Five steps can ease the climate transition for those most affected by a changing electricity market: low-income consumers and coal plant workers.
Dr. Tracey Dodd is a Junction Research Fellow with the Adelaide Business School, Dr. Alan Rai is a Senior Fellow at Macquarie Business School and an Industry Fellow at the University of Technology Sydney, and Kellie Caught is a Senior Adviser, Climate and Energy, at the Australian Council of Social Service.
During the bush fire season in 2019-2020, Australia became an example of the impacts of climate change. Australia had thousands of fires burning across the country with more than 46 million acres of land burned, lives lost, and homes destroyed.
These bushfires were a wake-up call to Australia, and the world, about the implications of climate change. As Amanda McKenzie, CEO of Australia’s Climate Council, reflected: “The scale and severity of the bushfires make it very clear that we have to do more to tackle climate change. Australia is a significant player in the global climate crisis and what we do matters.”
Now, many in Australia are calling for more urgent action to further decarbonize the economy, in line with Australian Government’s commitment to the Paris Agreement goal of “keeping a global temperature rise this century well below 2 degrees…above pre-industrial levels.” Decarbonization is the process of reducing the amount of human-caused carbon dioxide emissions released into the world.
The electricity sector can decarbonize faster than other sectors of the economy because of access to cost-effective clean technology like solar, wind, and battery technology. However, the transition still poses challenges. A core challenge is making the transition fair and equitable, so that the burden and costs do not fall disproportionately on vulnerable groups.
In November 2019, the Australian Future Electricity Markets Summit in Sydney tackled these issues. The Summit brought together experts in engineering, economics, regulation and policy. (It’s organized by the International Energy Agency, the Australian National University Energy Change Institute, and the Australian Energy Security Board).
Here are the challenges and lessons shared at the Summit, to help others on the path to climate resilience.
What It Means to Decarbonize the Electricity Sector
Australia’s transition from coal to renewable sources of electricity has been underway for some time. In 2000, coal-fired power stations supplied more than 80 per cent of Australia’s electricity. This amount fell to 61 per cent in 2017, with around one-third of Australia’s coal-fired power stations closing between 2012 and 2017.
This transition will continue, as most of the remaining coal-fired stations are expected to close over the next two decades, if not sooner. Large-scale wind and solar power installations are now cheaper to build than new coal-fired power. They’re cheaper even when including the cost of firming: back-up power to even out supply, e.g. with peaking gas or pumped hydro. Australia also has the world’s highest household penetration of rooftop solar panels. Residential use of rooftop solar, battery storage and electric vehicles are all predicted to grow substantially.
The climate transition is happening. And it’s needed, to reduce climate change impacts on people, communities, the economy, and the environment. But some people are at risk of being worse off.
Electricity Changes Disproportionately Affect Some Australians
Currently, the transition from coal to renewable sources of electricity is proving difficult for some Australians. The challenge is greatest for those economically reliant on coal power plants and for low-income and vulnerable Australians.
Effects on coal plant workers and communities. Unless policymakers and industry work together, this transition poses short-term challenges for communities that have historically relied on centralized, fossil-fuel-based electricity production for jobs and economic activity.
An estimated 18,000-59,000 direct jobs in the renewables sector could be created by 2030 across Australia, assuming 53 per cent of electricity comes from renewables. But the large-scale wind and solar projects are located in different areas to the coal-fired power stations they replace. Declining international demand for Australia’s thermal coal — as other countries transition their energy sector — will pose similar issues.
Effects on low-income and other disadvantaged households. Australia has seen a spike in energy prices over the past two decades. Australia’s electricity prices were the fourth cheapest in the Organisation for Economic Co-operation and Development in 2004 and were the fourth highest in 2018.
Many factors have contributed to this increase, as detailed in a recent report. Factors leading to higher prices and bills include the sudden exit of coal power generators, a lack of emissions policy continuity, overinvestment in electricity networks, poorly-targeted household subsidies for renewables, and underinvestment in household energy efficiency.
Energy costs have most affected people on low incomes or experiencing disadvantage due to language and financial barriers, geography, health, housing tenure, and other factors. Low-income households spend five times more of their income on energy bills compared to high income households. To afford energy bills, low-income households often go without essential services such as food and medicine or deprive themselves of energy. These households don’t have sufficient up-front funds to reduce their energy bill through energy efficiency measures or solar panels — and those measures aren’t accessible to renters at all.
Inequitable Impacts Cause Concern
These impacts on vulnerable groups and industry have led to political resistance and community concern about Australia’s transition to a clean economy. For example, the government and communities have resisted closure of coal plants. Other Australians are reluctant to support renewables because they think that wind and solar will lead to supply interruptions and blackouts.
Building strong support for a faster transition requires Australia to collaboratively develop solutions that leave no one behind and create a sustainable, fair future.
How Decarbonization Can be Socially Acceptable
Here are the priorities that emerged from presentations and discussion at the Australian Future Electricity Markets Summit, to support people, workers, and communities through the climate transition.
(1) Agree on vision and principles
A shared vision and related principles that reflects the values of people and the community, can be used by decision makers such as government, regulators and energy companies to guide action. For example, the proposed New Energy Compact for Australia has been developed by social and consumer groups in consultation with a range of stakeholders. It states that energy is an essential service and everyone has the right to access clean, affordable, dependable energy. The Compact offers these principles for implementation: put people at the centre; think long term and be flexible, just and fair; ensure it works; and deliver clean and healthy energy. The need for broad stakeholder engagement is built in.
(2) Improve business communication to government, communities, and consumers
Energy companies should publicly identify timelines for closing coal plants.. In 2018, Australia required coal companies to give three years notification before closing a plant. Previously, closures occurred relatively suddenly. Replacement electricity sources tended to come onstream well after the closure of power plants, leading to higher prices and possible disruptions in electricity markets.
Electricity providers can also build trust by delivering more equitable and customer-centred products and services. These include fairer pricing and better hardship policies. For example, they could remove the difficult requirements that need to be met before a consumer can enter a hardship program.
(3) Plan the transition for workers and communities
Australia’s energy workers need a planned transition that includes an adequate safety net, access to high-quality re-training opportunities, and structures that help people travel for new jobs (e.g. job credentials valid across provinces) . Well before coal-fired power stations shut down, governments and energy companies can help with regional economic transformation and diversification. Establishing a Just Transition Authority to plan and support the transition for workers and communities is critical. The Authority would coordinate efforts between government departments, industry, and affected communities.
(4) Use policy to distribute costs fairly
Decarbonization costs should come from more progressive cost-sharing methods such as government budgets, instead of energy bills where people on low incomes pay proportionately more. A similar approach is needed on network recovery costs. In Australia, costs charged by companies that maintain the electricity network account for 40-50 per cent of consumers’ electricity bills. Ironically, households that cannot afford or access solar and energy efficiency measures to reduce their consumption, actually end up contributing more.
Policy incentives for household-level decarbonization should target low-income householders. Renewable energy and energy efficiency programs can target people who otherwise cannot afford or access these measures. For example, government could invest in solar and energy efficiency upgrades for social housing.
(5) Integrate climate and energy policy
Australia’s government does not have an integrated approach to climate and energy policy, including a price on carbon intensive products, such as coal. But many businesses and other actors want a predictable policy treatment of carbon dioxide emissions, such as a carbon price or trading policy. By reducing uncertainty, such a policy would improve investment conditions in the electricity sector and reduce prices. It could also raise revenue required to help vulnerable households transition, and with regional economic development: funding worker transfer schemes to address unemployment associated with the energy transition.
Problems Exist – But So Do Solutions
In Australia, we have had a hard year that has redoubled many people’s commitment to climate action. Yet, we need to recognize the inequity arising from the transition from coal to renewables. The inequity is unjust and is increasing social and political resistance to reducing greenhouse gas emissions.
However, there are solutions that can facilitate a faster transition to clean energy, address fairness and equity issues, and create a more sustainable society, economy and environment.
Clean Energy Council. 2019. Clean energy Australia – Report 2019.
Dodd, T., & Nelson, T. 2019. Trials and tribulations of market responses to climate change: Insight through the transformation of the Australian electricity market. Australian Journal of Management.
Finkel, A. et al. 2017. Independent review into the future security of the national electricity market. Commonwealth of Australia.
Holden, R., & Dixon, R. 2019. A Climate Dividend for Australians. University of New South Wales.
Philips, B. 2018. Energy stressed in Australia. Australian Council of Social Service and Brotherhood of St Laurence.
Rai, A., & Nelson, T. 2019. Australia’s national electricity market after twenty years. Australian Economic Review.
About the Authors
Dr. Tracey Dodd is a Research Fellow and Lecturer at the University of Adelaide (UoA) (Australia). Her role at UoA is funded by an Australian not for profit, Junction. She is also a Honorary Senior Research Fellow, University of Exeter (UK). She earned he PhD with UniSA in 2017 and a Masters of Public Policy and Management with Carnegie Mellon University in 2009. Her research in the area of innovation, entrepreneurship and sustainability has been published and presented internationally.
Tracey Dodd is also founder and Chief Executive Officer of Sustainable Innovation, an advisory firm providing project management and strategic planning advice to national clients including the Australian Government, the South Australian and Victorian Governments, and Junction.
Contact her at firstname.lastname@example.org.
Dr. Alan Rai is a Senior Economist in the Strategy and Economic Analysis team at the Australian Energy Market Commission. Since joining the AEMC in September 2015, Alan has led various projects including the integration of renewables into the grid, emissions reduction policies, and wholesale and retail electricity market design. He is also an Industry Fellow at the University of Technology Sydney, and a Senior Fellow at Macquarie University, where he teaches corporate finance and financial risk management. Prior to the AEMC, Alan worked at CSIRO, Macquarie University as an Assistant Professor, and at the Reserve Bank of Australia. Alan holds a PhD in Economics from the University of New South Wales.
Kellie Caught is a Senior Adviser, Climate and Energy, Australian Council of Social Service. Kellie strives for a more sustainable and just future where planet and people thrive together. For the past 15 years, Kellie has specialised in international climate negotiations, domestic climate mitigation and adaption policy, community advocacy and campaigning, with a focus on social and environmental outcomes. Kellie has strong skills in policy development, advocacy, and cross sector collaboration, gained from working as a senior political adviser, climate change program manager at WWF and now as Senior Adviser with ACOSS. She has also worked at the United Nations, in government and in academia. Kellie has a Master in International Business and a Bachelor of Science.
All views, errors and omissions are entirely the responsibility of the authors, not the Australian Energy Market Commission.