Q+A: Why Australia needs a price on carbon

SINGAPORE Thu Jul 8, 2010 11:35am IST

SINGAPORE (Reuters) - Australia is the world's top 2coal exporter, relies on coal to generate more than 80 percent of its power, transports most goods by road and cars clog its cities.

Still, one of the world's top per-capita emitters of planet-warming carbon pollution is determined to cut its emissions, even as a growing population and booming economy make achieving this a major challenge.

Following are some questions and answers on tackling Australia's greenhouse gas emissions:

WHY THE NEED TO ACT?

Australia's economy, and particularly its power generation sector, has been driven by access to nearly limitless supplies of cheap brown and black coal, and gas. Coal, the most polluting fossil fuel, still remains the cheapest source of power.

Australians also love their cars. In a nation of 22 million people, there were 15.7 million vehicles registered in 2009, up from 13.5 million in 2004, government figures show.

Between 2008 and 1990, the base year for the U.N.'s Kyoto Protocol climate pact, net emissions grew by 31.4 percent.

Over the same period, emissions from the power generation sector rose 52.1 percent, while transport emissions increased 29.2 percent. Overall, emissions from the energy sector, comprising three-quarters of the nation's greenhouse gas pollution, rose 44 percent.

A growing population, expanding at roughly two percent a year, and rising incomes mean greater demand for energy.

The projected impacts of climate change on Australia also worry many. Rising sea levels, greater extremes of droughts and floods, higher temperatures, more intense bushfires, water shortages, and warmer and more acidic oceans in coming decades collectively point to a tougher future.

WHAT HAS THE GOVERNMENT DONE SO FAR?

Not much. It is has developed an emissions trading scheme but twice failed to win political support and has since shelved it.

The government has also set a target of cutting emissions by 5 percent by 2020 from 2000 levels and by up to 25 percent if there's a strong global climate agreement.

Europe has a more ambitious target of cutting greenhouse gas emissions 20 percent below 1990 levels by 2020 and by 30 percent if there's a strong global climate pact. Britain is targeting a cut of 34 percent below 1990 levels by 2020.

The Australian government has had better luck winning parliamentary approval for a scheme that mandates a target of 20 percent renewable energy generation by 2020 and has also laid out a A$4.5 billion initiative backing investment in clean energy.

IS A CARBON PRICE BEST?

Yes. An emissions trading scheme that sets a clear reduction target and lets the market set a price for each tonne of carbon dioxide emitted is seen as the best way to drive greater energy efficiency and investment in cleaner energy.

The renewable energy target (RET) laws just passed by parliament, while boosting investment in wind farms and some other renewables, won't lead to significant emissions reductions, analysts say.

Instead, the RET will promote the addition of generating capacity that will largely meet the projected annual growth in consumption of about 3 percent.

The RET is unlikely to displace coal-fired generation to any significant degree but is likely to encourage fast-start gas-fired generation needed to meet baseload power demands when wind power output dips.

Generators say a CO2 price that effectively makes coal-fired power more expensive is needed to push a greater shift to cleaner gas and new-generation renewables, such as geothermal.

WHAT ARE THE RISKS IF THERE'S NO CARBON PRICE?

Increasingly, investors are demanding certainty on CO2 pricing to ensure financing for investment plans.

Some companies and the government also say the longer the delay, the higher the costs to the power generating sector, other industries and households in meeting the minus-5 percent target.

(Editing by Michael Urquhart)

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