07 November 2008

Australia's cap-and-trade plan

Barry Critchley, Financial Post, November 06, 2008

MELBOURNE - Having one of the driest climates on earth and being a major emitter of greenhouse gases means Australia's interest in climate change is front and centre.

The federal government recently released the economic modelling behind its plan to implement a cap-and-trade emissions-trading scheme in 2010, all part of a plan to reduce emissions by 20% by 2020. The results: Economic growth will be lower than otherwise; inflation will be a tad higher; some industries will do better than others and average households will pay an extra $4-$5 a week for electricity, and an extra $2 a week for gas and other fuels.

Given that electricity production and transport account for half the emissions, Ian Nethercote, chief executive of privately owned Loy Yang power plant -- which produces 2,200 megawatts of electricity, or one-third of the needs of the state of Victoria --is never far from the spotlight.

"We are the best of the worst," said Nethercote, noting that while emissions are greater when brown and not black coal is used, his particular operation is the least-polluting among those that use brown coal. And there's no question that brown coal will be used: Victoria has 800 years of supply.

"We have to find a way of reducing our greenhouse emissions. But the paradox for us is that we have this huge resource," said Peter Batchelor, Minister for Energy and Resources. "We have a responsibilty to assist in a transitional way the stationary energy sector to change its energy mix, to introduce new technologies and to continue to find a way to use brown coal."

Nethercote argues it will take at least 10 years for brown coal-fired plants to transition into the new regulatory regime. Indeed his operation is busy on many fronts:

-At its Yallourn plant, a pilot project is underway on post-combustion carbon capture. The idea is to find a way to capture the carbon, convert it and transport it for storage offshore in depleted oil and gas fields.

The CSIRO, the national science outfit, is leading the charge. "It's small scale, but we are looking for the best solvent associated with the type of coal we have. We need to get the best option and then apply that to whatever the capture technology is," said Nethercote, noting technology being developed at the Universtity of Regina is in the mix.

-In the Ottway hills, work is being undertaken on storing 100,000 tonnes of CO2 underground. Universities and industry are behind the research effort designed to determine how carbon is stored--and the consequences. For that to happen, legislation establishing a regulatory framework is required.

-Work on a coal-drying facility. The idea is to dry out brown coal, which has a water level of about 60%. Harbin Power Engineering Co., a Chinese government entity, is putting up the bulk of the money for the A$750-million facility being built adjacent to Loy Yang. Nethercote said some of the options being worked on will form part of the ultimate solution. "Not one element on its own is likely to be the answer."

So where do environmental concerns rank? Nethercote said, "This is important. This will impact not only the way in which we do business but also the life cycle of this plant [given] the technologies that will come into play. And it will impact the amount of new generation that is required," he said, noting about 20%-30% of the new, "less intensive" electricity will be used to capture and store carbon.

© 2008 The National Post Company. All rights reserved

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