IEEFA Australia: The most capital-efficient solution to drive the energy transformation is a global price on carbon

Australia’s largest listed energy company, Woodside Energy Ltd has called for a price on carbon and national energy consensus to meet global Paris commitments and as a pre-requisite to sustainable economic growth for Australia.

Woodside’s call is a timely reminder that people and communities cannot afford to wait for governments to act.

Business communities needs to show leadership when governments are lagging behind. The transition to a cheaper renewable energy future is happening now and corporates can lead the way.

IEEFA agrees with Woodside that a carbon price is the low-cost solution to achieving the deep decarbonisation of our entire economy.

Reducing emissions is our number one aim to ensure the world meets our collective Paris targets of less than 2°C.

WE CALL ON THE AUSTRALIAN GOVERNMENT TO ENDORSE A CARBON PRICE on all producers of emmissions before going into the Conference of the Parties (COP 24) in Poland in December 2018.

While Woodside CEO Peter Coleman told a mining audience this week that “in the absence of an appropriate carbon price, we risk a perverse outcome where the lowest cost of reliable supply into the market remains the greatest emitter of carbon, offsetting the benefits renewables offer,” the International Energy Agency’s World Energy Outlook 2018 report released this week made it clear that renewable energy is rapidly becoming the low cost source of new generation.

In Australia however, this technology driven inevitability is not happening fast enough to deliver on the Paris commitments, and without a national energy policy, leaves Australia with a growing stranded asset risk.

The shareholder wealth destruction of thermal power stranded asset risk has seen well over US$100bn of writedowns by European utilities this decade to-date.

Absent a sensible transition policy, stranded assets are still a huge cost to the global financial system, and society.

Following the emergence of low cost renewable energy solutions in 2017, India’s banking system is today struggling with over US$100bn of non-performing loans to the thermal power sector, which in turn is proving to be a massive headwind to sustained economic growth.

Such wealth destruction is set to be replicated across Asia if new coal power plants continue to be built on the premise of unpriced externalities (relating to air and water pollution and carbon emissions).

IEEFA agrees with Woodside: independently verified international carbon offsets would be a huge step forward in allowing emissions reduction to be achieved at the lowest cost.

That Woodside is also acknowledging renewable energy as the low-cost source of new variable electricity generation is another step forward.

In the meantime, Australia has an energy policy vacuum, leading to inaction.

Coleman said this week: “Clearly, the risk of inaction is too great.” He echoes the sentiment in the UN IPCC report which spelled out the urgency needed in efforts to limit global temperature increases.

Australia must honour her Paris obligations. The lowest cost way to do this is by putting a comprehensive price on carbon emissions.

Australian engineers and scientists can easily solve this pressing whole of society issue at least cost, leveraging our enormous financial market capacity and leading corporations.

The size of the opportunity is huge.

Atlassian co-founder Mike Cannon Brookes has launched “Fair Dinkum Power”, underscoring the vision of Australia moving to “200% renewable energy”, and becoming a global renewable energy export super power.

Brookes has also recently made a strong call for a price on carbon.

Australia’s leading energy company Woodside Energy has added its voice to this call.

It is time for all parties to government to put aside petty politics and populism and instead focus on bi-partisan support for a sensible, long term sustainable energy policy – with a price on carbon.

Tim Buckley is Director of Energy Finance Studies at IEEFA Australasia. He can be contacted via [email protected].