In contrast to our national government’s weak efforts at climate response, there seems to be emerging competition between states and territories to set the pace on climate response. The ACT and South Australia are leading the field with some impressive outcomes as well as future commitments. Victoria has now committed to zero net emissions by 2050.
At an international level, other countries are cranking up action as they confront the realities of climate change, and realise the enormous costs of allowing it to happen. Our global carbon budget is seriously limited. According to Will Steffen of Australia’s Climate Council, for a 75 per cent probability of limiting warming to 2°C, we can only burn 23 per cent of proven economic fossil fuel reserves, and 6.1 per cent of total fossil fuel resources. So there are strong arguments for more aggressive change, to limit warming to as near as possible to 1.5°C while allowing developing countries some room to transition to zero carbon and still grow basic services for their populations.
In this context, Victoria’s announcement that it will commit to a target of zero net emissions by 2050 is pretty ho-hum, and will need to be strengthened over time. But at least it’s a commitment.
The exciting news is that Victoria, and other jurisdictions, can now responsibly commit to zero net emissions by 2020 at negligible cost. Indeed, the activity it encourages could deliver this outcome at a profit.
How could this be done? Simply by using a mix of measures to drive aggressive energy efficiency and renewable energy, combined with purchase of low cost verified international carbon offsets. The aim would be to progressively reduce the number of offsets needed by cutting Victorian emissions and increasing sequestration so that, as offset prices increase, the number we need to purchase declines. This approach is similar to that encouraged by the Australian government’s National Carbon Offsets Standard.
Victoria emits around 120 million tonnes of greenhouse gas annually. At the present wholesale per cent price of Certified Emission Reduction units (CERs) of around AU$0.60 a tonne of avoided emissions, offsetting all Victoria’s emissions would cost about $75 million annually. The Climate Change Authority estimates the likely price of CERs by 2020 at AU$1.12/tonne – a cost of around $132 million annually.
But Victorians spend around $8 billion on electricity and gas and $9 billion on petroleum products each year (these are rough estimates as it is difficult to find state level expenditure data). Reducing Victorian energy use by just one per cent would save over $150 million annually – more than enough to pay for the cost of buying offsets for all of its emissions.
Since many energy efficiency measures are very cost-effective, with rates of return on investment of 20 to 200 per cent a year, the Victorian economy could easily gain a net benefit from combining an effective energy efficiency strategy with purchase of offsets to achieve net zero emissions. The reductions in energy use and other local abatement action would also reduce future emissions, thus reducing the cost of buying offsets in the future. Since renewable energy prices are falling, we could further reduce emissions with a strong state renewable energy strategy at negligible net cost.
There would be some important benefits from a commitment to net zero emissions by 2020. First, it would send a clear signal to Victorian business and households that they should get serious about cutting emissions. Second, it puts a globally linked price (admittedly very low) on emissions, paid by the Victorian government on behalf of Victorians. If global emission reduction action increases the price of CERs as all countries try to cut emissions, this provides an increasingly strong incentive for the Victorian government to ensure that effective local emission reduction actually occurs. The government would have a clear financial incentive to drive emission reduction! At the same time, by buying up and banking cheap offsets, the Victorian government could reduce its future offset costs, and even sell excess CERs as prices increase and our local emissions decline, generating revenue to fund further Victorian emission reduction action.
Another benefit would be that surrendering CERs to offset Victorian emissions would actually cut global greenhouse gas emissions under the global accounting system. At present, due to the distorted accounting system used in Australia, most emission reductions achieved locally by Victorians simply help Greg Hunt to claim more success in meeting our weak national targets – unless the Victorian government could convince the Australian government to cancel some of its allocation of emission permits under the UNFCCC. This accounting anomaly has been raised by the Voluntary Carbon Markets Association. It was used by the previous Baillieu Liberal Victorian government as an excuse to justify its closure of most Victorian climate response action.
That’s how the Victorian government could become a national and global leader on climate response.
Alan Pears, AM, is one of Australia’s best-regarded sustainability experts. He is a senior industry fellow at RMIT University, advises a number of industry and community organisations and works as a consultant.