It's unoffical. Energy industry adopts a net zero emissions target
While the government avoids setting an official target, the industry has moved on. Net zero has become the benchmark goal and now regulators have to make it work.
The fixation on a national emissions reduction target of 26 to 28 per cent by 2030 has run its course. Jessica Shapiro
It may not be an official target but reaching net zero emissions by 2050 has become the default goal for industry and investors.
As The Australian Financial Review Energy and Climate Summit made clear this week, the fixation on a national emissions reduction target of 26 to 28 per cent by 2030 has run its course. The commitment of companies and other countries to net zero emissions by the middle of the century has shifted the goalposts.
At the same time, consumers are relentlessly forcing the pace of change in the country's energy supply system with daily choices around rooftop solar and batteries.
The issue for generators, network owners, retailers, policymakers and regulators is how to adapt systems and regulatory frameworks fast enough to keep up.
"We're really getting on with making sure you can get more low emissions technology and zero-emissions technology into the system at both the wholesale and at the distribution and at the customer end," Benn Barr, chief executive of the industry's rule-making body, the Australian Energy Market Commission, told the Summit.
"There's no stopping that: it's coming and it's coming at the rate of knots. And so what we're focused on is actually let's make sure we do it in a way that's efficient. We do it in a way that lights stay on and there's downward pressure on prices and emissions come down as quickly as possible."
That's the plan, but there are many bumps along the way. Rapidly rising generation from dirt-cheap but weather-dependent wind and solar is testing both the capacity of the power grid in remote areas and demanding constant intervention from the energy market operator to make sure the lights don't go out.
AEMO chief Audrey Zibelman is focused on making the transforming power system work. Louie Douvis
The expected shutdown of almost two-thirds of Australia's coal-fired generating capacity over the next two decades – starting with AGL's Liddell plant in NSW in 2022-23 – demands a massive technical transformation in the grid as well as a complete rewrite of the rules for the National Electricity Market (NEM).
"It's not that the markets are failing, it's that the markets need to evolve," says outgoing Australian Energy Market Operator chief Audrey Zibelman.
"The energy market has changed and like any market, you need to change the products and services to go with the new types of resources."
State governments – most recently NSW – are stepping up with programs and targets for their own electricity supply systems in the absence of integrated federal energy and climate policy and as policymakers struggle with the bureaucracy of market reforms.
The federal government is using the Energy Security Board, the top policy adviser, to help overhaul the NEM. While the net zero emissions target is not part of the Energy Security Board's formal mission, its task – becoming more urgent by the day – is to ease the integration of clean energy into the grid.
Investor Group on Climate Change CEO Emma Herd has urged the government to get on with it and set the target. Dominic Lorrimer
"Having an announced policy [of a net zero target] is not necessarily going to change the way we look at things," Zibelman said. "What we need to do is recognise that if those are the cheapest resources – and it is hard to beat wind and solar for price of fuel – then we need to figure out a way to make it work."
Up for debate are the policy measures that will ensure investment in on-demand power plants such as gas peaking plants and pumped hydro to fill the gaps. Another central reform is the introduction of markets that will ensure grid stability services, currently provided by baseload coal (automatically and at no cost), will be available from elsewhere as coal plants retire.
Final recommendations
Australian Energy Regulator chairman Clare Savage admitted it would be a challenge to drive through reforms but said the Energy Security Board was committed to delivering its final recommendations to energy ministers by the middle of 2021.
The alternative, as Zibelman made clear, is a shift to more localised and regulated markets in individual states.
Energy Security Board chairman Kerry Schott, for one, believes the required consensus among governments and industry will be forthcoming for the NEM to survive – with reforms.
"I do think everybody will push forward to a national market, but I think the important thing is to really get on with it and don't put effort into trying to stop the changes that are occurring," Schott said.
What is clear from the energy suppliers and network owners coping with the daily operational realities of the system is that the transition is happening faster than envisaged even six or 12 months ago, thanks partly to the COVID-19 pandemic.
Origin Energy chief Frank Calabria sees it as a "fundamental shift", driven by the "3 Ds" shaping the transition – decarbonisation, decentralisation and data.
Origin Energy CEO Frank Calabria said the pandemic has resulted in the acceleration of technology. Dominic Lorrimer
"COVID has resulted in the acceleration of technology in every aspect of our lives and there will be no turning back," Calabria said, predicting vast changes in the industry to survive the transition to a net-zero economy.
Politically, however, the time-frame for that target remains a topic of debate. Labor leader Anthony Albanese has backed net zero for mid-century, after ditching Labor's promised 45 per cent emissions reduction target by 2030 following last year's federal election loss.
He has sniffed the political breeze and been emboldened by the fact that scores of countries around the world, including the United Kingdom, have committed to net zero, as have big companies.
So far, Prime Minister Scott Morrison and Energy Minister Angus Taylor have pushed back, saying they are abiding by the Paris Agreement on climate, which calls for it in the "second half of the century".
Taylor conceded at the Summit it may be achieved earlier. But any move to formally back the target is likely to be met with resistance from the pro-coal faction in the Coalition party room.
"We said we want to achieve it as soon as possible. If it's in the first half of this century all the better. We want the world to achieve it as soon as possible because that's the goal with Paris," he said.
Internationally, major trading partners have stepped up pressure on the government, putting Australia’s fossil fuel trade on notice as South Korea, Japan and China – which accounted for $75.6 billion of Australia’s total $103 billion of exports of coal and gas last year – have all vowed to hit net zero emissions by 2050 or 2060.
Including the United States under President-elect Joe Biden, 70 per cent of Australia’s export market has pledged to meet net zero emissions, according to the Investor Group on Climate Change.
Chris Ashton, the global chief executive of engineering group Worley, told the Summit Biden's appointment of former secretary of state John Kerry as his climate change tsar was further proof of his prioritisation of the climate crisis.
If it's so inevitable and we are going to adopt it, why don't we just adopt it?
— Investor Group on Climate Change chief executive Emma Herd
Kerry, who represented the US at the Paris Climate Accord talks, is familiar with Australia and, in the past, has shown little sympathy for carbon-intensive economies trying to shirk their global responsibilities on carbon reduction.
The Europeans have also increased the pressure, with France’s business promotion agency chief, Christophe Lecourtier, urging Australia in September to urgently adopt net zero emissions commitments, warning the free trade deal – currently being negotiated with the 28-nation European bloc – must affirm urgent ambition from both sides on addressing the global climate crisis.
Technology, not taxation
Not long after, the UK's climate envoy former Bank of England boss Mark Carney and former prime minister Malcolm Turnbull warned the European Union’s resolve to levy carbon taxes on imports – including those made with Australian raw materials – was also strengthening.
But Taylor wasn't moved, outlining the Morrison government's "sensible and cautious" approach of achieving emissions reductions through "technology not taxation", without imposing economic burdens on households and business.
Still, former ACT energy minister turned energy advocate Simon Corbell says a 2050 net zero emissions target is crucial to drive investment.
"I think it's critically important because it's where investors will choose to deploy their funds," he said. "They're not going to deploy their funds in assets or in economies that are not committed to the transition moving forward with a clear and a concrete target date."
He says Australia can't afford to dither in backing net zero.
"If we are wishy-washy and we are hedging our bets then we risk investors looking elsewhere at a very substantial scale and I don't think that's in our national interest and it's certainly not in the broader global community's interests," he said.
Investor Group on Climate Change chief executive Emma Herd urged the federal government to just get on with it and sign up to the pledge.
"All Australian states have a commitment to net zero. All our major trading partners have a commitment to it, although China is by 2060," she said. "There is an increasing realisation that this is the direction that we're travelling in so why can't Australia commit to it? If it's so inevitable and we are going to adopt it, why don't we just adopt it?"
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