{"data":{"id":"sbm294d5edea5a4561a33527","short_id":22,"created":"2023-09-21T10:25:54.854Z","space_id":"spc2844e78fbe7a5ba8ef960","project_id":"prj2844e749ab2ea35df0e70","org_id":"org25a4efd179c5b5ba55d6e","content":{"1nbrb3m6":"ef39bf","are-you-submitti_d9ed88":"organisation","do-you-agree-wit_be0894":"yes","name-of-organisa_9974be":"BHP","upload-your-subm_09396f":"fil294d5eca86400c37758a9","your-email-addre_2a9ea3":"andrew.rudyy1@bhp.com"},"is_topic":false,"title":null,"count_replies":0,"closed":false,"reply_to_id":null,"last_activity":null,"reactions":{},"_files":{"fil294d5eca86400c37758a9":{"id":"fil294d5eca86400c37758a9","bucket":"files-au-climate","remote_path":"cca/p/prj2844e749ab2ea35df0e70/spc2844e78fbe7a5ba8ef960/CCA Economic modelling consultation Sept 2023_BHP_comments.f670fdeee3fcd.pdf","url":"https://storage.googleapis.com/files-au-climate/cca/p/prj2844e749ab2ea35df0e70/spc2844e78fbe7a5ba8ef960/CCA Economic modelling consultation Sept 2023_BHP_comments.f670fdeee3fcd.pdf","filename":"CCA Economic modelling consultation Sept 2023_BHP_comments.f670fdeee3fcd.pdf","transcribed":"                                                                                                171 Collins Street\n                                                                                          Melbourne, Victoria 3000\n                                                                                                         Australia\n\n                                                                                               T +61 3 9606 3333\n21 September 2023                                                                              F +61 3 9609 3015\n                                                                                                         bhp.com\n\n\nOutreach and Engagement\nClimate Change Authority\n\n\nRe: Economic modelling of potential Australian emissions reduction pathways Consultation paper, August 2023\nBHP appreciates the opportunity to provide comments in response to the Climate Change Authority’s consultation on economic modelling of potential Australian emissions reduction pathways.\nBHP is a global resources company producing essential resources needed to support the global energy transition, such as nickel and copper, and we strive to produce them responsibly, more sustainably and efficiently. Our purpose is to bring people and resources together to build a better world.\nAs one of the world’s leading mining companies, we are committed to playing our part to help accelerate the Australian and global pathways to decarbonisation. This includes our own climate strategy and increasing awareness of the vital role of the mining industry in providing essential commodities as building blocks for the renewable energy and other decarbonisation infrastructure required to enable a net zero greenhouse gas (“GHG”) emissions global future.\nBHP’s Climate Transition Action Plan 2021 and Annual Report 2023 outline our approach to GHG emission reduction and managing climate risks, including our climate change targets and goals for\nScopes 1, 2 and 3. In addition, we have been represented on the Task Force on Climate-Related\nFinancial Disclosures (“TCFD”) since its inception and have continued serving as one of the leading voices providing input to the shaping of the TCFD and other global standards from an industry sector perspective, including on scenario analysis.\n\n\nWhat are your views on the two modelling questions? Are there other questions the authority should explore through economic modelling to inform its advice?\n   •   Modelling question 1: What are the likely economic effects on Australia of different\n       emissions pathways to net zero relative to Australia’s current level of ambition?\n   •   Modelling question 2: What are the likely emissions pathways, outcomes, risks and\n       opportunities for different parts of the economy under different national emissions\n       pathways to net zero?\n\n\nWe recommend the authority consider, either through quantitative or qualitative assessment:\nIncorporation of a variety of policy mechanisms across scenarios: Develop a suite of scenarios, rather than a single pathway, that assess the impact of coordinated Central-government targets and policies on investment and the pace of GHG emissions reduction. A comparative scenario should also be developed that simulates fragmented and/or delayed legislation, non- aligned State and Federal approaches, and the impact each would have on the economy, emissions\n\freduction, and the orderly transition for individual sectors. Different approaches to international cooperation and coordination would also be a useful assumption to range across the suite. And differential combination of “carrots” and “sticks” should also be simulated.\nApproach the task from a technologically neutral perspective: The suite of scenarios should capture a variety of technology options, but these should be derived based on scenario design decisions on the relative weight placed on commercial/behavioural parameters. Where judgement is applied on technology, technology readiness level (TRL) and cost (levelised cost) should be the preferred methods of distinguishing. Levelised cost estimates should also be ranged to reflect the considerable uncertainty that applies.\nIncorporation of international parameters: Scenarios should help to improve the understanding of the relative competitiveness of Australian industries in new and growing industries to support global decarbonisation, or impacts to Australia’s global competitiveness in growing markets for low-GHG- emissions goods and services. Modelling should also incorporate the impact that international and regional climate change policies (e.g., international climate negotiations, evolving rules of carbon border adjustment mechanisms) and market conditions (e.g., international premia associated with exporting low to zero-GHG-emissions minerals) could have on Australian export markets.\nSupply chain vulnerabilities and energy security parameters: Modelling should assess vulnerabilities in low-GHG-emissions value chains, including the call on financing, labour, materials, and land. As part of managing the economic risks and opportunities from the transition, the authority could also qualitatively consider the implications for Australia’s planning for an orderly transition away from existing energy fuels (e.g., natural gas) to maintain domestic energy security, particularly for specific industrial applications where use is currently hard-to-abate.\nModelling scenarios with a longer shelf life: Modelling should also assess scenarios that have a higher likelihood of eventuating and would not become redundant in the short-term.\nPhysical impacts and mitigation capital: Modelling should incorporate potential physical climate- related impacts on physical capital (lifetime, efficiency) and capital allocation (distribution between discretionary “entrepreneurial” investment and involuntary defensive or replacement outlays) based on best available projections of unavoidable climatic change in the period under consideration.\n\n\nWhat are the strengths or limitations of these models (GTEM, AusTIMES, and LUTO) the authority should keep in mind when interpreting their outputs? Are there other models that would provide valuable insights into the questions the authority is trying to answer?\n\n\nThe use of these models necessitates important assumptions about global trade and the growth of new industries that the authority should keep in mind when interpreting their outputs. For example:\n    •   GTEM will make assumptions for global trade and investment flows, and unless intentionally\n        tuned, could:\n            o   Underrepresent the potential opportunity for Australia to support global\n                decarbonisation, for example through growth in critical minerals and Australia’s\n                competitiveness as a low-GHG-emissions intensity producer.\n            o   Understate the domestic economic and GHG emissions impacts from a transition\n                away from fossil fuels as global economies decarbonise.\n    •   Assumptions about Australia’s proportionate share of fossil fuel exports relative to the rest of\n        the world in a 1.5°C scenario will be important for the authority to examine in the modelling.\n        See above point about incorporating international parameters.\n    •   GTEM and AusTIMES are likely to be more skilled at reflecting changes to incumbent\n        industry and may not represent the emergence of new industries as effectively unless these\n        are intentionally included. An approach that doesn’t actively address new industries risks\n        underestimating the economic benefits of the transition, and could also understate the\n\f        upwards GHG emissions impact of new industry development in the context of balancing\n        Australia’s carbon budget across sectors.\nAusTIMES (and other TIMES models) are not adept at modelling the intricacies of the power sector, particularly at the hourly and sub-hourly level. PLEXOS, or another sophisticated power system modelling tool, should be used to complement the modelling to understand the implications of the output on power system reliability and the need for improved connectivity to integrate variable renewables. The authority should coordinate with the Australian Energy Market Operator (“AEMO”) to ensure assumptions are aligned with those in the Integrated Systems Plan (“ISP”) scenarios and that output from the ISPs are fed back into the AusTIMES energy model.\nIn addition to the granular description of models, the temporal resolution is increasingly relevant.\nTherefore, we recommend that the modelling exercise also considers the impact of delayed action on the pathway to 2050, as well as being transparent on the outlook post-2050, given that while\n2050 is one of the critical dates for the global goals to stabilise climate change it shouldn’t be treated as the end point.\nAs with all models, outcomes will be highly dependent on assumptions made around technology cost\n(both in the aggregate and how these change over time), policy support and behavioural change.\nMultiple scenarios should be run to test these underlying assumptions to ensure that the conclusions are robust.\nThe underlying strengths and limitations of the models are likely to not be well understood by audiences outside of the modelling community, including policymakers. It is vital that the modelling exercise be transparent about the inputs and assumptions used, both for the overall scenario analysis and for each of the models. Clear and simple documentation should published/communicated to stakeholders to reduce misinterpretation of the model results.\n\n\nDo you think the proposed global action pathways provide an appropriate context for assessing potential Australian emissions pathways? Are there alternatives you think are higher priority pathways to consider? Are the IPCC, IEA and GLOBIOM assumptions appropriate for the proposed scenarios?\n\n\nThere is no singular pathway to a 1.5°C or less than 2°C outcome. The complexities of the energy system and the array of decarbonisation options and policy choices available to modellers – which can be deployed in almost infinite combination - mean that a wide variety of pathways can be generated that purport to align with the aims of the Paris Agreement. Our position on the use of scenarios in the climate action discussion is that scenarios are best analysed and interpreted as part of a set, rather than individually, and the larger the set, the better. A diverse suite of scenarios enables a range of evidentiary points to be derived and used to robustly inform strategic responses.\nThe smaller and less diverse the set of scenarios, the narrower the field of view, and the greater the risk when moving from the abstract world of scenario modelling to the messiness of the real world.\nThose who advocate for a single “consensus” pathway do not take into account the inherent complexity of the systems under consideration, and the risk of unintended consequences of taking a monocular approach.\nLikewise, global pathways necessarily are the result of combining all individual contributions, rather than offering uniquely tailored pathways for different regions and countries. So, the global action pathways would be limited in providing useful information on regional pathways. If this approach is adopted, the authority should transparently describe the global action pathway assumptions and inputs used for regions, if there were any, how these global action pathways have been used to inform the Australian pathways, and the implications.\nThe carbon budgets proposed are effective to represent the spread of potential outcomes in a decarbonising economy, recognising that actual decarbonisation could potentially take many paths,\n\fas noted above. For the authority’s proposed 1.5°C scenario it is not clear how this modelling plans to allocate the global carbon budget. Two potential approaches could be taken:\n    •   The pathway to the 2030 target could be maintained as planned, which would leave a higher\n        share of the decarbonisation burden between 2030 and 2050.\n    •   The carbon budget could be allocated in line with the ability for sectors to decarbonise within\n        the timeline.\nOur recommendation is that this modelling considers the costs and benefits of both approaches when assessing the ability of Australia’s economic sectors to decarbonise in a 1.5°C scenario.\nGiven there is no single, nor inherently preferrable, global pathway to reach net zero, in interpreting the results, the authority should be mindful that the IEA Net Zero Emissions (“ IEA NZE”) scenario:\n    •   Lacks transparency on how it addresses sub-global questions around trade, gaps in\n        standards of living, regionally specific age and lifetime of capital stock, or different natural\n        and physical endowments that are highly relevant for policy and technological choices.\n        Australia will have differentiated risk exposure to the rate of decarbonisation of our key trade\n        partners and specific industries.\n    •   Assumes globally coordinated decarbonisation action and policy, and relatively consistent\n        and ambitious technology adoption across regions. Signposts indicate that the transition may\n        be more disorderly and differentiated across geographies than IEA NZE reflects.\n    •   Assumes that non-energy land use sectors not included in their energy-focused modelling\n        decarbonise at a similar rate.\n    •   Projects significant roles for energy efficiency, hydrogen and biomass globally, which in fact,\n        in practice, may have nuanced applications to specific industries and industrial processes.\n    •   In our view, understates the role of the land sector and technical sequestration options (e.g.\n        point source carbon capture use and storage, and carbon dioxide removals) to contribute to\n        decarbonisation in the short and longer term.\n    •   Presents an optimistic view of the timing of the commercialisation of electrolysis in\n        steelmaking. We have published our views on the steelmaking decarbonisation journey here.\n    •   May need to be adjusted as part of this modelling to account for recent investments in\n        upstream oil, gas and coal which have continued in contrast to the IEA NZE projections that\n        no new investment would be required at an early date.\nFor a full review of our assessment of IEA NZE, see here. We recommend that the authority produce its own independent and internally consistent global scenarios that incorporate Australia endogenously, rather than adopting off-the-shelf global scenarios. Using AusTIMES may provide the opportunity to address some of these limitations by reflecting the reality of regional approaches to the challenge, and Australia’s specific circumstances. However, the global trade and investment flows projected by GTEM are likely to remain subject to these limitations even with a differentiated domestic view.\n\n\nAre there any other issues the authority should consider as part of its modelling exercise?\nWe would be interested in the insights on change in agricultural land use, intensification and productivity from this modelling.\n\n\nDr Fiona Wild\nGroup Sustainability and Climate Change Officer, BHP\n\f","size":241409,"redacted":[],"meta":{"name":"CCA Economic modelling consultation Sept 2023_BHP_comments.f670fdeee3fcd.pdf","local_path":"files/MMh251zezvWfaazaVNt9DOsy.pdf"},"config":{}}}}}