Energy policy of Australia

The Energy policy of Australia is subject to regulation and fiscal influence by all three levels of Government, however State and Federal energy policy deals with primary industries, such as coal.

Australia is a major exporter and user of coal, the burning of which creates CO₂. Consequently, Australia is the highest emitter of greenhouse gases per capita in the developed world. It is also one of the countries most at risk from climate change according to the Stern report.

Renewable energy commercialisation in Australia is an area of relatively minor activity compared to the fossil fuels industry. Australia's renewable energy industries are diverse, covering numerous energy sources and scales of operation, and currently contribute about 5.9% of Australia's total energy supply. The major area where renewable energy is growing is in electricity generation following the introduction of government Mandatory Renewable Energy Targets.

Federal Government

Institutions

The responsible governmental agencies for energy policy are the Council of Australian Governments (COAG), the Ministerial Council on Energy (MCE), the Ministerial Council on Mineral and Petroleum Resources (MCMPR), the Department of Industry, Tourism and Resources (DITR), the Department of Environment and Heritage (DEH), the Australian Greenhouse Office (AGO), the Department of Transport and Regional Services, the Australian Competition and Consumer Commission (ACCC), the Australian Energy Market Commission (AEMC), the Australian Energy Regulator (AER), and the National Electricity Market Management Co (NEMMCO).

Energy strategy

In the 2004 White Paper Securing Australia's Energy Future, a number of initiatives were announced to achieve the Australian Government’s energy objectives. These include:

• a complete overhaul of the fuel excise system to remove AU$1.5 billion in excise liability from businesses and households in the period to 2012–13
• the establishment of a AU$500 million fund to leverage more than AU$1 billion in private investment to develop and demonstrate low-emission technologies
• a strong emphasis on the urgency and importance of continued energy market reform
• the provision of AU$75 million for Solar Cities trials in urban areas to demonstrate a new energy scenario, bringing together the benefits of solar energy, energy efficiency and vibrant energy markets
• the provision of AU$134 million to remove impediments to the commercial development of renewable technologies
• incentives for petroleum exploration in frontier offshore areas as announced in the 2004-05 budget
• new requirements for business to manage their emissions wisely
• a requirement that larger energy users undertake, and report publicly on, regular assessments to identify energy efficiency opportunities.

Energy market reform

On 11 December 2003, the Ministerial Council on Energy released a document entitled “Reform of Energy Markets”. The overall purpose of this initiative was the creation of national electricity and natural gas markets rather than state-based provision of both. As a result, two federal level institutions, the Australian Energy Market Commission (AEMC) and the Australian Energy Regulator (AER), were created.

Subsidies

Currently, the Australian Government provides financial support for the production and use of fossil fuels. These include direct payment and tax reductions. While encouraging greater use of fossil fuels and higher levels of greenhouse gas emissions, fossil fuels still make the consumer's decision for energy choices. In 2001, Australia's subsidies for the fossil fuel related market alone exceeded $6.5 billion. Between 2005 and 2006, Australia's subsidies for the Energy Market ranged from $9.3 to $10.1 billion. The subsidies for fossil fuels account for 96% of this, leaving only 4% of the available funds for renewable and transport technologies.

Subsidies by sector

• Transport 74% at AU$7.2 billion
• Electricity 18% at AU$1.7 billion
• Other Stationary 8% at AU$806 million

Total subsidies that support production and consumption of different fuels

• Oil 76% at AU$7.4 billion
• Coal 17% at AU$1.7 billion
• Gas 4% at AU$377 million
• Renewables 3% at $326 million

Energy subsidy

Public agency subsidies

Geoscience Australia, the Department of Industry, Tourism and Resources & State Government energy departments are involved in the direct support of mining and fossil fuel exploitation. These agencies only provide subsidies if there is a benefit to a particular group. As forecast, the main groups concerned are from the coal industry. Thus, by providing subsidies to the coal-fired power industry, there will be an increase in fossil fuel production, lower coal costs and inevitably an increase in greenhouse gases (GHG).

Geoscience Australia (GA) provided a AU$107 million subsidy for energy in 2005-06. The 2006-07 budget involves 66 projects of which 11 are allocated to petroleum research and others related to mineral and mining industry. On a much smaller scale, the subsidy allocated to saving climate change was 'storage of GHG' with a subsidy of $0.6 million.

The Department of Industry, Tourism and Resources (DITR), similarly to GA, provided a AU$30 million energy technology fund in 1994-95. This increased to a government funded $1,314 million subsidy which divides into 52 branches.

95% of Australia's electricity originates from fossil fuels, which make the power industry quite profitable. The DITR supports fossil fuel research with 95% of its total budget, leaving less than 5% for renewable energy technology.

Transport subsidy

Currently, 82% of Australians live in settlements with a population of 25,000 or more, and by 2011 almost 62% will be living in the 5 major state cities. According to the 'Peak Oil Phenomenon', when Oil reserves are at less than 50%, refining oil will be harder and cost more money. However, Australia has an alternative - natural gas reserves, which are abundant throughout the states. Due to the current fossil fuel (including oil) subsidies making oil refinement cheaper, natural gas extraction is ignored.

Road user deficit

• Road users were not being charged enough between 2005-06 to give an appropriate rate of return
• In 2005-06, the road construction costs was AU$4.7 billion more than the revenue received by road users. This makes the Road User Deficit the largest subsidy in the transport sectors.
• Largest government revenue in transport is AU$0.38/L fuel
• Old Scheme - Energy Grants Credit Scheme - reduced fuel revenue by AU$3.5 billion, with the addition of different fuels like LPG and natural gas which reduced fuel revenue by AU$710 million
• New Scheme - Fuel Tax Credit Scheme - allows a wide range of fuels and activities to be eligible for rebates and therefore the 'Road User Deficit' subsidy will increase.

Statuary Formula Method for Fringe Benefit Taxes (FBTs) for company cars

Due to FBTs, employees are encouraged to utilise salary sacrifice to get a company car as an incentive to reduce their FBT liability. Company car owners are however encouraged to drive more, because first of all there is no formal record of personal and business use. Secondly, the special formula used for calculating FBTs is that the more you drive, the more it automatically means you are driving for a business purpose than a personal one and thus the output is less TAX paid.

State policies

Queensland

Main article: Energy in Queensland

Queensland's energy policy is based on the year 2000 document called Energy Policy: A Cleaner Energy Strategy. The Queensland Government assists energy development through the Queensland Department of Energy and is most noted for its contribution to coal mining in Australia.

South Australia

The South Australian Government has developed a Energy policy based on sustainability objective as well as on South Australia's Strategic Plan.

A major priority of South Australia’s Strategic Plan is to reduce greenhouse gas emissions in South Australia to achieve the Kyoto target as a first step towards reducing emissions by 60% (to 40% of 1990 levels) by 2050.

Measures announced in South Australia include:

1. stabilisation of greenhouse pollution by 2020
2. legislated cuts of 60% in greenhouse pollution by 2050
3. legislated renewable energy target of 15% by 2014
4. solar feed-in tariff
5. ban on electric hot water systems.

Victoria

Main article: Energy in Victoria

Western Australia

In some remote areas of WA, the use of fossil fuels is expensive thus making renewable energy supplies commercially competitive. The growth of renewable energy technologies in WA is significant because of the reason of climate change and GHG. WA offers renewable energy subsidies including; solar heaters, Photovoltaic rebate program for installations at households, schools, factories and renewable Remote Power Generation Program of >$500,000 rebates for large off-grid systems.

Other states

Tasmania has a concession rebate and a life support discount. The Northern Territory and ACT has similar programs.

Mandatory renewable energy targets

The Mandatory Renewable Energy Targets (MRET) is considered a subsidy which creates a legal liability for wholesale electricity purchasers to contribute to the 2010 national 9.5 TWh or pay the $40/MWh penalty/tariff. The Mandatory Renewable Energy Certificate (MREC) is a Commonwealth tax scheme which commenced in 2001. MREC & MRET are interchangeable terms that both instigate a form of statuary tax credit.

MRET allows wholesale purchasers of electricity to either pay a $40/MWh tariff or adapt to the cheaper renewable energy sources. In other words, MRET does not make energy any cheaper. Rather, it encourages the adoption of renewable energy sources which could be cheaper than electricity from coal fired power stations that have the $40/MWh penalty. In 2005-06, the total MRET subsidy set was AU$32.3 million which included the renewable energy certificates for $30/MWh and administration costs of $2.8 million.

• In South Australia, a legislated renewable energy target of 15% by 2014 was announced.
• Victoria announced a legislated renewable energy target of 10% by 2016.
• NSW also announced a legislation renewable energy target of 10% by 2010 and 15% by 2020.

Greenhouse gas emissions reduction targets

Coal is the most carbon-intensive energy source releasing the highest levels of carbon dioxide into the atmosphere.

• South Australia, legislated cuts of 60% in greenhouse pollution by 2050 and stabilisation by 2020 were announced.
• Victoria announced legislated cuts in greenhouse pollution of 60% by 2050 based on 2000 levels.
• NSW announced legislated cuts in greenhouse pollution of 60% by 2050 and a stabilisation target by 2025.

Low Emissions Technology Demonstration Fund (LETDF)

• $500 million - competitive grants
• $1 billion - private sector funds

Currently has funded six projects to help reduce GHG emissions, which are summarised below

Project	Details	Funding [Mio. $]
Cheveron - CO2 injection program	natural gas extraction, carbon capture and underground storage	60
CS Energy - Callide A Oxy-fuel Demonstration Project	black coal power with carbon capture and underground storage	50
Fairview Power - Project Zero Carbon from Coal Seams	gas power station with seam injection of CO2	75
Solar Systems Australia - Large Scale Solar Concentrator	concentrated sunlight solar power	75
International Power -Hazelwood 2030 A Clean Coal Future	drying of brown coal, carbon capture and underground storage	50
HRL Limited -Loy Yang IDGCC project	combined drying coal systems	100
Total		410

As attractive as it looks, 82% of subsidies is concentrated in the Australian Government's 'Clean Coal Technology', with the remaining 18% of funds allocated to the renewable energy 'Project Solar Systems Australia' $75 million. The LETDF is a new subsidy scheme aimed at fossil fuel energy production started in 2007.

Feed-in prices

Main article: Feed-in tariffs in Australia

Each state and territory has a different position on feed-in tariffs.

Fuels

In 2003, Australian total primary energy supply (TPES) was 112.6 million tonnes of oil equivalent (Mtoe) and total final consumption (TFC) of energy was 72.3 Mtoe.

Coal

Main article: Coal Mining in Australia

Australia is the fourth-largest coal producing country in the world. In 2005, Australia mined 301 million tonnes of hard coal and 71 million tonnes of brown coal. Coal is mined in every state of Australia. It provides about 85% of Australia's electricity production and is Australia's largest export commodity. 75% of the coal mined in Australia is exported, mostly to eastern Asia. In 2005, Australia was the largest coal exporter in the world with 231 million tonnes of hard coal. Australian black coal exports are expected to increase by 2.6% per year to reach 438 million tonnes by 2029-30.

Coal mining in Australia has become more controversial because of the strong link between burning coal, including exported coal, and climate change, global warming and sea level rise. Coal mining in Australia will as a result have direct impacts on (Australian) agriculture, health and natural environment including the Great Barrier Reef.

Costs

Coal-fired power station subsidies are the second largest associated with fuel subsidies. Coal-fired power stations are known to pay much less for their fuel than the international market price. Major Australian power plants such as Macquarie Generation, CS Energy, Stanwell and Delta Electricity pay 1.36 cents/kWh. By comparison, coal-dominated utilities in the United States paid 1.37-2.44 cents/kWh.

The coal power stations receive subsidies which are calculated to be between $450 million and $1.1 billion in 2005-06. Currently, the subsidies received by several electricity generation companies prioritising in coal-fired generation appear to match or exceed the profits made by those companies in 2005-06. In other words, government subsidies appear to be directly creating profits for coal-fired generators.

The impact of removing certain electricity sector subsidies will increase the cost of electricity by about $0.05/kW or 3.9%. This would decrease demand for electricity by 1.4% and also reduce GHG Emission by about 2.7 Mt CO2-e.

The $400 million Greenhouse Gas Abatement Program (GGAP) has already invested in 15 projects totaling $145 million to diminish 27 million tonnes of GHG during 2008-2012.

• $5 million to coal-fired power stations for improving thermal efficiency
• $15.5 million for pre-drying brown coal
• $58.8 million fossil fuel subsidy for methane capture

Depreciation

The major Australian coal-fired power stations (Delta Electricity, CS Energy, Stanwell) have a 0.23 cents per kWh depreciation charge for their plants. On average, the cost of buying a plant is about $220/kW compared to the international market of $1300/kW. As these power plants age over time, their asset values decline and thus form a subsidy of $189/kW. This in turn equates to a power generation subsidy of 0.2 cents/kWh.

From 2005-06, 141TWh of electricity was harvested, with a total of $284 million for concession subsidies. All of these subsidies:

• lower the cost of coal firing
• encourage increased coal firing and depletion of fossil fuel sources
• produce higher levels of GHG emissions

These subsidies that encourage coal firing are distorting the energy market. The removal of this subsidy would cause coal power stations to lose profitability. They would be forced to raise their electricity prices to regain profits in order to compete with other energy methods.

Biomass

Biomass power plants use crops and other vegetative byproducts to produce power similar to the way coal-fired power plants work. Another product of Biomass is extracting ethanol from sugarmill byproducts. The GGAP subsidies for Biomass include ethanol extraction with funds of $7.4 million and petrol/ethanol fuel with funds of $8.8 million. The total $16.2 million subsidy is considered as a renewable energy source subsidy.

Biodiesel

Biodiesel is an alternative to fossil fuel diesels that can be used in cars and other internal combustion engine vehicles. It is produced from vegetable or animal fats and is the only other type of fuel that can run in current unmodified vehicle engines. The advantages of using biodiesels are summarised below:

• can be mixed with normal fuels (B20 is the common biofuel mixture consisting of 20% biodiesel and 80% petrol)
• produces 80% less CO2 and 100% less sulphur dioxide
• reduces cancer risks by 90%
• biodiesels are 11% oxygen and contain no sulphur
• provides 30% more lubricity for car engines

Subsidies given to Ethanol oils totaled $15 million in 2003-2004, $44 million in 2004-2005, $76 million in 2005-2006 and $99 million in 2006-2007. The costs for establishing these subsidies are $1 million in 2005-2006 and $41 million in 2006-2007.

ATO biodiesel - Fuel Tax Credits Scheme

However, with the introduction of the Fuel Tax Bill, grants and subsidies for using Biodiesel have been cut leaving the public to continue using diesel instead. The grants will be cut by up to 50% by 2010-2014. Previously the grants given to users of ethanol-based biofuels were $0.38 per litre, which will be reduced to $0.19 in 2010-2014.

Oil

Petrol

In the transport sector, fuel subsidies reduce petrol prices by $0.38/L. This is very significant, given current petrol prices in Australia of around $1.20 per litre. The acceptable petrol prices hence result in Australia's petroleum consumption at 28.9 GL every year.

Removal of this subsidy will make petrol prices rise to around $1.60/L and thus could make certain alternative fuels competitive with petroleum on cost. The 32% price increase associated with subsidy removal would be expected to correspond to an 18% reduction in petrol demand and a Greenhouse Gases emission reduction of 12.5 Mt CO2-e.

Diesel

The subsidies for Oil-Diesel fuel rebate program are worth about $2 billion, which are much more than the grants devoted to renewable energy. Whilst renewable energy is out of scope at this stage, an alternative diesel-renewable hybrid system is highly recommended. If the subsidies for diesel were bounded with the renewable subsides, remote communities could adapt hybrid electric generation systems. Energy Grants Credit Scheme (EGCS) : off-road component is a rebate program for diesel and diesel like fuels.

Petroleum subsidies

Companies involved in the extraction of the fossil fuel petroleum are given special deductions as follows:

• deduction of expenditures
• deduction of expenditures on capital and current environmental protection on pollution control and waste management
• deduction of mine rehabilitation costs

The Petroleum Resource Rent Tax (PRRT)

• keeps oil prices low
• encourages investment in the 'finite' supplies of oil, at the same time considering alternatives
• removal will effect low income households

Natural gas

Australia's natural gas reserves are estimated to be 3,921 billion cubic metre (bcm), of which 20% are considered commercially proven (783 bcm). The gas basins with the largest recoverable reserves are the Carnarvon and Browse basins in WA, the Bonaparte basin in the Northern Territory, the Gippsland and Otway basins in Victoria and the Cooper-Eromanga basin in SA and Queensland. In 2003-2004, Australia produced 33.2 bcm of natural gas, of which 62% was produced in WA. The majority of WA gas is sourced from the North West Shelf. Australia produces also LNG. In 2004, LNG exports were 7.9 Mt (10.7 bcm), which represented 6% of world LNG trade.

GGAP provides $26 million in subsidies for construction of natural gas fired power plants.

In addition, Australia owns a large potential for deposits of coal seam methane (CSM). The majority of these deposits are located in the black coal deposits of Queensland and NSW.

Oil shale

Australia's oil shale resources are estimated to be around 58 billion tonnes or 4,531 million tonnes of shale oil. The deposits are located in the eastern and southern states with the biggest feasibility in the eastern Queensland deposits. Between 1862 and 1952 Australia mined 4 million tonnes of oil shale. The mining stopped when government support for mining ceased. More recently, from the 1970s on, oil companies have been exploring possible reserves. From 2000 to 2004 a demonstration-scale processing plant at the Stuart Deposit near Gladstone, Queensland produced over 1.5 million barrels of oil. The facility is now on care-and-maintenance in an operable condition, and the operator of the plant — Queensland Energy Resources — is conducting research and design studies for the next phase of its oil shale operations. A campaign by environmentalists opposed to the exploitation of oil shale reserves may also have been a factor.

Geothermal

See also: Geothermal energy exploration in Central Australia

There are vast deep-seated granite systems, mainly in Central Australia, that have high temperatures at depth and these are being drilled by 19 companies across Australia in 141 areas. They are spending AU$654 million on exploration programmes. South Australia has been described as "Australia's hot rock haven" and this emissions-free and renewable energy form could provide an estimated 6.8% of Australia's base load power needs by 2030. According to an estimate by the Centre for International Economics, Australia has enough geothermal energy to contribute electricity for 450 years.

On 30 May 2007, Australian opposition environmental spokesperson Peter Garrett announced that if elected at the 2007 Australian Federal Election, the Australian Labor Party would subsidise putting the necessary drilling rigs in place.

Electricity

The main source of Australia's electricity generation is coal. In 2003, coal-fired power plants generated 77.2% of the country’s total electricity production, followed by natural gas (13.8%), hydropower (7.0%), oil (1.0%), biomass (0.6%) and solar and wind combined (0.3%). Coal-fired plants also constitute a majority of generating capacity. The total generating capacity was approximately 44,771 MW in 2002. In 2003, coal-fired plants counted 58.4% of the total capacity, followed by hydropower (19.1%, of which 17% is pumped storage), natural gas (13.5%), liquid/gas fossil fuel-switching plants (5.4%), oil products (2.9%), wind power (0.4%), biomass (0.2%) and solar (0.1%).

Hydro electric power

See also: Snowy Mountains Scheme

Talbingo Dam

Hydroelectricity accounts for 6.5-7% of Australian electricity generation. The Snowy Mountains Scheme is a massive water diversion, storage and hydro-electric scheme, which takes water from the eastern slopes of the Australian Alps (part of the Great Dividing Range) in eastern Victoria and southern New South Wales through pipes, tunnels and aqueducts into a series of dams, for use in hydro-electric power generation and irrigation in the Murrumbidgee and Murray valleys. The scheme created two major artificial lakes, Lake Eucumbene and Lake Jindabyne as well as a number of smaller lakes and ponds.

Wind power

See also: Wind power in Australia and Wind power in South Australia

Wind power in Australia is clean and renewable and a typical wind turbine can meet the energy needs of up to 1000 homes. The technology is proven, fast to build and economical compared with other renewable energy technologies. Wind power currently accounts for about one per cent of national electricity generation, and some 9 per cent of electricity generation in South Australia.

Australia is the highest emitter of greenhouse gases per capita in the developed world. Australia tops the greenhouse pollution index and Wind power is well placed to grow and deliver greenhouse gas emission cuts on a cost competitive basis. A typical 50 megawatt (MW) wind farm in Australia can reduce greenhouse gas emissions by between 65,000 and 115,000 tonnes a year.

Solar power

See also: Solar power in Australia and Photovoltaic and renewable energy engineering in Australia

Less than 0.1 per cent of Australian electricity currently comes from solar power generation, despite the country having a reputation for a hot dry and sunny climate that might make it ideal for utilisation. This is mainly due to the higher cost per kW than other power sources because of the cost of solar panels. However, costs are coming down, mainly due to promising research by Professor Martin Green, the engineering breakthroughs of Professor Andrew Blakers, and production initiatives of companies such as Origin Energy and Solar Systems, and BP Solar.

A major 154MW photovoltaic (PV) Solar power station in Victoria is planned and will cost $420 million. It will be the biggest and most efficient solar photovoltaic power station in the world. The power station will have the capability to concentrate the sun by 500 times onto the solar cells for ultra high power output. The Victorian power station will generate clean daytime electricity directly from the sun to meet the annual needs of over 45,000 homes with zero greenhouse gas emissions.

Wave power

The Australian government says new technology harnessing wave energy could be important for supplying electricity to most of the country's major capital cities. A wave farm near Fremantle in Western Australia operates through a number of submerged buoys, creating energy as they move with passing waves. The Australian government has provided more than $US600,000 in research funding for the technology developed by Carnegie, a Perth company.

Nuclear power

Jervis Bay Nuclear Power Plant was a proposed nuclear power reactor in the Jervis Bay Territory on the south coast of New South Wales. It would have been Australia's first nuclear power plant, and was the only proposal to have received serious consideration as of 2005. Some environmental studies and site works were completed, and two rounds of tenders were called and evaluated, but the Australian government decided not to proceed with the project.

Queensland introduced legislation to ban nuclear power development on 20 February 2007. Tasmania has also banned nuclear power development. Both laws were enacted in response to a sudden pro-nuclear position, by John Howard in 2006 , and the release of the Switkowski report into nuclear power.

An independent panel of Australian scientists and nuclear experts have been critical of the findings of the Switkowski nuclear inquiry. They found that the Switkowski report relies on some flawed assumptions which reveal a bias towards nuclear power on economic, technological, health and environmental grounds.

John Howard went to the November 2007 election with a pro-nuclear power platform but his government was soundly defeated by Labor, which is opposed to nuclear power for Australia.

Public opinion

The Australian results from the 1st Annual World Environment Review, published on June 5, 2007 revealed that:

• 86.4% are concerned about climate change.
• 88.5% think their Government should do more to tackle global warming.
• 79.9% think that Australia is too dependent on fossil fuels.
• 80.2% think that Australia is too reliant on foreign oil.
• 89.2% think that a minimum 25% of electricity should be generated from renewable energy sources.
• 25.3% think that the Government should do more to expand nuclear power.
• 61.3% are concerned about nuclear power.
• 80.3% are concerned about carbon dioxide emissions from developing countries.
• 68.6% think it appropriate for developed countries to demand restrictions on carbon dioxide emissions from developing countries.

See also

• Effects of global warming on Australia
• Energy policy
• Wind power in Australia
• Solar power in Australia
• Renewable energy commercialization in Australia
• Category:Power stations in Australia

External links

• Energy Policies of IEA Countries -- Australia (2005) OECD/IEA. ISBN 92-64-109-331