Turning it Around: Climate Solutions for VIctoria

Environment Victoria Turning it around: climate solutions for Victoria November, 2008

THINKING

DOING

LEADING

Environment Victoria - Turning it around: climate solutions for Victoria

The Nous Group (Nous) has been working in the important area of climate change for some years now. In that time, we have worked with experts in the field as well as relevant institutions and governments to determine a basis on which solutions to this global problem may be achieved, particularly within an Australian context. Nous has been engaged to provide analysis and advice for a range of governments.

In 2007, Nous explored the potential for reductions in Victoria’s greenhouse gas emissions in the period to 2050 for the Victorian Government. This report, entitled Understanding the Potential to Reduce Victoria’s Greenhouse Gas Emissions, broadly identified the potential scope for greenhouse gas emissions reductions across all major sources.

Drawing on this earlier report, this new analysis aims to assess the capacity for Victoria to halve its emissions by 2020 under what could be effectively described as a leadership scenario. Nous has therefore developed a version of the original wedges model specifically for this task, albeit within a refined time span until 2030.

In particular, Nous has used the wedges model from Understanding the Potential to Reduce Victoria’s Greenhouse Gas Emissions to examine where a speedier response might be most feasible. We have accelerated some of the wedges – suggesting a more rapid response by government, industry and the community. We have added two new wedges; one in particular examining the effect of a reduction in the quantity and impact of our consumption of goods.

This study was an initial examination of these issues only, and has not examined in detail the costs of the changes required. It provides examples only of the policy changes which might drive these changes.

The need for substantial reductions in greenhouse gas emissions is certainly apparent, and the debate around emissions trajectories and the Australian Government’s Carbon Pollution Reduction Scheme (CPRS) exemplifies this. The conclusions which come from our analysis strongly suggest that these reduction opportunities should be examined closely by all Governments.

The Nous Group November, 2008

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Environment Victoria - Turning it around: climate solutions for Victoria

Contents Glossary of terms..................................................................................................................... 3 1

Executive Summary ........................................................................................................ 4

2

Introduction ..................................................................................................................... 7 2.1 The global challenge of climate change .................................................................. 7 2.1.1

Impact of climate change on Victoria...................................................... 13

2.2 Policy context........................................................................................................ 14 2.2.1

Victorian Government Policy .................................................................. 14

2.2.2

Garnaut Climate Change Review ........................................................... 14

2.2.3

Green Paper on CPRS........................................................................... 15

3

Project context .............................................................................................................. 16

4

Project objectives and methodology.............................................................................. 17 4.1 Project objectives .................................................................................................. 17 4.2 Project methodology ............................................................................................. 18 Step 1: Identifying the reference case .................................................................. 18 Step 2: Applying the wedges................................................................................ 18 Step 3: Combining the measures ......................................................................... 22

5

Analysis of emissions reduction wedges ....................................................................... 23 5.1 Overall impact of the wedges ................................................................................ 23 5.1.1

Sustainable production and consumption ............................................... 28

5.1.2

Stationary energy wedges ...................................................................... 31

5.1.3

Transport sector wedges........................................................................ 35

5.1.4

Other wedges: agriculture, land use, land use change and forestry, industrial processes and waste............................................................... 37

Appendix A

The original wedges ........................................................................................ 38

Appendix B

The Wedges, barriers and policy tools............................................................. 39

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Environment Victoria - Turning it around: climate solutions for Victoria

Glossary of terms CPRS

Carbon Pollution Reduction Scheme

ETS

Emissions Trading Scheme

GPG

Gas Powered Generation

IPCC

Intergovernmental Panel on Climate Change

MRET

Mandatory Renewable Energy Target

NETT

National Emissions Trading Taskforce

PMTG

Prime Minister’s Task Group on Emissions Trading

VEET

Victorian Energy Efficiency Target

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1 Executive Summary In the context of growing concern about emissions trajectories and the severity of climate change impacts, Environment Victoria requested that Nous test the capacity for halving Victoria’s emissions by 2020. The rationale for proposing such a target is that by embarking on such a plan for early action with known technologies and solutions, a broad range of emission cuts may prove possible in future years, ranging from the IPCC derived targets of 25-40% cuts by 2020 for developed nations to more ambitious cuts that would guarantee a safe climate.

The overall conclusion, examining the wedges modelled for this project, is that it is possible for Victoria’s greenhouse gas emissions to be halved from 1990 levels by 2020, although this would require accelerated transformative change across the energy supply sector and a substantial reduction in the impact of and demand for goods and for consumption of energy and services.

The modelled wedges would reduce emissions to 49.5 megatonnes in 2020, a reduction of 54% from 1990 emissions; and to 25.2 megatonnes in 2030, a reduction of 77% from 1990 emissions. This equates to a reduction of 60% from the 2006 Victorian emissions by 2020 and 80% cuts by 2030.

Climate change is one of the most pressing and difficult policy issues facing society in the twenty-first century, both challenging and requiring urgent responses from governments, industry and the wider community throughout the world.

Over the last decade, greenhouse gas emissions have been growing faster than the most pessimistic predictions by the scientific community, and the impacts are already being felt in terms of global sea level rise and increases in global surface temperatures.

Avoiding a global temperature rise of more than 2°C would require stabilisation of carbon dioxide equivalent concentration at less than 400 ppm, and peaking of global emissions by 2015, an extraordinarily challenging proposition. Yet, even this level of climate change would see extreme environmental, social and economic impacts.

Against this background the Australian Government, drawing on the Garnaut Climate Change Review, is developing its Carbon Pollution Reduction Scheme (CPRS), and the Victorian Government is developing a Climate Change White Paper and Climate Change legislation.

Environment Victoria requested that Nous examine the possibility of accelerating and strengthening the analysis of policy responses (the “wedges”) which we undertook for the Victorian Government in 2007,1 to test the capacity for halving emissions in Victoria by 2020 and reducing further by 2030. Environment Victoria’s rationale for early and deep emissions reduction is that early action provides a leadership example, reduces emissions, and puts future emissions reductions targets needed to guarantee a safe climate within reach.

1

The report Understanding the potential to reduce Victoria’s greenhouse gas emissions provided a reference case for Victoria’s greenhouse gas emissions to 2050 and applied a modified Princeton Wedges analysis to determine the potential to reduce these emissions. Twenty one wedges were modelled in that project, using reasonable but conservative assumptions about technological potential, economic efficiency and consumer behaviour. The report showed that a 60% reduction in emissions by 2050 was feasible.

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To test this scenario, a number of the wedges were scaled up or accelerated, envisaging greater policy intervention from the Victorian Government, greater community activism, or greater industry investment. Two new wedges, a Sustainable Production and Consumption wedge and a building overhaul wedge, were added.

To complete the project, Environment Victoria requested that we identify some policy options which could be considered by the Victorian Government, to drive the attainment of the wedges modelled here, in the light of the Australian Government’s CPRS. The overall conclusion, examining the wedges modelled for this project, is that it is possible for Victoria’s greenhouse gas emissions to be halved from 1990 levels by 2020, although this would require an accelerated transformative change across the energy supply sector through speedy deployment of renewable energy and gas-fired electricity, and a substantial reduction in the impact of and demand for goods and for consumption of energy and services by the wider community.

The modelled wedges would reduce emissions to 49.5 megatonnes in 2020, a reduction of 54% from 1990 emissions; and to 25.2 megatonnes in 2030, a reduction of 77% from 1990 emissions. This equates to a reduction of 60% from the 2006 Victorian emissions by 2020 and 80% cuts by 2030.

Victorian greenhouse gas emissions (kilotonnes)

Reduction of Victorian greenhouse Reduction of Victorian greenhouse gas emissions (% of 1990 levels) gas emissions (% of 2006 levels)

1990

108,230

n/a

15%

2006

124,956

-15%

n/a

2010

118,958

-10%

5%

2020

49,507

54%

60%

2030

25,292

77%

80%

Figure 1: Overview of modelled reductions in Victoria's greenhouse gas emissions

Early reductions could be made in terms of behaviour change: sustainable consumption and production, energy efficiency in the residential, commercial and industrial sectors, improved environmental performance of our building stock and travel demand management and mode shift.

Reductions in emissions from the energy supply sector would follow, with a combination of renewable energy growth, fuel shift to gas and cogeneration and greater efficiency of production of electricity from coal, beginning to impact from the mid 2010s.

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It should be noted that this project has not examined the cost of specific initiatives in detail: however all of the wedges here are technically feasible and many (such as energy efficiency and sustainable production and consumption) are likely to be at least cost neutral.

Noting that many wedges would be (at least in part) driven by the carbon price of an Australian CPRS, a range of specific policy opportunities have been identified which would either address carbon market failures or complement the CPRS. These could include: •

An integrated initiative or campaign around sustainability of production and consumption, involving governments, industry and the wider community

•

A building overhaul program, driving change in new and existing residential and commercial buildings

•

A renewables growth program, building on existing renewable energy programs to target areas of competitive advantage for Victoria

•

An industry development and regional transition program

•

A significant commitment to sustainable urban and land use planning and design, transport infrastructure investment and service improvements, accelerated vehicle efficiency and a new approach to road, public transport and parking pricing.

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2 Introduction Climate change is one of the most pressing and difficult policy issues facing society in the twenty-first century, both challenging and requiring urgent responses from governments, industry and the wider community throughout the world.

Greenhouse gas emissions have been growing faster than the most pessimistic predictions by the scientific community, and the impacts are already being felt in terms of global sea level rise and global surface temperatures.

Avoiding a global temperature rise of more than 2°C will require stabilisation of carbon dioxide equivalent concentration at less than 400 ppm, and peaking of global emissions by 2015 which is a challenging proposition.

Yet, even this level of climate change would see extreme environmental, social and economic impacts.

Against this background the Australian Government, drawing on the Garnaut Climate Change Review, is developing its Carbon Pollution Reduction Scheme (CPRS), and the Victorian Government is developing a Climate Change White Paper and Climate Change legislation.

The challenge of responding to climate change is one with which all levels of Government are currently grappling. Recent findings by the Intergovernmental Panel on Climate Change (IPCC) suggest that deep cuts in global emissions will be needed within 20 years to ensure that the consequences of dangerous human interference with the climate are avoided.

Accordingly, Australia and its states and territories have an important role to play in responding to the global need to reduce greenhouse gas emissions.

Discussion on climate change has moved to suggest that the IPCC’s goal of keeping global warming less than 2°C may not be sufficient to avert disastrous consequences. NASA scientist James Hansen has suggested that the “safe level of atmospheric carbon dioxide is no more than 350ppm (parts per million) and it may be less, and that the oft-stated goal to keep global warming less than 2°C (3.6°F) is a recipe for global disaster, not salvation.”2 Either way, the threat of climate change requires both massive and urgent action from all sectors of the community.

2.1 The global challenge of climate change Current atmospheric concentrations of carbon dioxide and methane by far exceed those at any time in the last 650,000 years,3 while global surface temperatures have risen by 0.7°C over the last century. At the same time sea-levels have risen by around 20cm and the oceans have become more acidic.4 The climate change-induced warming of the oceans has also led to the melting of ice shelfs, including the recent break-up of the Wilkins Ice Shelf on the western side

2

Pilkington, E. (2008), Put oil firm chiefs on trial, The Guardian, June 23

3

IPCC, 2007b, Climate Change: Synthesis Report: Summary for Policy Makers. the Fourth Assessment Report of the Intergovernmental Panel on Climate Change http://www.ipcc.ch

4

IPCC, 2007b

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of the Antarctic Peninsula.5 Other observed climate change impacts appear in Figure 2 (over page).

5

Darby, A. (2008), Warmer ocean led to ice collapse, The Age, October 6.

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6

Figure 2: Selected regional climate change observations

6

Garnaut Climate Change Review September 2008, pp.76-77 Š The Nous Group

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Recent scientific publications raise further concerns that the climate system may be responding to human influence more quickly than predicted,7 with observed emissions growing at a faster rate than the highest of the range of possible emission scenarios originally considered by the IPCC in 2001.8 In addition, while global observed temperature and sea level rise have been tracking in the upper end of the range of IPCC predictions, the ability of the ocean to remove carbon dioxide is decreasing due, among other things, to an observed increase in Southern Ocean winds, attributed to human induced climate change.9 David Karoly has recently noted that: “most of the observed increase in global average temperatures since the mid-twentieth century is very likely to be due to the observed increase in anthropogenic greenhouse gas concentrations, and furthermore that it is likely that there has been significant anthropogenic warming over the past 50 years averaged over each continent except Antarctica, we conclude that anthropogenic climate change is having a significant impact 10 on physical and biological systems globally and in some continents”.

As concentrations of carbon dioxide in the atmosphere rise and temperature increases there is the potential for further ‘feedback loops’ to be unlocked. The Garnaut Review Final Report outlines a number of “climate-carbon feedback effects that are not well understood but which could have considerable influence on the temperature response to an increase in carbon dioxide emissions”.11 These include release of methane from melting permafrost, release of methane from methane hydrates in the ocean, abrupt changes in the uptake and storage of carbon by terrestrial systems and the already mentioned reduced uptake of carbon dioxide by oceans.The IPCC in 2007 provided “best estimates” of the likely global average temperature rise and sea level rise associated with a range of different long term CO2 stabilisation levels.12 These are listed in Figure 3.

7

Rahmstorf, S., Cazenave, A., Church, J.A., Hansen, J.E., Keeling, R.F., Parker D.E. and Somerville, R.C.J. (2007). Recent climate observations compared to projections. Science 316.

8 Raupach, M.R. Marland, G., Ciais, P.,Le Quéré, C.,Canadell, J.G. Klepper, G. and Field, C.B. (2007). Global and regional drivers of accelerating CO2 emissions. Proc.Nat.Acad.Sci., 104 (24), 10,288-10,293.

9

Le Quéré, C., Rödenbeck, C., Buitenhuis, E.T., Conway, T.J., Langenfelds, R., Gomez, A., Labuschagne, C., Ramonet, M., Nakazawa, T., Metzl, N. Gillett, NJ. and Heimann, M. (2007). Saturation of the Southern Ocean CO2 sink due to recent climate change. Science 316(5832), 1735-1738.

10

Cynthia Rosenzweig, David Karoly, Marta Vicarelli, Peter Neofotis, Qigang Wu, Gino Casassa, Annette Menzel, Terry L. Root, Nicole Estrella, Bernard Seguin, Piotr Tryjanowski, Chunzhen Liu, Samuel Rawlins & Anton Imeson. Attributing physical and biological impacts to anthropogenic climate change. Article Nature 453, 353-357 (15 May 2008)

11

Garnaut Climate Change Review, September 2008, p.98

12

IPCC, 2007b

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CO2 concentration at stabilisation (ppm) (2005 = 379 ppm)

Peaking year for CO2 emissions

Change in global CO2 Global average emissions in 2050 (% temperature increase of 2000 emissions) above pre-industrial level (°C)

Global average sea level rise above preindustrial, from thermal expansion only (meters)

350-400

2000-2015

-85 to -50

2.0-2.4

0.4-1.4

400-440

2000-2020

-60 to -30

2.4-2.8

0.5-1.7

440-485

2010-2030

-30 to +5

2.8-3.2

0.6-1.9

485-570

2020-2060

+10 to +60

3.2-4.0

0.6-2.4

570-660

2050-2080

+25 to +85

4.0-4.9

0.8-2.9

660-790

2060-2090

+90 to +140

4.9-6.1

1.0-3.7

Figure 3: Temperature, sea levels and corresponding long term CO2 stabilisation levels

Projections of global average warming (relative to 1980-99) for the IPCC scenarios are presented in Figure 4.

Figure 4: IPCC scenarios of global average warming

The United Nations Framework Convention on Climate Change includes a stabilisation objective which has influenced much thinking around emissions reduction and the Kyoto Protocol itself. While this definition of “dangerous interference” is still subject to interpretation,

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many analysts have adopted the view that anything greater than 2°C warming must (at the very least) be prevented to ensure that impacts on major ecosystems are avoided.13 The question of the target set for stabilisation of emissions is one still being grappled with by the IPCC and by policymakers, with many jurisdictions setting long term targets of greater than 60% emissions reductions by 2050.14 Importantly, debate is now moving to the nearer term, the year in which global emissions would need to peak, and the level of emissions reductions required by developed countries under Kyoto and by 2020. Under the Kyoto Protocol the European Union has committed to reducing emissions by 10% on 1990 levels by 2010 and is negotiating for the second commitment period, having flagged a willingness to consider cuts of 25-40% by 2020. The data in Figure 3 strongly suggests that avoidance of more than 2°C of warming worldwide would require global emissions to peak no later than 2015.

The Australian Government has now ratified the Kyoto Protocol, and has established a target of 60% reduction in emissions by 2050.15 This is a milestone for the management of climate change in Australia, although further development of this policy response is continuing, and States and Territories have developed their own responses which are discussed below.16 In spite of best efforts to avoid more than 2°C of warming worldwide, there is an argument emerging around whether “avoiding dangerous interference” is a sufficiently comprehensive objective for climate policymakers. Increasingly, it is being argued that the objective should now be framed in terms of maintenance of a safe climate,17 with NASA scientist James Hansen arguing that “the safe level of atmospheric carbon dioxide is no more than 350 ppm (parts per million) and it may be less”.18

13

F.R. Rijsberman and R.J. Swart (Eds), 1990. Targets and indicators of climate change: Report of Working Group II of the Advisory Group on Greenhouse Gases. Stockholm Environment Institute.

14

Pew Centre website, 2008, “A Look at Emissions Targets” http://www.pewclimate.org/what_s_being_done/targets

15

Australian Government Department of Climate Change, 2007, Tracking to the Kyoto Target: Australia’s Greenhouse Emissions Trends 1990-2012 and 2020.

16 For example, the South Australia Government has now outlined a timetable to reach carbon neutral status for its own operations by 2020.

17

Spratt, D. and Sutton, P., Climate Code Red, Scribe Publications 2008

18

Hansen, J.,http://www.columbia.edu/~jeh1/2008/TwentyYearsLater_20080623.pdf

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Figure 5: Impacts of global average temperature change

2.1.1 Impact of climate change on Victoria As with the rest of Australia, climate change has already impacted Victoria.

Over the course of the 20th century, the average global temperature has increased by 0.6°C, with both maximum and minimum temperatures having increased by 0.8°C since 1950.19 Victoria had its hottest year on record in 2007, and at the same time has experienced a 13% decline in total rainfall.20 The incidence of severe droughts during strong El Niño events has

19

http://www.greenhouse.vic.gov.au

20

http://www.greenhouse.vic.gov.au

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tended to be more frequent, and it is believed that the impacts of the 2002 drought are likely to have been enhanced by climate change.21 Key areas of climate change risk identified for Victoria include buildings in coastal settlements, natural ecosystem based tourism, irrigated agriculture, access to water, health issues related to temperature and vector borne diseases.

As well as the biophysical impact, it is clear that climate change also has economic implications. For example, the 2006-07 drought is estimated to have reduced the rate of economic growth in Australia by around 0.75 percentage points of what would have been otherwise achieved.22

2.2 Policy context 2.2.1 Victorian Government Policy The Victorian Government remains publicly committed to taking a leadership role in tackling the difficulties presented by climate change. It has publicly stated that it “wants to continue to lead, and ensure Victoria is in a strong position to address the challenges, and take full advantage of the opportunities, that will arise in the move towards a low-carbon economy.”23 Since 2002, the Victorian Government has sought to establish a policy position which will reduce greenhouse gas emissions while maintaining energy security and economic performance. The Victorian Greenhouse Strategy (2002) was followed by the Greenhouse Challenge for Energy (2004) and the Environmental Sustainability Action Statement (2006) in establishing a suite of policies and programs designed to reduce energy consumption and increase supply efficiency and the penetration of renewables.

Most recently, Premier Brumby’s and Minister Jennings’ April 2008 Climate Change Summit Paper sees the beginning of development of the Government’s Climate Change Green and then White Papers and Climate Change legislation. The intention is to help Victoria adapt to climate change and realise the opportunities created in the transition to a low carbon economy.

2.2.2 Garnaut Climate Change Review The Garnaut Climate Change Review was commissioned by the Commonwealth, state and territory governments of Australia to examine the impacts of climate change on the Australian economy and recommend medium to long-term policy options to produce the best possible outcomes for Australia. The final report was released in September 2008.

21

http://www.greenhouse.vic.gov.au

22

Garnaut Climate Change Review June 2008, p 230

23

http://www.climatechange.vic.gov.au/summit/About_the_Summit.html

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On 20 March 2008, Professor Garnaut released his Emissions Trading Scheme (ETS) Discussion Paper, containing recommendations for Australia’s proposed ETS. Some, but not all, of the recommendations are consistent with those previously made by the Prime Minister’s Task Group on Emissions Trading (PMTG) and by the National Emissions Trading Taskforce (NETT).24 The Garnaut Review Final Report concluded that Australia’s contribution to emissions reductions: “for 2020 in a 450 (ppm) scenario would be a reduction of 25 per cent in emissions entitlements from 2000 levels, or one-third from Kyoto compliance levels over 2008– 12, or 40 per cent per capita from 2000 levels. For 2050, reductions would be 90 per cent from 2000 levels (95 per cent per capita). Australia’s full part for 2020 in a 550 (ppm) scenario would be a reduction in entitlements of 10 per cent from 2000 levels, or 17 per cent from Kyoto compliance levels over 2008–12, or 30 per cent per capita from 2000. For 2050, reductions would be 80 per cent per capita from 2000 levels or 25 90 per cent per capita.”

2.2.3 Green Paper on CPRS On 16 July 2008 the Australian Government delivered its Green Paper on a Carbon Pollution Reduction Scheme. The Green Paper outlines a range of preferred options for the CPRS scheme including: •

Broad sectoral coverage, covering energy, industrial processes, waste and transport, with agriculture excluded and forestry able to “buy-in” as desired.

•

Use of fuel tax offsets to compensate for petrol price increases.

•

Compensation for households, trade exposed industries and strongly affected industries such as the energy supply sector.

The Government will release an exposure draft of the CPRS legislation before the end of the year.

2.2.4 Global negotiations on the UN Framework Convention on Climate Change and Kyoto Protocol Australian policy is developing in the context of international negotiations leading up to the Copenhagen meeting at the end of 2009. At the United Nations Climate Change Conference in Bali in December 2007 a negotiation framework known as the ‘Bali Roadmap’ outlined the process by which nations will work towards an agreement to succeed the Kyoto Protocol first commitment period which is due to end in 2012. This agreement is scheduled to be completed at the December 2009 meeting in Copenhagen.

24

Appendix 4 to Garnaut’s Emissions Trading Scheme Discussion Paper dated March 2008 sets out a comparison of Garnaut’s proposed ETS design with existing proposals and schemes. Given the Australian Government has now delivered its Green Paper, this report focuses on Garnaut work vis a vis The Green Paper and confines its analysis to waste impacted recommendations.

25

Garnaut Climate Change Review September 2008

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3 Project context By way of context, the report Understanding the Potential to Reduce Victoria’s Greenhouse Gas Emissions provided a reference case for Victoria’s greenhouse gas emissions to 2050 and applied a modified Princeton Wedges analysis to determine the potential to reduce these emissions. Twenty one wedges were modelled in that project, using reasonable but conservative assumptions about technological potential, economic efficiency and consumer behaviour, and showed that a 60% reduction in emissions by 2050 was likely to be feasible.

This report draws heavily on the model developed for the Victorian Government in Understanding the potential to reduce Victoria’s greenhouse gas emissions. Considering the strong influence of this previous work on this report, it is therefore worthwhile to provide a broad overview of Understanding the potential to reduce Victoria’s greenhouse gas emissions.

The report Understanding the Potential to Reduce Victoria’s Greenhouse Gas Emissions was undertaken for the Department of Premier and Cabinet in Victoria, and was supported by a whole-of-government process of input and review which assisted in ensuring the overall robustness of the results. It provided a basis for further policy and program development by the Victorian Government by broadly identifying the potential scope for greenhouse emissions reductions across all major classes of emission sources.

The report explored the potential for reductions in Victoria’s greenhouse gas emissions in the period until 2050 by applying modified Princeton Wedges26 analysis to Victoria’s greenhouse gas emissions. A reference case for Victoria’s emissions to 2050 was constructed to provide a basis for assessment of the scale and impact of the wedges over time. The reference case represents an indicative scenario of future greenhouse gas emissions from the State of Victoria that experts believe is plausible in the absence of policy and other initiatives modelled by the wedges.27 It is this same reference case that was applied to this new report, albeit within a timeframe that only extends until 2030.

It is worth noting that the wedges identified for Understanding the Potential to Reduce Victoria’s Greenhouse Gas Emissions were conservative estimates based on “reasonable” government intervention and certain technology assumptions. The conservatism of these initial wedges has provided scope for the wedges to be accelerated in this report. Indeed, the previous report concluded that “a considerable number of the wedges could be accelerated or deepened by the use of more aggressive policies”.28 Furthermore, in the original work, it was also stated that “some significant issues have not been incorporated into wedges, and rapidly

26 The term ‘wedge’ is derived from the shape of the area on a chart showing Victoria’s forward emissions profiles between curves with and without a particular emissions reduction initiative. This graphic portrayal of emission reduction opportunities first gained prominence in research at Princeton University’s Princeton Environment Initiative, hence the term ‘Princeton wedge analysis’. In this project, wedges reflect greenhouse gas emissions reductions due to changes in behaviour and technology and combinations of both.

27

The baseline figures (including 2006 figures) were generated by The Nous Group, drawing upon known sources. The methodology utilised smoothing algorithms to combine the various methodologies used by these data agencies.

28

The Nous Group (2007), Understanding the potential to reduce Victoria’s greenhouse gas emissions

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moving technology and community attitudes will introduce additional opportunities for emission reduction over time.”29 The likely impact of accelerating these wedges and adding additional wedges was the key impetus for this report.

4 Project objectives and methodology This project has been undertaken on behalf of Environment Victoria, who requested that Nous examine the possibility of accelerating and strengthening the analysis of policy responses (the “wedges”) which we undertook for the Victorian Government in 2007, to test the capacity for halving emissions in Victoria by 2020 and reducing further by 2030.

To test this scenario, a number of the wedges were scaled up or accelerated, envisaging greater policy intervention from the Victorian Government, greater community activism, or greater industry investment. Two new wedges – sustainable production and consumption and building overhaul, were added.

To complete the project, Environment Victoria requested that we identify some policy options which could be considered by the Victorian Government, to drive the attainment of the wedges modelled here, in the light of the Australian Government’s CPRS.

In the context of growing concern about emissions trajectories and the severity of impacts, Environment Victoria requested that Nous test the capacity for halving Victoria’s emissions by 2020. Environment Victoria’s rationale for proposing such a target is that by embarking on such a plan for early action with known technologies and solutions, a broad range of emission cuts may prove possible in future years, ranging from the IPCC derived targets of 25-40% cuts by 2020 for developed nations to more ambitious cuts that would guarantee a safe climate.

This ‘leadership’ scenario would need to be adopted nationally and internationally to prevent dangerous climate change, however national and international negotiations will be mired in delay unless some jurisdictions and leaders are prepared to signal their willingness to lead with a climate change response that is proportionate to the problem. Furthermore by taking action first on ‘no regrets’ measures with a negative abatement cost, the Victorian Government could begin a program to achieve early, deep cuts that could give Victoria an economic advantage in a low carbon future.

4.1 Project objectives In light of previous work that Nous undertook for the Victorian Government, Understanding the potential to reduce Victoria’s greenhouse gas emissions, the objectives of the project are to: •

Investigate how the reduction of greenhouse gas emissions in Victoria could be accelerated and intensified with greater policy intervention

•

Provide modelling and analysis for an additional initiative as well as increased efficiencies in state-wide production and consumption

29

The Nous Group (2007), Understanding the potential to reduce Victoria’s greenhouse gas emissions

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In particular, the project assesses the potential for Victoria’s greenhouse gas emissions: • To be falling by 2010 • To be halved (compared to 1990 levels) by 2020 • To be continuing to trend downwards in 2030.

This project exclusively applies to the State of Victoria.

4.2 Project methodology To arrive at its conclusions, Nous engaged in a four-step process across six industry sectors.

The first step was to create a baseline reference case, which was drawn from previous work completed for the Victorian Government. Second, a number of “wedges” (which are essentially a measure of emission reduction potential) were identified and applied. Third, measures were combined to assess the potential for emissions reduction in Victoria. Fourth, the policy interventions to support the potential reduction in emissions were identified and analysed.

Step 1: Identifying the reference case Drawing on the published conclusions reached in Understanding the potential to reduce Victoria’s greenhouse gas emissions, Nous identified a reference case for greenhouse gas emissions until 2030. These forecasts represent a trajectory of emissions based on the current suite of agreed policy interventions, i.e. a business-as-usual scenario of economic development. These forecasts do not take into account future policy interventions, such as the Federal government’s proposed CPRS, however they do factor in the Victorian Renewable Energy Target, Victorian Energy Efficiency Target (VEET) and the proposed expansion of the Federal Mandatory Renewable Energy Target (MRET). The reference case identifies six key sectors that are responsible for emissions, and projects that emissions will total 134 Mt in 2030 under a business-as-usual case. This is 24 percent above 1990 levels and represents an average emissions growth rate of 1.3 percent per year.

Step 2: Applying the wedges Twenty of the original twenty-one wedges from Understanding the potential to reduce Victoria’s greenhouse gas emissions were applied in this report. The wedge ‘Building envelope and HVAC equipment’ was replaced by the larger wedge ‘Overhaul of building stock’. In addition to these twenty-one wedges, a sustainable production and consumption wedge was added; this wedge was activated before all of the other wedges.

The original wedges were chosen based on: •

A measurable and substantial greenhouse gas emission reduction impact (more than 50,000 tonnes per annum of CO2-e)

•

Technical feasibility (availability prior to 2020)

•

A reasonable cost (less than $100 per tonne of CO2-e), and

•

A minimal social cost.

The scope for the wedges was deliberately broad, and included abatement opportunities driven by technological developments (such as CCS) as well as behavioural changes (such as

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travel demand management). The data underlying these wedges drew largely from the outcomes of Understanding the potential to reduce Victoria’s greenhouse gas emissions, which had considerable input from industry experts.

As with Understanding the potential to reduce Victoria’s greenhouse gas emissions, each of the wedges was uniquely defined by the following variables: 1. Start time: The start date for any reduction in greenhouse gas emissions 2. Ramp-up time: The period it takes for the reduction in greenhouse gas emissions to reach its full potential 3. Steady-state change: The full impact (in percentage terms) of the reduction in greenhouse gas emissions

Deeper cuts aided by policy intervention As outlined in the Methodology section, this report sought to assess the potential of a series of wedges that were accelerated and enhanced from the previous work undertaken by Nous. In particular, the driving force for these “deeper cuts” was a combination of greater policy intervention by the Victorian Government, enhanced industry innovation and transformation, and a high level of community action. While this report acknowledges that deeper costs bear related costs, the purpose of this study was to investigate what is possible and when it could be achieved by.

For many of the wedges, the start time, ramp-up time and the steady state change were enhanced based on greater policy intervention from the Victorian Government, greater community activism, or greater industry investment. The enhanced impact of these wedges is based on both overseas and local research, and a number of possible policy interventions, which are outlined in Section 5 of the report. Accordingly, based on these assumptions, many of the wedges provide deeper cuts than the comparable wedges in Understanding the potential to reduce Victoria’s greenhouse gas emissions.

Appendix B contains a description of the broad assumptions underlying each wedge, including those wedges that were modified for this report.

One area where a more stringent policy approach is already being seen is, of course, in the Australian Government’s commitment to impose a price on carbon through the CPRS as described in Section 2.2.3. The impact of this policy intervention will be to drive many of the wedges modelled here – however, not all of the impact we have modelled will be achieved through the CPRS; several sectors of the economy (agriculture and to an extent land use and forestry) will not be covered by the Scheme initially. Others will be supported by cost exemptions (transport) or have the scheme effects moderated (trade exposed industries and the energy sector).

The extent of change driven by the CPRS in Victoria will only be clear once the parameters underlying the CPRS (such as targets and trajectories, coverage and allocation of permits) are agreed. At this point Governments will also have got closer to determining the likely mix of complementary policies which will be in place in support of the CPRS. The policy interventions available to Government for these deeper cuts in the original wedges are outlined below:

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•

Renewables growth package

•

Overhauling Victorian building stock

•

Accelerated uptake of energy efficiency

•

Industry development and regional transition program

•

Congestion, public transport and parking charging, fuel efficiency and public transport infrastructure investment.

In addition to enhancing the original wedges, the revised building wedge and a sustainable production and consumption wedge were also applied:

Overhauling Victoria’s building stock In addition to the previous work undertaken by Nous, an additional wedge was included in this analysis. The wedge “Overhauling Victoria’s Building Stock” included a significant technological change, extending the previous wedge “Building envelope and HVAC equipment”.

This wedge draws on a number of approaches to overhaul Victoria’s new and existing building stock in both the commercial and residential sectors. The wedge envisages enforcement of stringent environmental standards across all buildings, ensuring greater efficiencies in both the use of electricity and gas across the residential and commercial sectors.30 The modelling of this wedge was based on modelling that included a 50% improvement in the efficiency of both electricity and gas use across commercial and residential buildings in Victoria, to be fully implemented by 2030. Some of the key measures driving the consequential reductions in greenhouse gas emissions include: •

Upgrade 5 star standard to become 7 star (new residential buildings)

•

Upgrade current 3 to 3 ½ star standards to minimum 5 star standard (new commercial buildings)

•

Develop and implement minimum standards for all other buildings, e.g. schools, hospitals and warehouses

•

Include minimum standards for all building fittings (both residential and commercial)

•

Mandatory water and energy efficiency standards for all buildings for sale and lease

•

Extend VEET to existing commercial buildings.

Sustainable production and consumption In addition to the twenty-one wedges, a new wedge representing sustainable production and consumption was applied to the reference case. The data that informs the sustainable production and consumption wedge was similarly drawn from published material and expert opinion.

30

It should be noted that this wedge is separate to the gains achieved under the Lighting (Commercial) wedge and there is no duplication between the wedges.

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The wedges which were modelled in previous projects related to a combination of efficiencies of production or shifts in usage pattern (outputs). The work undertaken for this project has strongly suggested that without an underlying reduction in the impact of and demand for production and consumption of goods, the stronger reductions in emissions will be extremely difficult to achieve and will rely heavily on major (and as yet unrecognised) technological breakthroughs. This represents a high level of risk in approaching the required reduction target.

In fact, efficiency improvements per se can fail to effectively address all available improvements in resource consumption; recent research by the Australian Conservation Foundation suggests that personal energy and petrol consumption amounts for less than a quarter of the greenhouse gas emissions associated with our lifestyles – the remainder is locked up in the goods we purchase and consume.31 Similar recent research in the United States suggests that individual consumption contributes up to one third of greenhouse gas emissions and offers low cost emissions reduction potential. 32 For this project, a wedge representing a shift in the consumption of goods has been modelled – this wedge sees the underlying demand for outputs reduced by 20% by 2030 (i.e. the impact of a population of 5 million behaving as a population of 4 million). This is not designed to reflect a reduction in overall wellbeing in society; rather, it reflects a major growth in consumer awareness and availability of approaches to reducing energy-intense consumption.

The essence of this wedge is smarter production and consumption throughout the Victorian economy. On the production side this includes manufacturing goods as efficiently and environmentally-friendly as possible and minimising waste. On the consumption side, this includes buying products that use less water and energy as well as more recycled products. It doesn’t mean that we have to limit lifestyle but be smarter in the way we live, particularly avoiding waste and single-use products.

The wedge is directly applied to the reference case prior to the other wedges being applied, and flows through the different sectors according to expected impact on a sectoral basis:

31

Australian Conservation Foundation “Consuming Australia – Main Findings” 2007

32

Vandenbergh, Michael P. ,The Carbon-Neutral Individual. New York University Law Review, Vol. 82, 2007; Vandenbergh, Michael P. , Barkenbus, Jack and Gilligan, Jonathan M.,Individual Carbon Emissions: The Low-Hanging Fruit(July 16, 2008).

UCLA Law Review, Vol. 55, 2008

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Sector

Sustainable production Comments and consumption reduction in reference case emissions by 2030

Energy

20%

Reductions in consumption have a direct energy demand impact

Transport

10%

Reductions impact mainly on freight transport

Waste

20%

Reductions flow through directly to waste disposal

LULUCF

0%

Change insignificant in terms of the modelling

Agriculture

10%

Reductions moderated through exports and continued production

Industrial processes

10%

Reductions moderated through exports and continued production

Figure 6: modelled SUSTAINABLE PRODUCTION AND CONSUMPTION impacts

These figures reflect a conservative estimate of what is possible through substantial changes in consumption patterns through community action supported by appropriate policy settings.

For methodological purposes, it should be noted that the abatement gains derived from SUSTAINABLE PRODUCTION AND CONSUMPTION are accounted for before the aforementioned wedges are activated. This sequencing is important because the impact of the wedges is inextricably linked to production and consumption levels, which are reduced at the hands of policies that promote sustainable production and consumption.

Step 3: Combining the measures The various wedges were then combined at the level of individual sectors and Victoria as a whole. The capacity for abatement was then plotted in conjunction with historical data, in order to highlight the potential for a reduction in greenhouse gas emissions. The possibility for abatement was plotted until 2030.

It should be understood that the purpose of this report is to answer the question of ‘what is possible for the Victorian Government, industry and community to achieve if they were to dedicate even more resources to tackling the challenges presented by climate change’. The findings acknowledge this is difficult, but provides a possible way to achieve this.

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5 Analysis of emissions reduction wedges The overall conclusion, examining the wedges modelled for this project, is that it is possible for Victoria’s greenhouse gas emissions to be halved from 1990 levels by 2020, although this would require accelerated transformative change across the energy supply sector and a substantial reduction in the impact of and demand for goods and for consumption of energy and services.

The modelled wedges would reduce emissions to 49.5 megatonnes in 2020, a reduction of 54% from 1990 emissions; and to 25.2 megatonnes in 2030, a reduction of 77% from 1990 emissions. This equates to a reduction of 60% from the 2006 Victorian emissions by 2020 and 80% cuts by 2030.

Early reductions could be made in terms of behaviour change: sustainable consumption and production, energy efficiency in the residential, commercial and industrial sectors, improved environmental performance of our building stock and travel demand management and mode shift.

Reductions in emissions from the energy supply sector would follow, with a combination of renewable energy growth, fuel shift to gas and cogeneration and greater efficiency of production of electricity from coal, beginning to impact from the mid 2010s.

It should be noted that this project has not examined the cost of specific initiatives in detail: however all of the wedges here are technically feasible and many (such as energy efficiency and sustainable production and consumption) are likely to be at least cost neutral.

Noting that many wedges would be (at least in part) driven by the carbon price of an Australian CPRS, a range of specific policy opportunities have been identified which would either address carbon market failures or complement the CPRS. These could include: •

an integrated sustainable production and consumption initiative

•

a building overhaul program, driving change in new and existing residential and commercial buildings

•

a renewables growth program, building on existing renewable energy programs to target areas of competitive advantage for Victoria

•

an industry development and regional transition program

•

a significant commitment to sustainable urban planning, design and land use planning, transport infrastructure investment, accelerated vehicle efficiency and a new approach to road, public transport and parking pricing.

5.1 Overall impact of the wedges The overall conclusion is that it is possible for Victoria’s greenhouse gas emissions to be halved by 2020 (based on 1990 levels), although this would require substantial transformative change across the energy supply sector and in individual demand for goods and for energy.

The modelled wedges would reduce emissions to 49.5 megatonnes in 2020, a reduction of 54% from 1990 emissions; and to 25.2 megatonnes in 2030, a reduction of 77% from 1990 emissions. This equates to a reduction of 60% from the 2006 Victorian emissions by 2020 and 80% cuts by 2030.

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160,000

SPC wedge

124,956 (2006)

134,321 (2030)

140,000 Stationary energy wedge (SPC adjusted)

108,230 (1990)

120,000

Transport alternate (SPC adjusted)

100,000 118,958 (2010)

80,000

Industrial processes wedge (SPC adjusted)

60,000 Agriculture wedge (SPC adjusted)

40,000 49,507 (2020)

Land use, land use change and forestry processes wedge (SPC adjusted)

20,000 25,292 (2030)

2030

2028

2026

2024

2022

2020

2018

2016

2014

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

0

Waste wedge (SPC adjusted)

Figure 7: The impact of all modelled wedges (at the level of the six sectors) in Mt

Appendix B contains a more detailed description of the Wedges and the changes which are likely to be required to achieve them.

Overall, early reductions could be made in terms of behaviour change through sustainable production and consumption, energy efficiency in the residential, commercial and industrial sectors and building performance, and travel demand management and mode shift.

The sustainable production and consumption wedge is the first wedge applied, delivering a significant reduction in emissions through several measures. This wedge includes manufacturing goods as efficiently and environmentally-friendly as possible as well as minimising waste. The wedge also includes a component on the consumption side, such as buying products that use less water and energy and using more recycled products.

Reductions in emissions from the energy supply sector would follow, with a combination of renewable energy growth, fuel shift to gas and cogeneration and greater efficiency of production of electricity from coal, beginning to impact from the mid 2010s.

The specific, enhanced wedges discussed here can clearly be achieved through a variety of methods – for example, policy interventions by Government to achieve energy efficiency outcomes can range from regulations for buildings, industrial processes and appliances, through to partnerships to enhance voluntary action by industries and communities, use of Government’s own purchasing power, and creation of markets for energy efficiency such as the VEET program. At the same time, there would need to be continued and dramatic innovation in many sectors of industry, unlocking considerable abatement potential, while the broader community response to climate change grows.

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As noted above, many wedges may now be driven (at least in part) by a carbon price.

However, it would be expected that market failures will still exist – for example landlord/tenant split incentives or information asymmetries – and these will present barriers to the achievement of the sort of savings suggested. Additionally, we still do not have a final understanding of the trajectories, rules and modalities of the CPRS, and until these are clear, it is not possible to assess the full need for further intervention. While the CPRS will be the major policy plank nationally there will remain a role for State Governments to deliver mitigation and adaptation policies that complement the CPRS. It should be noted that this project has not examined the cost of specific initiatives in detail: however all of the wedges here are technically feasible and many (such as energy efficiency and sustainable production and consumption) are likely to be at least cost neutral.

There are, of course, a range of potentially negative economic impacts to consider, particularly in the short term. The achievement of immediate emissions reductions of the order modelled would offer the risk of short-term negative job impacts in some industries and regions such as the La Trobe Valley, which is currently responsible for the bulk of Victoria’s coal-fired energy generation. Measures to reduce the social impact on such communities are discussed later in this report.

However, obvious economic opportunities are apparent for Victoria to cement its leadership in the important area of climate change. Investments in climate change-friendly manufacturing, such as those already evident in the automotive sector and wind industries are a realistic opportunity for Victoria. Other similar opportunities for Victoria are likely to emerge.

Looking at the wedges modelled in this project, barriers to the wedges, as well as policy options which could drive them are listed in Appendix B. Some of the key policy ideas which emerge from consideration of how the individual wedges might be driven are discussed in the following sections.

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#

Name of wedge Sector

Description

Start date

Rampup time

Annual CO2 reductions (000s tonnes) 2010

1

Sustainable production and consumption

2

Stationary energy Transport Agriculture LULUCF Industrial processes Waste

2020

2030

2010

20

0

11,996

25,313

Overhaul of new Stationary and existing energy, demand building stock – commercial

50% electricity efficiency improvement in 2010 the commercial and residential sectors by 2030; 50% improvement in natural gas efficiency in the commercial and residential sectors

20

1,001

8,697

16,272

2

Lighting (Commercial)

35% reduction in electricity use in the commercial sector

2010

20

134

1,223

2,204

3

Industrial energy Stationary efficiency energy, demand – industrial

20% reduction in electricity use in the industrial sector, rising to 30% by 2030 and 40% by 2040

2010

20

728

6,478

11,709

4

On-site and off- Stationary site renewables energy, demand for the – residential residential sector

20% reduction in consumption of coal 2010 and gas-fired electricity in the residential sector

20

213

1,948

3,561

5

Equipment Stationary efficiency energy, demand improvement in – commercial commercial and residential sector

15% improvement in electricity efficiency 2010 in the commercial and residential sectors

15

392

3,678

4,874

6

New gas

Stationary energy, supply

30% alteration in fuel mix – from coal to natural gas – in electricity generation

2010

20

1,065

5,137

3,444

7

Renewable energy

Stationary energy, supply

20% reduction in coal and gas electricity 2015 generation

15

0

4,776

6,951

8

Cogeneration

Stationary energy, supply

20% reduction in electricity and gas generation

2015

15

0

3,184

4,634

9

Waste to energy Stationary energy, supply

10% reduction in electricity production

2010

10

731

3,980

2,317

Stationary energy, demand – commercial

10 Coal Drying

Stationary energy, supply

25% emissions efficiency improvement from brown coal electricity production

2010

15

624

2,084

433

11 CCS

Stationary energy, supply

80% emissions efficiency improvement in 2020 coal & gas electricity production

10

0

1,656

4,365

13 Travel demand management

Transport

20% reduction in underlying demand for personal travel

10

0

2,720

4,148

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#

Name of wedge Sector

Description

Start date

Rampup time

Annual CO2 reductions (000s tonnes) 2010

2020

2030

14 Mode shift away Transport from private transport

25% substitution of private passenger 2010 transport to public transport or cycling/walking; 5% shift in road freight to rail freight

20

0

1,162

2,864

15 Increased vehicle occupancy

Transport

20% reduction in private vehicle use for passenger transport

2010

10

0

1,648

2,338

16 Improved fuel efficiency

Transport

30% improvement in fuel efficiency achieved between 2010 and 2022, improving to 60% between 2022 and 2030

2010

20

0

3,452

6,775

17 Livestock efficiency

Agriculture

40% reduction in per-unit emissions from 2010 enteric fermentation

10

438

4,098

3,838

18 Soil management

Agriculture

10% improvement in emissions efficiency 2010 from manure management and agricultural soils

10

72

715

705

19 Accelerate LULUCF afforestation – new harvestable plantations

30% increase in rate of afforestation

2010

10

117

827

449

20 Accelerate afforestation – revegetation

20% increase in rate of afforestation

2010

10

78

551

299

LULUCF

21 Cement Industrial extenders and/or processes geopolymer

50% improvement in emissions efficiency 2010 in cement production

5

43

245

278

22 Avoiding landfill

80% reduction in landfill

20

0

530

1,257

Waste

2010

Figure 8: Annual effect of each of the wedges in the order of their implementation at significant time periods until 2030 in Mt

Further detail on the assumptions for the above wedges is included in Appendix B. The following provides an overview of the possible cuts in greenhouse gas emissions due to the sustainable production and consumption wedge and wedges in each of the six key sectors.

The wedges are represented graphically as follows.

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SPC wedge

160,000

Overhaul of building stock Lighting (commercial)

140,000

Industrial energy efficiency On-site and off-site reneables for the residential sector Equipment efficiency improvement in com/res sectors New gas

120,000

Renewable Energy

100,000

Cogeneration Waste to energy Coal drying

80,000

CCS Travel demand management

60,000

Mode shift away from private transport Increased vehicle occupancy Improved fuel efficiency

40,000

Livestock efficiency Soil management

20,000

Accelerate afforestation -- new harvestable plantations Accelerate afforestation -- revegetation

2030

2028

2026

2024

2022

2020

2018

2016

2014

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

0

Cement extenders and/or geopolymer cements Avoiding landfill Total Baseline less wedges

Figure 9: The impact of all modelled wedges (at the level of each of the wedges) in Mt

5.1.1 Sustainable production and consumption Sustainable production and consumption is able to make a significant impact in terms of emissions reduction from an early date, relying as it does on behaviours and deferral of investment, rather than new technologies and investments. Considering the uncertainty with respect to technological developments, the early gains derived from sustainable production and consumption could prove extremely important for Victoria to reach its greenhouse gas emissions targets.

Current patterns of consumption, such as high levels of packaging, patterns of food consumption, planned redundancy and single-use goods, considerably increase the greenhouse gas emissions associated with our current lifestyle. As well as being resource intensive, these patterns of consumption are energy intensive and add to solid waste production. As such, reducing these impacts can achieve emissions reductions which are often low- or no- cost and which do not reduce comfort or utility.33 Since the 1990s, sustainable production and consumption has become widely adopted as the overarching umbrella description for a range of policy initiatives and actions related to the

33

See for example European Union “Action Plan for sustainable consumption, production and industry” 2008 accessed at http://1.1.1.1/285163588/281291624T081010124510.txt.binXMysM0dapplication/pdfXsysM0dhttp://www.energy.eu/DG-TRENreleases/MEMO-08-507_EN-1.pdf;

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reduction of consumption of goods and the footprint of such consumption. A dynamic suite of policies and programs in the fields of eco-design, product labelling and standards, incentives, public information, green procurement and industry co-regulation (including product stewardship) has developed under this umbrella.34 Community expectations are also growing in regard to sustainable production and consumption of goods, building on effective government and other campaigns around water and energy savings, waste reduction and recycling. The gradual emergence of community campaigns around food, around reuse of goods and around efficient lifestyles suggests an enhanced awareness of the need for changes in consumption patterns. This is, of course, offset by ongoing growth in mass market promotion of what might be seen by some as “excessive consumption”. The achievement of the sort of savings listed here would require Government, industry and the wider community to build on activities to date to develop a strongly integrated approach to sustainable production and consumption, including initiatives such as: •

Development by government of an incentives scheme to support recyclable and reusable goods35

•

Government developing an expanded Victorian Energy Efficiency Target (VEET) which addressed embodied energy and greenhouse gas emissions in goods and services

•

An extended partnership between government, community groups and local government to foster innovative local re-use projects

•

Partnerships between government and manufacturing and retail industries to enhance product stewardship outcomes and develop responsible approaches to advertising of goods

•

Industry and government programs specifically targeting food sustainability, in conjunction with primary producers and retailers

•

An extended consumer information and eco-labelling program, building on successes such as Our Water Our Future and the appliance energy rating program

•

A strengthened Government eco-purchasing program as well as generation promotion of the benefits of green procurement

•

Offering incentives and support tools to boost resource efficiency through its monitoring, benchmarking and promotion

34

Commission of the European Communities “Communication from the Commission to the European Parliament on the Sustainable Consumption and Sustainable Industry Policy Action Plan” 2008

35 Warnken ISE estimates that the potential for greenhouse gas abatement from recycling high embodied energy materials in Australia is 11,053,000 tonnes. This estimate assumes a modest recycling rate of 54% for paper, glass, metals and plastics. It is also an assessment of the recovered energy from the materials alone, and does not account for the energy involved in manufacturing and distribution of goods.

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Further policy mechanisms that could be investigated to deliver this wedge include landfill bans on recyclable materials, extended producer responsibility schemes, and extended EREP schemes.

One critical measure of the success of policy intervention in the area of sustainable production and consumption is the series of actions adopted by firms to support the policy’s measures.

Some international examples of the success of sustainable production and consumption measures – and therefore what could comprise this wedge – are outlined below: Tesco UK supermarket chain Tesco is trialling the carbon footprinting of its own brands of orange juice, potatoes, energy-efficient light bulbs and washing detergent. The labels record the embodied carbon of a product from the manufacturing and distribution process.36 Tesco have acknowledged the difficulty of introducing such a scheme given the relative lack of evaluation of carbon footprinting of specific products. 37 Interface US based carpet manufacturer Interface has set a target of eliminating “any negative impact” on the environment by 2020.38 The company is redesigning processes and products to allow all of its products to be recycled at the end of their life. The company is also attempting to eliminate toxic substances and waste during the manufacturing process.

Sustainable Living Fabrics Australian-owned manufacturer Sustainable Living Fabrics makes mostly commercial fabrics using wool, polyester and/or nylon. All of their products have a 12-year quality warranty and a product stewardship program for product take-back and recycling at the end of product life.

Sustainable Living Fabrics are endorsed by Green Environmental Choice Australia, a labelling recognition aimed to indentify environmentally responsible products.

Figure 10: Selection of sustainable production and consumption success stories

Overall, these examples highlight some of the tangible programs and approaches that may be adopted as a result of government programs that promote and encourage sustainable production and consumption.

36

Tesco labels will show products' carbon footprints, The Guardian, Wednesday April 16 2008. http://www.guardian.co.uk/environment/2008/apr/16/carbonfootprints.tesco

37

Digging for Tesco’s green label credentials, computing.co.uk 11 Jul 2007 http://www.computing.co.uk/information-worldreview/features/2193919/digging-tesco-green-label

38

http://www.interfacesustainability.com/commit.html

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5.1.2 Stationary energy wedges 5.1.2.1 Energy Demand Improvements in energy efficiency and reductions in energy demand represent a strong “no regrets” opportunity for reducing greenhouse gas emissions. Improvements to building design, equipment efficiency and industrial systems are often achievable with very short payback periods – for example, EPA Victoria has achieved savings of 1.23 megatonnes per annum with a payback period of better than 20 months through its industry greenhouse program.39 160,000

Overhaul of building stock Lighting (commercial)

140,000

Industrial energy efficiency

120,000 On-site and off-site renewables for the residential sector

100,000

Equipment efficiency improvement in com/res sectors

80,000

New gas Renewable Energy

60,000 Cogeneration

40,000 Waste to energy

20,000

Coal drying CCS

2029

2026

2023

2020

2017

2014

2011

2008

2005

2002

1999

1996

1993

1990

0

Total Baseline less wedges

Figure 11: Impact of energy demand wedges (energy supply wedges in grey) in Mt

A range of wedges were modelled for this project which impact on energy demand, the greatest impact of which was had by the wedges which related to industrial energy efficiency and an accelerated overhaul of Victoria’s building stock.

Some of these wedges will be driven by the carbon price provided by a CPRS – there will, however, be market barriers to achievement of some efficiencies – information asymmetries and split incentives being prime examples – in particular in the building sector.

Improving the efficiency of existing buildings will require initiatives which will impact on a range of investment decisions – from rental and purchase decisions through the selection of fixed

39 EPA Victoria “Delivering business benefits from energy efficiency: the achievements of EPA Victoria’s industry greenhouse program” 2007

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appliances and the decision to refurbish a building between leases. A building overhaul program from government could involve: •

Strong public and industry awareness programs.

•

The development of partnerships with the private sector (building owners and managers and the construction sector) to jointly deliver emissions reductions.

•

Incentives for the refurbishment of existing buildings to reduce greenhouse gas emissions, through building fabric or through appliance selection, building further on the existing VEET requirements.40

•

Requirement for disclosure of energy ratings/consumption patterns of buildings at time of sale or lease.

•

In addition to the above programs to achieve the modelled emissions reductions the Victorian Government would need to extend existing regulatory framework for new buildings and develop new mechanisms to deliver water and energy efficiency improvements in existing buildings. This could involve mandatory water and energy efficiency standards for all buildings for sale and lease

Industrial energy efficiency is also a significant wedge, comprising of specific technology improvements and emerging process and technological developments. Some of the policy initiatives that could comprise this wedge include: •

Incentives for firms in the wood and paper industry to convert to the gasification of black liquor and gas turbines, combined with overall electricity and heat efficiency improvement, so they can be net exporters of low emissions electricity.

•

Encouraging petroleum and chemicals industry efficiency improvement, including improved motor, pump and pipe flow efficiencies, reduced heat loss, heat recovery and improved catalysts and processes.

•

Promoting improvements to motors, pipe design, lubrication and maintenance, as well as improved insulation of refrigeration equipment and heat delivery systems, in the food manufacturing industry.

5.1.2.2 Energy supply The energy supply wedges modelled for this project fall into two categories: changes of fuel for electricity generation (renewable energy, new gas and cogeneration, waste to energy) and reductions in the carbon intensity of electricity generation (coal drying and carbon capture and storage).

40

VEET could be broadened to apply to the commercial sector, and further targeted like the Warm Front program in the UK to assist low income households. The CPRS provides an opportunity to secure funding for retrofit programs. For instance the Brotherhood of St Laurence and KPMG have outlined a plan to ‘climate-proof’ low income households that would provide an energy efficiency overhaul of 3.5 million homes nationally at a cost of $11.2b.

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160,000

Overhaul of building stock Lighting (commercial)

140,000

Industrial energy efficiency

120,000 On-site and off-site renewables for the residential sector

100,000

Equipment efficiency improvement in com/res sectors New gas

80,000

Renewable Energy

60,000 Cogeneration

40,000 Waste to energy

20,000

Coal drying CCS

2029

2026

2023

2020

2017

2014

2011

2008

2005

2002

1999

1996

1993

1990

0

Total Baseline less wedges

Figure 12: Impact of energy supply wedges (energy demand wedges in grey) in Mt

The approaches which have been substantially strengthened for this project include renewable energy and new gas. The former is based on assumptions around Victoria’s renewable energy capacity,41 the latter on a recently buoyant market for investment in gas fired base-load generation.42 The most significant early impact here comes from the use of gas as early as possible to deliver early reductions in greenhouse gas emissions. Indeed, possible uncertainty in short term investment in coal-fired generation presents an early opportunity for a greater reliance on Gas Powered Generation (GPG) to meet Victoria’s base-load energy requirements. Whether coal-fired generation completely goes off-line, or even just varies its generation activities in the interim period until CCS comes on-line, there is certainly an opportunity to move to a greater reliance on GPG. However, it is stressed that this wedge would require urgent and major energy infrastructure investment in Victoria.

41

See for example: CoAG Working group on Climate Change and Water “Design Options for the Expanded National Renewable Energy Target Scheme” 2008; Government of Victoria “Mandatory Renewable Energy Target Review – Victorian Government Submission” 2003

42

Origin Energy “Mortlake Power Station Project: Community Newsletter No 8 August 2008”; Santos “Media Release – Santos proposes gas-fired power station for western Victoria” August 2008

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In terms of the modelling outcomes, renewable energy and cogeneration begin to make a greater impact after 2020. This is partly a result of existing renewable energy support programs delivering early renewable energy deployment, while the renewable energy measures modelled are additional to existing renewable energy programs.

Coal drying and carbon capture and storage make a greater abatement impact after 2020 – noting that the impact of both of these energy supply efficiency measures is moderated somewhat by the reduced generation of electricity from coal. It is important to note that a reduction of emissions by a substantial component by 2020 requires a major displacement of traditional (coal fired) base-load generation. This is reflected in the overall scale of the wedges related to fuel switching - renewable energy, cogeneration, new gas and waste to energy which build on considerable (earlier) energy efficiency improvements.

This change would represent a considerable acceleration of a transformation of the energy supply sector, and would not come at low cost.

The feasibility of such a dramatic change over a twenty year time period depends on a range of technology, industry development and policy shifts, as well as changes in community expectations related to energy pricing and demand.

Given this, it will be important for the Government to address the likely economic and social issues related to the transformation of Victoria’s energy sector. In particular, it would be prudent for the government to consider the long term transitional needs of Victoria’s electricity and gas industries, as well as the regional issues associated with changing industry patterns.

A detailed program of regional analysis and industry support to provide for a lengthy transitional period in regions which have traditionally relied on energy and energy intensive industries would obviously be required.

This package could include: •

Support for new industries replacing those which might be subject to reduced activity – for example supporting the development of gas-fired generation and renewable energy development in areas like the Latrobe Valley.

•

Training and education packages for technical and other staff.

•

Support for the car manufacturing industry to re-tool to manufacture more efficient vehicles.

It should be noted, however, that this rapid development of energy supply technology wedges (and consequent speedy reduction in coal fired generation) is only one scenario for dramatically reducing emissions. Another possibility would involve an even greater focus on sustainable production and consumption, on travel demand management and on other consumer or demand side approaches – which, coupled with speedy application of coal drying and carbon capture and storage (if feasible) would potentially achieve similar results. Such an approach however would be slower to deliver emissions reductions and involve greater total emissions (and therefore also a greater carbon cost) over the period 2010-2030.

A strongly growing reliance on renewable energy in Victoria is modelled in this project in three ways. The current mandatory commitments of Governments (MRET and VRET) are included in the reference case and already envisage a reasonable level of renewable energy entering

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Victoria’s energy supply mix; this is supplemented by further growth in medium to large scale renewable energy through two wedges (“renewable energy” and “waste to energy”) which collectively pick up a further 30% of Victoria’s energy generation by 2030. At the same time, small scale renewable energy (“on and off site renewables for the residential sector”) is modelled as a reduced demand on the energy supply system.

These wedges would require the installation of significant renewable energy capacity, depending upon the nature of the renewable energy sources and the intermittency of their generation.

While a carbon price will potentially provide an incentive for this renewables development, it has been noted that there is still a clear role for Government in facilitating this development.43 Markets and jurisdictions where renewable energy is being deployed at a rapid rate are characterised by strong market mechanisms such as renewable energy targets, renewables portfolio standards, tax incentives or feed-in tariffs.44 Additional policy support can and should involve elements such as: •

Market mechanisms such as renewable energy targets, renewables portfolio standards, tax incentives or feed-in tariffs

•

A renewable energy development plan

•

Identification and presentation of information relating to the nature of renewable energy resources, for example wind and solar energy mapping, geothermal energy identification.

•

Removal of regulatory and related barriers to entry of renewable energy, for example ensuring fair access to energy grids.

•

Direct industry facilitation services, assisting with approvals and related processes.

•

Support in developing industry clusters and value chains, and for attendance at trade fairs and in international trade events.

•

Support for development along the value chain, looking at the development of parts manufacturing capacity where appropriate.

5.1.3 Transport sector wedges From 2020 the transport sector wedges, in particular vehicle fuel efficiency and travel demand management, begin to contribute stronger emissions reductions, with reductions from transport amounting to 16.1Mt by 2030.

43

Garnaut Climate Change Review September 2008

44

Renewable Energy Policy Network for the 21st Century (REN21), Renewables 2007, www.ren21.net

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160,000 140,000 Improved fuel efficiency

120,000 100,000

Increased vehicle occupancy

80,000

Mode shift away from private transport

60,000

Travel demand management

40,000 Total Baseline less wedges

20,000

2029

2026

2023

2020

2017

2014

2011

2008

2005

2002

1999

1996

1993

1990

0

Figure 13: Impact of transport wedges in Mt

Reductions in Victoria’s rapidly growing transport emissions will require a significant commitment to sustainable urban and land use planning and design. Improvements in travel demand management and mode shift away from private car transport will be dependant on this commitment, and the development of transport links and activity centres that facilitate shorter travel distances, travelled less often.

Mode shift of the size modelled will only be possible with significant investment in public transport, cycling and walking infrastructure. Melbourne’s train network patronage has grown 30% in the past three years,45 while the city’s cycling journeys to work grew by 42% in the five years to 2007.46 Infrastructure and service improvements are needed to ensure continuation of these positive trends. Widespread improvements across Victoria’s cities, suburbs and towns would facilitate the continuation and growth of these trends across Victoria. Mode shift away from private car travel will reduce greenhouse gas emissions, but also assist Victorians to cope with increasing costs of living due to climate change.

45

Connex, 2008, A better harder working network for more customers. Media Release, 9th April. Downloadable at http://www.connexmelbourne.com.au/news.php?newsid=243&g=Array 46 Cycling Promotion Fund, 2008, Submission to the Garnaut Climate Change Review Transport Planning and the Built Environment, pg.2. Downloadable from http://www.garnautreview.org.au/

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A range of transport related wedges are directly affected by the relativities between three pricing issues which the Victorian Government can control or leverage: road use pricing, public transport pricing and parking charging.

Road congestion charging has been adopted now in a number of major international cities, including London, Singapore and Stockholm, and has been shown to free up traffic flows, reduce car use and increase public transport use, with greenhouse benefits. Coupled with a reduction in peak period pricing for public transport, congestion charging could drive a substantial mode shift, especially if coupled with increased charges for parking in central Melbourne.

Further investment in the already successful Victorian TravelSmart program would also assist with further reductions in greenhouse gas emissions. Governments could develop a transport pricing strategy which uses (at least) these three elements to encourage mode shift and car sharing, and increased public transport patronage. Such a strategy could be made close to revenue neutral.

It is important to note that charging schemes would only be successful in achieving the transport wedges if the necessary public transport, cycling and walking infrastructure and services were available to provide alternative transport choices.

While improvements to vehicle efficiency should largely be delivered through national standards, the Victorian Government has the capacity to enhance action in this area by providing registration concessions for efficient vehicles. A commitment by State Government to purchase fuel efficient vehicles could accelerate investment in low emissions vehicles.

5.1.4 Other wedges: agriculture, land use, land use change and forestry, industrial processes and waste These wedges have been retained as they were in Understanding the Potential to reduce Victoria’s Greenhouse Gas Emissions. The combined impact of the Agriculture wedges (the most important of these) is a reduction of greenhouse gas emissions by 4.5Mt. The rate of afforestation/revegetation has been doubled in this study which approximately doubles the emissions reductions from this wedge. It is important to note that this study uses the UNFCCC accounting frameworks for Land Use, Land Use Change and Forestry (LULUCF). Recent research from the ANU suggests that this accounting framework may significantly undervalue the carbon storage and sequestration potential of Australia’s southeastern forests.47 Were emissions accounting frameworks to be altered in line with this new research, the potential emissions reductions from protecting native vegetation and afforestation initiatives could be significantly greater.

47

Brendan G. Mackey, Heather Keith, Sandra L. Berry and David B. Lindenmayer, The Fenner School of Environment & Society, ANU

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Appendix A

The original wedges48 Annual CO2e reductions (000s tonnes CO2e)

Wedge #

Wedge name

Description

Effective date

Ramptime (years)

2020

2030

2050

1 Carbon Capture and Storage

Stationary energy, supply

80% emissions reduction at coal electricity generation plants

2020

20

2932

33870

60690

2 Coal drying

Stationary energy, supply

25% emissions efficiency improvement from brown coal electricity production

2013

15

7329

14433

18965

3 Cogeneration

Stationary energy, supply

20% reduction in electricity demand

2015

15

4157

12353

19498

4 Renewable energy

Stationary energy, supply

20% reduction in embedded coal and gas electricity generation

2015

20

4157

12353

19498

5 New gas

Stationary energy, supply

15% alteration in fuel mix -- from coal to natural gas -- in electricity generation

2015

20

1829

4590

8134

6 Waste to energy

Stationary energy, supply

10% reduction in electricity production

2010

10

6929

7721

9749

7 Lighting (commercial)

Stationary energy, demand -commercial

25% reduction in electricity use in the commercial sector

2010

25

1822

3856

5857

Building envelope and HVAC equipment

Stationary energy, demand -commercial

25% reduction in electricity consumption in the commercial sector

2010

25

1822

3856

5857

Equipment efficiency 9 improvement in commercial and residential sector

Stationary energy, demand -commercial

10% improvement in energy efficiency in commercial and residential sector

2010

15

2667

4062

5182

On-site and off-site renewables for the residential sector

Stationary energy, demand -residential

20% reduction in consumption of coal and gasfired electricity in the residential sector

2010

25

1742

3739

5678

11 Industrial energy efficiency

Stationary energy, demand -industrial

10% reduction in electricity use in the industrial sector, rising to 15% by 2030 and 20% by 2040

2010

10

3457

5671

9135

12 Travel demand management

Transport

10% reduction in demand for travel

2010

10

1433

2304

2932

Mode shift away from private transport

Transport

Substitution of 10% of private passenger transport to rail; 1% shift in road freight to rail freight

2010

40

217

552

1292

14 Improved fuel efficiency

Transport

30 percent improvement in fuel efficiency achieved between 2010 and 2022, improving to 60 percent between 2022 and 2034

2010

12

5092

11454

17506

15 Increased vehicle occupancy

Transport

10% reduction in private vehicle use for passenger transport

2010

10

868

1299

1397

16 Livestock efficiency

Agriculture

40% improvement in emissions efficiency in enteric fermentation

2010

10

4320

4265

4155

17 Soil management

Agriculture

10% improvement in emissions efficiency in corpping

2010

10

754

784

843

8

10

13

18

Accelerate afforestation -- new harvestable plantations

LULUCF

30% increase in afforestation

2010

10

827

449

2

19

Accelerate afforestation -revegetation

LULUCF

10% increase in afforestation

2010

10

276

276

276

Waste

80% reduction in landfill

2010

25

474

1257

2664

Industrial processes

50% improvement in emissions efficiency in cement production

2010

5

258

309

430

20 Avoiding landfill

21

48

Sector

Cement extenders and/ or geopolymer cements

The Nous Group (2007), Understanding the potential to reduce Victoria’s greenhouse gas emissions

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Appendix B

The Wedges, barriers and policy tools

Wedge

Possible barriers or market failures

Possible policy tools to overcome Comments on the basis for the wedge

Sustainable production and consumption

Technology development Community acceptance

Information provision Regulatory requirements

This wedge includes a range of policy initiatives and actions related to the reduction of consumption of goods and the footprint of such consumption. A dynamic suite of policies and programs in the fields of eco-design, product labelling and standards, incentives, public information, green procurement and industry co-regulation (including product stewardship) has developed under this umbrella and is included in this wedge. The ramp-up time of 20 years is based on the importance of genuine community acceptance driving the success of this wedge, and draws on European Union directives and targets for reduction in elements of production and consumption.

Overhaul of new Cost and existing building Information asymmetries stock Split incentives

Information provision Regulatory requirements

Large scale energy efficient building envelope and HVAC equipment technologies are available now; roll-out, however, is constrained by the long turn-over of building and equipment stock (up to 20 years). It is assumed that improvements can reduced HVAC costs (currently at 50% of total commercial electricity costs) by half based on experience in similar programs in California. This wedge also includes strong public and industry awareness programs, as well as the development of partnerships with the private sector (building owners and managers and the construction sector) to jointly deliver emissions reductions. Requirement for disclosure of energy ratings/consumption patterns of buildings at time of sale or lease would also be mandatory. Finally, this wedge includes incentives for the refurbishment of existing buildings to reduce greenhouse gas emissions, through building fabric or through appliance selection, building further on the existing VEET requirements.

Lighting (commercial)

Information provision Regulatory requirements

This wedge is based on 60% reduction in overall lighting energy use. Best practice is delivering more than this already,49 while green building credentials place emphasis on daylight for indoor environment quality.

Widespread improvement in lighting efficiency can be achieved relatively soon. A ramp-up time of 15 years is consistent with the average life length of artificial light sources, and expectations about the rate of new building in the state and refurbishments. Lighting currently represents 30% of commercial energy consumption; emerging technologies can potentially reduce this by half to 15%.

Cost Information asymmetries Split incentives

49

Sustainable Business Practices on behalf of DSE, ICLEI and the City of Melbourne “Guide to Sustainable Office Lighting: Helping commercial tenancies to adopt sustainable lighting technologies, designs and practices” 2007

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Wedge

Possible barriers or market failures

Possible policy tools to overcome Comments on the basis for the wedge

Industrial energy efficiency

Cost Information asymmetries

Information provision Regulatory requirements

Considerable potential for reduction in energy consumption in industrial processes exists in Victoria.

Previous studies identified savings between 20% and 50% for most sectors.50 Examples of specific technology improvements include electric motor system efficiency, compressed air efficiency, aluminium smelting efficiency improvement, wood and paper industry conversion to gasification of black liquor and gas turbines, petroleum and chemicals industry efficiency improvement through improved motor, pump and pipe flow efficiencies, reduced heat loss, heat recovery and improved catalysts and processes, food processing improvement.

On and off site renewables for the residential sector

Network access Cost

Access support Information provision Regulatory requirements

This wedge envisages a considerable growth in uptake of small scale renewable energy sources, for example household solar hot water systems or solar panels or small scale municipal renewable energy generators. It also included continued growth of GreenPower customers who bring on-line renewable energy projects additional to existing State and Federal renewable energy targets.

Implementation of renewable energy alternatives can begin relatively soon, given the development and existing extent of use of technologies such as solar hot water heating. The ramp-up will depend on the policy initiatives offered in support of options like medium-scale local wind electricity generation. A 20% target is consistent with ambitious initiatives like those undertaken as part of Germany’s and California’s Solar Roofs programs.

Equipment efficiency improvement

Cost Information asymmetries Split incentives

Information provision Regulatory requirements

Emissions related to equipment use make up about 20 percent of commercial sector emissions, and can be reduced through the use of high efficiency computers with effective power management, high efficiency data centres, high efficiency commercial refrigeration equipment, minimisation of standby power consumption of all equipment, use of high efficiency commercial cooking and catering/display equipment as well as savings in miscellaneous equipment including local hot water services, and security systems. Reducing the impact of this equipment on commercial and residential emissions by more than half is based on research conducted by the American Council for an Energy-Efficient Economy.51 In the residential sector, emissions-reduction initiatives here include the reduction of standby power

50

National framework for Energy Efficiency Background Report (v4.1) “Preliminary Assessment of Demand-Side Energy Efficiency Improvement Potential and Costs” November 2003

51

For example see “Leading the Way: Continued Opportunities for New State Appliance and Equipment Efficiency Standards”, ACEEE, March 2006, http://www.aceee.org/pubs/a062.htm

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Wedge

Possible barriers or market failures

Possible policy tools to overcome Comments on the basis for the wedge use of household appliances and equipment, replacement of electric hot water services with gas, solar or electric heat pump systems, installation of highest efficiency reverse cycle air-conditioners (twice as efficient as present stock) and high efficiency gas central heating systems, the use of water-efficient taps, showers and hot water consuming appliances, and replacement of refrigerator stock with high efficiency models.

New gas

Gas supply and price

Regulatory requirements

Combined cycle gas turbine (CCGT) plant operates at a considerably lower greenhouse intensity than brown coal fired power generation. This wedge envisages a growth in gas fired generation, involving investment in around 2000 MW of new gas plant, which is a feasible extension of the 1000 MW committed by Origin Energy and Santos (with a total of 2500 MW approved).52

Renewable energy

Network access Technology development Cost

Industry facilitation Regulatory requirements Access support

This wedge envisages a continued growth in large scale renewable energy (wind farms, biomass, geothermal) beyond the VRET target to levels similar to those targeted in Europe. There are two other renewable energy wedges, but this wedge relates to larger scale projects that would be brought on-line by State and Federal renewable energy targets.

Modelling was based on an assumption that Victoria adopts a similar renewable energy target or portfolio standards to those employed in various European States or California: between 20% and 30% reliance on renewable energy production by 2030. (California’s target is 33% by 2020) Australian application of these targets is supported by the research conducted by Saddler et al,53 and targets discussed in various publications by the Victorian and Australian Governments.54 The start date of 2015 coincides with the falling away of investment under MRET, and a fifteen year ramp up reflects an urgency in new facility establishment.

Cogeneration

Network access

Industry facilitation

This wedge envisages a considerable growth in the use of cogeneration, through application across

52

Origin Energy “Mortlake Power Station Project: Community Newsletter No 8 August 2008”; Santos “Media Release – Santos proposes gas-fired power station for western Victoria” August 2008

53 Saddler H, Diesendorf M & Denniss R (2004) A Clean Energy Future for Australia: A study by energy strategies for the Clean Energy Future Group. WWF Australia. Downloaded from http://wwf.org.au/publications/clean_energy_future_report/

54 See for example: CoAG Working group on Climate Change and Water “Design Options for the Expanded National Renewable Energy Target Scheme” 2008; Government of Victoria “Mandatory Renewable Energy Target Review – Victorian Government Submission” 2003

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Wedge

Possible barriers or market failures

Possible policy tools to overcome Comments on the basis for the wedge

Gas supply and price

Access support

industrial sites and industrial parks, delivering improved thermal efficiency through use of excess heat for processes/heating or cooling and localised electricity generation. The wedge is based on achieved ramp-up rates and the potential of cogeneration demonstrated in Europe.55 Unrealised potential for development of cogeneration in Victoria has been assessed as being more than 1050MW in the manufacturing and commercial building sectors.56

Waste to energy

Network access

Access support

In this wedge, biomass waste, landfill waste and waste from sewage plants are converted into energy, both displacing more greenhouse intensive generation, and reducing emissions from waste.

Sustainability Victoria and the Business Council for Sustainable Energy have each identified more than 100MW of existing waste to energy projects in Victoria with considerable potential to grow this capacity.57

Coal drying

Cost Technology development

Research and development support Industry facilitation Regulatory requirements

This wedge is based on the implementation of coal drying technology (for example steam fluidised bed drying (SFD) to brown coal power stations in Victoria.

Impact is based on implementation of supercritical fluidised coal bed drying through retrofits. It is assumed that all coal-fired stations are retrofitted over a fifteen year period. The start date of 2013 is based on likely availability of the technology in a demonstrated form.

Carbon capture and Technology development storage Cost Community acceptance Access to storage sites

Research and development support Industry facilitation Regulatory requirements

This wedge envisages the progressive implementation of carbon capture and storage technology across the Victorian (fossil fuel) energy supply sector.

The assumptions used in the model are based on extensive research in Australia and internationally seeking cost-effective approaches to CCS for all fossil fuel plants. 2020 was chosen as the start date because substantial additional demonstration is required. A steady state emissions efficiency

55

See for example Cogen Europe “Cogeneration in the European Union’s Energy Supply Security” September 2008

56

Redding Energy Management, Potential of Cogeneration in Victoria, Report produced for the Sustainable Energy Authority, 2001

57

Waste to Energy A Guide for Local Authorities, May 2005; SV website

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Wedge

Possible barriers or market failures

Possible policy tools to overcome Comments on the basis for the wedge improvement of 80% reflects the fact that energy is needed to operate CCS technology (requiring a 25% parasitic load) and it is unlikely to be cost effective to capture 100% of emissions. The ramp-up time of 20 years is based on the likely pattern of half-life re-fits for existing stations

Travel demand management

Exemption from CPRS Information asymmetries Infrastructure needs

Information provision Urban and land use planning and design Infrastructure investment Pricing signals e.g. congestion pricing

Current demand for travel is estimated at about 3.7 trips per head of population per weekday.

Reducing this to about 3 would achieve the targeted 20% reduction in travel demand. Initiatives that can help achieve this outcome include targeted behaviour change programs (like TravelSmart), general awareness/education programs, urban planning and design, and changes to transport pricing. Similar efforts in freight would involve pricing and other incentives or regulations.

Mode shift away from private transport

Exemption from CPRS Information asymmetries Infrastructure needs

Information provision Urban and land use planning and design and Infrastructure investment Pricing signals e.g. congestion pricing

This wedge envisages the ongoing adoption of lower greenhouse intensity modes of transport (rail, bus, tram and walking/cycling) and continued into the future. Central to achievement of this wedge will be long term investment to provide fast, reliable, convenient and accessible forms of public transport. The wedge may also require measures to reduce the attractiveness of private (car and truck) transport, including transport pricing and changes to taxation settings. To achieve emissions savings in freight would require very large behavioural shift, government or privately led efficiency programs and substantial investment in the rail network to provide realistic alternatives for the freight task. Incentives to promote mode shift are relatively easy to implement initially (like a cheapening of public transport or road transit charges), so long as the alternatives exist. The 20 year ramp up is still, however, challenging, reflecting extension of the rail network and an improvement in public transport capacity. This steady-state goal is broadly consistent with the more successful initiatives overseas, like London’s congestion tax. Obviously, policy in this area would need to be underpinned by a firm commitment to infrastructure investment, such as extensions.

Increased vehicle occupancy

Exemption from CPRS Information asymmetries

Information provision Pricing signals e.g. congestion pricing

Increasing vehicle occupancy is relatively inexpensive, relying on initiatives such as promotion and the designation of vehicle lanes, suggesting an early start date is possible for initiatives. The 10 year ramp-up rate is consistent with empirical evidence on the rate of response of such initiatives overseas, while the 20% reduction steady-state target is consistent with the goals of a range of American cities (for example the Los Angeles Transport Authority through its combined carpool lanes/ toll roads/ education initiative, or the City of Santa Monica’s Sustainable City program).58

58

Santa Monica at http://www.smgov.net/epd/scpr/Transportation/T1_AVR.htm or Wachs, M “Learning from Los Angeles: transport, urban form and air quality” 7th Reuben Smeed Memorial Lecture accessed at http://www.springerlink.com/content/n4428478k973k215/

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Wedge

Possible barriers or market failures

Possible policy tools to overcome Comments on the basis for the wedge Policy tools in this area include infrastructure improvements, such as lanes dedicated to vehicles with a set number of occupants or greater.

Improved fuel efficiency

Exemption from CPRS Technology development Market barriers such as tariff structures and stamp duty

Information provision Research and development support

This wedge is based on the gradual replacement of old and less efficient vehicles. Overall fuel efficiency of the Australian passenger vehicle fleet is strongly influenced by the number of older, less fuel efficient vehicles. Vehicle engines in general are becoming more fuel efficient although, in recent years, much of that improvement has been taken up in more complex ancillary systems, and larger and faster cars with greater towing capacity. Policy tools include basic price signals, such as registration concessions.

Livestock efficiency

Exemption from CPRS Technology development Information asymmetries

Research and development support Information provision

In Victoria about 75% of agricultural emissions are methane from ruminant animals, cattle and sheep, arising from ruminant digestion where about 20% of the ingested carbon is lost as methane.

This wedge seeks to deliver a 40% reduction in agriculture emissions through a 50% reduction in methane emissions through a number initiatives targeting enteric methane emissions which will also deliver productivity gains.

University of Melbourne and DPI research59 has demonstrated that these emission reductions are possible through the simultaneous implementation of three strategies: • Animal breeding utilizing genomics and breeding/ selection to increase feed conversion efficiency; • Improved farm management strategies to extend lactation and improve pasture & grazing management to maintain production with fewer animals; • The introduction of new dietary strategies including oil, enzyme and tannin supplements and improvements to diet quality to reduce methane emissions.

Soil management

Exemption from CPRS Technology development Information asymmetries

Research and development support Information provision

Emissions of Nitrous Oxide from agricultural operations largely result from the environmental conditions surrounding the transformation of the nitrogenous components of fertilizers and animal urine in the soil. This wedge seeks to achieve a 10% reduction in agriculture emissions through initiatives targeting of the emission of Nitrous Oxide during these transformations. The following strategies are based on current research by the University of Melbourne and DPI and global activity in this area.

59

Department of Primary Industries “Greenhouse in Agriculture: Project sheet February 2008”

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Wedge

Possible barriers or market failures

Possible policy tools to overcome Comments on the basis for the wedge The strategies to reduce Nitrous Oxide emissions outlined below will cover both grazing and cropping activities and include: • Chemical interventions using inhibitors to reduce the rate of nitrification • Soil, crop , pasture and irrigation management strategies to avoid water logging and compaction • Improved cropping technologies involving the timing and placement of fertilizers including no tillage and minimum tillage.

Accelerate afforestation – new harvestable plantations

Water needs Carbon accounting rules

Information provision

In this wedge, land used previously for livestock cultivation is sown with harvestable plantations, with a consequent reduction in livestock-related emissions and the increase in carbon sink capacity generated by new plantations.

A ramp-up time of 10 years is usual for the adoption of new technologies and work practises in the agriculture sector. The 30% increase in the rate of afforestation is consistent with the Victorian component of the Australian Government’s 2020 vision of 750,000 hectares of new plantation in Victoria.60

Accelerate afforestation – revegetation

Water needs Carbon accounting rules

Information provision

This wedge is similar to the previous wedge except there are no intentions to harvest the new vegetation. That is, this wedge involves afforestation for the purposes of conservation (not wood matter for harvesting and sale) in a carbon-constrained economy.

Cement extenders

Cost

Research and development support

Increased use of cement extenders reduces the amount of cement used per tonne of concrete, lowering process emissions. The average proportion of extenders has increased to around 20% in recent years, but there is substantial further scope.

Avoiding landfill

Landfill pricing Technology development

Information provision Research and development support Price signal e.g. increased landfill price

The basis of this wedge is a continued and ongoing removal of organic waste from landfill, building on the successes already achieved by State and local governments under the Towards Zero Waste banner. Initiatives to further reduce landfill could begin immediately, building on Victoria’s significant progress rates to date. It is assumed that further progress would be relatively slower (20 year rampup), but with a target reduction rate of up to 80% as being targeted in NSW.

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Plantations 2020 “Plantations for Australia: The 2020 Vision”

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