9 October, 2018

Are carbon pricing and renewable energy mutually exclusive?

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With climate change now widely acknowledged and many calling for action to address it, there are two areas in particular which have become key focal points;

1)    Renewable energy


2)    Carbon pricing


Both camps have passionate advocates, and both present strong arguments that their solution is critical for tackling climate change.


However, are the two at odds? Would embracing one mean turning our back on the other? Are they mutually exclusive?



Ultimately, it all comes down to carbon, with the core motivation behind both viewpoints that they’ll lead to a reduction in carbon emissions. As over 97% of scientific evidence agrees that climate change is a direct result of human induced carbon emissions, this is of vital importance if we’re to successfully address the problem.


Renewable energy targets impose an implicit carbon price on the electricity sector, while a carbon price provides a cost advantage to low emission electricity generation technology as well as other low emission activities across the entire economy. The two have a fair amount in common, though one of the reasons they can often seem so far apart is due to political involvement; renewable energy is tangible and easy for politicians to support, while carbon pricing is intangible and often derided as a big bad tax.


In terms of vision, those championing renewable energy assert that the dominant emitters of carbon are typically energy providers, and as such that should be our focus; looking at Australia as an example, figures released by the Clean Energy Regulator revealed that just ten emitters made up 49.7% of the nation’s carbon emissions, and of those ten the majority were electricity providers burning fossil fuels.


With this information in mind, it is entirely accurate to say that transitioning away from fossil fuels and replacing them with clean, renewable sources of energy would lead to a significant reduction in carbon emissions. However, reaching this conclusion does not mean that carbon pricing no longer has a part to play!


For a start instigating any transition, especially one as large, complex and expensive, as a shift of energy provision at a national level, requires a colossal driving force; the growing awareness of climate change has, historically, not been enough. Introducing financial costs and incentives through a well-implemented carbon pricing system would help to further encourage this transition. This has been supported by the International Energy Agency (IEA), whose 2018 report stated that at the current pace clean energy would account for just 18% of global energy by 2040 (significantly below the 28% benchmark believed by the IEA to be necessary to address climate change), but that effective policies and regulations could accelerate renewable energy growth by up to 25% (which would in turn put the renewable electricity sector “fully on track to meet long-term climate and sustainability goals”).


The benefits of championing both renewable energy and carbon pricing don’t end there. While pursuing a transition to renewable energy will aim to reduce emissions from the energy sector, carbon pricing encourages action not just there but in all other sectors as well. Agriculture, forestry and industry (among others) may not contribute as much as the energy sector to overall carbon emissions, however their role is still significant and reductions made would be far from negligible.


Relying purely on renewables to reduce carbon emissions would also be significantly costly. By introducing carbon pricing however, we can help mitigate this cost by using the revenue raised to help fund and incentivise clean energy initiatives as well as other carbon reduction schemes.


In addition, by implementing carbon pricing in the form of a cap-and-trade system specifically (whereby quotas are set and permits allowing fixed emissions limit are allocated or auctioned to emitters) rather than a simple carbon tax (in which a flat fee per tonne of emissions is imposed), we can not only financially encourage a reduction of carbon emissions, we can also create and coordinate a planned, effective carbon reduction schedule.



Fundamentally, the two main approaches to addressing climate change have no real cause to be at odds with one another and more often than not it has simply come down to what politicians have seen as easier to sell. However, with an objective that is essentially the same, to significantly reduce the level of human induced carbon emissions, they can in fact work together to bring about much needed action - we just need to depoliticise the debate.


A future of low carbon emissions should be the end goal, with carbon pricing and renewable energy merely tools at our disposal to help us get there.