Speech to Bloomberg New Energy Finance: Future of Energy Conference
Tuesday, 3 November 2015
Speech to Bloomberg New Energy Finance: Future of Energy Conference
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I am delighted to be here today at the Future of Energy Summit hosted by Bloomberg New Energy Finance.
Australia and China have a strong and enduring relationship that is helping advance renewable energy technologies, emissions reductions and a cleaner environment.
Australia and China have a ministerial partnership on climate change, which commits both parties to promote joint activities on energy efficiency, capacity building, and emissions data. Australian businesses are exporting expertise and technology to China. Chinese businesses are investing in renewable and low emissions infrastructure in Australia.
The world is working towards a goal of limiting global temperature rise to below 2oC. The Paris UNFCCC Conference will be an important step towards achieving this goal. I commend China on the steps that it is taking to be a constructive contributor to achieving this goal.
It is important not to underestimate the challenges in moving to lower emissions energy and meet ambitious climate change targets. The transformations required are significant and financing the energy infrastructure of the future is a major opportunity for investors.
The Australian Government’s renewable and emissions reduction polices and our focus on innovation support this transformation. Australia is reducing emissions through our Direct Action policies, centred on the Emissions Reduction Fund, which has seen the largest purchase of abatement in Australia’s history.
Australia also excels in the development and deployment of renewable energy technologies through the Renewable Energy Target and investments made by the Australian Government through the Australian Renewable Energy Agency and Clean Energy Finance Corporation.
The Emissions Reduction Fund, Australian Renewable Energy Agency and Clean Energy Finance Corporation provide $15 billion in direct support for renewables and energy efficiency.
Other actions are also needed and tomorrow I will be heading to Dubai to lead Australia’s delegation to the Meeting of the Montreal Protocol, where we will be seeking to reduce global ozone and synthetic greenhouse gas emissions.
The Montreal Protocol has already achieved significant environmental outcomes, but I am confident we can do even better.
Today I want to focus on the positive agenda that the Australia has in place to harness energy innovation, support renewables and reduce emissions. Specifically, I would like to discuss:
1. The Australian Government’s support for renewables and a low emissions energy future
2. Australia’s climate change targets and the international context
3. Clean air, cities and the Australian built environment.
1. Supporting a renewables and a low emissions energy future in Australia
1.1. Supporting renewables
Like other parts of the world, Australia is undergoing profound changes in the way we produce, distribute and use energy.
In Australia, we are transforming the way we produce electricity through renewables, the roll out of battery storage and increased energy efficiency at home and in industry. This is occurring as older coal plants retire – a process which has already started.
To ensure we capture all the opportunities, I recently created the Office of Climate Change and Renewables Innovation within the Department of the Environment.
The Office represents a strengthened alignment of our policy machinery, giving a fresh focus to the role of innovation in supporting renewable and low emissions technology outcomes, and to step up our efforts to cut emissions.
The Office brings together a number of government agencies – Clean Energy Regulator – a body which administers Australia’s greenhouse accounts, Renewable Energy Target and Emissions Reduction Fund; Clean Energy Finance Corporation – a body which finances renewable, low emissions end energy efficiency projects; Australian Renewable Energy Agency – a grants body which aims to commercialise renewable energy technologies; and the climate change and renewable energy functions from the Department of the Environment.
The Office concentrates some $15 billion of incentives in clean technologies, innovation and emissions reduction. This ensures our efforts remain future focused by setting the direction of climate and renewables research in Australia, in particular solar and energy storage.
The contribution of renewables to Australia’s overall energy mix is rising. Today, renewables comprise around 13 per cent of Australia’s electricity generation. This will rise to 23.5 per cent by 2020 under the Renewable Energy Target.
Putting this into perspective, the Renewable Energy Target requires the same amount of large-scale renewable energy to be built in the next five years as has been built over the past 15 years. This is a significant goal – but one which is achievable.
The Renewable Energy Target creates an ongoing financial incentive for the establishment of renewable energy project proponents such as in solar, wind and hydro. Under the RET, we have recently seen some major new investments in the large scale renewables in Australia.
Australia has a proud record on solar energy, already with the highest proportion of households with solar panels in the world.
Already more than 2.4 million solar PV and hot water systems have been installed across Australia. Australia has the highest proportion of households with solar panels in the world –15 per cent. The next largest is Belgium at around 7.5 per cent and then Germany at 3.7 per cent.
More than $3,000 in Government mandated rebates are provided under the Renewable Energy Target for an average solar PV system. This is about 30 per cent of the total cost of installation.
In addition, the Government provides an immediate tax deduction for small business asset purchases valued up to $20,000. Solar PV, solar hot water systems, heat pumps and batteries are all eligible.
Australia’s high rate of household solar in the world makes Australia an ideal place to develop storage and battery technology. Morgan Stanley estimates that up to a million Australian households could have solar storage systems by 2020.
The Australian Renewable Energy Agency has already invested more than $80 million across 20 projects involving storage with a total project cost of more than $200 million.
For example, on King Island in Tasmania, the Government has provided over $6 million for an $18 million project for a hybrid power system including storage, which will supply over 65 per cent of King Island’s energy needs using renewable energy, thereby reducing carbon dioxide emissions by more than 95 per cent.
Australian companies are exporting our renewable and storage technologies.
The Australian Government through the Australian Renewable Energy Agency and the Clean Energy Finance Corporation helps to successfully commercialise Australian renewable technologies which are now being deployed in China.
For example, RayGen Resources is trialling in collaboration with China Three Gorges, new technology which uses an array of sun-tracking heliostat mirrors to focus sunlight onto a very efficient central receiver, converting a high proportion of sunlight to power.
Another Australian start-up company worth mentioning is Renergi. Renergi grew out of Curtin University in Western Australia, with the aim of commercialising some of its bioenergy ideas. Renergi’s Professor Chun-Zhu Li has developed world leading technology that is able to convert biomass to electricity and fuels. Because the technology has been designed to convert biomass as an augmentation for coal – there is a huge opportunity to use Renergi’s technology to reduce emissions from coal-fired power plants and increase their efficiency.
The Australian Government is also co-investing in a venture capital initiative with a China-based investor to help early stage Australian renewable energy companies overcome capital constraints, develop technologies, increase skills and forge international connections.
The Australian Renewable Energy Agency and Shanghai-based, Softbank China Venture Capital, have each committed up to $60 million capital to a $120 million fund. To date, the fund, which is overseen by an Australian private sector fund manager, has six investments totalling $31 million. The most recent of these was a $6.4 million investment to enable a Queensland-based company, Octillion Power Systems Australia, to further develop advanced lithium-ion battery storage solutions for Australian and global markets.
The fund has also made a $5.9 million investment in another Queensland-based storage company, Hydrexia. Hydrexia’s high performance and low-cost ground storage and mobile delivery hydrogen storage systems have the potential to play an important role in industrial-scale renewable energy generation.
The Clean Energy Finance Corporation and Australian Renewable Energy Agency are now working jointly support the deployment of large scale solar with a $350 million package. With ARENA providing $100 million in grant funding and the CEFC $250 million in debt finance, this innovative approach will see the development of up to 10 large scale solar farms.
1.2. Low emissions fossil fuels
Australia is already transitioning to cleaner electricity generation sources - opening new renewable projects and retiring emissions-intensive electricity capacity in an economically and socially responsible manner.
Between 2010 and 2022, just under one third of Australia’s emissions-intensive electricity capacity has or is projected to retire. Between 2014 and 2020 large scale renewable electricity generation under the Renewable Energy Target is expected to almost double.
The development and deployment of low emissions technologies will be critical to addressing climate change. To support new low emissions fossil fuel technologies the Australian Government is supporting carbon capture and storage technologies and low emissions gas and coal technologies. Three examples are worth mentioning.
The CarbonNet project in Victoria has undertaken significant work into building a CCS hub collecting CO2 from Latrobe valley industries, including coal fired power stations plants, for transfer and storage in the depleted oil and gas fields in the Bass Straight, South of Victoria. The project offers exciting opportunities not just for the storage of CO2 associated with power generation, but industries such as hydrogen production.
The Gorgon CO2 injection project off the North West Shelf of Australia aims to inject 120 million tonnes of CO2 at rates of 3.5 to 4 million tonnes of CO2 per annum from natural gas into aquifers under Barrow Island. When fully operational next year, it will be the world’s largest commercial scale CO2 injection facility.
The Australian Government has provided $12 million to a carbon dioxide capture technology demonstration project under the Australia-China Post Combustion Capture Feasibility Study. The project aims to transfer knowledge to low emissions fossil fuel technology projects in Australia, reducing deployment costs and risks in China.
2. Australia’s climate change target and Direct Action
While Australia accounts for less than 1.3 per cent of global emissions, we are committed to playing our part in global efforts to combat climate change. We want to see Paris UNFCCC take a significant step towards achieving our 2oC goal.
The Australian Government has set a challenging emissions reduction target which will see emissions fall by 26-28 per cent below 2005 levels by 2030. This is the equivalent of reducing emissions per capita by up to 52 per cent – the equal largest reduction of G20 economies.
When expressed against a common base year of 2005, Australia’s target is similar to those announced by the United States, the European Union, Canada, Japan and New Zealand.
The target will be achieved using the Emissions Reduction Fund, its safeguard
mechanism and policies that increase productivity, reduce costs and enhance technology.
I can say with confidence that we will meet our targets because Australia has a strong track record on climate change.
Australia met and beat its Kyoto Protocol first commitment period target. And we are on track to meet and beat our 2020 target of a five per cent reduction on 2000 emissions levels by 2020.
Australia’s efforts to reduce emissions have been significant given our strong population and economic growth.
The Australian economy is entering its 25th consecutive year of growth and is forecast to strengthen further over the next few years. This is the second longest continuous period of growth of any advanced economy in the world. In addition, our projected population growth is much higher than the OECD average.
Our strong economic and population growth puts significant upward pressure on our emissions.
Yet despite this, Australia is continuing to decrease the emissions intensity of production and reduce emissions per person.
Between 2000 and 2013, Australia’s absolute emissions declined by two per cent while our domestic economy increased nearly 50 per cent and population grew strongly.
We will reduce emissions per capita by up to 52 per cent below 2005 levels by 2030, the equal highest of all major economies.
In terms of the emissions intensity, our effort is even greater. We will reduce the emissions intensity of our economy by up to 65 per cent below 2005 levels by 2030.
2.1. Direct Action - the Emissions Reduction Fund and Safeguard Mechanism
The Emissions Reduction Fund provides positive incentives for the Australian community and businesses to reduce emissions in ways that lower energy use and input costs and increase productivity.
And it is already achieving significant results. At its first auction in April this year, 144 projects were contracted to deliver 47 million tonnes of abatement at an average price of $13.95 per tonne. These cover projects across the vegetation, waste, agriculture and transport sectors.
To say I am enormously pleased with this result would be an understatement. I think it demonstrates the great potential of the Emissions Reduction Fund to deliver real outcomes by focusing on positive support for emissions reduction, rather than the carbon tax or emissions trading scheme model which penalises businesses as well as mums and dads. At the end of the day, it is the policy that delivers the results that counts.
What matters to the planet is not the mechanism, but that emissions are actually reduced.
Tomorrow marks the beginning of the Emissions Reduction Fund’s second auction, which will take place over two days. I will be very excited to learn the outcomes of this auction in the coming days and to see further contracted projects added to our early achievements in delivering emissions abatement.
An important element of the Emissions Reduction Fund is the safeguard mechanism. The safeguard mechanism is designed to ensure that emissions reductions purchased by the Government are not offset by significant rises in emissions above business-as-usual levels elsewhere in the economy.
It does this by setting an emissions limit – or baseline – on Australia’s largest emitters in a way that supports economic growth and allows businesses to move to best practice.
The Government has consulted widely on the final design of the safeguard mechanism. It will cover only the largest-emitting facilities in the economy that emit 100,000 tonnes or more of emissions. Around 140 businesses will be covered.
The Emissions Reduction Fund is based on perhaps the most singularly successful emissions reduction measure of all time – the United Nations Clean Development Mechanism (CDM).
The CDM facilitates global action for emissions reductions or removals and operates in a similar way to Australia’s Emissions Reduction Fund. From just over 2,000 projects over 1.4 billion credits have been issued for purchase.
The Emissions Reduction Fund also has a number of similarities with the World Bank’s Pilot Auction Facility, which held its first auction in July 2015. Both are vehicles that use reverse auction market structures – one buyer, many sellers – to establish prices for the purchase of eligible carbon credits from methane reduction projects at landfills, wastewater and agricultural waste sites at its first auction.
The Safeguard Mechanism also has a number of similarities to a proposal by the International Air Transport Association (IATA) – a trade association of the world’s major airlines – to the United Nation’s International Civil Aviation Organization. The IATA proposal involves the setting of baselines for international aviation emissions from 2020, with the capacity to offset emissions growth beyond that level. This is similar to the safeguard mechanism, which applies baselines for Australia’s largest emitting facilities across all industries and the ability to offset emissions growth above baseline levels.
3. Clean Air, Cities and the Built Environment
Our quality of life depends so much on the environment in which we live. Our cities must be greener and smarter. We need to be able to move around them easily and this requires long term planning and infrastructure to ensure clean air, clean land and clean water.
The Australian Government has announced our vision for Australia’s future cities divided broadly into three pillars: Long term integrated planning for more sustainable cities, infrastructure planning and funding for better functioning cities and greening our cities for a more liveable environment.
Liveable cities are economic infrastructure. Winning the battle for human capital depends on us having liveable cities, which provide opportunities for people to be part of a vibrant, future-focused economy.
More than three-quarters of Australians live our 20 largest cities, and over 60 per cent live in the five largest cities alone – Sydney, Melbourne, Brisbane, Perth and Adelaide. By 2031, Australia’s population will be over 30 million people, most of them living in our major cities. The majority of future growth is expected to occur in and around Australia’s capital cities – and the populations of Sydney, Melbourne and Perth are set to double by 2050.
An example of the practical approach being taken by the Australian Government can be seen in a recent announcement I made with the Lord Mayor of Melbourne Robert Doyle.
The Clean Energy Finance Corporation will provide up to $30 million in finance to help the City of Melbourne introduce more energy efficient street lighting, retrofit commercial properties to improve their energy efficiency and install solar panels. This has enormous environmental benefits and will also slash the City of Melbourne’s power bills.
3.1. Modernising Australia’s vehicle fleets
Vehicles account for around 17 per cent of Australia’s total greenhouse gas emissions and are a significant contributor to urban air pollution. On Saturday, the Minister for Territories, local Government and Major Projects, the Hon Paul Fletcher and I announced the establishment of a new Ministerial forum to ensure that we keep our air clean and reduce CO2 emissions that contribute to climate change by ensuring our new vehicles meet world best standards.
The new forum will be asked to examine issues including implementation of Euro 6, fuel quality standards, fuel efficiency measures (CO2) for light vehicles, as well as emission testing arrangements. Improving the fuel efficiency of vehicles is good for the environment, but it is also good for consumers. Improving the efficiency of vehicles is part of this goal, which can assist in lowering fuel bills for households and businesses.
3.2. National Clean Air Agreement
Australia’s air quality remains very good by world standards. Over many of years, governments have successfully implemented strategies to reduce air pollutants, improving Australia’s air quality with positive environmental and health impacts.
However, there are still ongoing challenges and governments, business and the community need to be active to ensure a clean air future in Australia.
In July 2015, All of Australia’s Environment Ministers endorsed in-principle Australia’s first National Clean Air Agreement and we have committed to finalise the Agreement and its initial work plan before the end of 2015.
The Agreement will deliver new actions to reduce air pollution and establish a new process for jurisdictions to work cooperatively to address emerging air quality issues, to ensure Australians continue to enjoy clean air into the future, including strengthened reporting standards for airborne fine particles (Particulate Matter), taking into account the latest scientific evidence of the health impacts of airborne particles.
Environment Ministers are expected to announce further work to strengthen air quality standards for ozone, nitrogen dioxide and sulphur dioxide, taking into account new evidence on the health effects of air pollution.
Underpinning our climate change and broader environment policy is the notion that a clean and healthy environment and a strong economy are equally important. They are not mutually exclusive - we do not have to choose one over the other. We can have both.
We have set ambitious emissions-reduction targets and will be part of the crucial international talks in Paris at the end of the year. We are playing out part and as we meet our goals, we will aim to do more.
Australia is strongly positioned to progress to a low-carbon future, with a doubling of renewable energy generation by 2020 through the Renewable Energy Target, strong 2030 emissions-reduction targets, low-cost abatement opportunities purchased through the Emission Reduction Fund and continual advancement in emerging renewable and low-emissions technologies.
And with more auctions under the Emissions Reduction Fund, we will open up new opportunities for businesses and the community to reduce emissions across Australia.
We have a plan to make our cities greener and more liveable. Renewable energy will play a crucial part in this.
Thank you again for the opportunity to speak here today.