The announcement of a $100 million research centre to focus on clean coal technology options is a welcome move by the federal government. Many will be hoping it’s just the start of a range of initiatives that will seek to boost incentives for clean technologies — renewable as well as “clean coal” — and one that will also be accompanied by a campaign and incentives to address the country’s lamentable record on energy efficiency.

Australia is credited with both the world’s most abundant renewable energy resources, and enormous reserves of coal. The fact that it has done so little to promote the development of either clean coal or renewable technology should be a something of a national embarrassment. It is a failure of business and political leadership — one that could be costly to the country’s economic future, but one that could be readily reversed. It’s not too late.

To put Australia’s position in the world of clean energy development into some perspective, the country is ranked just 13th in the quarterly Renewable Energy Country Attractiveness index produced by international accounting group Ernst & Young.

Despite promising to emerge from what Ernst & Young describes as a “renewable energy wasteland”, thanks mostly to the Federal Government’s planned but yet to be implemented renewable energy target, Australian ranks well behind the US, Germany, India and China, and trails a host of other European countries.

It’s a situation that has been lamented by renewable energy companies, and clean-tech investors for years. We were reminded of the situation earlier this month during a visit by James Cameron, the founder of a London-based investment bank, Climate Change Capital, a specialist in the clean-tech sector that is attracting some $200 billion of capital worldwide. Cameron says Australia is in danger of “missing the boat”.

If Australia is searching for ideas on how to mobilise such capital, it could look to the state of California, the largest economy within the US. Like Australia, California experiences strong population growth — it’s up 40 per cent in 30 years. Over the same period, while the rest of the US has increased its per capita energy use by 80 per cent, California’s has remained steady, according to a report released this month by Deutsche Bank.

And even while achieving this through a range of direct measures including an array of industry incentives and legislation, it has still managed to generate a higher GDP-per capita than the rest of the US and the 15 largest states in the European Union.

As Deutsche Bank notes, energy efficiency and other incentives to promote carbon reduction do not have to equate to economic paralysis. Indeed, California is now about to embark on another ambitious program to cut greenhouse gas emissions by 10 per cent from current levels by 2020, and 30 per cent on business-as-usual predictions.

While that sounds very similar to the proposals of Ross Garnaut, it is important to note that California is working from a more efficient and less polluting starting point. It proposes to do this by using a cap-and-trade scheme, like Australia, in conjunction with a host of direct control measures.

Deutsche Bank says these direct control measures are designed to capture the negative and zero-cost abatement opportunities as well as the industrial-abatement solutions that will be delivered by a market based scheme. It’s based on the realisation, as Ernst & Young puts it in its report, that cap-and-trade carbon schemes are best used as a measure to curtail the activities of high carbon intensity industries.

They should not be used to replace incentives for clean energy capacity, as they are too cumbersome and too slow in effect to give the investment signal needed to generate growth in clean energy. This will be true particularly of ‘clean coal’, which at current estimates will be considerably more expensive than renewable sources such as geothermal and wind, and may be one of the reasons the coal industry has invested so little of its own money to date.

Deutsche Bank says the “holistic and innovative” approach of cap-and-trade and direct control measures will reinforce California’s ability to become a first mover in clean technologies, because “it creates an opportunity to innovate”.

This theme is picked up in the latest research done for the Climate Institute by the Canberra-based consultancy McLennan Magasanik and Associates.

It finds that “moderately ambitious” energy efficiency improvements, combined with the renewable energy target, will slash billions off the long-term cost of reducing emissions from Australia’s electricity sector.

The McLennan Magasanik modelling shows that energy efficiency and the RET would decrease electricity price impacts compared with introducing an emissions trading scheme on its own, contrary to what some have predicted.

While electricity prices do increase, the study notes, continuing economic growth means that the proportion of average household incomes spent on electricity falls from 2.5 per cent today around one per cent in 2050.

The Climate Institute says that Australia could meet the scientific target of reducing 1990 carbon pollution levels by 25 per cent by 2020 if it had additional measures to achieve reductions across energy, urban design, transport and agriculture. It says that at least half of the reductions would come as a net saving to the economy.

This is similar to a report produced by McKinsey last week, which suggested the EU could meet its greenhouse gas emission targets — a 25 per cent reduction from 1990 levels by 2020 — simply by improving energy efficiency. Which means no collapsing economies, bankrupt generators and inestimable dole queues. But no windfall government subsidies either.

Peter Fray

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