Alternative Fuels Australia

Carbon trading – how it affects the alternative fuels market

Posted by Car Geek on July 25, 2007

Lonsdale St power station in Melbourne, photo by Earlier this month, Prime Minister John Howard announced his plan for a carbon trading market for Australia, to be introduced no later than 2012. The programme aims mainly at Australia’s worst polluters – such as electricity producers and select areas of industry – but also allows for low-emission businesses to benefit by selling their carbon allocation to heavier polluting businesses, ideally encouraging the growth of low-emission industries. But how does this affect the alternative fuels industry in Australia?

The transport industry was responsible for 14 per cent of total greenhouse emissions in Australia in 2005, according to the National Greenhouse Gas Inventory. Although this is a relatively small amount compared to the 50 per cent that results from stationary energy production (much of this coal-fired power plants), it is unlikely to remain unaffected by a carbon trading system. Two key issues exist regarding transport and carbon trading: how will it affect the existing infrastructure, and can it benefit the future of Australian transportation?

Although the primary focus of the system is likely to be major stationary energy emitters and users, liability will cover “direct emissions from large facilities and…upstream fuel suppliers for other energy emissions”. Individual households and small businesses will not be directly included in the scheme. It is likely that this will affect fuel producers and refineries, with the Federal government admitting in their climate policy that “a price on carbon will unavoidably increase household…energy and fuel prices”. Added to the increasing cost of oil, an emissions trading scheme is likely to result in more people attempting to find transport alternatives.

Of course, for the public to flock to such alternatives, they need to exist in the first place. Public transport in many states is reaching capacity, and the two primary alternative fuels in Australia – diesel and LPG – are both fossil fuels and are likely to have carbon prices imposed upon them. The only alternative fuel scheme explicitly supported in the Prime Minister’s climate change policy is its endorsement of participation in the International Partnership for the Hydrogen Economy, with its primary method of emissions reduction in the transport sector focusing on improving efficiencies – an important step, but the humble internal combustion engine can only be improved so far.Hydrogen itself is unlikely to become a significant alternative for at least a few decades because of the lack of infrastructure, well into the government’s 30-40 year timeline for reaching its as-yet-unannounced emissions target.

A lack of direct government support won’t necessarily stop the alternative fuels industry from thriving, however. The cap-and-trade system provides incentives for the production of low-emissions energy as well as efficient technology to use it. Biofuel producers, particularly those using second-generation technology such as cellulosic ethanol and algae biodiesel, may benefit from the system by selling unused permits to other businesses; electric vehicles may become attractive when solar panels become economically competitive; even hydrogen, particularly if produced through closed-loop high temperature thermochemical processes using waste nuclear reactor heat, will become economically attractive when a carbon cost is attached to fossil fuels.

All up, although the Federal government’s new climate policy makes it clear that transport emissions are not a priority (having only one paragraph dedicated to it in a 36 page policy document), the window is open for private industry to step up and use the new emissions trading system to its advantage. The cleaner energy that the government hopes to see come out of this system can be utilised for both stationary power and transport, directly or indirectly. All that is required is for the automotive and transport sector to step up and make its move.

(Sources: Australian Greenhouse Office, Prime Ministerial Taskforce on Climate Change)


2 Responses to “Carbon trading – how it affects the alternative fuels market”

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  2. karan said

    It also depends to some extent on the price per tonne under this scheme, as if the price is too low it won’t be much of a prompt for behaviour to change. I believe the government is targeting the $20-$30 range, while realistically for change to take effect it’ll need to be closer to $40, and for real change it’s anywhere above $60.

    I suppose the counterpoint to make is who is policing this, and are “offsets” that are so popular these days actually effective.

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