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Transcript
The Hon Greg Hunt MP
Parliamentary Secretary to the Minister for the Environment and Heritage

The Centre for Independent Studies - Policymakers Lecture Angel Place Conference Centre, Sydney

30 November 2006

Climate Change: Preparing for the Coming Century - A Clean Energy Future


Introduction

We are at a turning point in history.  Climate change presents us with a challenge – a dramatic but achievable challenge – to shift from a high emissions to a low emissions economy.

This is a once in a century transition.  We are now at that moment in history where we can begin to incorporate externalities – the costs of pollution – into the costs of production.

This will be, at times, a difficult, disruptive transition; but it is necessary.

Unlike the Beazley approach, we must do it in a way that protects the most vulnerable.

This is ‘big history’ in the making, and we will be judged by future generations on how we respond.

We have a moral responsibility to address climate change now:

In this paper I want to present five propositions:

1. First, climate change is both real and soluble.

2. In order to deal with the issue in any meaningful way, we need a common global agreement which brings in the largest emitters:

3. The single most important step to dealing with current global and Australian emissions is clean coal and gas technology to reduce the largest source of emissions – electricity from our power stations and other forms of stationary energy generation.

4. In looking at new energy needs, there will be a mix over the century of clean coal, nuclear and renewables – some of which may take up to 50 years to develop a baseload capacity - but on which we must currently work.

5. In order to transition to a low-emissions economy, we need to pursue policy mechanisms which are both effective and viable.  There is a right way and a wrong way to do this.

1. The Challenges of Climate Change

1.1 Climate change is real: confronting the deniers

Climate change is real.  It is important.  It is our responsibility.

The link between human activity and increasing levels of carbon dioxide in the atmosphere is clear.

For the past 10,000 years, the global atmospheric carbon dioxide level has been stable between 260 and 280 parts per million.

The Australian advisory bodies, the CSIRO, the Bureau of Meteorology, the Australian Greenhouse Office and the Australian Antarctic Division all advise that the global release of around 40 billion tonnes of COČ per annum is the overwhelming cause of this change.

This change in CO2; levels is having a direct and measurable impact on our climate.

Australia is vulnerable to the impacts of climate change. 

The CSIRO/BoM predict:

There is then overwhelming scientific evidence that significant reductions in greenhouse gas emissions will be needed by the end of this century.

1.1.1 Climate change vs inter-annual variability

However, at this point I would like to add a note of caution:

Weather patterns and temperature have always varied from year to year, sometimes dramatically, as the attached slides on variability from the Bureau of Meteorology show in relation to rainfall in the Perth region and cyclonic frequency in Australia.

Two points are clear:

1.2 Climate change is soluble: confronting the doomsayers

Climate change is a major challenge, but not an impossible one.  We have faced the so-called “end of the world” before, and survived.

1.3 But can we afford it? The costs of climate change

The question then is not whether climate change is soluble, but:

The Stern Report calculates the dangers of unabated climate change to be equivalent to at least 5% of GDP each year and up to 20% of GDP or higher.

In 1942 the Austrian economist Joseph Schumpeter described the concept of creative destruction:

Climate change is likely to bring about just such creative destruction.

In considering the solutions we need to look both at the international mechanisms and the domestic technology changes we need to make.

2. International

2.1 The Challenge

We can tackle climate change, but internationally, how big is the challenge before us?

Global demand for power is increasing.

2.2 The Wrong Way: Kyoto Protocol

The first attempts to address climate change internationally are not proving particularly successful – despite being well intentioned.

The Kyoto Protocol does not – cannot – have any real impact on reducing greenhouse gas emissions:

 

Kyoto Target (%) Projection (%)
Canada 94 116
France 100 109
Japan 94 106
Norway 101 123
Spain 115 151

Yet Australia, which hasn’t ratified, is one of the few countries on track to achieve its target of 108%.

Another key concern with the Kyoto framework is leakage, or what I call the Bhopal Effect, of industries such as aluminium and cement moving away from Kyoto-bound countries to ones with weaker emissions controls.

There is great potential for companies to move large scale manufacturing from Europe offshore to the Middle East or North Africa.  In some cases this process may actually increase global emissions in net terms – rather than reduce them.

An international agreement which excludes major COČ emitters, whether in the developing or the developed world, will simply not work.

2.3 International Response – The Right Way

Given a poor start, how might the international regime evolve post Kyoto, that is, post 2012?

Australia is not the only country to recognise the weakness of the Kyoto Protocol.  Negotiations are underway to create a stronger, more inclusive protocol, and Australia is a part of this process.

An opportunity now exists to create a genuinely inclusive “New Kyoto” and Australia can and should be one of the drivers of this process.

Australia can take a leading role, in the region and internationally, to push forward a truly global climate change regime, and in particular to engage the US.

The Asia-Pacific Partnership on Clean Development and Climate, or AP6, was formed this year by Australia, China, India, Japan, South Korea and the United States.

Working with private sector partners, AP6 aims to deliver greenhouse emission management, national pollution reduction and energy security through a series of projects that also support economic development. 

The Australian Government is providing $100 million over five years to AP6 projects that will advance cleaner fossil fuel and renewable energy technology.

The AP6 is an example of the kind of practical action we can take globally to reduce greenhouse gas emissions.

3. Domestic: current energy

Domestically, tackling climate change will be no less challenging.

Australia’s annual emissions are 560 million tonnes of COČ-equivalent gases.

3.1 Australia’s Emissions

It is important to understand how Australia’s emissions are made up.

Energy consumption is expected to rise by 2.1% a year until 2030, and to reach double the current levels by 2050.

3.2 Cleaning Up the Power Stations

There is no solution to climate change in Australia or the world without cleaning up our coal-fired power stations.

So through clean coal technology and carbon capture and storage, it is possible to decrease emissions from stationary energy generation by 200 of 280mt, or 40% of overall emissions.

The Switkowski report outlines three variations on the price of carbon capture and storage.

Another way of looking at it is to break up the cost into capital enhancement of existing power stations and any subsequent operational costs after deducting amortised capital.

On this basis, a number of industry sources, including the Energy Supply Association of Australia, have indicated a total conversion price for our coal and gas power stations between $10-$30 billion against business-as-usual costs.

So there you have it, a once in a century capital cost of $10-$30 billion spread over 20 years. 

However, if the capital costs are included in the costs to consumers, then the costs of power by 2030 are likely to be between 15 to 40% higher than at present in real terms.

4. Domestic: future energy

Beyond our current power we have to consider how we allow for the transition from a 45 GW economy to a 100 GW economy by 2030.

4.1 Renewables

There is a role for renewables in Australia’s future energy mix, to help ease our dependence on coal.  But it will take perhaps two decades or longer before the costs and technology make this viable on a wide scale as a baseload support.

Solar:

Wind:

Geothermal (hot dry rock) energy:

Renewables have real potential to contribute to a low emissions power supply in Australia;

4.2 Nuclear energy

In contrast, nuclear energy is a proven technology for generating baseload electricity, that is already making a major contribution to reducing COČ emissions around the world.

Nuclear energy accounts for about 16% of the world’s electricity generation (World Nuclear Association):

In Australia, we should be seriously examining the use of nuclear energy either as an alternative or as a complement to existing base power load;

Australia is ranked fourth lowest for the cost of electricity generation in the OECD, based on its extensive gas and black and brown coal resources.

The Switkowski report found that nuclear power would cost between 20 and 50% more than coal or gas-fired power.

The earliest that nuclear electricity could be delivered to the grid would be 10-15 years.

Life cycle greenhouse gas emissions from nuclear power are more than ten times lower than emissions from fossil fuels.

It would be irresponsible to ignore nuclear energy as an important potential contributor to Australia’s future energy needs.

The question for Mr Beazley is this – if nuclear energy is so dangerous, what does he think our exports are actually used for?

I do think that in handling this issue we can see the difference between the two parties – a desire to solve the problem, as opposed to a desire to present a glib answer, which will ultimately fail to address our power needs.

A possible energy future for Australia over the coming century may therefore look like this:

4.3 Other Sources of Emissions

Energy generation is only half of Australia’s carbon emissions picture.

Cuts to auto emissions:

Energy efficiency:

Reforestation:

Landfill

As we work towards solutions to the challenges of climate change, we do not lack for options on low emissions energy sources; we do not lack for technological innovation or creativity; we do not lack for political will.

5. Policy mechanisms

5.1 Options

Policy options for dealing with climate change largely fall into three categories:

All options recognise that there is no cost-free option for emissions reductions:

5.2 The Wrong Way to Address Climate Change: Tax on an Inelastic Good

I would like to first talk about the wrong way to address climate change.  This is the current Beazley approach.

Targeting demand through a domestic carbon tax on petrol and domestic heating will not solve the problem of greenhouse emissions.

Petrol and heating are not generally elastic goods.  Over the last decade, petrol has almost tripled in price, but demand has remained largely constant.  It is long-term inelastic.

Only last night Brotherhood of St Laurence executive director Tony Nicholson said poor families had little capacity to adapt to energy price increases, and they were likely to suffer if the full environmental costs of greenhouse gas emissions were included in the price of energy.

Ultimately, the Labor approach is careless – it does exactly what Menzies warned us about – and forgets the forgotten people.

5.3 The Right Way to Address Climate Change: Legislate and Trade

By comparison, the right way to reduce emissions I believe is to directly invest in cleaning up energy generation.

If we invest directly in clean air technology for the energy sector it is possible, over time, to cut our emissions by up to 200 million of the 280 million tonnes of COČ or equivalent gases that the sector produces.

How do we do this?  I would like to outline four possible suggestions, all of which of course are contestable, but which serve as suggestions:

First, Clean Air Legislation coupled with a system of tradeable credits and debits could establish a phased set of emissions standards for power generation.

Second, either a Clean Air Fund or tax credits – which are being considered in the United States – could assist in the capital costs of transition of existing power stations to low or zero emissions technology.

Third, a Clean Auto Emissions Package could comprise:

Conclusion

There is no single answer to climate change.  We will need to clean up our coal-fired power stations, potentially develop nuclear power, search for baseload renewable energies, develop greater energy efficiency, and push for a common global agreement.

We must do all of this, and we cannot delay.

Confronting the challenges of climate change will be difficult.  We will make mistakes – the Europeans certainly have.

I recognise that if we leave this to the next generation, we will have failed: failed to accept responsibility for a problem that is ours to solve and failed the generations that come after us.

Climate change is not insurmountable.  We have faced “the end of the world” before, and survived. 

But it is our responsibility, we must deal with it in our generation.  It is our task.  We must take action now – but it must be the right action.

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