Climate change policy and the energy sector

8 November 2011
Speech

Dr Subho Banerjee
Deputy Secretary, Department of Climate Change and Energy Efficiency Australian Government.

International Conference Energy and Meteorology 
Gold Coast, Queensland 
8-11 November 2011

Introduction

Thank you very much for inviting me to speak at the opening of the International Energy and Meteorology Conference.

The subject matter for the conference is a technically challenging and fascinating area, requiring an interdisciplinary understanding that spans complex technical and systems engineering, fundamental science and public policy.

As I looked across the program for the conference, what struck me was how difficult it can be to have these interdisciplinary conversations at the right 'pitch' – for them to be technically rigorous enough to be meaningful to subject-area experts, but not so specialised as to exclude those who are not deeply in the field.

I commend the conference organisers for putting together such an interesting program, which explicitly tries to set up exactly these types of interdisciplinary conversations – and of course, sets up the opportunities for many further informal conversations over morning tea and in the margins as well.

The energy-climate nexus

My presentation today will explore the nexus between the energy sector and climate change.

In the language of climate change policy, this spans across challenges with regard to mitigation and adaptation.

Climate change mitigation is action to reduce the sources or enhance the sinks of greenhouse gases. Examples of mitigation actions include using fossil fuels more efficiently for electricity generation, switching to renewable energy, improving energy efficiency and expanding forests and other 'sinks' to remove carbon dioxide from the atmosphere.

Adaptation refers to action to manage the present and projected impacts of climate change. Adaptation can also be considered as action to manage risk from the impacts of climate change so that lifestyle, livelihood and other goals can continue to be met with the least possible diminution.

The Clean Energy Future plan is tackling mitigation

With regard to mitigation, we are certainly in topical territory – the Clean Energy Future package of legislation is expected to be voted on by the Senate today.

On the mitigation side, the stationary energy sector, including electricity generation, is the largest contributor to Australia's emissions. Reducing emissions in the energy sector is critical if Australia is to move to a clean energy future.

The Australian Government is building a clean energy future and has a comprehensive plan which includes:

  • introducing a carbon price,
  • promoting innovation and investment in renewable energy,
  • encouraging energy efficiency, and
  • creating opportunities in the land sector to cut pollution and improve productivity, sustainability and resilience.

Central to the Clean Energy Future plan is the introduction of a carbon price that will cut pollution in the cheapest and most effective way and drive investment in clean energy sources such as solar, gas and wind.

A price on carbon will create a powerful incentive for businesses across the economy to cut their pollution by investing in clean technology and finding more efficient ways of operating. It will ensure that pollution is reduced at the lowest cost to the economy. In this way, introducing a price on carbon will trigger the transformation of the economy towards a clean energy future.

The plan involves a dramatic expansion in support for renewable energy, with Australia having some of the world's best renewable energy resources. To harness these abundant resources, the Government's plan will drive innovation and investment worth billions of dollars in renewable energy through the carbon price, and through complementary measures such as the Renewable Energy Target, the Australian Renewable Energy Agency and the Clean Energy Finance Corporation.

The energy sector must plan and adapt to climate change impacts

As you would all know, the mitigation aspects of the Clean Energy Future plan have been, and remain, the subject of considerable public policy debate. For today's talk, I thought I would spend a little more time on an area that has not been canvassed anywhere near as broadly – the adaptation side of the agenda.

I'd like to talk about some challenges for the sector in responding to potential impacts from climate change, including both from extreme climate events and incremental climate changes.

I'll then discuss the importance of developing a sophisticated and strategic adaptation reform agenda to transform the sector in order to respond to the impacts of climate change.

It is important to understand the potential vulnerabilities of the energy sector due to climate change.

Without adaptation, the projected changes in the frequency and/or intensity of extreme events such as intense rainfall, storms, bushfires, heatwaves and floods. These events will increase the physical risks to energy supply. These are not new issues, but increased frequency and/or severity of extreme events will increase capital and maintenance costs, impair energy supply reliability, accelerate depreciation and deterioration of assets, and increase energy costs for consumers.

Higher temperatures and longer time periods with consecutive hot days from longer and more intense heatwaves will increase the use of air conditioners, and result in elevated peak load and stress on electricity systems.

Water shortages associated with longer and more intense drought will impact on hydro-electricity plants, and may reduce the cooling ability of energy generators.

Tropical cyclones can cause enormous amounts of damage to electricity infrastructure, with high winds and lightning strikes damaging power lines and cables which can mean severe power outages for affected communities. Offshore oil and gas rigs, such as those located off the north-west coast of Australia, are also at risk to damage from tropical cyclones.

Extreme rainfall events and flooding can cause damage to low lying substations and other assets.

Bushfires can result in damage to transmission lines and generation which in turn can lead to power blackouts. Increased risk of bushfire also leads to increased demand for maintenance and upgrades of transmission lines.

In addition, incremental changes in climate such as temperature increase, sea level rise, and precipitation changes, along with changes in extreme weather events, are expected to impact on Australia's energy sector.

An example of impacts from extreme events on the energy sector: Victoria 2009

The heatwaves and bushfires experienced in Victoria in January and February 2009 provide an example of how extreme events can affect energy supply.

The January-February 2009 heatwave was unprecedented, with many areas across south east Australia experiencing record breaking prolonged high temperatures:

  • 87% of Victoria experienced record high temperatures during this event.
  • Melbourne experienced a record temperature of 46.4°C, 3 consecutive days of temperatures above 43°C and little overnight relief.
  • Electricity demand was well above the previous highest level.

There were a number of disruptions to Melbourne's power supply, due to a complicated interaction between disruption to network assets, and actions by the market operator to secure the system against the next credible event.

The failure of the electricity connector supplying power from Tasmania to Victoria due to the high temperatures led to a series of load shedding events in order to maintain the integrity of the power system.

It was estimated that over 500,000 residents in Melbourne were without power for the evening of 30 January 2009.

Climate change projections indicate that Australia is likely to face an increase in the frequency and/or intensity of extreme events.

The fact that power was restored relatively quickly following the extreme events in Victoria in 2009, and without lasting damage to the system, was to some extent a measure of the resilience of the power system.

These events have been the subject of reviews by the Ministerial Council on Energy and its institutions, and the basic market arrangements were found to be robust for those events.

However extreme events come at a cost, and there will be a need to consider adaptation to cope with more frequent and/or more intense events.

Risks to energy security also arise from incremental climate change

Along with extreme weather events, it is important to understand how incremental climate change will affect the energy sector.

For example, increases in energy demand in response to rising temperatures, particularly peak energy demand, will have ramifications for electricity system capacity and power outages.

Peak demand is likely to be highly sensitive to increased temperature, suggesting that there could be a need to install additional generating capacity over and above that required for underlying economic growth in some regions.

The electricity grid must retain significant spare network capacity to be used only for the small percentage of the time that peak demand occurs.

Current research is investigating how energy demand is likely to change in the future due to climate change, along with other factors such as population and economic growth.

Results show that temperature increases drive a large proportion of total projected energy demand.

For example, research for the Gold Coast City Council Area shows a 35% increase in cooling energy consumption in 2030 if the temperature rises 1°C from 2010 to 2030.

The energy sector and future climate: reform and transformation

There is a high degree of scientific certainty that the impacts of climate change, even at 2°C of global warming, will impact on our economy, environment and way of life.

In looking to embed the impacts of climate change into decision making, a range of policy instruments will need reform. Examples include land use planning, regulation of insurance markets, and regulations governing risk disclosure.

The energy sector needs to be adequately prepared for climate change. The Ministerial Council on Energy, with the Australian Energy Market Operator and the Australian Energy Market Commission, have done significant amounts of analysis in this area. While the energy market framework is fundamentally robust, better information is needed to address key areas of science uncertainty.

While impacts are certain, there is uncertainty about their magnitude, timing, frequency and (in some cases) direction. Uncertainty is greatest over longer timeframes and becomes important for decisions with long-term consequences such as land use planning and major infrastructure projects.

The energy sector is currently undergoing significant transformation at a high and direct cost to consumers, and it is important that decisions made today efficiently incorporate decisions that consider climate change in this transformation.

Many decisions that are made today can increase or decrease vulnerability to future climate change.

In terms of the energy sector, infrastructure used to transmit and distribute electricity to households and industry may be at risk from sea level rise and flood inundation, more intense and frequent storms, bushfires and heatwaves.

A number of adaptation options are available, such as locating new infrastructure in areas less prone to climate extremes and increasing the heat rating of transformers.

These changes can be very expensive. Meeting current reliability requirements is already a significant driver of costs. However, without good information on potential impacts and adaptation options, electricity supply may be less efficient in the long run.

Electricity networks are regulated monopolies, and the regulatory environment is designed to deliver energy at a high level of reliability. Indeed, the reliability record in Australia is enviable, despite the extremes of our environment.

However, meeting this reliability is costly, and adding a layer of requirement to deliver adaptation must be done in a considered way, to ensure investment proposals are not just "gold plating".

Without a good evidence base for regulators, opportunities for efficient transformative adaptation, such as redesigning or relocating infrastructure and building redundancy into the system, may be lost.

Conclusion

There are a number of intersections across climate change policy and the energy sector.

On the mitigation side, the Government's Clean Energy Future package aims to reduce emissions and shift investments towards cleaner energy sources.

But even if global emissions are stabilised to meet the 2°C guardrail, there will still be a need to adapt to the unavoidable impacts that this change will involve. The energy sector is not immune to the need to plan and adapt to climate change impacts.

In understanding potential vulnerabilities of the energy sector to climate change, it is important to consider both incremental changes in climate such as increases in temperature and sea level rise, along with potential shifts in the frequency and/or intensity of extreme weather events.

The confluence of the shift from public to private sector energy supply and investment, the current requirement for significant asset replacement and renewal, and our clean energy and renewable targets are driving the need to consider how we plan for future energy security.

Australia has a well established track record of reliable supply, and our energy market agencies have already done a substantial amount of work and are further examining these issues.

We need to consider whether better integration of mitigation and adaptation strategies could be used to drive long term efficiencies investment in new and resilient energy technologies.

Investment driven by a price on carbon and good information on the adaptation task ahead could improve Australia's overall productivity and longer-term resilience to future climate and energy shocks.

The current dynamic state of the energy sector presents real opportunities to transform the sector – showcasing our innovation and capacity to plan for long-term energy security.

In order to facilitate this transformation, there is a need to focus on better information exchange and engagement between the research community and the energy industry.

I welcome conferences such as this International Energy and Meteorology Conference as a forum for information exchange and formulation of ideas. I am grateful for the opportunity to officially open the event.