THE LOST YEARS
AUSTRALIAN ABATEMENT COST
CURVE – TO 2020 & 2030
MARKET BRIEFING
AUSTRALIAN EMISSIONS MARKETS
R E S E A R C H - M A R K E T A N A LY T I C S - A D V I S O R Y
– SUBMISSION –
A MARGINAL ABATEMENT
COST CURVE FOR
AUSTRALIA TO 2020 & 2030
April, 2015
SUMMARY
REPUTEX SUBMISSION – APRIL 2015
THE LOST YEARS – MARGINAL ABATEMENT COST CURVE TO 2020 & 2030
With the government’s Direct Action Plan now enacted, and Australia’s 2030 emissions
reduction target to be presented in the first half of the year, in this submission, we provide
analysis of Australia’s low carbon pathway to 2020 and 2030, analysing the remaining
emissions reduction opportunities across the Australian economy, and the sectors and
activities with the largest potential to drive Australia’s low carbon future.
Analysis indicates that Australia’s 2030 emissions reduction opportunities are rapidly
decreasing, with policy uncertainty and delays in investment leaving the economy with
fewer options to reduce emissions, and a higher cost to implementing abatement projects.
This submission is a summary of RepuTex’s Carbon Market Update, titled “The Lost Years –
An updated Marginal Abatement Cost curve for Australia to 2030”, published under our
Carbon Market Intelligence and Carbon Market Analytics services.
This Carbon Market Update was published in January, 2015.
RESEARCH LEADS
Hugh
Grossman
RESEARCH
LEADS
Executive
Director
Hugh Grossman
[email protected]
Executive Director
[email protected]
Bret Harper
Associate
Director, Research
Bret Harper
[email protected]
Associate Director, Research
[email protected]
CLIENT SERVICES
Australian
Emissions Markets
CLIENT SERVICES
Tel:
(613) 9600
0990 Markets
Australian
Emissions
[email protected]
Tel: (613) 9600 0990
[email protected]
SALES
[email protected]
SALES
CONTACT
RepuTex
Australia
CONTACT
Level
2, 443
Little Collins St
RepuTex
Australia
Melbourne,
3000 St
Level 2, 443Victoria
Little Collins
Tel:
(613) 9600
0990 3000
Melbourne,
Victoria
Tel: (613) 9600 0990
Tel:
+613 9654 7099
[email protected]
Tel: +613 9654 7099
R E S E A R C H - M A R K E T A N A LY T I C S - A D V I S O R Y
– SUBMISSION –
A MARGINAL ABATEMENT
COST CURVE FOR
AUSTRALIA TO 2020 & 2030
April, 2015
BACKGROUND TO THE RESEARCH
AN UPDATED MAC CURVE FOR AUSTRALIA – TO 2020 AND 2030
» With the government’s Direct Action Plan now enacted, and Australia’s 2030 emissions reduction
target to be presented in the first half of the year, in this submission we provide analysis of Australia’s
low carbon pathway to 2020 and 2030 in order to gain an understanding of where Australia’s emissions
reductions are expected to come from, and the economic cost of such action.
» The report is the first to look at Australia’s marginal cost of abatement in 2030 since research by
McKinsey & Company in 2008, which found:
• By 2020 Australia could achieve emissions reductions of 37 per cent on 2000 levels
• By 2030, Australia’s abatement potential could grow to a 60 per cent reduction on 2000 levels
without major technological breakthroughs or lifestyle changes.
» Similarly, research undertaken by ClimateWorks in 2010 found that Australia has the potential to reduce
greenhouse gas emissions by 25 per cent on 2000 levels by 2020.
» Since that time, the Australian economy has undergone a significant period of transition. Resultantly,
emissions baselines and the assumptions underpinning the former McKinsey analysis are no longer
accurate, changing the attractiveness of abatement activities.
» In this report, we re-visit the remaining emissions reduction opportunities across the Australian
economy in 2020 and 2030, and highlight the sectors and activities with the largest potential to drive
Australia’s low carbon future.
» Analysis takes account of changes in gas and electricity prices, electricity demand and policy, including
the repeal of the carbon tax.
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– SUBMISSION –
A MARGINAL ABATEMENT
COST CURVE FOR
AUSTRALIA TO 2020 & 2030
April, 2015
OUR RESEARCH APPROACH
OUR RESEARCH APPROACH
» RepuTex analysis provides an updated estimate of the emissions reduction potential across the
Australian economy in 2020 and 2030, analysing opportunities to reduce emissions across six key
sectors – power, forestry, industry, buildings, agriculture and transport.
» Analysis identifies actions to reduce emissions, barriers to their implementation and their relative cost.
» In undertaking our analysis, RepuTex examined 88 abatement activities considered feasible by 2025.
These were combined to form a projected Marginal Abatement Cost curve for 2020 and 2030.
» Analysis was undertaken in line with RepuTex’s Marginal Abatement Cost Model, taking account of
market barriers such as:
• Availability of technology and capital;
• energy demand forecasts,
• new and expanded facility production rates,
• power capacity forecasts, and
• expected learning curves.
» Analysis examined the underlying abatement cost of each activity, with behavioural changes and
carbon pricing excluded from the analysis.
» Rather than reflect the “physical maximum” abatement potential of each abatement measure, RepuTex
analysis is undertaken to identify “realistic” emissions reduction potential, taking into account market
constraints such as the availability of technology and capital stock.
» This provides the market with a broad understanding of the abatement potential across the Australian
economy, and ‘real world’ implications for industry, enabling a more general understanding of
abatement opportunities in light of current policy.
R E S E A R C H - M A R K E T A N A LY T I C S - A D V I S O R Y
– SUBMISSION –
A MARGINAL ABATEMENT
COST CURVE FOR
AUSTRALIA TO 2020 & 2030
April, 2015
KEY ASSUMPTIONS
OUR RESEARCH APPROACH
» Key assumptions
• Given the initial release date of this report (January, 2015), analysis applies government 2014
emissions projections, rather than updated figures released in March 2015.
• No carbon price is assumed after 2014
• A 27 TWh LRET (2020-2030) is applied – comparable with updated government projections
» Identification of Energy Saving and Emissions Reduction Opportunities
• Opportunities must be applicable to Australia and not already business-as-usual
• New technologies must be demonstrated at pilot stage and commercially viable by 2025
• Behavioural changes, e.g. turning off lights, are not considered
» Calculation of Emissions Reduction Volumes
• Where overlap occurs, the lowest cost is assumed to realise the total abatement potential
• Emissions reductions are weighted towards building energy efficiency at the expense of the
power sector
» Calculation of Emission Reduction Costs
• Incremental cost of implementing measure are relative to cost that would otherwise occur
• E.g. wind cost (investment and operational) vs. BAU grid power
• Marginal cost given calculated on cost/savings in particular year and annualised capital
investment over project lifetime at 10% WACC
• Costs for individual measures calculated on series of top-down assumptions based on insights
from approximately 20 national studies on GHG emission reductions.
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– SUBMISSION –
A MARGINAL ABATEMENT
COST CURVE FOR
AUSTRALIA TO 2020 & 2030
April, 2015
KEY FINDINGS
AUSTRALIA'S ABATEMENT POTENTIAL DECREASING
CHART: Emissions reduction potential below 2000 Levels in 2020 and 2030 by sector – RepuTex (2015) versus
McKinsey (2008) and ClimateWorks (2010)
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– SUBMISSION –
A MARGINAL ABATEMENT
COST CURVE FOR
AUSTRALIA TO 2020 & 2030
April, 2015
CUT OF 15%
ACHIEVABLE BY 2030
UNDER CURRENT POLICY
SETTINGS
KEY FINDINGS
AUSTRALIA'S ABATEMENT POTENTIAL DECREASING
» Analysis indicates that by 2020 Australia could achieve cut emissions by 130 MtCO2e, or 5 per cent on
2000 levels. By 2030, abatement could grow to 300 MtCO2e, a 15 percent cut below 2000 levels.
» Notably, removing all carbon abatement opportunities above $100 per tonne, abatement potential in
2020 is further reduced to just 110 MtCO2e, increasing to 260 MtCO2e in 2030, equivalent to an
emissions reductions of 2 percent below 2000 levels by 2020, increasing to 8 percent below by 2030.
» The findings are a significant decrease on earlier research undertaken by McKinsey in 2008, and also
represent a significant downgrade on research undertaken by Climateworks in 2010.
» Earlier research relied heavily on a clean power sector, resulting from a large number of clean
generators dominating the energy mix including: 1) high gas and solar thermal w/storage
penetration, 2) CCS for non-retired coal generators
» Higher gas price forecasts, lower wholesale electricity prices, an uncertain RET, absence of a
carbon price, and limited CCS progress have led to significant “loss” for this sector
COST OF ACTION
ENERGY EFFICIENCY TO
PLAY KEY ROLE
» The total cost of implementing all emissions reduction opportunities is estimated to be $5.3b in 2020,
increasing to $10.6b in 2030. Notably, the estimated cost of Australia’s 2020 emissions reductions is
more than double the $2.55 billion allocated to the Emissions Reduction Fund (ERF).
» By 2030 the forestry, industry and power sectors are likely to provide the largest share of abatement
across the Australian economy, contributing approximately 75 per cent of all emissions reductions.
» Energy efficiency activities will play the largest role, contributing over one third of all abatement
through to 2030, with many projects to be ‘negative cost’– saving money over the life of the project.
IMPACT OF POLICY
UNCERTAINTY
» A significant portion of Australia’s abatement potential has been lost due to delayed investment
stemming from policy uncertainty, notably with respect to carbon pricing, the CFI, and the Renewable
Energy Target. Without polices to preserve rural carbon stocks or encourage the most efficient
buildings in urban areas, remaining abatement options are now both fewer and more expensive.
R E S E A R C H - M A R K E T A N A LY T I C S - A D V I S O R Y
– SUBMISSION –
A MARGINAL ABATEMENT
COST CURVE FOR
AUSTRALIA TO 2020 & 2030
April, 2015
DETAILED FINDINGS
AUSTRALIAN MARGINAL ABATEMENT COST CURVE – 2030
R E S E A R C H - M A R K E T A N A LY T I C S - A D V I S O R Y
– SUBMISSION –
A MARGINAL ABATEMENT
COST CURVE FOR
AUSTRALIA TO 2020 & 2030
April, 2015
IMPACT OF UPDATED PROJECTIONS
IMPACT OF CHANGES SINCE JANUARY PUBLICATION
Updated emissions projections
» Analysis in this report was undertaken prior to the release of the government’s updated emissions
projections (March 2015). Should the government’s updated emissions projections be applied, we
anticipate the following changes to our 2030 MAC analysis.
• Lower, more accurate data on today’s emissions would be expected to reduce abatement
potential for some sectors, while a higher global warming potential of methane would increase
the CO2-e abatement potential from methane reduction based projects, for example:
– Lower, more accurate agricultural emissions, would be expected to result in less
abatement potential from grazing and grassland management
– Lower and later fugitive emissions growth from the most emissions intensive facilities,
would be expected to result in less abatement potential from ventilation air methane
and CCS.
• A lower oil price is likely to result in fewer vehicle efficiency improvements and increased
driving, which is excepted to result in higher abatement potential, yet also higher marginal
abatement costs due to lower fuel savings.
Large-scale Renewable Energy Target (2020-2030)
» A higher RET target would reduce the abatement potential across the Power Sector opportunities
RESEARCH LEADS
CLIENT SERVICES
CONTACT
outlined in this MAC curve as Australian
emissions
reductions would be shifted
into a lower baseline projection.
Hugh Grossman
Emissions Markets
RepuTex Australia
Executive Director
Carbon compliance scheme
[email protected]
Tel: (613) 9600 0990
[email protected]
Level 2, 443 Little Collins St
Melbourne, Victoria 3000
(613) 9600
0990 and penalty
» The implementation of a carbon compliance scheme, such as Tel:
a rigorous
baseline
Bret Harper
SALES
mechanism or emissions trading scheme, has the potential to significantly lower the marginal
Associate Director, Research
[email protected]
abatement cost of abatementTel:
and+613
expand
expectations for realistic abatement potential.
[email protected]
9654our
7099
R E S E A R C H - M A R K E T A N A LY T I C S - A D V I S O R Y
– SUBMISSION –
A MARGINAL ABATEMENT
COST CURVE FOR
AUSTRALIA TO 2020 & 2030
April, 2015
CONCLUSIONS
AUSTRALIA’S 2030 EMISSIONS REDUCTION TARGET
» The MAC analysis presented suggests that without additional policies to transition Australia’s carbonintensive economy, domestic emission reductions of only 8 – 15 per cent less than 2000 levels by 2030 are
realistic.
» This is well below the Climate Change Authority’s recommendations, indicating that extra rules will be
required to unlock the abatement of additional opportunities available in Australian, while Australia may still
need to invest in other emission reductions in order to meet a 2030 emissions target – particularly should
the target be designed to reflect Australia’s international carbon budget.
» Government policy will be key to stimulating supplementary emissions reduction activity by increasing the
economic incentive for companies to invest in activities to achieve future emissions reduction targets.
» For example, by establishing a carbon compliance/safeguard market, businesses will be given a clear
signal to invest in emissions reduction technology, ensuring that inefficient technologies are not locked in
to the Australian economy. In particular, emissions reductions in the transport, power, industry and
building sectors could be unlocked under a carbon compliance market which is able to incentivise
investment by industry.
» As a result, developing emissions reduction policy in collaboration with a long-term emissions target is
able to embed emissions reduction price signals into day-to-day decision making. This is a critical measure
by which to assess the success of any climate policy.
» Given the need to reduce future greenhouse gas emissions through the implementation of abatement
activities today, policy makers should not disregard higher-cost abatement activities that may take longer
to implement, but result in more larger and more permanent abatement of emissions.
» It is therefore favourable for policy makers to design policy for high emitting businesses to begin
implementing cost-effective, long-term abatement options prior to exhausting the negative cost abatement
options that will be the most profitable under, for example under the Emissions Reduction Fund.
» Exhausting lower (or negative) cost abatement activities first may result in one-time cost-savings, but with
components that must be replaced to maintain emissions reductions after the cost savings have occurred.
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C O N TA C T R E P U T E X :
For additional information, please contact:
RepuTex Client Services
[email protected]
Melbourne
2/F, 443 Little Collins Street Melbourne
Tel: (613) 9600 0990
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