Australia: Three must-know developments in carbon, energy and mining

Last Updated: 29 September 2012
Article by Julian Mellick

In brief – Linked carbon scheme; renewable energy of the future; mining and petroleum exploration figures

Australia and Europe are to link their emissions trading systems fully by 2018. The future of energy is in renewable technologies like solar photovoltaic and wind on-shore. Mining figures are slowing but still encouraging.


A new linked carbon scheme instead of a carbon floor

Australia and Europe will fully link their emissions trading systems by 2018, according to a 28 August 2012 announcement by the Australian Minister for Climate Change and Energy Efficiency.

This means that carbon permits will no longer be limited by a $15 minimum price floor, but will match the EU ETS price which is currently much lower.

From 2015, EU ETS units can be purchased by Australian companies to meet 50% of their AU ETS carbon liability, and from 2018, 100%. AU ETS units will also be exportable to the EU ETS from 2018 (see the graphic at the end of this article).

Linking Australia's and Europe's emissions trading systems will have implications

There have been concerns that linking Australia and Europe's emissions trading systems will result in any instability and structural flaws in the dominant European system affecting the Australian system.

Those concerns have been heightened by the UN clean development mechanism (CDM) market shrinking when it was linked to the more dominant EU ETS.

Businesses that are carbon ready will be better equipped to minimise their exposure.

Survey confirms businesses unprepared for carbon tax

Eighty per cent of Australian management believe that their organisation is unprepared for the implications of the carbon tax, according to an Australian Institute of Management survey. You would expect this figure to increase as a result of the recent abandonment of the carbon price floor.

Upper level management are twice as likely as lower level staff to say that the carbon tax will increase costs, increase internal workload and reduce profitability.

This is surprising because there are practical steps that every business can take to deal with the tax, particularly in relation to contracting via pass through clauses. (Please see our earlier articles Is your business ready for the carbon tax? and How does the carbon tax affect your contracts?)

What changes are in store for the Renewable Energy Target?

Submissions on the Renewable Energy Target Review closed on 14 September 2012. A discussion paper will be released this month and a final report by the end of the year.

The Renewable Energy Target (RET) encourages the deployment of large-scale renewable energy projects such as wind farms and small-scale systems, including solar panels and solar water heaters.


What are the renewable and non-renewable technologies of the future?

The Australian Energy Technology Assessment (AETA) 2012 was recently released by the Bureau of Resources and Energy Economics (BREE).

The AETA provides the best and most up-to-date cost estimates for 40 electricity generation technologies under Australian conditions, including a levelised cost of electricity (LCOE) that allows for cross-technology and over time comparisons, factoring in the carbon tax and a projected weakening of the Australian dollar exchange rate.

Solar PV, on-shore wind, combined cycle gas, biogas/biomass to be the future of energy

According to the AETA, the future of energy is in renewable technologies, such as solar photovoltaic and wind on-shore. By 2030 they are expected to have the lowest LCOE of all of the evaluated technologies.

Combined cycle gas (combined with carbon capture and storage) and nuclear power offer the lowest LCOE among the non-renewable technologies. They should remain cost competitive with renewable energy out to 2050.

Biogas and biomass electricity generation technologies are currently extremely cost competitive and are projected to remain so to 2050.

New cost benefit reports on adapting to climate change

In mid August 2012, consultancy firm AECOM prepared a report and three cost-benefit case studies for the Department of Climate Change. They examined the best long-term pay-off for adapting infrastructure and other assets to reduce vulnerability to climate change.

For example, the conclusion in the rail case study was that regenerative braking and changing tensioning and cabling in overhead lines were economic with benefit cost ratios of about 1.7. The main report, Economic framework for analysis of climate change adaptation options, set out a methodology for decision makers in all sectors to help them determine if, when and how to adapt to a changing climate.


Mining and petroleum - what are the latest forecasts?

There are signs that the mining boom is slowing but the economic figures are still encouraging. This appears to be partially attributed to the depressed iron ore price, carbon and mining taxes and increased production costs.

According to a Minerals Council of Australia report released on 16 September 2012, Australia is also facing stiffer competition for West Africa, China, the Middle East, Brazil, Indonesia and other rapidly emerging resource rich economies.

Mineral exploration expenditure is down but petroleum exploration expenditure is up in the June 2012 quarter

The latest ABS statistics for mining exploration were released on 2 September 2012.

There is less money being spent on mineral exploration (-4.9%), but more on onshore and offshore petroleum exploration (+13.2% and 44.2% respectively).

The most positive figure is a 74.1% (or $194.5m) increase in offshore drilling for the June 2012 quarter.

Mining expenditure is generally up in 2011-2012

The Private New Capital Expenditure and Expected Expenditure figures were released on 30 August 2012.

The actual mining expenditure for 2011-12 was up 75.2% from the corresponding 2010-201 figure of $155.025 billion. Mining expenditure was, however, slightly lower than expected in the last quarter.

Mining is currently the greatest contributor to growth in GDP

The Australian National Accounts figures were released on 5 September 2012.

Mining was the equal greatest contributor to growth in Australia GDP over the last year, adding 0.5% to total trend growth of 3.8% from the June quarter 2011 to June quarter 2012.

The graphic above from the website of the Department of Climate Change sets out the linking of the emissions trading schemes of Australia and Europe.

Julian Mellick
Energy and mining law
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Julian Mellick
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