Carbon scheme to boost markets

www.theaustralian.news.com.au
August 10, 2009

AUSTRALIA'S proposed emissions trading scheme is almost certain to be rejected by the Senate this week, but its progress is being followed closely in international markets. The reason, according to Mark Lewis, the Paris-based head of carbon markets at Deutsche Bank, is that the carbon pollution reduction scheme (CPRS) will have a significant impact on international carbon markets if and when it is passed.

Contrary to the European scheme, the CPRS allows for unlimited access to international carbon credits by Australian buyers, and Lewis expects this to result in demand for about 40 million tonnes of international credits generated by the UN-sponsored Clean Development Mechanism (CDM), or nearly one-third of the market. Other analysts have predicted as much as 80 million tones. This will have a dramatic impact on the international market, which was set up under the Kyoto Protocol to fund carbon abatement schemes in developing countries.

Most of the investment has been made in China, in projects such as small-scale hydro, waste methane extraction and renewable energy investments, but the lack of demand from international buyers, and a lack of finance, has caused the price for such credits to fall dramatically in the past 18 months. "People think Australia's not big enough to make a difference in international markets, but Australia would be a serious player in the pricing dynamics for the CDM," Lewis says. "What all of that means, is that on the issue of climate change and carbon trading, Australia would be punching well above its weight and be a significant player in the global debate."

Lewis, however, is surprised there has been such a focus on the cost to industry in the debate about the scheme. "The price impact will not be so dramatic because the price of international offsets will be cheaper than the cost of domestic abatement." But that has a flip side. "If you were trying to send price signals to encourage technical development in Australia, the international offset price might not be high enough." Which, he says, is why the European scheme had strict limits on the access to international markets. The proposed US cap-and-trade scheme would change the dynamics even further. It allows for up to 1 billion credits to be purchased in international markets.

Lagging behind in renewables
WITH the federal government's Renewable Energy Target also facing a standstill in the Senate, there are growing concerns in the local renewable energy industry that the country is being left behind. There are billions of dollars of projects currently on hold, and while the government says it wants to be a leader in renewable technologies, other countries are marching ahead. China has recently upgraded its renewable energy target from 15 per cent to 20 per cent by 2020, which will translate to around 150 GWs of wind energy, 20GW of solar energy and 30GW of biomass power. India joined the push towards solar last week, announcing plans to install 20GW of solar capacity by 2020 - - its reliance on an equivalent amount of diesel-sourced power means solar will be cost-competitive - - with a grand plan to lift that to 200GW of solar by 2050.

"Everyone wants to be world leader," says Ray Wills, head of the WA Sustainable Energy Association. "Other developed and developing nations are moving aggressively to develop their lesser renewable energy resources while Australia - - with the world's best resources - - is lagging behind." In the US, the amount produced by renewable energy sources (11.1 per cent) has overtaken that of nuclear energy (10.4 per cent), according to the latest data from the US Energy Information Administration. Professor Wills notes that $US155 billion was invested directly into clean-energy companies and projects worldwide in 2008, and total transactions in the sector, including acquisitions and buyouts, were $US223 billion. Precious little of that occurred in Australia.

Head of steam for geothermal
THE official opening of Petratherm's Paralana geothermal project in the middle of South Australia's outback on Friday was notable for Martin Ferguson's concession that geothermal energy could one day be competitive with coal. Geothermal has two important qualities - - it provides base-load power, and just 1 per cent of Australia's geothermal energy resource is enough to support the country's energy needs 26,000 times over.

At between $75 and $120 per MW, the cost is about double that of coal-fired electricity, but rising coal prices and the inevitable carbon price will narrow that gap and ultimately make it a cheaper source of power. And geothermal is about half the price of current estimates of carbon capture and storage, and its costs will probably fall - - which must make it very tempting for the government to throw as much money at geothermal as it has to carbon capture and solar.

The challenge for geothermal development has been for start-up companies to obtain finance to fund the expensive deep-drilling that is required to prove and then tap the resources. The industry is hoping that more of the $50 million made available by the government to help fund these drilling programs will be made available in the next round. Only two $7m grants were announced in the first round in April, but there is a growing queue of applicants.

Greenearth Energy has made its second application for funding to help with the cost of drilling around Geelong, while Green Rock Energy has made an application for its project to provide air conditioning at the University of WA. KUTh Energy has made an application for its project in Tasmania, while Torrens Energy and others seeking help for projects in South Australia.

Algae in the swim
THE federal government last week announced the seven successful applicants for $15m in funding for R&D of second-generation biofuel technologies and feedstocks. The winning tenders include those focused on producing fuels from sugarcane waste, mallee, and other biofuels, while two have gone to consortiums working on developing fuel from micro algae that feed off the emissions of fossil fuel power stations.

The largest allocation ($2.72m) has gone to the Algal Fuels Consortium, which is looking to raise a total of $15m for a pilot plant at Torrens Island in South Australia. Algae-based fuels have been successfully tested for use in jet engines, but the major challenge is choosing the right form of algae, and achieving commercial quantities.

Rob Thomas, chairman of Algal Fuels, says much work needs to be done on improving yields, harvesting methods and conversion into fuel, but he expects "pre-commercial" refineries to be operating within 10 years. Exxon-Mobil last month announced it would spend $US600m on research into algal fuels. Thomas says he expects more money to flow into research in Australia once the first pilot plant is established in the next year.