Australia needs to find at least $100b in low-carbon asset investment over the next decade to meet a minimum emissions reductions target, but still has a number of policy barriers to such investment, a new Australian Conservation Foundation report shows.
The debate over Australia’s emissions reduction target — currently an unconditional 5% — flared today with Greg Combet stating in a speech that international conditions for Australia to move beyond 5% had not been satisfied, apparently contrary to officials’ advice, obtained by the Climate Institute, that the international conditions existed to justify a move to 10-15%. A doubling or trebling of Australia’s target would significantly increase the cost of the transition to low-carbon assets but would be unlikely to double or treble it — the Garnaut Review found that it is less costly per tonne of abated emissions to achieve more ambitious reductions targets.
A 5% target requires Australia to cut its emissions to 523m tonnes of CO2-equivalent gases annually. In the year to June 2010, Australia produced just under 550m tonnes. Australia’s population is expected to grow strongly over the next decade.
The ACF report notes that there has been little effort made to quantify the likely cost of having to meet a 5% target but that a range of other costings suggest we will need at least $100b of additional investment. How this investment will be achieved has been a peripheral issues in the debate over emissions trading: Garnaut argued that all other climate action programs should be dropped once an effective ETS was in place — although he suggested incentives to overcome “first mover disadvantage” in the R&D and commercialisation of renewables technology should be considered — but both the Howard and Rudd-Gillard Governments have strongly favoured grants programs to encourage investment in renewables, and the Coalition has proposed to rely entirely on grants to achieve a 5% reduction target, although its costings have repeatedly been demonstrated to be wholly inadequate.
Some of this investment will be driven by Australia’s Renewable Energy Target, but there are a number of impediments to investment in renewables and low carbon assets. The report finds that a price on carbon is a “necessary and critical precondition” to driving investment, but won’t remove market barriers. These include:
- continuing regulatory uncertainty, not just around a carbon price but even bipartisan policies like the RET, which has been the subject of frequent regulatory change. A recent Ernst and Young report for the Clean Energy Council identified regulatory uncertainty as the key impediment to investment in renewables;
- the skewing of institutional investment portfolios away from infrastructure assets;
- continuing tax incentives that encourage carbon-intensive activities — accelerated depreciation regimes for fossil-fuel extraction industries, diesel fuel tax credits, FBT concessions company cars.
The report identifies a range of public, private, and hybrid mechanisms to encourage the different stages of low carbon investment, although the report criticises grants programs — “unless it is accompanied by a range of additional policy measures and significant and longer-term budgetary allocations, it can only make a marginal contribution.”
It proposes a “Clean Energy Finance Corporation”, similar to the current Export Finance Insurance Corporation, to administer direct and indirect public financing mechanisms to drive investment.
What the report really reflects is the challenge of having to make up for the lost years under Howard and Rudd, who both delayed, with more or less culpability, moving to a carbon price and commencing the great reform task of decarbonising the Australian economy. Australia, with its addiction to cheap carbon-intensive coal-fired power, always had more work to do than other countries in reducing emissions; extended delay has exacerbated this and the retention of existing barriers to investment will put further pressure on us to achieve even the minimal 5% target, let alone a 15% target. The ACF raises the question of whether a carbon price will be enough to enable us to meet our commitments. Under current policy settings, it may not be.