Moves to scrap the use of carryover carbon emissions credits from the Kyoto Protocol could significantly increase the cost of Australia meeting its Paris Agreement target.
Prime Minister Scott Morrison has been under pressure to abandon use of the carryover credits, which allow for surplus emissions reductions made under one international agreement to be used against a deficit in future agreements.
Department of Environment modelling suggests Australia will overachieve against the 2020 Kyoto phase two target by a cumulative 283 million tonnes of carbon dioxide, while it also surpassed the first phase Kyoto commitment, which ended in 2012, by 128mt.
That will give the country 411mt of credits for use in the next decade, the department’s December emissions projections report said, while emissions over that time are expected to be 5,169mt against a target of 4,777mt.
With the credits, Australia will hit its cumulative Paris target for the next 10 years on current projections.
Without them, however, Australia will fall about 395mt short.
On an annual basis, the department predicts emissions of 511mt in 2030, down from their current level of 534mt, and about 15.6 per cent lower than the baseline in 2005.
Those numbers were improved from projections just a year prior, with the report citing the government’s 2019 Climate Solutions Package as the main change, cutting cumulative emissions by more than 100mt.
The package will cost $3 billion and will include purchases of abatements, energy efficiency measures and a new power storage project, among others.
But a decision not to use the Kyoto credits will mean the government needs to find a solution to cut emissions by about 395mt across the decade.
At a price
Mr Morrison has been reluctant to pledge not to use the carryover credits, with no other countries yet to commit to using them.
In recent weeks he has appeared to soften that stance, following a disastrous bushfire season, saying in interviews that the government’s policy was evolving,
“(We) will meet and beat our 2030 targets and our policy will continue to be progressed to meet those 2030 targets and that’s where we’re heading,” he said.
Mr Morrison said any policy progression would be done without shutting down industries, without a carbon price, and without higher power prices.
With limited options, the government could ramp-up its abatement purchases through the Climate Solutions Fund, but the challenge will be that the cost of abatements will continue to grow as the cheapest options are gradually used up.
Assuming the cost of each tonne abated remains on the level implied in Climate Solutions, it would cost the government roughly $12 billion to purchase 395mt of abatements.
Estimates differ, however.
In Western Australia, for example, abatement of 60mtpa would have a marginal cost of about $100 per tonne, according to 2018 work by Reputex for the Conservation Council of Western Australia.
In a 2016 analysis, consultancy Energetics argued that some emissions could be abated at no net cost.
That would imply businesses have a strong incentive to cut those emissions regardless of the government’s policy position.
Examples of abatement opportunities without a net cost include improvements in road freight fuel efficiency driven by better use of data, the consultancy claimed.
Each tonne of carbon dioxide saved in that example would correlate to a $355 saving, Energetics said.
But most projects will come at a cost.
“In the absence of a carbon price signal, we view a long-term marginal cost of abatement of $20 to $60 per tonne as key reference point for investors,” the company said.
“This represents the indicative cost per tonne of activities needed to meet Australia’s obligations under the Paris Agreement.”
