Australia's post carbon tax repeal emissions spike

Since the carbon tax was repealed in July, electricity emissions have grown 0.8 per cent – with the emissions intensity of power generation now set to show steady increases after six years of reductions.

The Carbon Emissions Index (CEDEX) Electricity Update, with data up to August 2014, shows that a turning point may have been reached in the trend of electricity demand, electricity generation and emissions from generation. 

The fall in generation has levelled off, and emissions have begun to increase decisively (Figure 1). In the year to August 2014, emissions were more than 1 Mt CO2‐e higher than the minimum level of two months earlier, in the year to June 2014. This was equivalent to an increase in emissions of 0.8 per cent, which translated into an increase in the emissions intensity of NEM electricity of just under 0.8 per cent.

The factors contributing to this change were as follows:

– With the ending of the carbon price, hydro generation in Tasmania was reduced, as anticipated in the last few issues of CEDEX Electricity Update, while Snowy hydro generation remained at relatively low levels.

– Wind generation was unexpectedly low (the lowest was in August since 2011, when installed capacity was considerably less than it is today) because the weather across southern Australia was much less windy than the average for August.

– NEM demand for electricity stopped falling; total demand in both July and August 2014 was higher than in the corresponding months in 2013, the first time this has happened in two consecutive months since 2010.

Queensland gas generation increased again on an annualised basis to reach its highest ever level; in each of the last three months, gas generation in Queensland has been at higher levels than in any previous month. However, as explained in detail in last month’s CEDEX Electricity Update, this is a strictly short term effect, and will soon end and, in all likelihood, be decisively reversed. In any event, increased gas generation was not enough to offset the decrease in renewable generation in August, so that generation from both black and brown coal power stations also increased. The result was an in increase in total electricity generation emissions for the second month in a row, the first such increase since the beginning of 2012.

As CEDEX has been reporting for the past several years, reductions in demand, significantly driven by policies to support increased energy efficiency, together with the increase in new renewable generation supported by the RET, have worked together to achieve quite dramatic reductions in emissions from electricity generation in Australia.    

The carbon price made a further contribution over the past two years. The size of these emission reductions has been such that, had electricity emissions remained at the levels of June 2014, very little further reduction would have been needed for Australia to meet its (very modest) politically bipartisan target of a national emissions reduction of 5 per cent, relative to 1999‐2000, by 2020. However, the change in trends reported in this CEDEX, plus the reduction in gas generation expected in the near future, would, if maintained mean that the required emissions reductions would have to be achieved from other sources and by other means.

If the government adopts the recommendations of its RET Review Panel, it is likely that there will be very little growth in renewable generation beyond the capacity currently in the process of being commissioned or under construction. At present, according to August 2014 figures from AEMO, total renewable generation capacity under construction in the NEM consists of about 370 MW of wind, in NSW and Victoria, and about 170 MW of solar, in Queensland, NSW and the ACT. Of this capacity, one wind farm (Boco Rock in NSW) and one solar farm (Royalla in the ACT), totalling 133 MW, will start generating this month. At the extreme, there could be no more new renewable generation for the foreseeable future, other than the limited capacity contracted by the ACT government to meet its ambitious local emissions reduction target of 90 per cent renewable electricity by 2020.

On the demand side, an annual reduction of roughly 3 TWh will occur in Victoria as a result of the closure of the Point Henry aluminium smelter at the end of July. The first indication of this effect, which will work its way through the annualised data over the next year, can be seen in Figure 3. Other data on the future of demand, contained in AEMO’s most recent forecasting report and also in data available from the Australian Energy Regulator, show that residential electricity demand has fallen much faster than demand by business, other than the large falls caused by aluminium smelter closures. It is quite uncertain, however, whether, and for how long, this trend will continue.  

The upswing in demand for electricity shown in Figure 3 suggests that it may now be coming to an end. These recent trends suggest that there could be a need for new policy initiatives to support increased energy efficiency, particularly in the commercial and services sectors of the economy, where electricity demand is growing fastest.  

This means initiatives affecting the energy efficiency of commercial and public buildings, and of the air conditioning, lighting and other equipment used in buildings.  

In the absence of any such new initiatives, and with the likely cutbacks to the RET, it is highly likely that the trend directions of electricity demand, generation and emissions seen in the last two months will become set in place.  

Future versions of Figure 1 will show – for the first time since CEDEX began – emissions growing faster than electricity generation and the emissions intensity of Australian electricity generation steadily increasing, after six years of reductions.

This is the latest report on Australia's energy emissions from pitt&sherry.

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