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Minerals council of australiaSUBMISSION to the VICTORIAN gOVERNMENT’S INTERIM EMISSIONS REDUCTION TARGETS 12 JULY 2019Executive SummaryThe MCA supports the transformation to a low emissions global economy based on a nationally coordinated approach to climate and energy policy. State-based policy initiatives should seek to contribute to that national effort. Australia is a strong supporter United Nation’s Framework Convention on Climate Change’s Paris Agreement and the pathway it sets for the sustained global action required to reduce the risks of human-induced climate change. The MCA supports the Australian Government’s commitment to this process. The industry supports Australia’s international emissions reduction pledges of 26 to 28 per cent below 2005 levels by 2030, as well as the Paris Agreement’s goal to ‘achieve a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of this century, on the basis of equity, and in the context of sustainable development and efforts to eradicate poverty’ (i.e. net zero emissions).The best pathway to this goal is through a coordinated national target. The Commonwealth Department of the Environment and Energy (DEE) states unequivocally that Australia’s emissions reduction target is a fair global contribution; and when expressed against a common base year of 2005, Australia’s target is similar to those announced by the United States, the European Union, Canada, New Zealand and Japan. The Australian Government continues to give strong public assurance that Australia will comply with its international emissions pledges under the Paris Agreement.The MCA urges all policy-makers to facilitate Australia’s transition in a technology neutral manner in which policies and mechanisms support all energy sources without discrimination as well as: Providing for least cost abatement of greenhouse gas emissionsMaintaining the international competitiveness of Australian industryMinimising adverse social and economic impacts on householdsProviding industry with policy certainty to make long term investmentsEncouraging substantial investment in a broad range of low emissions technologies and adaptation measures. Consistent with these principles, the MCA considers there are fundamental questions that need to be answered when examining Victoria’s contribution to the national settings. In the context of national climate policies and targets, will Victoria's approach deliver low-cost mitigation outcomes?In the context of a national energy market and reliability targets, can Victoria's energy settings still guarantee energy reliability, security, and affordability?Given the critical role of technology development in facilitating least-cost and economy-wide emissions reductions, can Victoria’s innovation program mutually and productively support innovation?Will Victoria’s approach promote technology which results in low-cost economy-wide reductions, rather than a bias towards the electricity sector and an approach driven by specific solutions rather than outcomes?The minerals industry is committed to making its contribution both in Australia and around the world. Victoria should adopt greater caution in the implementation of its own, separate and arguably disconnected medium- to longer term climate strategy. The MCA urges the Victorian Government to focus on the national contribution to maintain the integrity of the Paris Agreement. ISSUESEmissions reduction targetsThe success to date of the United Nations Framework Convention on Climate Change (UNFCCC) in securing collective global climate action including from Australia is based on the principle of common but differentiated responsibility.This principle allows sovereign nations to adopt differentiated climate actions according to their local circumstances. In reference to Australia’s current targets, DEE reaffirms that it is considered a fair contribution as it represents a similar relative abatement effort to the US, the EU, Canada, New Zealand and Japan.The Australian Government has also provided assurances that national emissions are tracking to its emissions reduction pledges. This position is supported by DEE’s publication titled 2018 Australia’s emissions projections which quantifies the mitigation task to 2030, along with the Australian Government’s public reconciliation of its existing and new policies to this task. The MCA welcomes the opportunity to review any evidence by the Victorian Government that Australia will not meet its Paris Agreement obligations.While interim targets can provide clear and positive signals to businesses and investors (among others) if harmonised with national settings, if managed poorly such targets undermine business and investment confidence and cost jobs. They can also generate a perverse environmental outcome such as emissions leakage, with little to no benefit for the atmosphere. Any unilateral response to purportedly help meet the mitigation task of the Paris Agreement – including that of Victoria – should be considered within a global context. Government roles The Australian Government is constitutionally responsible for Australia’s international emissions reduction targets for 2020 and 2030 as outlined in Australia’s Nationally Determined Contribution.These targets have been established within the international rules of the UNFCCC – the parent treaty of the Paris Agreement – and they have been internationally and independently reviewed to ensure transparency and deliverability.Should these targets not be met, the Australian Government – not the states or the private sector – will be required to make up any emissions reduction shortfalls. The continued motivation by state and territory governments to set unilateral emissions reductions targets should be driven by the desire to contribute to national settings – a position supported by all states in 2012 when the Council of Australian Government's (COAG) adopted complementarity principles aimed to align sub-national settings with national settings. While the COAG principles were developed within the context of a national emissions trading scheme, many of the concepts remain relevant. Victoria and the global climate challenge Victoria's stated aggregate mitigation task to 2050 is 1.9 GtCO2 – which represents about 0.3 per cent of the estimated remaining global CO2 budget to limit human-induced warming to less than 2°C. Even if Victoria’s unilateral 2050 emissions reduction target can be met, it alone will not make a material difference to the global outcomes sought under the Paris Agreement. Victoria’s net-zero emissions targets in 2050 should also be considered within the context of the IPCC’s RCP2.6 scenario, which is the representative scenario to keep global warming likely below 2°C above pre-industrial temperatures. RCP2.6 indicates that net-zero emissions need to be achieved in around the 2080s to 2100 period, which is consistent with the Paris Agreement and much later than the ambitions of the Victorian Government. The more time an economy has to transition to a lower carbon signature, the lower the economic cost of doing so. It is important to examine the economic and environmental impacts of Victoria meeting unilaterally a very stringent level of carbon scarcity within a relatively short timeframe.Economic impactsWhile the observation by the Centre for International Economics (CIE) that it is almost impossible to accurately predict the precise economic costs of future paths for emissions reduction is accurate, it is not clear from either the CIE report or the IEP report what the assumed level of carbon price is required to drive net zero emissions by 2050 or what the absolute or incidence of economic cost might be. Recent independent analysis by BAEconomics (BAE) indicates that the economic cost associated with a slightly lower emissions reduction target at the national level is material (i.e. a reduction in real GNP of $1.237 trillion over the decade). Given Victoria represents about a quarter of Australia's gross state product, Victoria would see a significant proportion of the expected loss. It is also not clear from either the CIE report or the IEP report what the economic impact of these emissions reduction targets will be on households. The amount of abatement required in the modelling is achieved by imposing an optimal CO2 price; but the policies of the Victorian Government may be far less efficient and so impose even higher costs onto households (and other sectors). The IEP address this issue by stating that the ‘…magnitude of these costs and benefits, and their distribution across regions, industries and households, will depend heavily on the policies implemented to achieve the targets.’ The IEP reaffirms this position by stating that the ‘impact of electricity sector transition on electricity prices – and more broadly on electricity affordability – will be influenced by the specific policies put in place at the state and national level.’BAE’s analysis indicates that for Australia to achieve this relative scale of carbon scarcity over this timeframe (i.e. 45 per cent reduction on 2005 levels by 2050) – and with greater access to lower-cost abatement options than Victoria alone does – could require a CO2 price of just under $700 per tCO2. Environmental impactsProblems arise in relation to the simultaneous application of state-based targets and a national target when the emission reduction ambitions of a state encourages facilities to either increase their emissions in and/or shift to other jurisdictions (known as emissions leakage). This can be at a domestic or international level, with no guarantee that the overall level of emissions reductions improve as reductions are negated by increases elsewhere. The IEP acknowledge this by stating ‘emissions and energy intensive, trade-exposed industries may see a decline in competitiveness, or movement of businesses to outside Victoria (“carbon leakage”) if other states and countries have weaker emissions reduction policies than Victoria.’Further problems arise in relation to the likely cumulative costs for businesses. If an entity operates under both the state and national targets, it will face marginal abatement costs (MAC) equal to the sum of the shadow carbon penalty of the state (which will inevitably incur abatement costs greater than when compared to a national scheme) plus that of the Commonwealth. Given there is no national equalisation of MACs, this can compromise the cost-effectiveness of climate actions.The important role of technology The IPCC’s recent report on 1.5 degree warming observes that all required global emissions reductions can be achieved through combinations of new and existing technologies and practices, including hydrogen and carbon capture, utilisation and storage (CCUS) amongst others. The IPCC’s 5th Assessment Report also notes that without technologies like CCUS, the economic cost of achieving the 2oC goal increases by a mean estimate of 138 per cent. Without access to such technologies, it could be impossible to limit global warming to below 2oC relative to pre-industrial levels.Technologies available today can provide for all energy sources, be they fossil and renewable used in power or industrial applications, to support a lower carbon future by coupling lower to near-zero emission outcomes to the production of affordable, reliable, secure and firm energy. While the Australian minerals industry supports renewable energy sources (RES) – especially at the mine site – there are very high system costs in firming much of the RES within the National Electricity Market. It is therefore right to consider whole of system costs that compare firm RES power with firm alternate power. In contrast to the IEP’s reference that RES generation (capacity) including firming costs is cheaper than new gas or coal-fired power; there are many independent analyses that currently indicate the cost more than doubles for the same level of utility. This is an important consideration for Victoria with Yallourn (which provides 1.4 GW of reliable power) due to start shutting down from 2029, with full closure expected in 2032. The Victorian Government's public support for CCUS, as outlined in its Climate Change Strategy, as well as in public statements on hydrogen production from coal demonstrates its broad acceptance of the environmental credentials of this technology. Victoria could in fact emerge with a global competitive advantage in CO2 storage through its investments in CarbonNet, potentially spawning a new fledgling industry that will support job creation in regional areas. The UNFCCC also explicitly considers and promotes CCS, including eligibility for incentives and funding because of strong mitigation outcomes. ConclusionThe MCA supports a nationally coordinated approach to addressing Australia’s mitigation challenges instead of a plethora of state-based approaches. This support is based on tried and tested economic and environmental principles.This includes implementing policies and mechanisms that do not undermine technology neutrality and deliver least-cost abatement outcomes.COAG should update its 2012 climate action principles to help ensure both the economic efficiency and environmental effectiveness of Australia’s collective efforts in mitigating the impacts of climate change. Victoria should adopt greater caution in the implementation of its own, separate and arguably disconnected medium- to longer term climate strategy. Merely imposing deep levels of carbon scarcity over relatively short timeframes will not induce an optimal transformation while serving the public interest. This is supported by the IEP’s own observation that the drivers and trends (i.e. accelerating technological change, and growing investor, business and community action) to a lower carbon economy will continue regardless of the targets and policies set by governments. Victoria’s legislated net-zero emissions target by 2050 does not align with the IPCC’s RCP2.6 scenario, which indicates global net-zero emissions need to be achieved by the 2080s to 2100.Such an approach may impose unintended outcomes including: Small environmental impact globally (due to scale and emissions leakage)Large economic cost locally (state, businesses and households)Much greater support needed for low emissions technology innovation and deployment (including CCUS).A low carbon economy can provide many innovative business opportunities, especially for sectors like precious metals, uranium and critical minerals as well as technologies such as CCUS, renewables and energy efficiency. Business and investor certainty is best served by a nationally consistent approach to emissions reduction instead of a patchwork of state schemes which undermine competitiveness and are unlikely to substantially help the environment. ................
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