Playing carbon catch-up

Business Spectator
Tuesday 6/7/2010 Page: 1
06 Jul 2010

The revolution in energy technology isn't just on its way, it's already here, and is likely to presage a fundamental shift towards low carbon technologies. At least that's the assessment of the International Energy Agency, the Parisbased intergovernmental advisory group first established in the 1970s following the oil crisis, in an effort to devise policies to deal with future emergencies. The IEA has now charged itself with the task of advising governments how to navigate through the policy challenges of responding to climate change and energy security issues, and administer a transformation to clean energy.

In its latest technology assessment report, the IEA notes that its 2008 call to action on a move to low-carbon technologies is starting to take shape. "For the first time, we see early indications that such a revolution is under way," says IEA executive director Nobuo Tanaka. He cites the more than $US112 billion that was invested in wind, solar and other renewables in 2008, and which remained constant in 2009 despite the global financial crisis. In particular, he notes the rapid expansion of hybrid and electric vehicles production facilities and predicts that up to five million such vehicles could be on the road by 2020 (Chinese car manufacturers predict a far greater number).

He also notes that in OECD countries, the rate of energy efficiency improvement has increased to almost 2% per year - more than double the rate seen in the 1990s (Australian government please take note) - and funding for low-carbon energy RD&D has increased by one-third, between 2005 and 2008, and will likely double by 2015. But while all this is well and good, the IEA warns that the rate of progress remains fragile and fragmented and well below what is needed. "What we need is rapid, large-scale deployment of a portfolio of low-carbon technologies; we need a massive decarbonisation of the energy system, breaking the historical link between CO2 emissions and economic output, and leading to a new age of electrification," Tanaka says.

The sort of investment that the IEA is talking about is breathtaking. Tanaka estimates that $US46 trillion in additional investments will be needed by 2050 to fund the sort of investments needed in renewables, smart grids, next generation biofuels, nuclear and carbon capture and storage to bring carbon emissions down by 50%. It sees energy efficiency playing the most prominent role, cutting growing energy demand to 32% from 84% under the business-as-usual scenario, meaning that fuel cost savings could amount to $US112 trillion over the same period.

Subtracting these fuel savings from the additional investment costs yields net savings of $US66 trillion. Even if both the investments and fuel savings over the period to 2050 are discounted back to their present values using a 10% discount rate, the net savings amount to $US8 trillion. But to get there, it will take some aggressive public policy making. A carbon price is the first stop, to avoid locking in inefficient, carbon-intensive technologies. And this should be augmented by a suite of energy technology policies and RD&D programs far beyond what is being envisaged in Australia and many other countries.

Among the policy tools it recommends are stable, long-term incentives such as feed-in tariffs, loan guarantees and tax credits - a constant refrain of the clean technology industry in this country - along with technology-neutral market mechanisms, such as emissions trading schemes and green certificates. The report also highlights what is concentrating the minds of policy makers in the US - the rapid emergence of developing countries, particularly China, as major developers, manufacturers and exporters of clean and low-carbon technology.