Q+A: Why Australia needs a price on carbon

SINGAPORE Tue Aug 24, 2010 5:38am EDT

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

But the country has been a laggard in passing a law enshrining a cap on emissions and a market-based trading scheme for carbon pollution.

That could change. Analysts say a minority Labor government will face increased pressure from independents and the Greens, who won significant voter support in Aug 21 polls, to push through tougher climate policies.

Here 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.

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

Over the same period, emissions from power generation rose 52.1 percent, while transport emissions grew 29.2 percent. Overall, energy sector emissions, making up 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, fuel greater demand for energy.

The projected impact of climate change on Australia also worries 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 all point to a tougher future.

WHAT HAS THE GOVERNMENT DONE SO FAR?

Not much. It 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 is 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 is 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 regarded 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 bring major emissions cuts, analysts say.

Instead, the RET will promote additional generating capacity to help meet projected annual growth in consumption of about 3 percent.

The RET is unlikely to displace coal-fired generation sharply 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 drive a 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 Clarence Fernandez)

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