Clean energy economy or wrecking ball?

A review of the government's emissions data showed electricity emissions took a record fall while mining activity - and wealth - grew in the carbon price's first full calendar year.

Last Tuesday, the Department of Environment very quietly released the latest update of Australia’s National Greenhouse Gas Inventory, providing new emissions data through to the end of December 2013.

With updates of the greenhouse gas inventory released quarterly, this is likely to be the last update available before the Coalition government makes its first serious attempts to repeal the Carbon Pricing Mechanism. The next update is anticipated in mid-July, after newly elected, anti-carbon price senators begin their terms.

Using the government’s own figures, we can now determine whether the introduction of a carbon price has been successful at moving Australia “towards a clean energy economy”, or if it has been a “wrecking ball to the economy”.

The easiest way to do this is to consider some of the headline results in the emissions inventory report.

"Annual emissions for the year to December 2013 … represent a 0.8 per cent decline in emissions when compared with the previous year."

At the time the Clean Energy Future Package was developed, Treasury released forecasts of domestic emissions under the carbon price. These forecasts had domestic emissions rising, albeit at a significantly slower rate to business as usual scenarios, with the difference being covered by the purchase of international abatement.

In 2013, domestic emissions were forecast to fall by 1.1 per cent before increasing in subsequent years. A fall of 0.8 per cent, given the foreboding likelihood of repeal of the carbon price turning companies away from making long-term investments that would otherwise have been attractive with a carbon price signal, is a great result.

What we have seen to date is domestic emissions in decline. If this trend were allowed to continue, Australia would be less reliant on emissions units procured from both Europe, and under the United Nations Clean Development Mechanism.

It should be remembered that the Coalition Government has an explicit aim to drive domestic emissions reductions, rather than becoming reliant on international permits. So far, so good.

"Over the year to December 2013, annual emissions from electricity generation fell by 5.0 per cent."

This is the single biggest annual fall in electricity emissions ever recorded in Australia. Electricity emissions fell by 9.3 million tonnes in 2013; similar to the emissions from Origin Energy’s 2880 megawatt black coal fuelled Eraring Power Station.

There are two factors that contributed to this result, a fall in electricity demand (2.8 per cent lower across the National Electricity Market) and a shift towards cleaner sources of generation. Generation from brown coal (down 6.9 per cent) and black coal (down 4.1 per cent), as well as natural gas (down 7.7 per cent) continued their decline, while double-digit growth was recorded by both hydro (up 17.7 per cent) and non-hydro renewable energy sources (up 23.1 per cent).

With the introduction of a carbon price, one would hope that the price signal would lead to a reduction in overall energy consumption and/or a shift towards low emission sources of energy.

This is exactly what we have observed, and by significant amounts.

"Fugitive emissions have increased by 6.7 per cent over the year to December 2013."

One concern about the introduction of a carbon price was that it would disproportionally impact Australia’s resources sector, a major creator growth in export revenues and an industry that carries significant political clout (even moreso with the rise of the Palmer United Party).

With the assumption that emissions are linked to economic activity, it would seem that the “the production, processing, transport, storage, transmission and distribution of fossil fuels such as black coal, crude oil and natural gas” hasn’t at all been curtailed, and in fact, has experienced healthy growth.

In fact, according to the Australian Bureau of Statistics, the contribution from the mining sector towards Australia’s GDP grew by almost exactly the this percentage in 2013, recording 6.65 per cent growth in gross revenues.

New demand from the export market has been replacing domestic demand that has been in decline (as observed in falls in coal and gas fired electricity generation), and the claims that “going it alone” with a carbon price would spell the end of the resources industry in Australia have so far been premature.

“Australia’s emissions per capita and per dollar of GDP have declined over the last 20 years [including the year to December 2013].”

The Australian experience has shown that it is possible for a developed economy to begin to decouple economic growth from emissions growth. The introduction of a carbon price has encouraged this decoupling, with Australians becoming wealthier, as well as more populous, while emissions fall.

Is the carbon price working?

Emissions are falling, the economy is growing, we are using cleaner energy and doing so more efficiently. There is nothing in the numbers that suggests the Carbon Pricing Mechanism has been a “rolled gold failure”, as claimed by Environment Minister Greg Hunt. In fact, it is probably exceeding expectations.

If the Coalition acknowledges the science of climate change and the need for action, why exactly are we scrapping a policy that is performing better than we could have hoped?

Michael Mazengarb has worked as an analyst for the Australian Government and non-for-profit organisations on climate and energy policy. He currently is completing a Master of Climate Change at the Australian National University.