In the lead-up to the Industrial Net Zero Conference 2024, we spoke with Anton Firth, Director, Research at RepuTex Energy to gain his perspective on how Australia's carbon price will unlock industrial decarbonisation.
What are the key challenges to achieving Australia’s net zero target?
Net-zero emissions targets and interim targets for 2030 and 2035 are rapidly approaching, and emissions budgets will soon become more constrained. Permitting significant investment in new high-emissions projects with long-term infrastructure therefore risks creating a situation in which Australia must choose between missing our environmental targets or stranding private assets.
Moreover, many sectors do not yet have well-defined pathways for achieving their net zero targets. Detailed roadmaps, policies, and interim targets need to be developed for these sectors, which may not be able to transition rapidly enough if this is left too late.
Where are you seeing the most progressive developments in industrial emissions reduction?
Structurally, Australia’s new Safeguard Mechanism emissions compliance market now places a price on carbon emissions in the form of Australian Carbon Credit Units (ACCUs) and Safeguard Mechanism Credits (SMCs), requiring high emitting facilities to meet annually declining emissions baselines.
This now provides industry with a price signal and key timeline for decarbonisation, and locks in increasing ambition over time.
The new policy framework will play a clear role in incentivising industrial decarbonisation.
In terms of current deep abatement, we are already seeing some interesting activity. For example, ammonium nitrate plants across the country are introducing tertiary N2O abatement, which takes a bite out of their process emissions by destroying a highly potent greenhouse gas.
The mining sector is another particular area of interest. We are seeing significant uptake of renewable electricity generation across metal ore mines in WA, replacing diesel and gas generation in micro-grids or on-site. The limiting factor is really the feasible rate of deployment of solar arrays and wind turbines. Looking forward, there is also a lot of work and investment going into trying to implement large electric mining machinery. The fundamental economics of these can be very attractive given the large avoided diesel burn, but the operational challenge is significant.
Lastly, although it isn’t as sexy, incremental efficiency gains through gradual equipment turnover and operational improvements is always ongoing and has significant potential to reduce emissions over time.
How is RepuTex Energy’s approach to modelling industrial decarbonisation different to other organisations?
Industrial decarbonisation and Australia’s carbon market are inextricably linked.
The price of carbon credits – today and forecast prices in 5 to 10 years - directly informs industrial investments in low emissions technology, and vice versa, the pace and scale of industrial decarbonisation informs demand for Australian carbon credits.
We model the Australian carbon market holistically. Given the many inter-relationships across the market, such as the interplay between ACCU prices and decarbonisation uptake, if you model any one part in isolation, you lose critical feedback loops.
That’s why when we model industrial decarbonisation, we model all aspects of Australia’s carbon market, including the cost and availability of ACCU supply across different methods, market behaviour of different high emitting entities, including abatement costs and returns on investment, and the pace and scale of industry ambition. These models are underpinned by deep research, including method-specific cost curves for new ACCU supply, and marginal abatement cost projections for hundreds of decarbonisation activities. As part of this, we also make sure to leverage our extensive client network of subject matter experts, to validate both inputs and outputs.
In 2022-23, the Federal Government applied our models to inform the design of its Safeguard Mechanism reforms including emissions baseline decline rates, and industrial abatement expectations, along with Australia’s national emissions projections. Our modelling also underpinned the setting of Australia’s 2030 emissions target, and Australia’s Nationally determined contributions (NDC) under the Paris Agreement.
There is concern that industrial net zero isn’t happening fast enough. What do you think could speed up emissions reduction?
Achieving net-zero is going to be challenging, and for many industries it will have higher associated costs compared to unabated fossil fuel use. While companies are increasingly trying to reduce their emissions voluntarily, this is not a sufficient driver.
The Safeguard Mechanism will certainly accelerate industrial decarbonisation from large emitters by establishing a financial incentive and carbon price. However, the scheme does not cover all emitters, and the emissions baseline decline rate is uncertain post-2030.
Increasing baseline decline rates for industry is a major lever available to policymakers, and is something that is likely to occur as Australia scales up its emissions reduction targets over time – most notably for 2035 (which will be announced early next year).
This can, and has been, supported by government funding of industrial decarbonisation initiatives, both at the state and federal level, to help lower barriers to uptake and pilot new technologies.
This can also be supported by developing detailed roadmaps outlining key projects and technologies needed to achieve emissions targets, helping to develop new high-priority clean industries, and providing funding to commercial development. This funding can take different forms, such as tax incentives, grants, or carbon contracts-for-difference.
Ultimately, the scale of industrial assistance for high-cost and critical technology will need to increase, which is what we are seeing in other geographies.
Are there any ‘hidden’ or less discussed issues (and opportunities) that high emissions/energy intensive industries need to be more aware of?
One hidden issue for high emitting industries is the false perception that low-cost offsets will always be an easy alternative to decarbonisation, and that corporates can therefore hold off on pursuing large-scale abatement.
While we do not currently foresee ACCU prices reaching the levels needed to unlock some of the deep decarbonisation technologies in these sectors, policy can always change. The Safeguard Mechanism could be extended to other sectors (e,g., agriculture, who would be best positioned to secure ACCUs) and to smaller facilities, decline rates could change post-2030, or ACCU methods could be altered.
In order to hedge against this, players in these industries should actively investigate decarbonisation opportunities, even if these activities are not currently financially viable. Should policy change, or markets tighten, such pro-activeness could reward earlier movers who find themselves attractively positioned compared to slower-moving peers.
Anton Firth (RepuTex Energy) will join industrial heavyweights including WesCEF, ExxonMobil, Tomago Aluminium, Holcim and Cement Australia at the Industrial Net Zero Conference, sharing insights about their decarbonisation journeys and how they are managing the cost of transition.
To access the detailed conference program, download the brochure here.
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