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A Collaboration of National Community Organisations

Energy issues in Australia

Energy policies are some of the most contentious policies facing Australia. A radical revision of the countrys energy policies and programs is needed to help reduce Australias greenhouse gas emissions, now the highest per capita in the developed world. Australia also needs to protect itself from the impact of decreasing oil supplies and increasing prices. These are matters of great urgency. Second, we need to consider where our energy is used. Table 1 (on the next page) shows energy consumption in households and in industry sectors. From the table we can see that radical reforms to achieve reductions in greenhouse gases particularly need to be made in electricity generation, transport, manufacturing and construction.

Patterns of energy consumption in Australia

Energy use needs to be looked at from two different perspectives: rst, primary energy use by fuel the forms of energy we depend on - and second, energy consumption per sector how we use energy. The graph illustrates vividly our dependence on fossil fuels (oil, black and brown coal and gas) for the sources of our energy. Currently, 95 per cent of our primary energy is derived from fossil fuels.

What are the problems that we face?

There are three crucial problems relating to energy supply and use in Australia. The rst is to ensure that there are sufcient energy sources for the Australian economy and for the daily use of households and citizens. The second is to nd ways of cushioning the Australian economy from the impact of future oil shortages and high oil prices. The third is to nd ways of making very large reductions in greenhouse gas emissions. These problems are interconnected because a policy designed to deal with one has also to nd solutions for the other two.

Figure 1: Total primary energy supply by fuel (1973 - 2010)

Source: ABARE Energy Update 2011: http://adl.brs.gov.au/data/warehouse/pe_abares99010610/ EnergyUpdate_2011_REPORT.pdf

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Table 1: Australias total nal energy consumption by sector, 2009-10. growth 2009-10 % -0.4 2.9 0.9 -0.2 1.2 3.2 1.4 share 2009-10 % 9.2 28.0 38.2 8.3 11.9 4.4 100.00

Sector

2008-09 PJ 341 1007 1404 310 435 157 3653

2009-10 PJ 340 1036 1416 309 440 162 3703

Mining Manufacturing and construction Transport Commercial Residential Other Total

PJ = petajoules

Source: ABARE Energy Update 2011: http://adl.brs.gov.au/data/warehouse/pe_abares99010610/EnergyUpdate_2011_REPORT.pdf

In general terms, the rst issue guaranteeing the availability of energy to support the economy and household use far into the future is only a problem of the cost of supply for particular applications since Australia has abundant energy resources. Australia has large black and brown coal resources: 8 per cent per cent of world reserves of black coal and 15 per cent of world reserves of brown coal. It has the richest reserves of uranium in the world and 1.8 per cent of world natural gas reserves, although only 0.3 percent of world oil reserves. Australia receives around 60 million PJ of solar energy per annum, around 20,000 times the current energy use in Australia. Solar energy could therefore meet all energy demands if it could be satisfactorily harnessed. Australia has many sites with significant potential for wind energy. It has the opportunity to develop fuels from wood and biomass. Australia has abundant sources of geothermal energy with several thousand cubic kilometres of hot, dry granite rock resources. Australia also has the potential to harness ocean energy from waves, tides and currents around its extensive shorelines. Related to current supply, two of our major challenges are rstly, to make the most productive use of the energy we do use and secondly, to manage peak demand for electricity in hot weather (since it is expensive to provide and blackouts can have major economic and social impacts) The second issue, reducing our oil dependency, is the necessary means of lessening the impact of dwindling oil

stocks and high oil prices and also of reducing fossil fuel use and greenhouse gas emissions. The third issue, nding primary energy sources and taking other steps that signicantly reduce our greenhouse gas emissions, is by far the most important since upon its successful resolution may depend the very existence of human civilisation as we know it today. The problem is that such a high percentage of our primary energy consumption is from fossil fuels which, when burnt, are the principal causes of greenhouse gas emissions. The energy problem is not therefore the availability of energy resources. It is rather reducing our dependence on fossil fuels, in particular, black and brown coal for electricity generation and oil for transportation. We need to reduce this dependency as quickly as possible and without major economic disruptions.

What should Australia be doing?

A successful greenhouse gas reduction energy policy needs to have four major strands. The rst is to reduce energy demand. The second is to develop effective economic and market mechanisms that reward improved environmental outcomes. The third is to nd new technologies that signicantly reduce emissions from current energy supply sources. The fourth is to develop clean, renewable energy technologies. The overall challenge

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for Australia is to move strongly towards environmental sustainability while maintaining economic prosperity. Today, energy exports deliver over $25 billion dollars a year in export income. A responsible policy would be to develop clean technologies in areas where Australia has abundant energy supplies, put them in practice at home and use them to supplement and in time replace our current fossil fuel exports. Reducing demand Reducing demand, the rst strand, is essential because changes in supply are difcult to make in the short term due to the huge investments in existing technologies and the time needed to bring about major change. Changing demand for energy can, by contrast, be accomplished more quickly, in many cases through a combination of changing behaviour, eliminating waste, investing in low cost energy saving measures and ensuring that all major investments incorporate energy efciency. This does not mean that demand reduction is easy to accomplish, but rather that it is feasible with full commitments from all sectors of society. Using market measures The general principle underlying most market mechanisms, the second strand, is to price carbon emissions so that the polluter pays. The right price signals are then sent to the market encouraging business innovation and enterprise. One market mechanism is emission trading. Under emission trading regimes a limit is set on the amount of carbon dioxide that can be emitted. Companies that exceed their limits are required to purchase or trade permits from other companies which have lower emissions. In the past this option is has been favoured by many economists because it allows participants to minimise the overall cost of compliance with a given target by trading among themselves. An international trading scheme, as has been implemented by the Kyoto Protocol, binds nations to setting caps on carbon emissions with the intention of trading in permits on the international market and facilitating investments in emissions reductions in developing countries. An alternative market mechanism is a carbon tax, a type of pollution tax on the use of fossil fuels. A carbon tax penalises polluters, rewards those who use clean, green technologies and contributes to the expansion of low

emission alternatives. Sweden, Finland, the Netherlands and Norway have introduced carbon taxes since the 1990s. Many of these countries have both an emissions trading scheme and a carbon tax. Recently, there has been increasing interest from economists in carbon taxes because they are simpler to understand, use and manage. Another mechanism is the use of subsidies to make energy alternatives cheaper than they would otherwise be. Recent examples include direct nancial incentives for more efcient energy use by households, such as low interest loans for Australian households wanting to implement energy and water savings, rebates for better insulation of rental homes, and rebates for rooftop solar panels. Australia should be actively using these market mechanisms, particularly putting a price on carbon, since economists widely agree that it is the most environmentally effective (and cheapest) way to reduce emissions whilst also creating incentives for the development of clean technologies. Reducing the impact of existing energy technology The third strand is to nd new technologies that signicantly reduce emissions from current energy supply sources. Energy sources such as renewable energy, low emission coal, LPG or natural gas, could replace conventional coal and petroleum. COAL21, a partnership between the coal and electricity industries and Federal and State governments, is also seeking to discover ways to eliminate greenhouse gas emissions from coal-based electricity. COAL21 is evaluating several technologies such as carbon sequestration, which involves capturing carbon dioxide and storing it deep underground. Other energy efciency gains can be made through the development of solar cities, improving building designs and creating more efcient machines and appliances and encouraging co-generation. Using non-polluting energy supplies The fourth strand is to develop clean and renewable energy technologies. The ve main potential technologies are wind, solar, biomass, geothermal and ocean energy. The rst three are the fastest growing alternative technologies around the world. In Australia they still only provide a very small percentage of electricity supply and none as yet compete with coal in price. It is nevertheless on these technologies that attention needs to be focused because we will need to rely on them to a signicant degree in the future.

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There are two other much less attractive options for future development. The rst is an extension of Australias hydro energy resources, while the the second is the development of nuclear reactors. In operation, neither emits greenhouse gases, but each have problems. Building a dam has high environmental costs (including disruption of riverine environments, stream ows and habitats) whereas uranium mining and reactors pose many problems such as environmental, health and safety risks and the storage of nuclear wastes. The Gillard Governments stance on nuclear issues remains ambiguous. The 2009 Federal Budget included funds for both an international nuclear disarmament commission and funds to continue with the previous governments plans to site a radioactive waste dump somewhere in remote Australia. Readers interested in clean technologies are referred to the Collaborations Clean Energy Alternatives fact and issue sheet.

Under the Clean Energy Future program, two new bodies will also be created. The new Clean Energy Finance Corporation will commercialise and deploy clean technologies. The Australian Renewable Energy Agency, a new and independent statutory body, will enable the research, development and commercialisation of renewable energy in the early stages. The existing Renewable Energy Target and associated schemes remain, with the aim of ensuring that 20 per cent of Australias electricity supply will come from renewable sources by 2020. It was previously unclear how this target was to be met. Businesses will be supported in efforts to reduce emissions through Low Carbon Australia, a new entity combining public and private funding, innovative business approaches and technical knowledge. A further initiative is Skills for the Carbon Challenge, which will establish training resources and qualications to train Australians for future green-collar jobs. Households will continue to be supported in their emissions reductions efforts through existing measures. For example, the National Strategy on Energy Efciency, an agreement between federal, state and territory governments, aims to deliver estimated energy savings of 32,000 gigawatt hours per year by 2020, more than 14 per cent of all electricity generated in Australia. In the land sector, nancial incentives will be created to motivate land-based action such as the storing of soil carbon, revegetation and forest conservation. In September 2011, the Gillard Government introduced to Parliament the rst of 18 bills to give effect to the governments carbon price regime and also launched a statutory body to advise the government of the day on pollution caps, carbon budgets, the credibility of international emissions units and the performance of the carbon pricing mechanism. The bills will establish a xed $23-a-tonne price on carbon pollution from mid-2012 and an emissions trading scheme with a oating price to begin three years later. The bills were formally enacted in November 2011.

What is Australia currently doing?

Under its Kyoto Protocol commitments, Australia is obliged to slow growth of its carbon pollution emissions to 108 per cent of 1990 levels in the rst compliance period, now nearing an end. Due to the unstable political and economic climate, energy policies to support this aim have remained vague until recently. In July 2011, the Gillard Government announced an extensive suite of reforms, called Clean Energy Future, aimed at reducing carbon pollution and supporting clean energy sources. The plan includes: putting a price on carbon pollution, promoting innovation and investment in renewable energy, improving energy efciency and creating opportunities in the land sector to cut pollution. Prior to the announcement of the new program, three major reports were released: the Climate Commissions report, the Garnaut Climate Change Review and the Productivity Commissions 2011 report. Both the Garnaut Review and the Productivity Commission recommended putting a price on carbon. Treasury modelling shows that the economy will continue to show strong growth despite the use of such means to trigger an eventual transformation to a carbon free economy.

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Useful sources
The Governments current policy and action on climate change: http://www.climatechange.gov.au/government.aspx Australian Bureau of Agricultural and Resource Economics (ABARE), Energy Update 2011: http://adl.brs.gov.au/data/warehouse/pe_abares99010 610/EnergyUpdate_2011_REPORT.pdf This site lists energy consumption and productions statistics for 1973-74 to 2009-10. A Clean Energy Future for Australia http://www.wwf.org.au/news_resources/resource_ library/?1390/A-clean-energy-future-for-Australia This Word Worldlife Fund publication sets out means of achieving a clean energy future for Australia. International Energy Agency, World Energy Outlook 2010 : http://www.worldenergyoutlook.org/ This is a comprehensive analysis of world energy trends, projections and assessments, with a particular emphasis on India and China. The Productivity Commission (2006), The Private Cost Effectiveness of Improving Energy Efciency, Productivity Commission Inquiry Report, No. 36, 31 August 2005, http://www.pc.gov.au/projects/inquiry/energy/docs/ nalreport This is an examination of the economic and environmental potential of energy efciency measures.

The Productivity Commissions 2011 report, Carbon Emission Policies in Key Economies : http://www.pc.gov.au/projects/study/carbon-prices/ report The Australian Government Department of Resources, Energy and Tourism released a 93-page report on energy in Australian in February 2008: http://adl.brs.gov.au/data/warehouse/pe_abarebrs99 001417/energy_in_aust_08.pdf See also Australian Conservation Foundation http://www.acfonline.org.au

Author
David Yencken, Professor Emeritus University of Melbourne and Dr Siobhan Murphy. Last revised January 2012.

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