The three scenarios in detail

New Energy Outlook Australia presents three scenarios: the economic transition scenario (ETS), the net zero scenario (NZS) and the hydrogen export scenario (HES). For each scenario, BloombergNEF presents a trajectory for Australia’s decarbonisation journey, with the main difference being various degrees of funding and policy environments.

The idea is not to predict outcomes but to explore the likely needs and outcomes of various levels of ambition. “This approach aims to examine the major motivators, drivers and barriers of change, and transition in Australia’s energy market,” Leonard Quong, BloombergNEF’s Australia head and a co-author of the report, tells KangaNews.

The three scenarios depict increasing levels of ambition. The ETS represents Australian energy sector evolution purely based on cost-based technology and market changes – in other words, the deployment of renewables and replacement of fossil fuel, and accompanying infrastructure changes, only as doing so becomes the obviously cost-effective option. Though it accounts for some legislated and robust near-term policy, new policy regimes are absent in the ETS.

“Here we tried to remove the uncertainty around policy and politics to give a detailed view of how technology is likely to change over time in isolation,” Quong explains.

Following the trajectory of the ETS, BloombergNEF estimates Australia’s carbon emissions would still be 160 million metric tonnes by 2050 – a clear net zero miss despite the US$1.2 trillion equivalent of investment required to get there. BloombergNEF estimates this trajectory would be consistent with a path to climate change of 2.6 degrees Celsius – also well outside the Paris Agreement goal.

Therefore, for Australia to even come close to meeting its targets, it must follow a more ambitious pathway that involves policy and investment decisions being made with a wider lens than immediate cost-effectiveness. Such a pathway is outlined in the NZS.

To adopt sufficiently robust policy measures and new technologies, the NZS pathway involves US$1.9 trillion equivalent in total capital investment between 2022 and 2050. This pathway delivers Australia to net zero by 2050 and is consistent with capping climate change at 1.77 degrees.

But even this need not be the extent of Australia’s ambition. The third pathway presented in the report, the HES, stems from the recognition that neither the ETS nor NZS fully capture Australia's potential in the low carbon energy future, Quong explains.

“Australia could be an instrumental player – an outside force, if you will – compared to its current footprint, in supplying the goods and services its trading partners need to reach their own decarbonisation goals,” he tells KangaNews.

The HES describes a scenario in which, by 2050, Australia has not only succeeded in meeting its own commitments to the Paris Agreement but has also pursued the goal of becoming a green hydrogen superpower to the extent that Australian-produced green hydrogen accounts for 5.7 per cent of the world’s consumption.

Green hydrogen can play a significant role in emissions abatement for Australia’s hard-to-abate sectors including shipping, aviation, agriculture and chemical manufacturing as well as the production of materials such as steel, aluminium and iron. While the ETS shows almost no carbon emissions abatement from industry, under the HES: “Unabated coal and gas generation in Australia falls from 65 per cent today to a negligible amount by 2050.”

Under the HES, Australia also benefits from a “complete shift” in its power system, from reliance on fossil fuel generators to solar and wind. Some of the new wind and solar capacity is used to produce clean hydrogen through electrolysis, which is used domestically and also becomes a major export commodity.

LEONARD QUONG

“Australia could be an instrumental player – an outside force, if you will – compared to its current footprint, in supplying the goods and services its trading partners need to reach their own decarbonisation goals."

LEONARD QUONG BLOOMBERGNEF

Under the HES, such installations must rise from 9.6GW per year in 2020-29 to 43GW per year in the 2040s. To meet the demands of this transformation, the HES would need US$592 billion in investment for a renewable energy buildout, the majority on new wind capacity. As highlighted by BloombergNEF, this is more than twice the amount of investment that would be required for a renewable energy buildout under the NZS.

The HES thus calls for an even more ambitious Australia to the NZS, requiring an even greater renewable energy transformation that not only pushes for greater levels of funding but also increased labour productivity and new infrastructure. It would inevitably require robust supporting policy.

BloombergNEF explains that the reason for detailing the HES is not to provide specific prediction of the role of green hydrogen but to give an example of the type of trajectory Australia might follow if it commits early and in size to an ambitious role as a global provider of clean energy and related services. Indeed, the HES is just one of a range of potential options BloombergNEF says it could have built out in this area.