20 minute read
Decarbonisation | panel discussion
Decarbonisation
Key points:
• Decarbonisation has shifted from a peripheral consideration for the infrastructure sector to a central concern. • Growing sectoral convergence means the energy sector will ultimately underpin the decarbonisation of other infrastructure sectors such as transport, where it is a key input. • Digital infrastructure and new technologies should be harnessed across all sectors to accelerate decarbonisation.
Panellists:
► Drew Clarke AO, Non-Executive Independent
Chairman, AEMO Board of Directors ► Elizabeth O’Leary, Head of Agriculture,
Macquarie Group ► Michel Masson, Chief Executive Officer,
Infrastructure Victoria
Moderator:
► Ivan Varughese, Head of Green Investment Group, Asia Pacific, Macquarie Capital
Ivan Varughese (IV): Decarbonisation and our response to climate change presents both one of the largest challenges and one of the largest opportunities of our lifetime. As we have just heard from Minister Kean, a lot is being done from a Government perspective in terms of willingness to invest, and the creation of new jobs and economic growth. We heard from our infrastructure investors earlier about the opportunities to invest in transport from a decarbonisation perspective, as well.
What is clear is that when we look at where emissions come from, energy is obviously well known, but the other sectors that contribute to it – both transport and agriculture
– also need to be addressed if we are going to achieve our goals of net zero by 2050.
Starting with Drew, emissions policy continues to occupy its fair share of column inches, particularly in relation to the energy sector. Just this morning, we saw Scott Morrison, our Prime Minister, announce that he would expand the ARENA and CEFC mandates to invest in new technologies to also drive down emissions. Drew, from your perspective, what do positive and coordinated energy decarbonisation efforts look like across industry and government?
Drew Clarke AO (DC): In thinking about decarbonisation towards the net zero goal, the number one sector on the top of the list is the electricity sector. There are three reasons for that. First, it is in itself the single largest source of greenhouse gas emissions. Second, it is the key to decarbonising both the transport sector and the heavy industry and manufacturing sector. And third, it is also the key to building new export industries, such as green hydrogen. So, we have to deal with electricity.
Now, AEMO’s Integrated System Plan (ISP), released in July this year, gives us a 20-year roadmap for the National Electricity Market, which is eastern Australia. And there is a similar exercise underway in the west. The ISP is an engineering and economics analysis. It looks at multiple scenarios over a 20-year time frame to identify least-regret pathways for system development. But there are a number of characteristics that stand out in all plausible scenarios.
Out to 2040, we are going to see somewhere between a doubling and a tripling of distributed energy resources – rooftop solar PV being the biggest example of that. We are going to need 26 gigawatts of new wind and solar to replace the twothirds of the coal-fired fleet that we expect to retire by that period. We are going to need between six and 19 gigawatts of dispatchable generation, which will require a huge new investment in generation, but it is generation whose fuel is essentially the weather.
This is generation that the operator can rely on to come in when needed. That could be pumped hydro, batteries or other technologies. And we are going to need major investment in the transmission system, interconnection and Renewable Energy Zones, as you just heard Minister Kean talking about. There are numerous projects in that transmission investment pipeline that are committed, actionable and under assessment. These are needed both to manage the risks around security and reliability, and to create the opportunities for efficient investment. They have got a net market benefit all up of around $11 billion.
Now, successfully rolling out this programme will mean that by the mid 2030s, we can have periods where up to 80 per cent of generation will be renewable. Gas is going to play a critical role in this. It has a critical role in meeting peak demand and firming renewables during those coal exits. They will have a lower volume at a much higher value in the system. So, the electricity sector’s transition towards net zero emissions is well underway.
IV: Michel, moving on to transport: decarbonisation has proven difficult as populations and economic activity has grown. And electrification of the vehicle fleet is one route, but that presents its own challenges, and clearly government efforts alone will not move the needle substantially. How do you see governments tackling transport emissions, and what are some of the ways in which industry can partner with government to accelerate decarbonisation?
Michel Masson (MM): Transport is the third largest source of emissions in Australia, so if we are serious about reaching the zero emissions goal by 2050, clearly more needs to be done in that field. But the thesis I will put forward to you today is that there is no silver bullet that will get us there. We clearly need to harness the convergence of transport policies and energy policies, and really look at decarbonisation in an integrated way. I have three propositions to get us there.
The first one is reduced demand by avoiding trips where possible.The second one is improved energy efficiency, and the third one is to shift to lower-emission transport modes. Let me start with the reduction of demand by avoiding trips. I may surprise you, because land use and transport planning integration might not be the first thing in mind when considering decarbonisation, and yet it will play a critical role. Compact cities – the concept of the 15-minute neighbourhood, which Paris has embraced, and Melbourne is looking at – will help in reducing travel.
To embed zero emissions in the way we plan for cities and regions will be very important. COVID-19 has demonstrated behavioural changes such as more working from home, and the digital penetration across all areas of life should be harnessed to limit the amount of unproductive travel. I will ask this audience – do you really need to be on that plane to Sydney for that onehour meeting? Or is there a better way of doing it? New mobility models should also be embraced.
On-demand services will play a big role in making sure that we have not got empty buses guzzling around our suburbs. But it is about improving energy efficiency, also. The Australian road vehicle fleet is sadly one of the most energy- and emissionsintensive in the world – 45 per cent higher than in Europe. The push for lower vehicle emissions targets should definitely be encouraged further. It would be remiss to not mention the pricing signals that can incentivise behavioural choices to encourage more efficient use of transport systems.
And it is not by chance that Infrastructure Victoria has been very active in looking at profound reforms like road pricing, public transport fares and parking, but also demand management in the energy system. And it is about shifting to lower-emission transport modes. I would argue that governments should seize the COVID-19 opportunity and invest in active transport infrastructure to make sure that cycling and walking are embraced. I would argue that the cycling revolution is here and should not be wasted.
But of course, electrification is key to decarbonising the transport system, and government can and should play a big role in triggering that electric revolution. It has got scale, meaning developing zero-emissions fleet strategies for government and vehicle fleets should be the first port of call. At the end of the day, they make up 52 per cent of the annual vehicle sales in Australia, and serve as an important source of the second-hand market.
Mandating zero-emission vehicles in public transport in the future should also be considered. And again, I am especially thinking of the potential of electric buses. At the end of the day, it is about creating the environment where electric vehicles can be taken up. And there are some obvious steps the Government can take. There are heaps of recommendations, and the advice we provided to the Victorian Government is available on our website, but I would like to highlight the following few: ► enabling further investment in transmission networks (which Drew rightly pointed to) ► reviewing regulatory barriers to enable distributors to address the highly-localised impact of electric vehicle take-up ► allowing electricity providers to set demand management strategies or develop design standards to govern the design and placement of electric vehicle charging infrastructure in public areas.
There is no doubt that freight is also going to play a very important role in that decarbonisation.
Shifting from road to rail will be key, as will electrifying rail. Only 10 per cent of the network is currently electrified. Hydrogen has a real future for freight vehicles and trucks, and research and development should be boosted in this area. And I was already mentioning the digital acceleration in logistics. There is no doubt that the white vans that deliver our Amazon parcels should be a priority in being electrified.
And finally, it is about employing, of course, zero-emissions fuel sources. And I will finish off with an anecdote: when I was CEO of Yarra Trams, we noticed that if you combine the trams and the train network, that makes it the second-biggest electricity user in the state of Victoria. So, we started engaging in conversations with the renewable energy industry to see what it would take for them to build additional renewable energy capacity to power the tram and the train network through power purchase agreements.
Now, that would have made Melbourne the only city in the world with fully carbon-neutral public transport – not a bad ambition to have. And the extra cost at the time running different scenarios was going to be an additional $25 million for the Victorian Government, which clearly is a drop in the budget and can easily be absorbed by a few cents more on the ticketing. So, it did not go where I wanted it to go but that is the sort of ambition and vision that I call for more of, because it will get us to the decarbonisation goals we all aspire to.
IV: Liz, another sector that has proven hard to abate is agriculture, and yet it is obviously one of the larger contributors, as well. It seems there are emerging technologies that appear to be unlocking opportunities for decarbonisation. What are some of the trends you are seeing that are driving emissions reductions in agriculture?
Elizabeth O’Leary (EO): Well, we are all focused on 2050 as some magical date, and focused on Paris. The other undeniable fact as we head towards 2050 is that the world needs to be able to produce somewhere between 25 per cent and 70 per cent more food than it produces today. When we look at agriculture in the context of Australia, we contribute to about 13 per cent of Australia’s emissions profile. One argument might be to simply produce less.
While that might help us on the emissions pathway, it certainly will not help us feed the world and participate in important export markets. So, you are right, the sector is focused on how to identify emerging practices and technologies that enable us to reduce our inputs and our emissions profile through our inputs (i.e., producing more for less). But the other area of significant focus more recently in the sector is how we can leverage the inherent capacity of soil and vegetation to capture carbon.
It is important to think about agriculture as a set of about 85,000 small businesspeople across Australia. So, it is highly fragmented, with varying production systems and varying appetites for change. But change is coming, and really one of the biggest changes I have experienced in our business, which operates across almost three million hectares of farmland across Australia producing food and fibre for the domestic
and export markets, is really the introduction of precision technology and tools that help us acknowledge that we deal with a lot of variabilities. Our soil is variable and our climate is variable. Historically, we have had relatively blunt broad-acre instruments that have helped us with broad-scale application. Now we are dealing with very finite decisions, particularly about inputs and the timing of inputs. What does that look like practically? Practically, on the farm, it looks like satellite-driven data, live into machinery cabins telling us when and when not to apply important inputs, such as fertiliser or chemicals.
And this goes right down to some very neat technology and robotics that we are using today on the farm, where we have got infrared cameras seeking out individual weeds and pests in a crop, for example. We are only applying the requisite chemical to that pest or that weed that is required, versus the world I grew up in where we just sprayed everything. And we have got datasets now on some applications where it is reducing our chemical usage by up to 90 per cent.
So, what that has meant for us in our cropping portfolio, which we have been working with the CSIRO to baseline, is effectively over the last couple of years, we have reduced inputs by around six per cent and we have improved our emissions intensity. So, that is emissions per tonne of wheat produced by 15 per cent, relative to the benchmark. These are meaningful gains, but they are incremental gains.
There are two really critical inputs that agriculture needs to address over the coming decades, as we move towards our aspiration of net zero. The first is fertilizers – a convergence of energy and hydrogen, in particular. And the other important nut we have to crack is methane and nitrous oxide emissions in livestock production. I think many of us have looked pretty optimistically at innovations coming out of our own CSIRO. With cows eating seaweed shown to reduce methane by over 80 per cent, the innovation is there, and it is gradually being adopted in a highly fragmented sector. But we do have some real challenges around speed of uptake and getting the economic signals right from the consumer around their propensity to pay for producers to produce more for less, with a softer footprint.
IV: As we have approached emissions reduction or decarbonisation in a very sector-by-sector manner to date, often the approach has been lowest cost. When, in fact, as we think about convergence between different forms of infrastructure, energy is a huge input across the board. How do we actually coordinate government and industry to work together and achieve decarbonisation across the infrastructure sector as a whole?
DC: The orthodox view now is that the future is clean and electric. The fact that this forms such a central part of a net-zero emissions economy means the electricity system will play an even greater role in the economy, and will have to serve many more sectors than it currently does. I talked earlier about steel and concrete and why it is that that needs to happen – and the PV cells, turbines, batteries, hydro schemes and so on.
But the other thing is market design, and the whole policy and regulatory framework in which that system operates. It is essential that we have a fit-for-purpose market design and
regulatory framework to serve this converged model. And that is going to need both industry and government input. It is absolutely a joint effort. So, the big initiative in this area at present is from the Energy Security Board (ESB), which comprises the principal roles of the operator, the regulator and the rule maker, working together under Dr Kerry Schott to undertake the big task of redesigning the National Electricity Market. Now, the ESB just this month put out a consultation paper on that work, and it identifies seven work streams. Let me just quickly run down the headings to give you a sense of the scope of this initiative.
Resource adequacy – how do we make sure we have got the right generation at the time that we need it? Thermal retirements – how do we get orderly retirement of coal rather than random and disruptive? System services – we now need markets to create all of the things that we used to free ride with big synchronous generators. How do we deal with scheduling and ahead requirements? How do we create well-functioning two-sided markets? How do we value flexibility as a capability in the system, and how do we integrate distributed resources? And how do we get transmission access and investment signals right?
I know that is a huge issue for new investors in wind and solar at the moment – getting those grid connections happening quickly and efficiently. The ESB has outlined a progressive implementation plan from next year to 2025 for this work. But successful convergence and coupling really needs industry and government to lean into this task of market design, because no one party can get this right. It has to be a joint effort.
IV: Michel, when you talked about fleet electrification, is it really transport or is it in clean energy? And how do you bring these together to drive the highest value?
MM: I think there are three aspects – leadership, collaboration and innovation – that are relevant here. The first thing I would say is that if we are to truly progress decarbonisation and to really have that integrated approach, it calls for strong leadership at the very top. And that means that decarbonisation should not be just the environmental portfolio’s responsibility. It should be at the front and centre of discussions around the Cabinet table.
For instance, when Victoria’s rail plan comes to be analysed, the question is: how is this rail plan contributing to decarbonisation and us hitting a zero emissions target? That is the strong leadership drive that will get us there. The second thing is about collaboration and how we achieve a multidisciplinary approach between the various departments and agencies. As far as the Victorian context is concerned, I take great comfort in seeing the profound cultural change that I have witnessed in Victoria in the restructuring of the Victorian public sector around missions to fight off the COVID-19 crisis.
This involved eight missions gathering multidisciplinary experts from different departments and agencies around very specific outcomes, including economic recovery and restoration of public services, or post-crisis reform opportunities. Do not underestimate the importance of that cultural change within the Victorian public sector in bringing that integrated approach around desired outcomes. So, that bodes well for the future when it comes to such a big societal issue as decarbonisation.
The third element, I would say, is innovation. The Victorian Government has got a clear role to play in inviting more innovation in the way we tender for work to the private sector. And what I mean by that is, to be more driven toward outcomes instead of being prescriptive on how to do things and really invite the private sector to come up with innovative solutions to reach the decarbonisation outcomes that we want.
So, through leadership, collaboration and innovation, and that link between government and the private sector through procurement, I think that will contribute to getting us there.
IV: Liz, you touched on precision farming and how the agriculture sector is addressing decarbonisation through new technology. How is agriculture collaborating with other forms of infrastructure in terms of this point of convergence?
EO: Often agriculture is seen as being out there physically and therefore the intersection is not as obvious. I would challenge everyone to rethink that. The farm of the future will see a world where our access to information and data (and being able to make split-second decisions based on that data) will rely on our digital infrastructure on the farm as much as we rely on a good tractor or harvester today.
The need for the agricultural sector to work with the infrastructure sector around what our digital infrastructure looks like, not only in cities and highly populated areas, but also in remote and rural communities, is really important. Not just from a social welfare perspective, but to think about it not necessarily through the lens of ‘is this new tower and 5G warranted based on population?’ – because the answer will probably be ‘no’ – but, ‘is it warranted on the basis of GDP contribution from progressive businesses in these communities?’
I think there is a dialogue to be had there and an ongoing dialogue to be had. The other point of convergence is the convergence between energy and agriculture. We are hearing a lot about hydrogen. It is an exciting roadmap if we can get it right, and get the right investment and the right momentum. The obvious intersection there is the intersection with fertiliser, and carbon dioxide emissions from fertiliser production and usage on farms (Scope 1 to 3).
For an Australian grain farmer, it comprises about 40 per cent of their emissions. So, if we can get green hydrogen, and green ammonia, then we can get a green fertiliser industry in this country. The big ‘gotcha’ there is this fragmented demand
side: how do we solve that when the investment community has an absolute desire for a de-risked investment strategy? I think it is a great area of convergence, and a great area for two sectors to come together to try and solve the de-risking objective we all have.
IV: A final question from me. Are we being bold or courageous enough in the decisions we are making today to achieve net zero by 2050?
EO: We can reduce inputs and we can manage emissions with new technology, but the other big opportunity is the inherent capability of our soil and our vegetation to capture carbon. And that is an area where the Emissions Reduction Fund has dipped its toe in the water in terms of the Australian landscape. But it might surprise people today to learn that, for the vast bulk of Australian farmers, it is not economically viable to take nonarable, non-farming land and plant native vegetation.
We do not have the marketplace and the right economic signals long term for a farmer to take that next step. So, my big, bold dream would be to find solutions for our inputs and our emissions, but find a way where we develop a marketplace where every tonne of carbon captured on a farm in non-arable land is worth as much per tonne as every tonne of wheat that we produce.
MM: It would be a real shame if we were exiting this pandemic crisis without dramatically reviewing our ambitions and our vision for Australia as a whole. I see this as an opportunity to reinvent ourselves as an individual, as an organisation, as a state, but also as a nation. When I think about what that big bold vision in the decarbonisation arena is, I think I am entirely with [Australia’s Chief Scientist] Alan Finkel and his vision of exporting sunshine.
I think that it cuts across so many areas. It would bring benefits to exports, trade and manufacturing, and is one way of gathering the goodwill of different businesses and sectors around one national vision – and getting us there in true Australian spirit.
DC: Well, you can always be bolder, Ivan. About 20 years working in energy policy has taught me a few things. The two essential pre-conditions for a successful energy transition would be social license and the technology that can be rolled out. I am a patient realist around social license, but I am very optimistic around technology. Building on the points that Liz and Michel have already made about where technology is already having a big impact, there is a very exciting curve in front of us.
I am very excited about what the low-emissions Technology Investment Roadmap can bring, and I have been pleased to work with a number of industry colleagues, and with Alan Finkel, in advising the Commonwealth on it. We saw some announcements today about funding, but I am sure we will soon see the actual road map. A new policy model for public sector support in hydrogen technologies, storage and sequestration could really accelerate the curve, reduce the costs, and improve the investment attractiveness of it.
