The Chief Scientist, Dr Alan Finkel, was asked by the Council of Australian Governments (COAG) to undertake an independent review of the national electricity market (NEM) that:
- delivers on Australia’s emissions reduction commitments
- provides affordable electricity
- ensures a high level of security and reliability
This was complicated task that needed to take into account:
- the closure of ageing coal-fired power stations
- escalating extreme weather events (like heatwaves, bushfires and storms) driven by climate change that test the resilience of the system
- increasing gas prices
- rapidly declining costs of wind, solar and battery storage
It also had to be politically palatable for the federal and state governments.
The energy users, the general public and industry just want long-term policy certainty.
The major points made by the review and the Climate Council’s view are summarised below.
1. Emission Reductions
The minimum target for reducing emissions in the electricity sector should be a 28% emissions reduction below 2005 levels by 2030. While it places responsibility for more aspirational targets to 2030 and beyond with government(s), the review cautions higher targets could have ‘larger consequences for energy security’ and ‘implications should be re-examined’.
This target is consistent with the commitment made by Australia at the Paris Climate Change conference but the electricity sector needs to bear a greater share of the reduction. It is easier to reduce emissions in the electricity sector as many of the required technologies already exist and reductions in other sectors like transport and land use are harder to achieve. The Climate Change Authority, the government appointed advisory body, suggested that electricity emissions should reduce by two-thirds by 2030 and be zero by 2050.
2. Clean Energy Target
The Finkel Review proposes introducing a Clean Energy Target, which would effectively replace the current Renewable Energy Target from 2020. Gas and coal (with carbon capture and storage) would qualify under the Clean Energy Target, as well as renewable energy. The Clean Energy Target would set a certain target amount of new ‘clean’ electricity (expressed as GWh or % of electricity) based on the required emissions reductions for the electricity sector. The Finkel Review leaves the target baseline and emissions trajectory to 2030 and beyond for politicians to decide.
Technologies with lower emissions, like renewables, would receive higher benefits than those with higher emissions, like gas and coal (which would still be required to be below a set emissions intensity level to receive any benefit). New coal stations that do not meet the target can still be built without penalty, increasing the emissions reduction burden from ‘clean’ electricity.
The Clean Energy Council website explains this mechanism in more detail. Modelling undertaken for the Finkel Review (based on 28% emissions reduction for the electricity sector) indicates the Clean Energy Target mechanism (and an emissions intensity scheme) would result in lower costs to households and businesses compared with no action at all (business as usual). The modelling shows renewable power continuing to grow, up to 42% of electricity supply by 2030 (58% still comes from fossil fuels by then, with no further brown coal closures), in contrast to business as usual of 35% renewable electricity.
Power generated by renewable energy in 2030 under the proposed Clean Energy Target – at 42% – is far too low. Under the Clean Energy Target, electricity supply from large scale renewable energy would only increase 9% from 2020–30 (about the same increase as has occurred in the past ten years, a decade marked by significant climate and energy policy uncertainty).
3. Renewable Energy Reliability
The Finkel Review recommends a new requirement on new wind and solar power plants to provide a certain level of ‘dispatchable’ capacity (this was called a Generator Reliability Obligation). Dispatchable capacity is electricity that is available on call, as and when needed. New wind and solar would be required to provide a certain amount of battery storage or gas generation as determined by energy market bodies so that power is available with certainty, for example, when the wind isn’t blowing and other sources cannot provide sufficient power.
There was no equivalent requirement placed on new, or existing ageing gas or coal generation, despite the failure rate of ageing power stations increasing. For instance, in early February 2017, a severe heatwave across much of Australia’s south east and interior caused supply issues for the South Australian and NSW energy systems at a time of peak demand. In NSW around 3000 MW of coal and gas power capacity was not available when needed in the heatwave. High power users in industry were required to scale back production at great cost.
4. Future of Coal
The Finkel Review recommendations focus on incentives to encourage new lower emissions power plants to be built, rather than phasing out or penalising polluting coal and gas plants. So the approach is intended to bring on new renewables without incentivising the phase out of existing polluting coal generators. Coal generation would continue to provide over 50% of Australia’s electricity by 2030 and 24% by 2050.
Coal should be phased out much more quickly. Australia’s coal-fired power stations are old, and polluting by world standards. The Finkel Review acknowledges that by 2035:
… approximately 68% of the current coal generating plants will have reached 50 years of age.
Its modelling shows most still operating at 2030 and some even by 2050. The review even considers it a ‘benefit’ for these old, polluting coal plants to continue operating.
The key recommendation for coal-fired power is a new requirement for power plants to provide three years notice before closing. A schedule for the closure of aged plants should have been established years ago.
5. Future of Gas
The Finkel Review provides for a continuing role for gas power generation despites the issues with methane emissions and local environmental impacts of coal seam gas extraction. It acknowledges gas prices (and, as a result gas power prices) will continue to rise in future due to the demands of liquefied natural gas exports from Queensland, and the increasing price of producing gas from unconventional gas fields.
At current gas market conditions, it observes that battery storage may be more cost effective than gas in providing security and reliability in the near future. However, the Finkel Review paradoxically urges government and industry to prioritise gas exploration and development.
See STEP Matters Issue 190 for more details on the issues with gas powered electricity.
The Turnbull government has supported all the recommendations except the Clean Energy Target. They can’t get away from the vested interests of the coal industry. There are even rumours that they would consider providing financial support for a new ‘clean’ coal-fired power plant.
Coal-fired power is on the way out, globally, and in Australia. Clean coal is very expensive, if not technically impossible. But using public funds to prop-up this 19th century technology would lock in climate-destroying pollution and higher power prices for decades to come.
The Turnbull government is out of step with state/territory and local governments. State and territory governments are already on track to deliver the Clean Energy Target on their own:
- Victoria, Queensland, Northern Territory and South Australia are set to generate 40–50% renewable energy by 2030
- Tasmania is already running off 90% renewable energy
- ACT has contracted enough renewable energy to meet all its electricity needs by 2020
The states are setting strong targets that will help Australia reach net zero emissions by (and ideally before) 2050 in order to protect Australians from worsening climate impacts.
South Australia is about to get a 150 MW solar thermal power plant that will meet 5% of the state’s power needs. The 150 MW plant near Port Augusta is expected to be operational by 2020 and will power all the South Australian government's electricity needs. The plant uses the sun as a source of heat that is reflected by mirrors onto a tower containing molten salt that is used to create steam that drives a turbine. It is expected that more of these plants will be built.
Several local governments including Ku-ring-gai, Willoughby and North Sydney, have signed up with the City Powers Partnership set up by the Climate Council. Local councils who join the partnership pledge to take five key actions across renewable energy, efficiency, transport and working together. The partnership acts as a support network for sharing expert information and establishing joint projects.
The information in this article is sourced from the Climate Council’s commentary called Unpacking the Finkel Review.
Our economy and society ultimately depend on natural resources: land, water, material (such as metals) and energy. But some scientists have recognised that there are hard limits to the amount of these resources we can use. It is our consumption of these resources that is behind environmental problems such as extinction, pollution and climate change.
Even supposedly 'green' technologies such as renewable energy require materials, land and solar exposure, and cannot grow indefinitely on this (or any) planet.
Most economic policy around the world is driven by the goal of maximising economic growth (or increase in gross domestic product – GDP). Economic growth usually means using more resources. So if we can’t keep using more and more resources, what does this mean for growth?
Most conventional economists and policymakers now endorse the idea that growth can be 'decoupled' from environmental impacts – that the economy can grow, without using more resources and exacerbating environmental problems.
Even the then US president, Barack Obama, in a recent piece in Science argued that the US economy could continue growing without increasing carbon emissions thanks to the rollout of renewable energy.
But there are many problems with this idea. In a recent conference of the Australia-New Zealand Society for Ecological Economics (ANZSEE), we looked at why decoupling may be a delusion.
The Decoupling Delusion
Given that there are hard limits to the amount of resources we can use, genuine decoupling would be the only thing that could allow GDP to grow indefinitely.
Drawing on evidence from the 600-page Economic Report to the President, Obama referred to trends during the course of his presidency showing that the economy grew by more than 10% despite a 9.5% fall in carbon dioxide emissions from the energy sector. In his words:
…this 'decoupling' of energy sector emissions and economic growth should put to rest the argument that combating climate change requires accepting lower growth or a lower standard of living.
Others have pointed out similar trends, including the International Energy Agency which last year – albeit on the basis of just two years of data – argued that global carbon emissions have decoupled from economic growth.
But we would argue that what people are observing (and labelling) as decoupling is only partly due to genuine efficiency gains. The rest is a combination of three illusory effects: substitution, financialisation and cost-shifting.
Substituting the Problem
Here’s an example of substitution of energy resources. In the past, the world evidently decoupled GDP growth from buildup of horse manure in city streets, by substituting other forms of transport for horses. We’ve also decoupled our economy from whale oil, by substituting it with fossil fuels. And we can substitute fossil fuels with renewable energy.
These changes result in 'partial' decoupling – that is, decoupling from specific environmental impacts (manure, whales, carbon emissions). But substituting carbon-intensive energy with cleaner, or even carbon-neutral, energy does not free our economies of their dependence on finite resources.
Let’s get something straight: Obama’s efforts to support clean energy are commendable. We can – and must – envisage a future powered by 100% renewable energy, which may help break the link between economic activity and climate change. This is especially important now that President Donald Trump threatens to undo even some of these partial successes.
But if you think we have limitless solar energy to fuel limitless clean, green growth, think again. For GDP to keep growing we would need ever-increasing numbers of wind turbines, solar farms, geothermal wells, bioenergy plantations and so on – all requiring ever-increasing amounts of material and land.
Nor is efficiency (getting more economic activity out of each unit of energy and materials) the answer to endless growth. As some of us pointed out in a recent paper, efficiency gains could prolong economic growth and may even look like decoupling (for a while), but we will inevitably reach limits.
The economy can also appear to grow without using more resources, through growth in financial activities such as currency trading, credit default swaps and mortgage-backed securities. Such activities don’t consume much in the way of resources, but make up an increasing fraction of GDP.
So if GDP is growing, but this growth is increasingly driven by a ballooning finance sector, that would give the appearance of decoupling.
Meanwhile most people aren’t actually getting any more bang for their buck, as most of the wealth remains in the hands of the few. It’s ephemeral growth at best: ready to burst at the next crisis.
Shifting the Cost onto Poorer Nations
The third way to create the illusion of decoupling is to move resource-intensive modes of production away from the point of consumption. For instance, many goods consumed in Western nations are made in developing nations.
Consuming those goods boosts GDP in the consuming country, but the environmental impact takes place elsewhere (often in a developing economy where it may not even be measured).
In their 2012 paper, Thomas Wiedmann and co-authors comprehensively analysed domestic and imported materials for 186 countries. They showed that rich nations have appeared to decouple their GDP from domestic raw material consumption, but as soon as imported materials are included they observe 'no improvements in resource productivity at all'. None at all.
From Treating Symptoms to Finding a Cure
One reason why decoupling GDP and its growth from environmental degradation may be harder than conventionally thought is that this development model (growth of GDP) associates value with systematic exploitation of natural systems and also society. As an example, felling and selling old-growth forests increases GDP far more than protecting or replanting them.
Defensive consumption – that is, buying goods and services (such as bottled water, security fences, or private insurance) to protect oneself against environmental degradation and social conflict – is also a crucial contributor to GDP.
Rather than fighting and exploiting the environment, we need to recognise alternative measures of progress. In reality, there is no conflict between human progress and environmental sustainability; well-being is directly and positively connected with a healthy environment.
Many other factors that are not captured by GDP affect well-being. These include the distribution of wealth and income, the health of the global and regional ecosystems (including the climate), the quality of trust and social interactions at multiple scales, the value of parenting, household work and volunteer work. We therefore need to measure human progress by indicators other than just GDP and its growth rate.
The decoupling delusion simply props up GDP growth as an outdated measure of well-being. Instead, we need to recouple the goals of human progress and a healthy environment for a sustainable future.
James Ward, Lecturer in Water & Environmental Engineering, University of South Australia; Keri Chiveralls, Discipine Leader Permaculture Design and Sustainability, CQUniversity Australia; Lorenzo Fioramonti, Full Professor of Political Economy, University of Pretoria; Paul Sutton, Professor Department of Geography and the Environment, University of Denver, and Robert Costanza, Professor and Chair in Public Policy at Crawford School of Public Policy, Australian National University