Upcoming Mallesons seminarsThe Report assesses the economic impact of mitigation efforts to tackle climate change.
What do you need to do?Consider whether you wish to respond to the Report before the Government makes its decision on Australia’s emission targets.
Louis Chiam
Partner
T +61 3 9643 4086
The Government today launched its Australia's Low Pollution Future Report which presents the Treasury’s long awaited modelling on the costs and opportunities of climate change mitigation. The modelling suggests that Australia’s mitigation costs will be significantly reduced if carbon capture and storage (CCS) technology is commercially developed in Australia. The international trading of permits will also help to minimise Australia’s mitigation costs.
Framework
The scenarios underlying the Report’s findings are based on reduction targets of:
- 10% and 25% below 2000 levels by 2020, assuming united global action whereby all countries (including Australia) take on emission reduction obligations from 2013, and
- 5% and 15% below 2000 levels by 2020, assuming a ‘more realistic’ multi-stage global framework where developed countries participate in international emissions trading from 2010 and developing countries join gradually.
The two latter scenarios assume an expanded Renewable Energy Target (RET) of 45,000 GWh per year by 2020 whilst the two former scenarios assume that all pre-existing measures such as the RET, the Mandatory Renewable Energy Target, the NSW and ACT Greenhouse Gas Abatement Schemes and the Queensland Gas Scheme, cease upon the introduction of the ETS.
CCS
The modelling suggests that the development of low-emission technologies including CCS would significantly impact Australia’s mitigation costs.
This is consistent with the Government’s recent announcement to contribute $100 million per annum to speeding up the development of CCS technology and the establishment of the National Low Emissions Coal Initiative.
The assumptions underlying the modelling are different to the assumptions that were released on 3 October 2008. The assumptions underlying the modelling indicate that there are diverse views as to when CCS will be commercially viable and available. The modelling assumed that CCS would be deployed from 2026 to 2033, with a carbon price of $45 to $80 per tonne of CO2-e for coal. Treasury also modelled the scenario where CCS was not available. Without CCS, Australia’s mitigation costs would be 23% higher in 2050 (as compared to CCS being available and efficient in capturing 100% of emissions).
The Report also indicates that CCS’s role in global energy generation will be significant from 2030 but will decline from around 2050 because of competition with zero emission technologies and renewable energy’s increased role in energy generation.
International trade in permits
The modelling suggests that international trade in permits will play a significant role in reducing Australia’s mitigation costs. The assumption associated with the first two scenarios referred to above is that there are no constraints on the international trade in permits, whereas under the second two scenarios, there are constraints until 2020 and then trade is unlimited. Under all scenarios modelled, until 2020, the modelling indicated that Australia would be a net purchaser of permits. This is because Australia faces relatively high mitigation costs as a share of GNP as compared to other developed countries, and less mitigation potential at low-emission prices.
How does this affect you?
The Report will underpin the Federal Government’s final design of the Carbon Pollution Reduction Scheme and the medium term targets, to be announced in December, with the release of the white paper. The Government will consider public responses to the Report before this time.
The Report can be found here.