Closing the gap: are Australia's targets achievable?

Ignoring broad policy measures, Australia's emissions are set to increase 15 per cent through to 2020. With agricultural and industrial abatement largely tapped out, the result will turn on energy sector efforts.

Emissions across all activities in Australia have grown slowly since 2000, totalling 590 million tonnes carbon dioxide emissions in 2011-12, up from 587 Mt CO2e in 2000.

Emissions have grown across most activities – quite strongly to around 2005 and then more gradually since then. Emissions reduced significantly in the waste sectors and from land use change – to the extent that these reductions outweighed emissions from other sectors.

Projections of emissions trends vary. Using SKM's Sectoral Emissions and Abatement Model, projections for each sector are shown in the figure below assuming no carbon mitigation policy is in place (that is, assuming no carbon pricing or direction action to mitigate emissions). The projections indicate:

– Emissions are projected to grow to 680 Mt CO2e by 2020; around 15 per cent higher than current levels

– Emissions from electricity generation are expected to fall by around 7 per cent, due to increasing levels of renewable generation accompanied by a slowdown in demand growth

– Fugitive emissions are expected to have the most rapid growth, around 58 per cent, due to expanded coal mining and increased production of LNG

– All other sectors are projected to experience growth albeit at a moderate rate.

Figure 1: Projections of emissions by activity

Graph for Closing the gap: are Australia's targets achievable?

On a sectoral basis, electricity generation is and will remain the largest source of emissions. Emissions from mining currently contributes around 69 Mt CO2e of direct emissions (about 12 per cent of total national emissions), mainly from fugitive emissions during the extraction, processing and transportation of coal, oil and natural gas, or from the direct combustion of energy during the mining process. Coal mining contributes 35 Mt CO2e, oil and gas extraction around 26 Mt CO2e and other mining around 8 Mt CO2e. These levels are expected to grow to 2020 to be around 55 Mt CO2e for coal mining, around the same (55 Mt CO2e) for oil and gas extraction, and around 16 Mt CO2e for other mining.

These numbers indicate that emissions from mining and oil-gas extraction processing are relatively modest compared to other sectors, but this masks some important state-based trends. For instance, in Western Australia, total emissions were 76 Mt CO2e in 2010-11, and of this, mining contributed around one-quarter, more than any other sector apart from electricity generation. Most of this has come from oil and gas production, and some from the mining of iron ore. Similarly, mining is important contributor in Queensland and New South Wales.

Emissions from electricity generation predominantly come from the combustion of black coal, which still accounts for around 75 per cent of total generation.

What level are we trying to achieve?

At the Doha Climate Change Conference in 2012, the Australian Government agreed to be part of the Kyoto Protocol's second commitment period. The government agreed to limit emissions in the period from 2013 to 2020 to an average of 99.5 per cent of 1990 levels. This is referred to Australia's Quantified Emission Limitation or Reduction Objective.

At the same time, both the Labor and Coalition promised to cut emissions by 5 per cent on 2000 levels in 2020. Using the new accounting treatments approved at Doha, this translates to a target of 558 Mt CO2e in 2020, compared with 587 Mt CO2e in 2000.

Collating these two separate targets, the figure below indicates the target trajectory and projections of emissions growth assuming Carbon Pricing Mechanism or Direct Action policies are in place. Without any broad-based policies, the gap between projected emissions and the agreed target will be around 122 Mt CO2e per annum in 2020, implying a reduction of near 20 per cent in our projected emissions. To meet the agreed average of 99.5 per cent of 1990 levels, the cumulative gap to 2020 is around 469 Mt CO2e. It is this gap that the Carbon Pricing Mechanism or Direct Action is trying to meet.

Given that nearly three quarters of emissions relate to the extraction, processing and combustion of energy, reducing emissions from energy use will play a major role in the period to 2020. Other activities (e.g. agriculture and land clearing) are not likely to play major roles because of the limited abatement opportunities in these sectors, much abatement action has already been undertaken (e.g. reducing land clearing) and the high cost of further abatement activity. Emissions from industrial processing will also be difficult to reduce because carbon emissions are an intrinsic part of manufacturing process.

Achieving these targets has been made easier by a number of factors:

– Carryover of emissions credits from the first Kyoto commitment period (2008 to 2012). It has been estimated that Australia reduced emissions more than required to meet targets for this period by around 96 Mt CO2e. In principle, the government can use this carryover to meet its obligations in the second Kyoto commitment period.

– A recent reduction in economic activity, which if it continues will likely reduce emissions. In particular, a restructuring of the industrial sector has seen a shift away from energy intensive (and therefore emission-intensive) activities. In line with this, recent announcements of plant closures (refineries, clinker production) will further reduce future emissions.

Figure 2: Emissions relative to promised targets

Graph for Closing the gap: are Australia's targets achievable?

Issues

As discussed, the contribution to the abatement task will fall disproportionately to the energy sector and in particular to the stationary (electricity generation and direct combustion in facilities) sectors. This will be a difficult challenge because:

– Switching to low emissions fuels such as natural gas is seen as a low cost way of reducing emissions. But in activities apart from electricity generation, natural gas is already the predominant fuel used, accounting for over 50 per cent of the total fuel combustion. Liquid fuels are also used but mainly in mobile equipment (for example, mining equipment) or in facilities in remote areas, for which it would be difficult to switch to gas. Some facilities also use coal, but coal overall makes a small portion (around 11 per cent) of energy use other than in electricity generation. Even here it would be difficult for some facilities to switch to natural gas because coal is a source of carbon, which is used as a reductant in iron-steel production and treatment of mineral sands.

– Gas prices are rising, making it difficult for those who do not use natural gas to switch to it. Even for electricity generation, rising gas prices make it difficult for a switch in the merit order towards more gas-based generation and away from coal-based generation. Higher gas prices also act as a barrier to entry of new gas-based generation in the market (as they are unable to compete against incumbent coal-fired generation).

– These facts lead to energy efficiency and-or use of renewable energy as the main forms of emissions reduction for large parts of industry.

The prospects get harder if the government agrees to tougher targets. Many commentators are calling for Australia to agree to a 15 per cent reduction. Based on our previous projections, this would require around 180 Mt CO2e per annum by 2020 (instead of 120 Mt for a 5 per cent reduction) and a cumulative requirement for the period 2013 to 2020 of around 700 Mt CO2e. Again, a large share of this abatement would have to occur in the energy sector.

Therefore, meeting the targets from domestic abatement will be challenging and will require innovative solutions and changes to production patterns. SKM analyses the policy approaches used to meet the gaps and those how approaches will provide incentives to overcome the many challenges in a related article.

Walter Gerardi is a principal consultant at Sinclair Knight Merz.

Related Articles