If you want to appreciate just how fast the global energy picture is changing, and how grim the future is for Australia’s fossil fuel exports, look first at Japan, says energy finance expert Tim Buckley.
In July last year, three months before Prime Minister Yoshihide Suga formally committed his country to net zero carbon emissions by 2050, Japan’s Ministry of Economy, Trade and Industry (METI) moved decisively against coal-fired electricity generation.
“It committed to closing 100 of Japan’s 144 coal-fired power plants by 2030,” says Buckley, director of energy finance studies, Australia and South Asia, at the international Institute for Energy Economics and Financial Analysis.
By Buckley’s calculation, that means closing plants with a generating capacity of 23 gigawatts. As to how the huge shortfall – equivalent to more than a third of Australia’s total generating capacity – would be made up, that was up to the utility companies.
Within three months, Japan’s largest power company, Jera, had not only pledged to the net zero target, and to closing its high-emitting plants, but had also announced it would begin using a clean alternative fuel in the rest.
“Two months later,” says Buckley, “they’ve got a ship and … they’re importing ammonia from Saudi Arabia.”
Burning ammonia, a compound of three hydrogen atoms bonded with one nitrogen, produces zero carbon emissions. And now Japan’s biggest coal plant, which generates 4.1 gigawatts of energy, is running on 20 per cent ammonia, which essentially means hydrogen power.
By early next decade, Jera has announced it will be using 20 per cent ammonia in all its coal plants, and by 2040 will phase out coal entirely.
What makes this a big deal for Australia is that Japan – not China as is often assumed – is the biggest buyer of Australian thermal coal, the type used to generate electricity.
In 2019, Japan accounted for 43 per cent of our $23 billion in thermal coal exports; followed by China, with 18 per cent, before its unofficial ban on Australian coal; South Korea, with 15 per cent; and Taiwan, 12 per cent.
Japan also is the biggest buyer of Australian liquid natural gas (LNG) – again followed by China, South Korea and Taiwan. And Jera, which generates about a third of all power in Japan, is Australia’s biggest single customer for both coal and LNG, according to Buckley.
But not for much longer. The transition away from coal is gaining speed.
“By the early 2040s, they won’t be using thermal coal at all,” says Buckley. “They’ve even said the fuel source will be green ammonia. They’ve committed to net zero.
“So that means within 30 years, they’re not going to be using LNG either.”
For the planet, this is good news. Japan ranks fifth among nations in carbon dioxide emissions, and its use of fossil fuels for electricity generation now accounts for about 40 per cent of those emissions.
About another 15 per cent of Japan’s emissions are generated by its big steelmaking industry. But there, too, the country is cleaning up its act. The biggest of its steel companies, Nippon Steel, has fallen in line behind the government and committed to net zero carbon emissions by 2050.
Like Jera, the steelmaker is looking to replace coal with hydrogen.
As reported by Nikkei Asia on December 10, details of Nippon’s green shift, to be released in March, will include plans to “introduce a new way of steelmaking using hydrogen, which can reduce carbon emissions by up to 80 per cent compared with conventional methods of production”.
The report noted the Japan Iron and Steel Federation, the peak industry body, had previously set a target of getting to zero emissions by 2100, but that investor pressure, along with concerns that competitors in China and Europe were moving ahead in the use of hydrogen, had spurred a more ambitious target.
Nippon’s commitment will likely push the country’s other steelmakers to follow – just as Jera and METI will encourage the rest of Japan’s electricity generators to make the shift from fossil fuels to clean hydrogen to get to net zero.
Across the Sea of Japan, in South Korea, something similar is happening. In a speech to the parliament on October 28, President Moon Jae-in committed to achieving carbon neutrality by 2050 and pledged to replace coal power generation with renewable energy. And, just as in Japan, South Korea’s major power generation and steel companies quickly signed up.
South Korea’s Posco, one of the world’s largest steelmakers, is looking to hydrogen to help get there. As is the country’s biggest energy utility, Kepco.
The South Korean government is moving ahead with a $US61.9 billion Green New Deal, aiming by 2025 to have 42.7 gigawatts of wind and solar generation in place, 1.13 million electric cars and 200,000 hydrogen-powered vehicles on the road, with the vast infrastructure needed to recharge them installed, solar panels on 225,000 public buildings, and more. It is forecast this will create 319,000 jobs by 2022 and 659,000 by 2025.
Then there is China, which, as already noted, has stopped taking Australian coal. Four months ago, President Xi Jinping, in a video address to the United Nations, surprised the world by announcing his country – previously a laggard on climate – would be carbon neutral before 2060.
On Wednesday last week, China’s National Energy Administration reported that in 2020 the country installed a total of some 133 gigawatts of new renewables – largely wind, but also solar and hydro power.
That is about twice Australia’s total generating capacity, from renewables and fossil fuels. The number was so big some questioned it – China’s official figures are sometimes more than a little rubbery – but what is beyond question is that Beijing is serious about decarbonising the most populous nation on Earth.
Against this backdrop, the bleak future for Australia’s fossil fuel exports is clear. “Japan’s our No. 1 market for coal, and they are No. 1 for LNG,” says Tim Buckley. “Korea’s our No. 2 for coal and for LNG and China’s No. 3 for LNG and coal, or were until last year.”
And all three countries are rushing for the exit.
So is Taiwan, which has its own ambitious plan for renewables. India – a significant importer of Australian coking coal, used to make steel – is one of the rapidly diminishing cohort of countries yet to adopt a net zero target, but is widely expected to do so soon.
Suffice to say, things are changing very fast. Not only are export markets rapidly drying up, but so is finance for developments, here and around the world, which impacts domestic fossil fuel miners.
“We’ve now got more than 160 globally significant financial institutions that have formal exclusion policies across investments, debt and insurance,” says Buckley.
By this he means the companies have either divested their fossil fuel holdings, are in the process of doing so and/or have made a commitment not to invest in them.
Just in the past couple of days, Buckley says, two large US pension funds – the New York City Employees’ Retirement System and New York City Teachers’ Retirement System – have divested some $US4 billion of fossil fuel holdings.
Tim Flannery, chief councillor for the Climate Council, gives it about five years before major companies in dirty energy begin to fall over in large numbers. Maybe less.
“If you look at what’s happened to fossil fuel industries, and investment in them over the last 12 months, you don’t have to be a Rhodes Scholar to appreciate that within five years, things are going to be critical,” he says.
And he’s not only talking about coal.
“You can’t just look at one sector of the fossil fuel industry, this is the whole thing changing, the entire economy changing from fossil fuels to clean and renewable resources.”
There are three main areas of change, he says. First, in electricity: “The battle for energy generation using clean sources is won. It’s cheaper to build than anything else. Storage is catching up.”
Second, transport. That will take longer, maybe a decade or so, but already it has reached “critical mass” in other parts of the world, if not Australia, and from here on, Flannery says, “we’re going to see a rapid replacement” of internal combustion vehicles with electric.
“And the last playing field really is the industrial playing field,” he says, “where there is a whole lot of uses for gas, and hydrogen is going to challenge that really quite rapidly.”
Most of the developed world has now adopted ambitious targets for decarbonisation. The European Union is not only committed to net zero by 2050, but in December EU members set an interim target of a 55 per cent cut, relative to 1990 emissions levels, by 2030. The same month, Britain went for 68 per cent by 2030.
And this all came before Joe Biden was inaugurated as president of the United States and committed the world’s largest emitter to net zero by 2050. Since his inauguration last week, Biden has issued a blizzard of executive orders across all arms of government, relating to what he calls the “existential threat” of climate change.
Biden’s special presidential envoy for climate, former Democratic presidential nominee John Kerry, spoke earlier this week with Australia’s Energy and Environment minister, Angus Taylor. The Americans welcomed Australia’s commitment to net zero “as soon as possible”. But the Morrison government has not yet committed to reaching this target by 2050 – and likely won’t do so before the UN climate conference in Glasgow later this year.
Meanwhile, the world’s largest petroleum exporter, Saudi Arabia, which was the source of that first shipment of ammonia to Japan, is moving to set itself up as a major global ammonia supplier. Initially, it will use fossil fuels to make ammonia, but the country has ambitious plans to create “green” hydrogen – that is, hydrogen made through a process of electrolysis, the splitting of water atoms, powered by solar or wind.
Other nations and the big corporations that are engaged in what amounts to a space race to develop and apply this clean energy are not doing so just because it is good for the climate, but because there are jobs in it, and big money.
Green hydrogen is currently more expensive to produce than hydrogen produced from fossil fuels, usually natural gas, says Richie Merzian, climate and energy program director at The Australia Institute. But that cost is falling fast. Part of this, says Merzian, is that the cost of electrolysers is coming down, dramatically, as is the cost of batteries.
“A lot of investment is going behind it,” says Merzian. “And also because the cost of renewable energy, which will power the entire process, is coming down dramatically. So, within five or so years, you could see green hydrogen hit parity with gas hydrogen.”
When that happens, it’s game over for fossil fuels, as Andrew Forrest, the billionaire chairman of Fortescue Metals, said in his Boyer lecture last week.
“The shift will be lightning fast,” Forrest said. “Forget 2050 – zero emissions will begin to happen overnight. That’s how capitalism works …
“The green hydrogen market could generate revenues, at the very least, of $US12 trillion by 2050 – bigger than any industry we have now.”
Forrest is investing billions of dollars on a vision of turning his company’s iron ore into green steel, as are other governments and corporations and forward-thinking entrepreneurs here and around the world.
Atlassian co-founder and billionaire Mike Cannon-Brookes is another. Like Forrest, he sees the potential to make Australia a renewables “superpower”, harnessing the country’s unparalleled solar and wind resources and converting them into exportable clean energy.
And where is the Australian government?
“Asleep at the wheel,” says Tim Buckley.
The Morrison government has, admittedly, invested modestly in hydrogen, but most of the money has gone towards the old technology of making hydrogen from gas, and the fraught process of capturing and sequestering the carbon dioxide produced in the process.
But it persists in its commitment to a “gas-fired recovery” from the Covid-19 recession, and a substantial rump of the Coalition continues to advocate the development of new coal power generation.
On Tuesday this week, Nationals senator Matt Canavan did so again, releasing a backbench policy paper calling for the government to fund the construction of new coal-fired power stations, including – and this is significant – one in the New South Wales Hunter Valley.
To his credit the treasurer, Josh Frydenberg, promptly ruled it out.
“We’re not about to fund a new coal-fired power station,” he told ABC Radio on Wednesday morning.
As to the reason Canavan and the Nationals are advocating a new coal power station in the Hunter, it’s all about politics. The Morrison government narrowly won the last election largely on the basis of the result in a small number of electorates in which the coal industry is a major employer. It ran a massive scare campaign against Labor’s climate policies, which included an emissions reduction target of 45 per cent by 2030.
The electorate of Hunter is a “coal” seat, and while the sitting Labor member, Joel Fitzgibbon, narrowly held on at the last election, he suffered a huge swing – almost 9.5 percentage points – towards the Nationals candidate, Josh Angus.
After the bruising election loss, Labor dumped its 45 per cent interim emissions target. Now Opposition Leader Anthony Albanese has dumped the architect of the policy, Climate spokesman Mark Butler, installing the right-winger Chris Bowen in the job.
On Thursday morning – before the reshuffle had been formally announced – Fitzgibbon went on ABC and declared Butler’s removal to be “a good thing … a good start”. The MP went on to claim that a coal plant with carbon capture and storage “could be a net contributor to action on climate change” and said he would welcome a coal-fired generator in the Hunter.
Labor, Fitzgibbon said, needed “to recalibrate our policy and our messaging if we are to reassure our traditional base that while we are serious about taking action on climate change – meaningful action – we will do so without risk or threat to their livelihoods”.
Then Fitzgibbon – a second-generation Labor MP, whose father represented Hunter before him – went on to argue in favour of the Coalition’s paltry 2030 climate target – a 26-28 per cent reduction in emissions.
But ambitious targets, and the massive investment in clean energy required to achieve them, are not the threat to our livelihoods. Not according to Twiggy Forrest, or all the governments of Europe, our East Asian trading partners, or the corporate investors who are redirecting billions of dollars from dirty to clean energy. In fact, the reverse is true.
As the most powerful person on the planet, Joe Biden, said last August on his way to the US presidency, clean energy presents an opportunity to solve the climate crisis and boost the economy at the same time.
“When I hear the words ‘climate change,’ ” Biden tweeted, “I hear another word: ‘jobs.’ ”
But when Australia’s prime minister hears the words “climate change”, it seems he hears the word “Canavan”. And when our opposition leader hears them, he hears “Fitzgibbon”. They hear and fear the names of the climate dissidents in their party ranks.
And so, Australia’s government and its alternative government stumble along, increasingly isolated, towards a post-carbon world, more focused on the politics of climate change than on addressing the problem.
This article was first published in the print edition of The Saturday Paper on January 30, 2021 as "2050 net zero: Australia left behind as Asia goes green".
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