Cooling Kyoto hot air

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 members.

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 generator bidding.

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 customers.

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 stations.

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.