Australia’s Energy Wars Leave Coal Still Standing and the Need for a Phase-Out Policy
By: Ryan Wilson
Tags: Politics, Australia, Policy, Climate Change, Environment

Australia’s Energy Wars Leave Coal Still Standing and the Need for a Phase-Out Policy

A decade-long political battle over the future of Australia’s power sector needs to end if Australia is to meet its Paris Agreement target

The Australian political landscape has been the scene of a more than decade-long energy policy tussle, pitting a progressive vision for Australia’s energy system against the long-established dominance of the Australian coal industry.

Successive changes of governments and inter-party leadership changes dating back to 2007 have seen wild swings in the direction of energy policy in Australia, with an emissions trading scheme voted down in 2009, only for a carbon pricing mechanism to be passed in 2012 after a change in party leader. This legislation was subsequently repealed two years later after a change in government and replaced with funding for direct action, which was to be superseded by what was effectively an emissions intensity scheme, until this policy cost Malcolm Turnbull the Prime Ministership in 2018.

What exists in 2020 is a continuation of funding for direct action to 2035 and a renewable energy target (RET) that will remain anchored at the 2020 target level through to 2030. With the RET now effectively neutered, Australia has very little left in terms of policy tools for encouraging the uptake of renewable energy or an expedited transition away from coal. The Liberal Party under Tony Abbott’s leadership waged an ideological war on renewables that intentionally stymied investment in the sector in order to prolong the role of coal in Australia’s energy system. The only reason the RET, Clean Energy Finance Corporation (CEFC), and Australian Renewable Energy Agency (ARENA) still exist today (the last vestiges of renewable energy policy), is because the Liberal Party was blocked from abolishing them by the senate crossbench after their election in 2013.

The dominance of the coal lobby in Australia is perhaps unsurprising given the traditional role that coal has played in the economy, but if Australia is to contribute its fair share toward global emission reduction efforts, committing to a coal phase-out plan is critical. With many of Australia’s coal power stations nearing the end of their working life, Australia finds itself in a unique position to rapidly transition away from coal. A large brown coal-fired plant in Victoria closed in 2017, and a further plant closure in NSW scheduled for 2023 will bring the number of Australia’s coal power stations to 18, with around half of these set to be over 40 years old within a decade.

The 2015 Paris Agreement provides just the framework to catalyse this transition. The agreement aims to keep the global temperature increase from climate change to well below 2°C and to pursue efforts to limit the temperature increase even further to 1.5°C; an ambitious goal that requires countries to ramp up their commitments over time to achieve it. Australia’s current target of a 26–28% emission reduction below 2005 levels by 2030 falls well short of what would be required to limit warming to 1.5°C, but even this modest target is likely to be achieved by using carry-over permits from the Kyoto Protocol that do not represent actual emission reductions.

With countries’ initial nationally determined contributions (NDC) set to be updated this year, Australia could ratchet up its level of ambition significantly by committing to a coal phase-out policy that sees an expedited retirement of the country’s oldest and most polluting coal power stations by 2030 and a replacement of them with renewable energy installations. There are numerous ways this policy could look including directly regulated closures, a government payment-for-closure scheme, or some kind of market mechanism. With the government’s advisory body, the Climate Change Authority (CCA), advocating in 2016 for the implementation of a market-based mechanism in the Australian electricity supply sector, it is worth highlighting key potential mechanisms.

A carbon pricing initiative, like that which was abandoned in Australia in 2014, or that which has been recently implemented in Canada, causes higher-emitting plants to incur greater costs, making them less competitive and more likely to cease operations. A second alternative is an emissions intensity scheme, whereby the government sets a baseline emissions intensity target, with below-baseline producers rewarded and above-baseline producers penalised via a tradable permits mechanism. Thirdly, a regulated market mechanism for closure would facilitate payments by the industry as a whole to shut down power stations that are most cost-effective to close.

While any of these policies, if implemented, would create the certainty so sought after by the Australian electricity sector to proceed with ramping up renewable energy investments, the very lack of any such policy and the investment uncertainty that it brings, only serves to prolong the need for Australia’s coal power stations. Indeed, policy uncertainty appears to be the most significant barrier to a quick coal phase-out, which conversely makes the opportunity for the implementation of an ambitious policy mechanism all the more enticing. This is especially so considering many studies¹²³⁴⁵⁶ have shown the feasibility of an Australian transition to 100% renewable energy and a rapid coal phase-out, with a recent independent analysis showing that a 2030 coal phase-out is required of Australia under a Paris Agreement compatible pathway.

The CCA ultimately recommended the introduction of an emissions intensity scheme for the electricity supply sector in Australia. The underlying modelling that accompanied this recommendation projected that within one decade of a 2020 implementation, all coal-fired power stations in Australia would be shut down. Importantly, this would ensure Australia is in line with the Paris Agreement’s 1.5°C warming target, which broadly requires OECD and EU countries to achieve a complete phase-out of coal by 2030.

With no such policy certainty on the horizon, the Australian government has instead continued to emphasise the role of coal in securing both Australia’s energy security and the future of its energy system. The government has recently gone insofar as to announce criteria for government underwriting that could finance new coal power plants or the retrofitting of existing ones, while granting AU$3.6 million for the completion of a feasibility study for a new coal-fired power plant.

Delaying the phase-out of coal from the electricity mix will place a greater emissions reduction burden on other sectors, especially transport and agriculture, to contribute towards meeting Australia’s targets for 2030 under the Paris Agreement. Australia is already set to fall significantly short of meeting these targets under current policy projections, highlighting the need for an urgent scaling up of climate policy ambition.

Mitigation measures in other sectors outside electricity generation are generally more complex and expensive, meaning failure to achieve fast coal emissions reductions in the electricity sector will put the achievement of Australia’s mitigation targets at great risk. This is illustrated clearly by the government’s latest emissions projections under current policies. With the prospect of new government-backed coal power stations and retrofits on the horizon, the time is now to forge a new way forward and push Australia to end its addiction to coal.