WHO SHOULD READ THIS?
- Anyone interested in understanding how the policies behind climate change are unfolding and including an overview of the latest report (Global Warming of 1.5°C) from the Intergovernmental Panel on Climate Change (IPCC) and its implications for Australia's resources industries.
The Paris Agreement, the IPCC and its Latest Report
The Paris Agreement was struck in 2015 under the auspices of the UN Framework Convention on Climate Change (UNFCCC). Australia is a signatory to the UNFCCC and has ratified the Paris Agreement, along with 180 other countries. The Paris Agreement specifies that countries should "limit warming to well below 2°C, and pursue efforts to limit it to 1.5°C".
Under the Paris Agreement, Australia has committed to reduce emissions to 26-28 per cent on 2005 levels by 2030. The Australian Government believes this target is material in that it represents a 50-52 per cent reduction in emissions per capita and a 64-65 per cent reduction in the emissions intensity of the Australian economy between 2005 and 2030. The Federal Opposition's policy is to pursue a deeper cut in emissions of 45 per cent.
The Intergovernmental Panel on Climate Change (IPCC) is the
international body for assessing the science related to climate
change. The IPCC was set up in 1988 by the World
Organization (WMO) and United Nations Environment Programme (UNEP) to provide policymakers with regular assessments of the scientific basis of climate change, its impacts and future risks, and options for adaptation and mitigation.
The IPCC says that its assessments aim to provide a scientific basis for governments to develop climate related policies. Those assessments also underlie negotiations at UNFCCC climate conferences. Given some of the highly critical media and other commentary about the latest IPCC report, it is worth noting that the IPCC itself says that its assessments are "policy-relevant but not policy-prescriptive: they may present projections of future climate change based on different scenarios and the risks that climate change poses and discuss the implications of response options, but they do not tell policymakers what actions to take".
The Australian Government completed a review of climate policies in December 2017 and in the final report of the review said this about the IPCC: "Australia is an active member of the Intergovernmental Panel on Climate Change (IPCC). The IPCC is the leading international body for the climate change assessment and source of scientific information and technical guidance to the UNFCCC. Australian experts are contributing to IPCC assessments of the latest information on climate science, impacts and mitigation options, and the refinement of emission estimation technical guidance. This work will build confidence in collective climate action under the Paris Agreement and the 2023 stocktake of progress against the Paris Agreement goals".
The latest IPCC report is entitled Global Warming of 1.5°C and takes stock of how much higher the risks of a 2°C world are than 1.5°C. The report finds that limiting temperature rise to 1.5°C has material beneficial impacts on sea level rise and on biodiversity and ecosystems such as coral reefs. Adaptation is expected to be more challenging for ecosystems, food and health systems at 2°C of global warming than for 1.5°C.
Global emissions were roughly 52 GtCO2e in 2016, and are projected to be 52-58 GtCO2e by 2030. The IPCC states that annual emissions need to be about half that (25-30 GtCO2e/yr on average) by 2030 to limit warming to 1.5°C. The IPCC finds that it is still technically feasible to avoid a 1.5°C rise in temperature, but that behaviour and technologies will need to shift across the board in order to achieve these emissions reductions.
For example, by 2050, renewables are projected by the IPCC to supply 70-85 percent of electricity in 1.5°C pathways, with gas with carbon capture and storage supplying 8 percent and coal supplying 0-2 percent. Energy efficiency and fuel-switching measures will be critical for the transportation sector. Reducing energy demand and improving the efficiency of food production, changing dietary choices and reducing food loss and waste are also said to have significant potential to reduce emissions. The IPCC scenarios also see an important role for so-called carbon dioxide removal (e.g. afforestation and reforestation, land restoration and soil carbon sequestration).
Implications for Australia's Resources Industry of the IPCC Report
The IPCC's latest report has proven highly controversial in some quarters in Australia. The report's scenarios for dramatic reductions in use of coal (and gas) in electricity production represent a significant departure from the latest (2017) projections from the International Energy Agency (IEA) which have coal supplying 26% of the world's electricity in 2040, gas supplying 23% and renewables 40%. Indeed, under the IEA central (new policies) scenario, Australia is projected to experience a 20% increase in its thermal coal (for electricity) exports out to 2040. See our Insight on the IEA report.
So why are the IPCC and IEA scenarios so different? In short, the IPCC is looking at what it considers has to change to global emissions to limit temperature rise to 1.5°C, while the IEA takes account of what is likely to happen given current and planned investments in coal, gas etc. and in the context of countries' existing Paris commitments.
Particularly controversial has been the IPCC observation that by 2050 coal use in electricity generation might have to be close to zero. Is this likely to happen? In Australia that may not be too wide of the mark. Most of our existing coal-fired power plants will actually have reached/exceeded their technical life limits (assumed to be 50 years) by 2050, with only four coal plants in Queensland having a technical life beyond 2050: Callide C (2051), Millmerran and Tarong North (2052) and Kogan Creek (2057). As these plants retire, they will need to be replaced by other dispatchable energy sources, be they renewables with battery storage or gas or coal with carbon capture and storage.
The sweet spot for Australian coal exports is coking coal for steel making. The IEA projects that coking coal exports from Australia will continue on a growth trajectory out to 2040. The IPCC acknowledges that achieving 1.5°C will require the deployment of new low-carbon industrial processes including in steel-making. The report cites the potential use of hydrogen produced by electrolysis as a reduction agent for iron instead of coke produced from coking coal. While it is true that this hydrogen technology is being studied in places like Sweden, the technology currently has a large cost disadvantage compared to coke and the Swedes don't expect to have a functioning plant using the hydrogen technology before 2040.
What Happens Next?
Perhaps predictably, the IPCC report has been characterized by the different sides of the climate debate as some form of UN dictate. As noted above, the IPCC does not see its role as telling governments what they should do. What the report does provide is a consensus set of scenarios for limiting global temperature rise to 1.5°C. It is for governments at the Climate Conference and in their own jurisdictions to decide what to do with the report's findings.
When the IPCC report is considered at the UN Climate Conference in Poland in December 2018, the scenarios for near elimination of fossil fuel use in electricity generation by 2050 are going to collide with the reality of continuing strong investment in new coal plants in developing Asia, plants that will have technical lives well into the second half of this century. Based on that continuing strong flow of investment in new coal plants and the distance to travel in perfecting technology that might replace use of coking coal in steel-making, the IEA projections for continuing growth in thermal and coking coal exports from Australia (out to 2040) seem closer to reality.
Australia's LNG is going to continue to be in strong demand both as an essential feedstock for industrial processes and as a substitute for coal in electricity generation in more developed countries.
Whether it is the IPCC scenarios of 70-85% renewable energy, or the more realistic IEA scenario of 40%, the substantial growth in renewable energy (with battery storage), together with the strong take-up of electric and hybrid vehicles is very good news for Australia's minerals sector as we have previously canvassed.
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.