Big Benefits with Energy Cuts & Carbon Price

Energy Efficiency Opportunities report found that many of the most energy-intensive industries in Australia were finding they could reduce their energy consumption by 20% or more and get a return on their investment in less than two years. Giles Parkinson in Climate Spectator says there’s more: There is no doubt that delinking carbon and growth is the biggest structural shift in the global economy for decades, but most economies that already have a carbon price have achieved this decoupling with surprisingly little pain.

Giles Parkinson in Climate Spectator

1 July 2011

A few days after last year’s federal election, I welcomed the prospect that a hung parliament presented, for the first time in living memory, an opportunity to deal with the substantive policy issues that had been ignored in the preceding campaign.

The electorate, I suggested, had chosen well by not choosing at all. Sometime in the next week or two, as the Greens take their influential position in the Senate, and the negotiated agreement on a carbon price is finally unveiled, we will find out if that really was a choice well made.

The signs are that it will be. The fact that we are having a discussion at all about the carbon price is due to the leverage that the Greens and the country independents brought to the table. The benefits of a carbon price, that mysterious commodity that dared not be spoken of before the polls, are now self evident.

Energy Minister Martin Ferguson repeated the obvious on Thursday when he said it was clear that, without a carbon price, investment in the tens of billions of baseload energy that is required had stalled. And would continue to be so without one.

Treasurer Wayne Swan says Treasury modeling will show that the transition towards a low-carbon economy will occur at a modest cost, but having a carbon price will lay a path for emissions from the electricity sector to decrease by 60 per cent by 2050, rather than increasing by 60 per cent. “It is very difficult to imagine a first-rate economy in the future that hasn’t successfully made this transition,” he said.

There is no doubt that delinking carbon and growth is the biggest structural shift in the global economy for decades, but most economies that already have a carbon price have achieved this decoupling with surprisingly little pain.

In the UK, Energy and Climate Change Minister Chris Huhne said the UK economy had already cut its emissions by 28 per cent since 1990, while growing the economy by 48 per cent. “We would be mad to miss this boat,” he said in a speech on Wednesday night underlying the case for a “Green Deal;” increasing the country’s emissions reduction target to 50 per cent and grabbing a share of the green economy, which he estimates is already worth $5 trillion. “Turning our backs on the next global growth sector when the world’s economic dynamos are pursuing it so strongly would be economically suicidal.”

Some have protested that Australia should not act, or at least not introduce a carbon price, until the likes of the US and China have done the same. But Australia’s coal-fired generators should count themselves lucky. Some might even get paid to close down. In the US, where partisan politics has succeeded in blocking a market price and the administration has to resort to the hammer effect of regulation, about 60GW of coal-fired energy will be closed in the next five years without a single dollar in compensation .

As for sovereign risk, James Mackenzie, the chairman of the $1.5 billion Gloucester Coal, put it in some perspective on Thursday. “I was in London last week on a roadshow for Gloucester Coal, so I would have seen 20 institutional investors. There was not one grizzle about the carbon tax. Not one mention of it,” he said in comments reported in The Australian. “We are talking about $1-a-tonne in the coal industry.  We are all going to be operating in a carbon-constrained environment, therefore I applaud anyone who is dealing with the policy that needs to be put in place to operate in that environment.”

And it may not be so difficult as one might think. The annual results of the federal government’s Energy Efficiency Opportunities, released on Thursday, found that many of the most energy-intensive industries were finding they could reduce their energy consumption by 20 per cent or more and get a return on their investment in less than two years.

The EEO program, which involved 207 energy-intensive companies, identified energy savings equivalent to abating around 11 million tonnes of greenhouse emissions, and delivering a financial benefit of $1.2 billion.

Of these, just over half  “have been, are being or will be adopted” and would deliver abatement of around 6 million tonnes and financial benefits of around $700 million a year, or around $117 per tonne of CO2-e reduced.

That percentage of the identified savings that have actually been implemented broadly reflects the anticipated pay-back period, most of which would deliver a full pay-back within two years, and all but a small fraction within four years. The Department of Energy noted that a carbon price will clearly improve the economics and the motivation even further.

The department found that 18 per cent of the companies had identified savings of more than 20 per cent of their annual energy consumption, and a further 24 per cent had identified savings of more than 10 per cent. Most of the savings – in absolute and percentage terms – came from the oil and gas and metal manufacturing sectors.

Just as an example of what could be done, Australia’s three major car makers – Ford, Holden and Toyota – had implemented measures that would cut their energy use by 13.7 per cent. This came from things such as improved maintenance of compressed air system, and a reduction in unnecessary paint shop energy use during non-production periods and the subsequent use of compressor waste heat.

It is a small snapshot of what might be possible. But as Europe has discovered with its ETS, the price of abatement will likely end up cheaper than expected. That would be good news for Australia, because it has more catching up to do than just about any other developed economy.

Source: www.climatespectator.com.au