Appendix d progress towards Australia’s emissions reduction goals

Box D.1: Modelling scenarios used to track emissions progress

No price scenario—assumes there is no carbon price and no CFI. This scenario includes emissions reductions from pre-existing measures such as energy efficiency measures and the RET.

Low scenario—additionally assumes the carbon price and CFI are in place. The carbon price is fixed for two years, then moves to a flexible price. The flexible price begins at $5.49/t CO₂-e in 2015, and grows at 4 per cent per year in real terms to reach $6.31 in 2020. The price then follows a linear transition to $54.48 in 2030.

Medium scenario—assumes the fixed price for two years, then a flexible price beginning at $5.49/t CO₂-e in 2015, and following a linear transition to $30.14 in 2020. From 2021, the price follows the international price from the medium global action scenario, which grows at 4 per cent per year in real terms in US dollars.

High scenario—assumes the fixed price for two years, then a flexible price beginning at $5.49/t CO₂-e in 2015, and following a linear transition to $73.44 in 2020. From 2021, the price follows the international price from the ambitious global action scenario, which grows at 4 per cent per year in real terms in US dollars.

The effective carbon price faced by liable entities is lower than the modelled price in the low, medium and high scenarios. Kyoto units such as CERs currently trade at prices well below the prices used in these scenarios and the modelling assumes there is a price difference between CERs and ACUs for the period to 2020. The effective carbon price faced by liable entities is a weighted average of the ACU and CER price, with weights reflecting the CER sub-limit (12.5 per cent of their liability).

Chapter 10 of this Review and Table 3.1 of the Treasury and DIICCSRTE (2013) modelling report provide further details of the scenario assumptions.

It is useful to consider uncertainty when assessing possible future outcomes. Among other things, Australia’s emissions may be higher or lower as a result of changes in the level of global action on climate change, the Australian legislative framework, economic growth, demographic factors and technology costs. The Review notes opportunities, risks and barriers to delivering emissions reductions projected in recent modelling and analysis. The Authority considers the four scenarios described earlier, alongside sensitivity analyses and alternative projections, to explore some important variables.

The Authority acknowledges that modelling presents possible future outcomes based on a particular set of assumptions. This analysis has also drawn on additional published sources and expert input to supplement modelling results and give a broader picture of potential futures. Appendix D explores opportunities for greater emissions reductions than those projected, as well as risks and barriers to realising the emissions outcomes projected by the modelling.

This Review provides a more detailed assessment of the outlook for the electricity and transport sectors than for other parts of the economy. In subsequent progress reviews, similarly detailed consideration of emissions from other sectors could be undertaken, over time building an economy-wide picture of possible paths for reductions in emissions.

D1.8 Selecting contributors and drivers

The Authority analyses progress in terms of contributors and drivers.

D1.8.1 Contributors

Contributors are changes that directly affect the emissions outcomes. They may include factors that affect emissions intensity, such as changes in process, fuels or technology. Generally, a sector’s activity level will be a contributor to its emissions outcomes.

The Authority has focused on contributors to emissions outcomes that are:

• 
  projected to deliver a significant proportion of Australia’s changes in emissions by 2050, whether at a point in time or in aggregate (nominally over 5 per cent of domestic emissions changes)
  
• 
  among the top few contributors to emissions reductions, at a point in time or in aggregate, in a sector.
  

The Authority has also examined other contributors that:

• 
  could be deployed broadly across the sector under plausible conditions
  
• 
  are likely to lock in emissions reductions (or increases)
  
• 
  have a relatively long lead time for deployment
  
• 
  offer low-cost emissions reductions
  
• 
  offer significant co-benefits (or disadvantages) outside of their potential emissions impacts
  
• 
  are explicitly identified by sector experts for other reasons.
  

D1.8.2 Drivers

Drivers are the underlying factors that promote or impede contributors, but do not directly affect emissions outcomes. Drivers may include factors such the rate of growth in GNI, relative technology costs, population growth or policy.

The underlying drivers are identified to give a sense of the risks, uncertainties, barriers and opportunities to domestic emissions reduction and, therefore, Australia’s progress in meeting its emissions reduction goals.

D1.8.3 Illustrating progress

Appendix D introduces two styles of charts to help describe Australia’s progress towards its emissions reduction goals.

Australia’s emissions are, for the most part, characterised by decreases in emissions intensity offsetting increasing activity. The first chart (Figure D.1) shows changes in emissions intensity against demand-side activity. This highlights whether increasing activity or decreasing supply intensity have the greatest effect on absolute emissions.

The horizontal axis represents total activity levels in the relevant sector. Depending on the sector, activity may be, for example, electricity generated, energy combusted or kilometres travelled. The vertical axis represents the emissions per unit of activity. It is a measure of emissions intensity in the relevant sector. Curved isolines represent absolute emissions levels. The plot(s) on the chart are presented to show the historical and projected changes in activity, emissions intensity and absolute emissions. Date labels indicate the progression of emissions outcomes over time.