbestoswere known since the 1890s,34 it took untilaround the mid 1960s, with the New York Academy of

Sciences conference, Biological Effects of Asbestos, before thehealth risksbecamewidely acceptedanddifficult todeny.35 Regardless of this overwhelming evidence, theindustrycontinuedtogrowfromaround2milliontonnesofasbestosproducedannuallyin1960,toroughly5milliontonnes at its peak twenty years later.36

SuccessiveAustraliangovernmentswereslowtoactontheproblem of asbestos and Australia’s last mine at Woodsreef in NSW closed as late as 1983.37Withnational incidencerates for mesothelioma in Australia among the highest in the world,38 Australia has learned the hard way the folly of complacencyinthefaceofevidentpublicdangerandnowpositionsitselfasagloballeaderontheissue.

Asbestos was named as a priority area at the Australian Labor Party National Conference in the first week ofDecember 2011, at which then foreign minister KevinRuddmoved a motion on the subject. The motion wassuccessful and the ALP National Platform now states(emphasisadded)that:39

Labor recognises the impact of asbestos on the health of those who are exposed to it and the legacy that it will leave, particularly on vulnerable people in the developing world where asbestos is still used. Labor will lead international calls for a global treaty to ban the use of and trade in asbestos and will lead diplomatic efforts on this front including convening a Global Alliance against the Asbestos Hazard Conference in Australia.


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exports thatmay retard its ability to divert its domesticreserves to export (the City of Seattle, for example, hasbannedthepassageofcoaldestinedforexportterminalsthrough its streets43).44

What would be the effect of halting Australian exportgrowth?

For context, international coal markets are currentlyentering a period of oversupply due to a range ofinfluences:lowerdemandthanexpectedfromChina,theUSunconventionalgasboom,andalargenumberofnewmines coming online. This oversupply negatively affectsthevalueofAustraliancoalprojects(asexploredinSection8.5 on the national interest), but more importantly forthe issue at hand it will make addressing climate change substantiallymoredifficult.Oversupplymeanspriceswilldrop.Indeed,theAustralianGovernmenthasforecastthatprices will decline to around 70% of present values formost of this decade — and this was before recent data on reduced demand growth in China emerged.45

Crucially, the years during which coal prices are expected to fallarelikelytobethemostimportantonesforpreservinga safe climate. Not only will these years span the remainder of the “critical decade”, but they are important yearsfor key developing country importers such as China andIndia, who are currently making strategic decisions about long-term investments in energy infrastructure.46 Many oftoday’sproposedcoalpowerstationprojectsareonaknife-edgeduetorisksassociatedwiththefuturepriceofcoal,concernaboutclimatechangeand increasinglystiffcompetitionfromrenewableenergy(seeBox8.6onIndia)–butreducedcoalpriceswouldagainmakecoalanall-too-attractivedevelopmentoption.AnAustralianwithdrawalof anticipated supply would contribute significantly tomaintaining prices at current levels, causing a collapse in the viability of coal in the eyesofmanydeveloping anddevelopedcountryimporters.47

While our share of the global LNG trade is not currently as large, we are on track to be the world’s largest LNG exporter thanks to the sector’s rapid growth in Australia. Not allowing any new projects would have a significantimpact on the viability of gas as a “transition fuel” (seeChapter 4) and further boost the business case forrenewables in key export markets.

Finally, the symbolic impact of the world’s top coal exporter and fastest growing LNG exporter exiting thefossil fuel business should not be underestimated. Evenunilateral action by Australia would set an extremelypowerful example to other countries. For the world to lose a fossil fuel export superpower and gain a new champion of cooperative, bottom-up decarbonisation wouldundoubtedlyinspireactionfromothercountries.

Crucially, it would also serve to heighten the alreadybuilding perceptionof risk forwould-be investors in thecoal industry: if Australia can abandon coal and gas, who next?Thatperceptionwouldprovideaconstructivecounterpoint to the message implicit in our current approachto fossil fuelexports,whichdiscouragesactiononclimatechangeinthenameofshort-termself-interest.

8.4.2 BringingGlobalAttentiontotheIssue

The symbolic and practical impact of an Australianmoratorium would be greatly enhanced by the other international actions we propose, above. Even thesepreliminarysteps,backedbyAustralia’sfirmactions,wouldmakeimportantcontributionstowardbuildingconsensusamongnationsregardingthedecarbonisationoftheglobalenergy system.

Thearticulationofavision,goalsandprinciplesbypoliticalleaders can play an important role in building consensus onpolicydirections,andmobilisingpoliticalconstituencieswithin and across countries to garner support for deeper forms of cooperation and commitment towards thosegoals.48 Similarly, international dialogue and informationexchangebetweenexpertsandpoliticalleaders—facilitatedthroughconferences,meetingsand less formalnetworks— can catalyse the establishment and disseminationof new ideas and solutions to an international problem,helpingtobuildnewnorms(seeBox8.4).49 For example, high-levelinterventionsbypoliticalleadersandrespectedexpertsatimportanttimeshaveservedtodrawattentionto,andrefocus internationalnegotiatingeffortstowards,issuessuchasreducingnucleararsenals(seeBox8.2).50

Box8.4:ThePowerofInternationalNorms

Ininternationalpolitics,normscanbeextremelypowerfulforcesshapingtheactionsofstatesandnon-stateactors.Forexample,normsexist thatprohibitslavery,genocide,piracy, the testing of nuclear weapons, the use of landmines and cluster bombs, and the mining and sale of certain products.51 Some norms are legally binding, others arenot.Normscanbeparticularlypowerfulwhencodifiedintorulesandlaws,andevenmoresowhenconsequencesprescribed for their breach are capable of being enforced by legitimate institutions, be it domestically orinternationally.Butnormsareintrinsicallypowerful—theyhaveaneffectseparatelyfromandinadditiontoanylegalor institutionalmechanismswhichmay exist to supporttheir implementation — because they define standardsperceivedtobe“normal”orappropriateandinsodoingexert moral pressure on actors to conform.52


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8.5 Fossil Fuels: Really in Australia’s NationalInterest?

It is fair to say that Australia’s national interest can beidentifiedwiththelong-termprosperityandwell-beingofAustralian citizens, present and future.Most Australiansdesire a world without catastrophic climate change — a worldinwhichwehavereliableaccesstofood,waterandsecurity,andtrustinthesafetyofthenextgeneration.Suchafuturecannotexistwithoutaninternationalcommunitythat is able to work cooperatively and meet seriouscollectivethreats—betheyenvironmental,humanitarianor economic. Australian leadership of the type we argue for in this paper represents a step towards building the trust andcredibilitythatallowsglobalcooperationtooccur.

Nonetheless, the national interest is typically framed inmore narrow economic terms, with an emphasis on short andmedium-termimpactsuponjobsandthecostofliving.Inoneoftheworld’swealthiestnations,constructingthenationalinterestsuchthatweavoidsmallexpensestodayattheriskofcatastrophicharmtomorrowisclearlyshort-sighted. Yet Australians are understandably concerned thattheeliminationofthefossilfuelexportindustrymayadverselyaffecttheirdailylives.

Thelinkbetweenthefossilfuelindustryandthenationalinterest, even when constructed around short-termeconomic dynamics, has been seriously overstated. Themost important shortcoming of the national fossil fueldiscussion is that its boundaries have been restrictedto business-as-usual forecasts. Under scenarios wherecoal demand falls short of current expectations (lookingincreasinglylikely),theresultingcoaloversupplywillboth

damage Australia’s wealth and slow the pace at which climate change can be addressed. Similarly, scenarios where we phase out coal exports — beginning with thermal coal sent to developed markets — need to bemodelled,withfairtreatmentoftheeconomicbenefitsofhaltingthegrowthofthecoalindustry.

8.5.1 Understated Risk: A Global Carbon Bubble?

TheanalyticalteamatCiti,theworld’slargestinvestmentbank, reassessed the value of Australian fossil fuelcompanies under the assumption that the worldsuccessfully takes action to limit climate change to 2˚C.Under these conditions, Coal & Allied loses 44% of itspresentvalue,whileWoodsideloses66%.58HSBCanalysisproducessimilarresults:NickRobins,theheadofHSBC’sClimate Change Centre of Excellence in London, has warned,“We’restillpricing[companiesintheextractivessector] as if they are all going to be exploited ... This is a particular concern for the UK as our stock market isoverweightfossilfuels”.59

The stock exchanges of Australia, London, Moscow, Sao Paulo, and Toronto are all estimated to have 20-30% oftheirmarketcapitalisationconnectedtofossilfuels.60Justasirresponsibleinvestmentsintosub-primemortgagessetoffthefinancialcrisis,irresponsibleinvestmentsintowhatarebeingcalled“sub-primefossilfuelassets”areinflatingacarbonbubblethatmaytriggeranotherfinancialcrisis.61

This isaperversearrangement: livelihoods,communitiesand pension funds are being built around resources whose valuecanonlybefaithfullysaidtoexistifweassumethatwe will fail to address climate change. If, on the other hand, we successfully address climate change, the bubble

Box 8.5: Australia’s Fossil Fuel Obsession

Ifnationalindustryprioritiescanbereadfromgovernmentspending,thenfortheAustralianGovernmenttheminingindustryisnationalprioritynumberone.Miningsubsidiesfor rail and port infrastructure, and the use of diesel, reach around AU$4 billion each year53 (some 20 timeswhat climate change programs have generally receivedforthepastdecade);environmentalapprovalsformininginfrastructure are fast-tracked; and communities in thewayof coalminingprojects havebeendislocated in thename of “national interest” projects.54 More recently in theCleanEnergyFuturepackage,billionsincompensationhasbeengiftedto‘gassy’mines,typicallythemostcarbon-intensive due to the fugitive methane emissions theyrelease.55

TheLNGindustryhasbeensimilarlyofferedtheredcarpet,provoking a backlash among many local communities

affected by coal seam gas developments. And today, agrowing number of ports are being constructed along the Queensland coast to provide millions of tonnes ofcoal and LNG to ships passing through the Great Barrier Reef — cause enough for concern that the UN released a“scathing”reportinJune2012,declaringthatAustraliahas failed to protect the reef with an incredible 35 projects scheduled for approval in 2013.56 The World HeritageCommittee is now discussing whether the Great BarrierReef will be added to the list of world heritage sites “in danger”—theso-calledan international“listofshame”—becauseofitscondition.57

The fossil fuel extractive industry has somehowbecomeviewedasaproxyforAustralia’snationalinterest,worthyof vast public subsidies, regulatory fast-tracking and thedestruction of national icons. As section 8.5.1 explores,thismayprovetobeaverycostlynotion.


83

will burst. In the words of Lord Nicholas Stern:62

“This contradiction is important. It means that the market has either not thought hard enough about the issue or thinks that governments will not do very much — or somewhere between the two. This presents problems for markets’ assessment of risk; for governments’ credibility; and for regulators, whose approach appears to contradict their own governments’ policies.

This argument makes no prediction of where the world may go. It points to a logical contradiction between what many governments are saying and what markets appear to believe — implying severe risks both to the markets themselves and to the environments that shape lives and livelihoods across the world.”

There are increasing signs that the bubble is already becoming unsustainable. Growth in coal demand is set to fallwell shortof industryexpectations (seeBox8.6).Yetcelebratingthisfromaclimatechangeperspectivewouldbepremature:conditionsoflowerthanexpectedgrowthin coal demand will cause global coal oversupply, andresult in coal prices crashing.

Thiswouldhavetwoeffects:• DamagetheAustralianeconomyinproportiontoour

continued investment in the carbon bubble. Recent analysis fromgroups such as IHSMcCloskey indicatesthatevenontheshort-termpricesmayfalllowenoughthat many Australian projects will become unviable.“It’s an unrelenting oversupply story for the foreseeable future” says Bruce Jacques of IHS McCloskey.“Everybody’sgettingthefeelingthere’sbetterplacestolook.’’63

• Increase the economic incentive for countries toreturn to building coal power stations. Without a binding international agreement in place, supply anddemandwillremaintrappedinlock-step.Onlyasteadywithdrawal of supply (or withdrawal of “expectedgrowth”throughamoratorium intheshort-term)canensurethatoversupplyisavoidedandpricesremainatleastatpresentlevels.

Inotherwords,itisunwisetoinvestfurtherinanindustrythat is both (A) dangerous for the future prosperity ofAustralia and the wider world and (B) already headingforoversupply.Todosobringsseriousrisksontheshort,mediumandlong-term,withfewclearbenefits.

Box8.6:PoppingtheCoalBubble:ChineseandIndian Coal Demand

China and India are expected to be the major growth markets for Australian coal exports, with current trends suggestingthattotalChinesedemandforcoalwillballoonfrom3.5billiontonnestodayto5.5billiontonnesin2020,and7.5billiontonnes(equaltoaroundallthecoalusedbyallnationsintheworldtoday64)by2030.65

Times appear to be changing. Earlier this year China announcedthat,aspartofitscurrentfive-yearplan,itwillcap 2015 coal consumptionat amaximumof 4.1 billiontonnes.66 It plans to keep its energy consumption tobelow5billiontonnesofcoalequivalentby2030,throughextensiveuseofenergyefficiency(notethat,givenotherfuels and energy sources are counted in this measure of “coalequivalent”,thismeansusingsubstantiallylessthan5billion tonnesof coal).67 The city of Beijing has set an evenmoreambitioustarget,cappingenergyconsumptionat90million tonnesofcoalequivalentandreducing thecity’sactualuseofcoalto20milliontonnes,by2015.68

Professor Ross Garnaut recently told an economics conference in Melbourne that ‘’Coal use [in China]has hardly increased at all despite the growth in the economy...That’scontributingtoasurplusofcoalinChinaandinternationally,andputtingbigdownwardpressureonprices,withimplicationsforAustralia.’’69

Coal industry expectations of India may meet similardisappointments. India is expected to become the world’s topcoal importer,withasmuchas57%of its long-termcoal needs to come from imports. But the Indian coal industry is being slowed by widespread protests against powerstations71andcoalimportpricevolatility–whichhavebeensevereenoughthatIndianbankshavewarnedof a coal-driven financial crisis.72 Tata Group, India’s largest power company (and indeed largest company ofanytype,accountingfor5%ofthecountry’sGDP)hassaidcoal-fired power stations have become “impossible” todevelop.“Whywouldanyonewanttoinvestatthisstageinacoalproject?”saysTataPowerExecutiveDirector,S.Padmanabhan. “Investment has stopped”.73 Tata’s Chief Financial Officer recently indicated that all plans for importedcoalpowerstationprojectshadbeenshelved.74

While coal is perceived as increasingly problematic,alternative technologies are rapidly becoming cost-competitive.Inthelastthreemonths,thegovernmentsofIndia,ChinaandtheUSallpredictedthatthecostofutility-scalesolarwill fallbelowthatofeithercoal-firedorgas-firedgenerationbytheendofthedecade.InIndia,becauseof its reliance on costly imports and poor infrastructure, it couldcomeasearlyas2016.


84

8.5.2 OverstatedValue:TheMinorRoleofCoal

Miningemploysonly2%ofAustralians.BZEtakesnoissuewith the bulk of Australian mining, which provides themetals from which wind turbines and solar thermal towers aremade. It is only the small fraction ofmining that isresponsibleforsome800milliontonnesofCO2-e incoalandgasexportsthatmusthavenofutureinAustralia.

Coalminingemploysjust0.3%—orsome25timesfewerpeoplethanAustralianmanufacturing.Theprofitsofthemining industry may be enormous, but more than 80%endupoverseasand sohave little tono local economicvalueforAustralia.75EventhoseprofitsthatdostaywithinAustralia end up concentrated in very fewhands,whichlargely explains the rapid growth Australia has seen in the numberofso-called“ultra-rich”mining landholdersoverthe past few years.

The usual story told about mining wealth is that, while it may be concentrated in the hands of mining workers and magnates,it“tricklesdown”intotherestoftheeconomyand brings prosperity to all Australians.76 This is the storyofhowminingsavedtheAustralianeconomyintherecession.77Accordingtothe2001-2011TreasurySecretaryKenHenry,however,miningdidnot“saveAustraliafromrecession”.78AsHenryexplainedtotheSenateCommittee,“it is true that Australia avoided a recession, but theAustralian mining industry actually experienced quite adeeprecession—inthefirstsixmonthsof2009 itshed15percentof itsworkers.Mining investmentcollapsed,miningoutput collapsed.”79Bydefinition, industries thatcollapse and shed workers contribute to the recession, and arenotthesaviour.

More recently, the surprisingly large interest rate cuts of0.5points from theReserveBankofAustralia inMay2012wereinfactpartlyaresponsetothefailureofminingincometoflowintothebroadereconomy.80 The absence of“trickledown” ispartlybecause the industryemploysso few people, and partly due to increased leakage of mininginvestmentintoimports.Largeamountsofmininginvestment dollars end up overseas because they areusedtopurchaseequipmentfromothernations—partlybecausetherulesthatinvestorshavebeenofferedforsomemines,someofwhichrequiredthat50%ofconstructionvaluewassourcedfromChina.81Somewell-knownminingmagnatesareevensourcingworkersfromoverseas.82 Gina Rinehart’sHancockProspectingrecentlywonapprovaltobringin1700foreignworkersfortheRoyHillmine,83 and six more resource companies are to follow.84Suchmovesmay accelerate project development and further boostprofits formining investors,buttheyalsofurtherreducethetrickle-downintotherestoftheeconomy.

The “two-speed economy” is another well-known side-effectoftheconcentratedwealthgeneratedbyindustrieslikecoalmining—andisexpectedtogointo“overdrive”over the next few years.85 Because the pipeline of investment for mining is so large and so economicallyprofitableforitsinvestors,itdrawsinvestmentandlabouraway from other sectors of the economy and from crucial public infrastructure upgrades.86 The hugely profitablemining project pipeline drives up the Australian dollar,makinginvestmentininfrastructureprojectsandindustrieswithmoremodestreturnslessattractive,andmanyotherexport industries — which Australia needs to maintain valueandjobsonthelong-term—nolongerviable.87

The “China First”mine’sowneconomic analysis showedthat Queensland would lose 3000 jobs and AU$1.25billion in manufacturing activity, that small-to-mediumenterprisesandnon-miningworkerswouldstrugglewithinflation, and affordability would decline. The benefitswould be concentrated upon those working in (andpredominantlythoseinvestingin)theChinaFirstmine.88

Insum,wehavealitanyofgoodreasonstohaltgrowthoftheindustry:toavoidfurthersinkingAustralianwealthintoariskyandmorallyhazardouscarbonbubble;tocounterglobaloversupplyandaffect thecalculusbeingmadebywould-be coal investors; and to reinvestourwealth intoindustriesthatwillprovideAustraliawithvalueinthelong-term.


85

8.5.3 Further Research

Replacement of fossil fuel industries in Australia is a significant challenge that will require detailed analysisbeyondthescopeofthispaper.Theintentionofthispaperis to flag a number of realities that have not received sufficient attention in mainstream discussions of Australia’s future: that fossil fuel industries are incompatible withthe safe climate Australians desire; that the economic risks created by the fuelling of “carbon bubbles” areincreasingly regarded as dangerous by mainstream banks; andthatmainstreamforecastsofcleantechmarketvaluesuggeststhatAustraliaisnotinvestingintheareasthatwillsecureprosperity—environmentalandfinancial—inthelong-term.

The Zero Carbon Australia Project will be undertaking a detailed plan to show how Australian fossil fuel income can be replaced by zero carbon industries, turningAustralia from a fossil fuel giant into a “renewable energy superpower”. The “Renewable Energy Superpower”plan will provide more detailed analysis of how anAustralian renewable energy product and service exportstrategy, and a phase-out of fossil fuel industries, canbest be orchestrated. For now, with full confidence, weadvocate amoratoriumon fossil fuel extractionprojectsand implementation of the Chapter 7 recommendationsfor establishing Australia as a leader in zero carbontechnologies,servicesandinnovation.


86

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88

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Laggard to Leader

Part 9Conclusion

Laggard to LeaderPart 9: Conclusion

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By contrast, we have shown how a wide range of Australian actions relating to renewable energy and fossil fuels could dramatically reduce emissions, shift the energy calculations of rapidly industrialising countries and start to build international consensus about the need to phase out fossil fuels. At the very least, these actions would shift the odds closer toward a sufficient global response to preserve a safe climate.

It is this material influence our actions will have on the probabilities of sufficient climate action that provides the greatest justification for Australian leadership, and against business as usual. Yet, tragically, this calculus is rarely factored-in to current debates about Australia’s policy choices; it remains buried under a suffocating blanket of tired incantations about our inability to make a difference. This report will have achieved much of its aim if future debates about Australia’s choices in the critical decade are predicated on an understanding that our actions do have global implications; that we do matter.

Of course, the benefits to Australia of leading the world in Cooperative Decarbonisation extend well beyond improving the chances of avoiding the impacts of climate change. There are good reasons to think that the measures we propose in this report would result in a healthier, more equitable, less environmentally destructive, more economically prosperous and more internationally respected nation. A strong case can be made that these benefits outweigh the costs of Australian leadership.

Leadership in world affairs is, however, about much more than the dispassionate weighing of costs and benefits. Indeed, BZE’s case for Australian leadership rests on a convergence of both national interest and ethical responsibility grounds. In Chapter 5 we explained why Australia’s approach to climate change should be anchored in a new paradigm of Cooperative Decarbonisation. In Chapter 6, we showed that in the case of Australia, which is already emitting way above its fair share of global emissions, there is a great responsibility to lead. This responsibility derives not only from our high past and current emissions and our relative wealth, but from our special capabilities to contribute to the global decarbonisation task.

Global leadership, it turns out, is something we’re pretty good at — and widely known for in other contexts. Whereas many countries would recoil at the thought of being an international leader, Australia has often relished the challenge. And we have not only done so when our vital or immediate interests were at stake. Indeed, on many occasions throughout our history, Australian governments have looked beyond the next election cycle — beyond even the next generation — and opted for the more difficult, but ultimately right, course of action. In a series of case studies presented through the final chapters, we highlighted a number of such occasions — moments in our history of which Australians can rightly be proud.

In the months leading up to the 1990 federal election, Liberal Party opposition leader Andrew Peacock made a commitment to reduce Australia’s domestic greenhouse gas emissions by 20% by the year 2000. “The choice available to future generations depends entirely on the decisions we make today,” he said in his Millennium Address. “If we foul up, our children pay the price”.1

Over the 22 years that have since passed, Australia’s fossil fuel emissions have risen by 44%,2 and the decarbonisation task before us has become that much harder. Yet still Australia wrestles with the temptation to delay, to abrogate responsibility, and to decide that its children really ought to pay the price.

This hesitation is not without cause. Australians are told constantly that the task of decarbonisation is technically unattainable; that escape from fossil fuels is an illusion; that even the most insignificant costs are unmanageable and will spell the end of Australia’s prosperity; and that Australian leadership would be a meaningless gesture with no real impact.

While Australia waits for other countries to find solutions in the critical decade, our governments and industries are busy betting on failure. By enabling such extraordinary growth in coal and gas exports, Australia is catapulting humanity towards the limits of a safe carbon budget while deepening our dependence on industries whose national benefits are overstated and costs under-appreciated.

This report has shown that we can make a better bet. By decarbonising our domestic economy, leading global efforts to develop and deploy zero carbon technologies, foreswearing new coal and gas developments and putting the phase-out of fossil fuels squarely on the international agenda, Australia can place its chips squarely behind efforts to restore a safe climate. Critically, we have shown that Australia cannot remain neutral: whether we choose to continue on a path to exporting almost twice as much CO2 as Saudi Arabia or decide to accelerate the global transition to renewable energy, our actions will materially change the odds.

Under business as usual, the continuation of Australia’s already high domestic emissions and the massive growth in our exported emissions will chew up an exorbitant proportion of the world’s remaining carbon budget. It is difficult to imagine a scenario where this course of action does not virtually guarantee that world temperatures are pushed to dangerous levels — an outcome that would be devastating for all Australians and fatal to countless people around the world, especially the poorest.

Laggard to LeaderPart 9: Conclusion

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be left behind; warning us that we may not succeed; but reminding us that history would judge us harshly if we did not even try.

We can imagine it — and this report shows how that vision can be put into practice.

It’s time for Australia to stop fuelling the problem. It’s time to stop making excuses. It’s time to stop pretending we can’t have an impact.

It’s time to lead.

But each of these historical triumphs of Australian leadership could have turned out differently had a more conservative attitude prevailed. Prime Minister Hawke could have accepted the advice of his cabinet and ratified the Antarctic mineral resources convention, paving the way for a new growth industry in Antarctic mining. Today, Australian mining companies could have been earning billions in additional profits from the exploitation of Antarctic mineral resources. Likewise, we could have sought to exploit our remaining stocks of asbestos, selling into the market of willing buyers in the developing world while waiting for other countries to agree on an international solution. “After all”, we could well have said, “if we don’t supply the demand, other countries will simply fill the gap”.

We could have waited on the sidelines of the seemingly intractable negotiations over nuclear and chemical weapons, blaming the great powers for their intransigence and shrugging our shoulders because we thought ourselves too insignificant to make a difference. And we could have sat idly by as Cambodia was ravaged by conflict, content in the knowledge that our security interests were not immediately threatened and with an eye to the dollars we could have saved by keeping our troops at home and our diplomats in Canberra.

What was it that our leaders mustered when confronted by each of these challenges that is so lacking when it comes to climate change?

In a speech given in 2009, then Australian Foreign Minister Stephen Smith made a telling observation about Australia’s efforts toward nuclear disarmament. The reason for Australia’s leadership, he explained, “lies in the Government’s approach to Australia’s role in the world, how seriously we take the threats posed by nuclear weapons and nuclear proliferation, and how strong our ambition is for the ultimate abolition of nuclear weapons”.3 Amid all the arguments about interests, costs, benefits and responsibilities in international affairs, Smith’s remark invokes a simpler truth: if something is important enough to you, you do everything in your power to make it happen. If you care, you lead.

In this, the critical decade on climate change, is it so difficult to imagine an Australian leader, with gravitas and passion, standing at a podium, addressing the nation on a bold new plan for Australian global leadership towards a zero carbon world? — Describing the gravity and urgency of the threat; acknowledging that we are a large part of the problem; persuading us that we have the capability and the responsibility to lead the world toward a different future on a safe and flourishing planet; explaining that leadership will require sacrifices from all of us, but that with those sacrifices will come exciting new opportunities and more creative paths to prosperity; credibly promising that, in the process of our transformation, no-one will

References

1. Andrew Peacock quoted in Guy Pearse, High & Dry (2007) p 127.

2. “National Greenhouse Gas Inventory — Kyoto Protocol Accounting

Framework”, Department of Climate Change and Energy Efficiency, http://

ageis.climatechange.gov.au/.

3. Stephen Smith, “Building Momentum: Australia, Nuclear Non-Proliferation

and Disarmament” (Tange Lecture, August 2009).

Published by Beyond Zero Emissions Kindness House Suite 10, Level 1 288 Brunswick Street Fitzroy, Victoria 3065

www.beyondzeroemissions.org

“Australia is only a small part of the climate problem”

“We shouldn’t act before the rest of the world”

“Our actions won’t make a difference, anyway”

How many times have we heard these claims?

This game changing new report from Beyond Zero Emissions makes the case for Australian leadership on climate change.

Laggard to Leader:

• highlights the true extent of Australia’s influence over global emissions;

• demonstrates how the practical, problem-solving approach to decarbonising every economic sector advocated in the Zero Carbon Australia Plans can be leveraged by Australia to achieve major emissions reductions globally while the UN negotiations remain deadlocked; and

• outlines a series of domestic and foreign policy initiatives that Australia should implement to steer the world’s trajectory towards zero carbon prosperity.

About the Lead Authors:

Fergus Green is a researcher specialising in climate change law and policy. He is Chairman of the Centre for Sustainability Leadership and a 2012 General Sir John Monash Scholar.

Reuben Finighan has a multidisciplinary background spanning the physical, life and social sciences. He is a 2012 Fullbright Scholar and a 2012 Frank Knox Scholar at the Harvard Kennedy School.