The federal government’s Technology Investment Roadmap discussion paper provides a useful review of a range of technologies that could contribute to management of Australia’s climate impact. It also flags potential ways to identify priorities and deploy technologies. But this is just one (important) element of the actions required for Australia to build a successful clean energy-based economy.
It is challenging to drive innovation at a time of disruption and astounding rates of change, when “picking winners” risks backing the wrong options, while working within financial constraints and focusing resources in ways that can be effective.
A list of options is, indeed, a useful starting point, and appropriate criteria for allocation of resources should include:
- Is this an “enabling” innovation that mobilises action across a spectrum of areas?
- Does it avoid “lock-in” of significant emissions that would otherwise have a significant impact on our limited “cumulative climate budget”?
- Does it have a visible pathway from research to commercialisation and then deployment?
- What research, development, commercialisation capability and infrastructure, and consumer “pull” is required for successful deployment, and what criteria will each participant in this process apply when setting their own action priorities?
- How does this option support development of a “least cost, maximum benefit, most rapid” path to net zero emissions?
- How does this option contribute to Australian economic, social and environmental development within the local economy and a global context (including Australian export potential)?
Overarching technology categories
Energy efficiency/productivity is the International Energy Agency’s (IEA’s) “first fuel”.
IEA’s least cost Paris scenario involves energy efficiency delivering about as much abatement as renewable energy up to 2040 – each one about 40 per cent of the least cost abatement. This reflects IEA’s recognition that energy efficiency improvement means a given level of service can be delivered at lower cost, through lower investment in supply side infrastructure, as well as “multiple benefits”, such as enhancing business productivity, health, welfare and environmental outcomes.
In turn, this accelerates emission reduction from a given level of renewable energy investment. It facilitates innovation and abatement across all sectors and value chains, not just energy supply.
The IEA has concluded that a 3 per cent per annum improvement in overall energy efficiency is cost- effective and practical. However, recent global trends are falling short of this optimal performance. Indeed, as shown in Figure 1, IEA has estimated that this shortfall has cost the global economy around US$2.4 trillion dollars over the past few years. The Australian economy is 1.2 per cent of the global economy, and international comparisons by the IEA and the American Council for an Energy Efficient Economy show we lag on energy efficiency improvements compared to most developed countries.
So it seems that Australia’s failure to perform on energy efficiency has cost us nearly US$30 billion, or over AU$40 billion, in recent years.
Failure to perform on energy efficiency is costing Australians a lot of money – as well as missing out on the broad economic, social and environmental benefits that could have been gained.
Figure 1. Economic bonus from improving global energy efficiency – and the bonus we are missing out on by failing to capture optimal energy efficiency improvement (Energy Efficiency 2019 International Energy Agency).
Much energy efficient technology, at a superficial level, is relatively mature and cost-effective. However, ongoing research, technology development and demonstration is needed, especially regarding system design, application, optimisation, cost reduction, incremental technology improvement, volume manufacture techniques, social research into ways of overcoming non- financial barriers, demonstration projects and design, and implementation of effective deployment mechanisms.
The proposed broadening of ARENA and CEFC’s terms of reference could potentially direct much- needed funding and resources to energy efficiency if objective, “level playing field” criteria, which take into account broader benefits, are used to assess proposals.
We also need to build governance structures, support mechanisms, career paths, supply chains and consumer awareness to capture this enormous potential.
My recent work with the Australian Alliance for Energy Productivity (A2EP) and others has highlighted the potential for investment in energy efficiency to drive improvement in business productivity.
For example, recent work for the NSW government on improving efficiency and replacing compressed air systems in industry (which consume up to 10 per cent of industrial electricity at 10-20 per cent efficiency) can not only cut energy costs by 50-80 per cent, but can also speed up production lines and reduce risk of production failures.
A2EP’s work with the refrigerated food supply chain has facilitated reductions in food waste (and associated ‘embodied’ emissions in production) and identification of weak points in the supply chain (see Figure 3). These productivity benefits strongly amplify the substantial value of the direct energy savings and reduce emissions from food production through to consumer.
Digitalisation is key to providing the right information at the right time, in the right form, to the right person (or equipment) to deliver optimal business and social outcomes. Benefits don’t just occur within sites: they flow through the whole value chain, adding value for all participants. Using
multiple data streams means business productivity can be optimised and performance benchmarked.
The IEA has highlighted the importance of digitalisation in a low carbon future in several publications, and has estimated very large energy saving, energy demand management and productivity improvement potential, as summarised in Figure 2 below.
Digitalisation underpins delivery of closed loop economy models and “value chains” by facilitating optimisation, accountability and fair sharing of costs and benefits within and between businesses, organisations and consumers, as shown in Figure 3.
Figure 2. Summary of roles of digitalisation in economic sectors (Energy Efficiency 2019 International Energy Agency www.iea.org )
Figure 3. How digitalisation influences energy and productivity outcomes across a value chain
Circular/closed loop economy – systems
Australian business is typically “siloed”. Many food processors see themselves as a separate industry from farms and retailers. Metal producers see themselves as providing materials, when they are part of a “value chain” that relies on income from services provided to end consumers – and the value consumers perceive they get from those materials.
Consumers do not want energy or technology for its own sake: they want services that offer them “perceived value” that may involve more or less energy, different amounts of energy and different technologies.
Consumer preferences can change much faster than many industries, and disruptive business models are increasingly able to provide what they want in ways that reduce or replace the roles of existing suppliers of physical raw materials, processed materials and even products. How many people still drive to a video-hire store to borrow a DVD and then play it using a specialised DVD player?
The recent virus crisis has driven astounding growth in virtual service delivery that replaces physical products and movement. Tele-health and virtual events are just two examples of this transformation, which has enormous implications for producers of metals and other materials, transport and products.
The circular economy approach is an example of “systems and services” solutions. Digitalisation and connectivity and flexible, modular and distributed technologies are enabling it.
In the past, split incentives and lack of information have blocked circular economy solutions, but this is changing rapidly. Australia needs to ride the wave.
Our zero emissions future
Australia, like most economies, faces serious challenges as it reframes its path towards zero carbon emissions. Global economies have an overarching carbon budget, which we are already close to exceeding.
So we face difficult decisions between incremental change, “investment” of higher short term emissions that may deliver longer term emission reductions, and disruptive emission reductions. Locking-in future emissions through incremental change is a serious risk.
How do we compare and prioritise a “pathway” through the alternative of using gas and/or coal to produce hydrogen, with the expectation of commercialisation of Carbon Capture and Storage and dramatic cost reduction (of hydrogen production, CCUS and supply chains) against an electric/battery/pumped hydro storage scenario that is already underway?
One study (Mu?ller DB1, Liu G, Løvik AN, Modaresi R, Pauliuk S, Steinhoff FS, Brattebø H. (2013) Carbon emissions of infrastructure development Environ Sci Technol. 2013 Oct 15;47(20):11739-46. doi: 10.1021/es402618m. Epub 2013 Oct 3) has proposed that, if developing countries build new infrastructure and buildings using cement and steel, that could consume 35-60 per cent of our global carbon budget by 2050 – and over half of global steel production is used for buildings and infrastructure.
And, while the mainstream focus in Australia is on using hydrogen to produce low carbon steel, MIT electrolytic technology has been commercialised (see Boston Steel) to produce iron (and other metals) using modular technology – in a similar approach to the electrolytic production of aluminium. We live in a world of competitive markets, where disruption of the disruptions is increasingly common. Our technology pathways must confront this reality.
Virtualisation, the bio-economy, ionic liquids, green chemistry, virtual solutions replacing physical ones, and many other disrupters challenge group think and incremental change, while the increasing urgency to manage climate impacts, challenges established industries, institutions and policies.
Australia’s technology roadmap needs to confront these possibilities. We need to spread our investments, while acknowledging the limitations of our resources. We must not be constrained by our past experience.
But we cannot afford to make big investments in risky or incremental options. At a time of uncertainty, flexible modular solutions that can be brought to market quickly, options that capture a larger share of the overall “value chains”, and solutions that can generate revenue from niche markets for revenue as they grow, are more likely to win. Technologies that help to deliver high value end-consumer services are likely to beat those that focus on elements of the supply chain such as specific materials or wholesale energy production.
Wholesale energy prices comprise a small proportion of the total retail price, and efficiency and smart solutions can reduce consumer energy costs while bypassing conventional energy markets and offering “multiple benefits” of far more value than energy itself. Yet the National Energy Market objectives focus on energy price, not overall energy service cost and energy bills. This is a costly failure.
Increasing fossil fuel consumption: a costly diversion
There is a big difference between effective use of, for example, fossil gas in the transition to a low carbon economy, and ongoing expansion of gas production. We can strategically target gas use within a rapid transition to a zero carbon economy while reducing total gas consumption and avoiding sinking capital into new gas development.
In the end, markets, with all their imperfections, will drive adoption of technologies. But these markets are not wholesale energy markets, or raw material markets: they are consumer markets. They respond to overall perceptions of value in terms of service delivered, not wholesale energy or raw material prices, or specific technologies.
We need to manage our transition to zero emissions without investing in increasing fossil fuel supply. We simply no longer have the time or the carbon budget to increase fossil fuel production. Powerful market and technological forces are working against this scenario.
The construction of three LNG export facilities in Queensland was risky, and has involved a substantial loss of manufacturing jobs and revenue. A 2014 study showed this path would drive large losses of jobs and a transfer of revenue from Australian manufacturing to the gas supply industry (Deloitte Access Economics, 2014 gas market transformations – economic consequences for the manufacturing sector).
To protect Australian manufacturing jobs, we need strategies that support a rapid shift from gas to efficiency, smart management and high efficiency electric technologies compatible with a least cost zero carbon future.
It is not possible to fully explain the opportunities that an efficient, modular, flexible, digital, connected technology/service delivery and deployment path offer Australia, in just 2000 words.
I encourage the Roadmap team to read International Energy Agency and Australian Alliance for Energy Productivity reports that map out the potential.
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.
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