21 July, 2011

The Clean Energy Agreement

The following information comes from the New South Wales edition of the Sustainable Business Weekly....with some editorial comment from the ASBG QLD State Manager

Release of the Multi-party Climate Change Committee Clean Energy Agreement by the Federal Government has been long awaited and provides much needed clarity over the implementation of Australia’s carbon price.

In the release of such a comprehensive legislative change there are bound to be many issues.

Given that the design of the carbon tax program was not debated nor discussed at the public level, will mean there will inevitably be issues with the package.

Already there have been a number of issues arise with the program. ASBG (NSW) has identified a number of areas of concern including:
 Establishing a fixed and growing price for carbon, which is considered high compared to international prices for carbon and international linking.
 The types of funding available under the Clean Energy Finance Corporation (CEFC).
 Coverage of the scheme on specific area, eg heavy vehicles, domestic air travel etc.

As discussed in prior SBWs the setting of a fixed carbon price contains problems at the time of transition to a fully floating price based on an internationally linked carbon market.

Overall the price of $23/t CO2-e is considered to be too high as is already
much higher than the EUA (EUs trading scheme unit price) of €12.36/t CO2-e
(A$16.31). In addition, the Australian carbon price is set to reach $25.40 in
201415. Note the future EUA price Dece 2014, is currently €14.84 (AUS$19.58). The package proposes that after the fourth year a full floating carbon market will be formed with the price determined by the market, driven in part by a cap on the amount of carbon permitted to be emitted. Under this flexible price period, international
emissions units will be permitted.

However, less than 50% of emission credits will be permitted to be obtained
from overseas sources. Though this 50% will be reviewed in 2016.

Supporting this flexible arrangement is the setting of a price cap and floor price.
The floor price is set at $15/t CO2-e, but this is also inconsistent with the EUAs
which are permitted to trade below this rate.

Overall, if the international price for carbon remains soft, then come 2014,
Australia will have some of the world’s highest priced carbon units and most of
the investment will be in purchases overseas rather than action within
Australia. Up to half of our carbon tax will be exported. ASBG is not sure what
impact this will have on the budget commitments that have been
established, but may result in a budget deficit for the carbon scheme.
Bankability of carbon credits will also be affected under a lower priced
international carbon unit. Companies will not bank high priced carbon permits
where in the next year or two it is clear that lower priced units will be available.

Funding arrangements under the package appear most heavily influenced
by the Greens. Most notable is the removal of Carbon Capture and Storage
(CCS) from funding under the package.

It seems remarkable that Australia the world’s largest exporter of coal should
abandon such research.

(Editor's Note: A number of high profile large scale attempts at Carbon Capture and Storage projects have already failed including ZeroGen. Carbon capture is very easy (dissolving CO2 in liquid amines), but Carbon storage is near impossible and prohibitively expensive. It is no surprise that CC&S has fallen from favour)

Gas is considered the key transitional fuel to a low emissions economy, by its
replacement of coal, but is not supported. Gas prices are expected to
rise by $1.25/GJ as a direct result of the $23/t CO2-e. Nevertheless, the closure
of one of Victoria’s brown coal power plants will result in it being replaced by
gas fired generation. This will have demand pull implications for the national
gas market of around 1000 PJ/yr. Price increases from increased demand will
add to the increased gas prices.

However, the funding and grant arrangements under the CEFC are only
for renewable energy. Considering the RET scheme already supports rapid
increases in renewable generation there appears to be a significant gap in the
management of gas and other intermediate transitional technologies.

Solar and wind generation if not supported by alternative power
generation supplementary supply can cause significant inefficiencies in
existing power generation. For example, when the wind blows and the
sun shines, large quantities of power flow from the renewable. This causes
the turn down or shut off of coal powered generation, causing these
plants to operate far from their ideal efficiency, causing excessive carbon
generation. So when the wind does not blow and it is cloudy, the coal
generation is called upon to operate at maximum capacity, again away from its
efficiency maximum. A better approach is to use gas peaker plants and a far
better managed funding arrangements taking all transitional and renewable
systems into account. It appears the package is too heavily focused on
renewable energy sources and fails to consider transitional and base power
load requirements of Australia.

(EDITORS NOTE: I don't think the Author has considered energy storage - molten salts & the load balancing potential of electric vehicles).

Coverage of the Carbon price is another area of issue. While the standard
trigger of 25,000 t CO2-e per annum is no surprise the 10,000 t CO2-e for
landfills is. More curious is the impact on transport fuels, in which the
document states:
 A carbon price will not be applied to transport fuels (including diesel,
petrol, LPG, CNG and LNG) used by cars, light commercial vehicles,
agriculture, forestry and fishery activities.
 Other business transport emissions (including mining) and non-transport
emissions from the use of liquid fuels, LPG, CNG and LNG will be
subject to an effective carbon price.

 As aviation fuels do not receive fuel tax credits, domestic aviation fuel
excise will be increased by an amount equivalent to the carbon price.

International aviation fuel use will not be covered as this is subject to international negotiations.

Light commercial vehicles includes trucks under 5 tonnes. Heavy vehicles
are not part of the package and will be covered separately. In addition,
domestic air travel will therefore increase in price is probable. The
treatment of liquid fuels is complexed by the use of fuel tax credits for many
industries. But the apparent intent is to put a carbon tax on these fuels for such
businesses on top of any credit for fuel excises.

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