On World Environment Day, Australia's Prime Minister repeated that he
would not ratify the Kyoto Protocol on greenhouse gas emissions because
"the protocol would cost us jobs and damage our industry". On
the same day, the World Business Council for Sustainable Development
(WBCSD) criticised developed countries like the USA and Australia for
not backing Kyoto. The WBCSD counts global aluminium companies Alcoa,
Alcan, BHPBilliton, Rio Tinto and WMC among its 160 major corporate
WBCSD President Stigson said: "There is enough certainty that we
have to do something about greenhouse gas emissions, doing nothing is
not an option". However, locally, the aluminium industry argues
that ratifying Kyoto would be bad for Australia. But with greater
analysis, the opinion of Australia's wider business community
increasingly aligns with the WBCSD view - recognising that ratification
will be good for the Australian economy.
The Federal Government continues to reiterate its commitment to meet
our Kyoto target and will shortly release emissions projections for the
first five-year Kyoto Commitment period (2008-2012). It is expected to
show Australia will not be far over its 108 per cent target - perhaps
only 20 to 25 million tonnes (around 5 per cent).
The electricity industry accounts for nearly 40 per cent of
Australia's greenhouse gas, and emissions from this sector are the
fastest growing. It is reasonable to expect this sector to deliver
substantial greenhouse cuts, and objective analysis shows this is
achievable and cost effective.
A key strategy should be to reduce the significant growth in
electricity consumption using energy efficiency and demand side
measures, while ensuring any additional power needed comes from
sustainable proven technologies such as renewables and gas fired power
and cogeneration. Energy efficiency has the scope to deliver significant
abatement at negative net cost to the community.
On the supply side, the results of the Commonwealth's Greenhouse Gas
Abatement Program (GGAP) provide some guidance on competitive emission
abatement. In Round 1, abatement costs were less than $3/tonne on an
annualised basis over the first commitment period. GGAP submissions
alone could deliver far more abatement than is likely to be needed to
meet Australia's Kyoto target.
Extrapolating the results of GGAP, and assuming a conservative higher
abatement cost of $5/tonne, Australia's abatement challenge to reduce
emissions by 20 million tonnes could be achieved for $100 million per
year. If this cost were all borne by the electricity sector, the cost
would equate to less than $0.50/MWh or less than $5 per year for an
average household. Compare this with the $3-4 /MWh increase in average
pool prices across the electricity market this year which recent NSW and
Queensland generator bidding behaviour has caused.
Another illustrator of the cost of reducing emissions is the recent
NSW Government initiative, which requires electricity retailers to
reduce per capita greenhouse emissions 5 per cent below 1989/90 levels
by 2006/7. Those that fail to meet the target will be required to pay a
penalty of up to $15 per tonne of CO2 equivalent.
Modelling work by NSW Treasury shows that implementing this program
nationally would reduce greenhouse emissions 35 million tonnes annually
by 2011/12. Coming at a cost of $450 million per year, equal to
$2.20/MWh, this is still much less than the recent price impact of
The 35 million tonne emissions reduction would be much greater than
Australia would likely need to meet its Kyoto target. Australia has some
of the lowest cost abatement potential in the world. Ratifying Kyoto
means we can get paid by exporting abatement to other ratifying
countries with higher abatement costs, like Japan and European nations.
This will deliver Australian investment and jobs.
We lose this opportunity if we don't ratify.
ABARE, in a report in March 2002, said it expected the international
price of greenhouse permits to be US$28 (A$54) per tonne. At this level,
Australia could export its surplus 15 million tonnes of abatement
generating export income of over $800 million per year. This is more
than enough to cover the $450 million cost to domestic electricity
There are many other ways to reduce Australian greenhouse gas
emissions. Stopping land clearing is one. Australia could indeed
continue to reduce emissions until the cost of abatement equals the
international price. If ABARE is right, exporting this abatement could
produce substantially more export income than $1billion annually.
Export growth is only one side of the story though. The are also
domestic benefits from investing in sustainable power technology. A
recent report commissioned by the Australian EcoGeneration Association
shows that renewable power projects on average create 5 times more jobs
per MW and have twice as much local content as conventional power
Rather than costing Australia, ratifying the Kyoto Protocol could
provide Australia with significant export and domestic windfall gains.
Benefits we will miss out on if we fail to ratify.