Posted by Gilmour Poincaree on December 5, 2008

Last Updated – December 04th 2008

by John Mathews


Suddenly Australia is having the debate on energy and the curbing of greenhouse gas emissions that we should have been having years ago. But now we are actually talking – in the press, on radio, in boardrooms. And it’s not a faux debate, with nuclear power posing as a ‘green alternative’ – it’s a real debate over renewable sources, energy efficiency and how to effect a transition to a low-carbon economy.

With the debate about to move on to the specifics, the obvious place to start is with transport, because that’s where poor leadership in the past has saddled Australia with a 99.9 per cent dependence on oil.

Corporates in Australia are the prime users of the private transport system, and can take the initiative in weaning the country off its fossil fuel addiction. This is where good corporate citizenship can be tested.

To its great credit, the NRMA has taken up the challenge, and brought together a group of energy and transport experts known as the Jamison Group to draw up a roadmap to take Australia beyond oil dependence in transport. The group has now issued its first report and it deserves close scrutiny.

Today Australia consumes just over 38 billion litres of fuel annually for road and off-road vehicles – of which 19.3 billion litres comes from petrol, 2.3 billion litres from LPG (some of which comes from natural gas, and counts as an alternative), and 17 billion litres from diesel. A tiny amount – just 0.3 billion litres of E10 blend – can be counted as an alternative from biological sources. This, then, is less than 1 per cent of fuel sales (and with the ethanol itself accounting for only a tenth of this, or 0.1 per cent of total road transport fuel sales). This is the situation of total dependence on fossil fuels that successive governments have allowed to come to pass. The time for a fresh start has arrived – a start that is driven by three principal imperatives of economic security, energy security and environmental security.

Economic security means taking seriously the impending costs of remaining wedded to oil as our prime transport fuel at a time when imports of oil along with the price of oil relentlessly rising – a double whammy that makes the present cries of pain over fuel costs a mere whimper to what we can expect. So to enhance our economic security we must make a commitment to reducing our reliance on fossil fuels, and to rebuilding our industrial base, both to produce green and renewable energy and to use such energy sources preferentially – principally as a means of transport. Imported oil should carry a health warning: toxic to local economies!

Energy security means taking seriously the prospect of world oil supplies peaking (they may already be doing so) and thus highlighting the necessity of moving to an economy that is less and less dependent on oil as its driving force. Transport is in the front line here, because it starts with such near-total oil dependence. So moving away from oil dependence to relying increasingly on renewable and other low-carbon energy sources should be the guiding light in fashioning public policy. For transport options, that means supporting a new generation of electric-powered vehicles and new electric public transport systems for our cities, backed up with new industries for growing our own fuels (biomass, biooils, biogas, and first generation biofuels) and for making use of Australian-produced cleaner fuels such as natural gas.

Environmental security means taking the threats to our environment from the burning of fossil fuels seriously – from the planetary effects that are captured by the phrase ‘global warming’, to the local effects that are measured in terms of smog and air pollution in our cities, causing high levels of avoidable respiratory disease, cancer and other serious public health impacts. The immediate and short-term way to reduce such impacts is to insist that fuels sold in Australia meet the highest standards of fuel economy and health standards; while the longer term means of meeting the environmental threat involves again finding ways to rebuild our economy on a low-carbon footing. Geoscience Australia predicts that Australian production of crude oil plus condensate will hold at around 550,000 barrels per day until 2009 and then decline steadily, reaching a mid-range estimate of 224,000 barrels per day by 2025 (that is, a 50 per cent reduction) – as depicted in Figure 1. That means that oil production has already peaked in Australia.

As our domestic production peaks, so our imports of oil rise to keep up with relentlessly rising demand. The level of imports has risen by no less than 30 per cent in just four years – from 33.5 GL to 43.6 GL – a trend that commentators like Geosciences Australia see as continuing and getting worse.

Further, as the level of imports rises, so the balance of trade in petroleum products worsens. From a surplus in 2003 it has deteriorated rapidly, moving to a deficit in 2004 and reaching a huge deficit of nearly $10 billion in the current year.

So what is to be done?

First, we suggest the federal government announce a national goal of reducing oil dependence in Australia by 20 per cent by 2020; by 30 per cent by 2030; and by 50 per cent by 2050. A roadmap to reducing oil dependence should start with realistic goals that would seize public imagination in Australia and provide a benchmark against which all government policies could be measured. These goals would be subject to scrutiny by a panel of experts appointed by the government and required to report by 2009 on the feasibility of the goals and steps that could and should be taken to achieve them.

Secondly, promote and develop alternative fuels. The goal to reduce oil dependence should translate into a commitment to develop alternative fuels in Australia as well as to reduce consumption and improve energy efficiency generally. We need to encourage the development of three major alternatives to oil-based fossil fuels:

– Natural gas (CNG, LNG, LPG derived from natural gas);

– Biofuels (first generation ethanol and biodiesel; second generation lignocellulosic biofuels; bio-oils and biogas); and

– Electric vehicles (hybrids, plug-in hybrids and eventually all-electric vehicles).

These alternatives all provide opportunities to develop new industries in Australia, (subject to the most stringent environmental precautions, certification and development of national standards) that are on par with best international standards. There are vast opportunities for Australian businesses in such an approach.

Natural gas can be sourced from Australian reserves (some of which should be reserved for domestic use) and thus meet concerns over economic and energy security. Although natural gas burns more cleanly than petroleum, it is still a fossil fuel and contributes greenhouse gas emissions. As the national emissions trading scheme starts to bite, we see natural gas becoming the fuel of choice in power stations, thus competing as an end use with natural gas used in transport.

Biofuels are a natural candidate for expansion in Australia, but only in such a way that they are seen to be sustainable and deliver real greenhouse gas emissions improvements. This means expanding biofuels activities in such a way that they do not compete with food production and minimize fossil fuel inputs into the production process. Biofuels production should of course meet stringent environmental standards and be certified as such.

Electric vehicles are a promising automotive alternative, with zero tailpipe emissions, but they would not deliver real greenhouse gas gains at the moment because generation of electricity in Australia remains tied to the burning of coal. To the extent that power production responds to fresh policy initiatives (such as the national ETS) and renewable sources of electric power become available, so the electric car option will become more attractive.

Thirdly, we need compulsory fuel consumption standards. The best way to reduce oil dependence is to reduce the consumption of oil-based fuels in transport, through improvements in consumption standards and/or their equivalent in greenhouse gas emissions standards. This will be the single biggest saving on fuel costs that the government can offer to working families in Australia, no less than to the corporate sector.

Fourth, an alternative fuel market mandate. The best way to promote fuel alternatives is to set mandates for increasing market shares of alternatives. Alternative fuel industries will be built in Australia only to the extent that market mandates that break the grip of the petroleum industry on our fuels market are promulgated. Voluntary targets will not work, and urgent action is needed now to avoid the looming catastrophe of a balance of payments crisis caused by the costs of oil imports. We propose an alternative fuels mandate of 5 per cent by 2010, 10 per cent by 2015 and 20 per cent by 2020.

Such fuel market mandates can be found throughout the world where governments are serious about switching the fuel mix away from dependence on oil – in the EU, in the US, in Japan, and of course in Brazil where the feasibility of a non-oil transport fuel mix was first demonstrated. They should now be found in Australia as well. There are huge opportunities for Australian companies in such an approach.

Fifth, we need tax incentives to stimulate demand for vehicles running on alternative fuels or propulsion systems (for example EVs). The entire tax system, which is at present focused on raising revenue, should be refocused to accomplish a swing in the vehicle fleet towards flex-fuel vehicles running on both petroleum-based and alternative fuels; and towards vehicles that depart radically from oil dependence, particularly electric vehicles and hybrids. Vehicles and fuels that perform better would attract tax benefits, and vehicles that perform at current standards or worse would be penalized. In such an approach, corporates that modernise their vehicle fleets with fuel-efficient and low-emissions engines would attract tax incentives.

Six, we need tax incentives to grow new alternative fuels and to build the infrastructure needed. On the supply side, government can play a significant role in providing tax incentives to firms that are making investments in green energy. In transport terms this means offering incentives to automotive firms to shift to fuel efficient vehicles utilising new fuel efficient technologies (such as clean diesel); incentives to fuel distributors to offer a range of fuel dispensing systems including diesel, biofuels such as E10 and B5, and CNG; incentives to new biofuel producers building biorefineries to produce a range of first and second generation biogas, biooils and biofuels; and incentives to farmers to invest in new crops for producing energy without sacrificing our food production and export of food crops. The seventh suggestion is to identify the subsidies paid to reinforce current oil dependence and then wind them back. There exists a raft of explicit (as well as hidden) subsidies provided to fossil fuel industries in Australia, and one of the easiest ways for government to level the playing field is to dismantle these subsidies, explaining at the same time why it is doing so. The subsidies and incentives include tax benefits for cars provided by employers (but perversely excluding non-polluting forms of transport such as bicycles and public transport); import duty inequities for SUVs; non-recovery of public agency costs (such as the heavy industry support provided for the oil exploration industry); explicit fossil fuel tax concessions; fossil fuel energy R&D (such as massive expenditure in Australia on so-called ‘clean coal’ while winding back support for renewable energy R&D); the diesel fuel rebate scheme; and subsidies for road use and car parking.

Eight, we should use the proposed Emissions Trading System as a means of building alternative fuels industries. The proposed national emissions trading system is going to have to cover as many greenhouse gas emitting industries as possible if it is to function effectively. The fossil fuels industry, (with its mining and refining activities both intense emitters of greenhouse gases), cannot be allowed to be an exception. Already there is skirmishing underway, with claims that the transport sector should not be covered unless some other sector is also covered. These claims must not be allowed to progress. The counterpart to a compulsory emissions permit system is a system for allocating carbon credits to activities not covered by the ETS that reduce carbon emissions, or preferably sequester carbon already present in the atmosphere – as is done by carbon negative biofuels. As a complement to the proposed national ETS, the government could create a national mechanism for recognizing and certifying carbon credits (probably under the AGO) that would act in concert with, but across a broader range of activities, than the UN Clean Development Mechanism. Such certifiable credits could then be traded on carbon markets in Australia – giving a further financial incentive to farmers and producers of biofuels and other alternative fuels businesses (such as conversion kits suppliers) that could make a case to the AGO that they are creating carbon credits.

Finally, we need to drastically improve public transport, alternative modes of sustainable mobility and energy efficiency generally. The entire transport system in Australia has been weighted towards private mobility at the expense of public transport and sustainable mobility options such as cycling. A shift towards alternative fuels as a way of enhancing economic security, energy security and environmental security should be accompanied and complemented by a revitalization of public transport systems (inter-city rail; urban fast metros; light rail systems; mixed mode transport) and a new seriousness in promoting sustainable mobility alternatives such as cycling (cycle lanes and pathways; cycle rental and exchange depots).

(*) – The Jamison Group was established by the NRMA following the company’s Alternative Fuel Summit in 2006 and comprises four eminent scholars in the fields of energy and transport – David Lamb, Mark Diesendorf, John Mathews and Graeme Pearman



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