Tesla Motors is about to mass produce batteries that could change the global demand for power, and yet Australia is still pinning its short-term hopes on coal. Where's our long-term plan? Mike Steketee writes.

Elon Musk calls it "a fundamental transformation of how the world works".

The founder and chief executive of Tesla Motors, the pioneer of all-electric cars in the US, was announcing the company's move into the mass production of batteries that can store electricity for residential use, solving the problem of the intermittent nature of solar and wind power. He says that his system of "stored sunlight" can be scaled up to literally any size - like the whole world - ending reliance on fossil fuels.

They are big claims and they may turn out to be exaggerated. But even making due allowance for Hollywood-type hype, Musk's announcement looks significant.

His proposed battery units are based on those he is making already for Tesla cars. The "gigafactory" that will produce them to power homes is under construction in Nevada. Tesla is taking orders now, at $US3500 apiece, for the Powerwall units that can be attached to the wall of a house.

The development raises the prospect of households, together with many businesses (there will be a larger version of the units for commercial use) no longer having to rely on traditional baseload power. It could accelerate the slowing demand for electricity from the grid that is occurring already and that is helping slow the growth in carbon emissions.

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If it does transform the way the world works, it will take a while. That is what the Abbott Government is counting on: that the world's dependence on coal will keep rising as the energy demands of developing countries grow.

Last year Tony Abbott argued that "coal is good for humanity, coal is good for prosperity, coal is an essential part of our economic future, here in Australia, and right around the world". It is a very different message to that coming from much of the rest of the world. This week, Christiana Figueres, head of the United Nations Framework Convention on Climate Change, told a Melbourne audience: "The science is very clear - there is no space for any new coal."

The present reality lies somewhere in the middle. Rapid economic development in India and China will see continued growth in coal consumption. Japan is replacing nuclear power largely with coal-fired power.

But in the longer term, the role of coal in a world fit for human habitation will be to fill the gap until other sources of energy take over. In theory, this need not be the case. Carbon capture and storage technology offers the prospect of cleaning up coal by diverting the carbon dioxide emissions and pumping them underground or using them for other purposes. But despite massive investments in the process, there are still major doubts about its operation on a commercial scale.

The Government's Energy White Paper, released last month, holds out the prospects of using captured CO2 for carbonated drinks or in plastics or to help produce biofuel through the growth of algae. But it concedes that "there is no commercial CO2 use in Australia, largely reflecting the high cost of capturing the CO2 from a flue gas stream".

The white paper also offers hope of a future for coal through new coal combustion technology that is more efficient and produces lower emissions. But again there is a dose of reality:

Recent decisions by the World Bank, European Investment Bank and the European Bank for Reconstruction and Development to limit investment in coal-fired power plants limit the ability of countries to access finance for least cost and low emissions energy technologies.

The one certainty is that both CCS and new generation combustion technology would make electricity produced from coal significantly more expensive. At the same time, the cost of renewable energy has been falling - in the case of solar, much more rapidly than the forecasts of even a few years ago. China, and increasingly India, are making huge investments in renewables, meaning the trend towards lower prices will continue.

Some electricity generators can see the future. Last month, AGL chief executive Andy Vesey released a new greenhouse gas policy that included commitments not to build any new conventional coal-fired power stations in Australia, unless they included CCS, and to close all of its existing plants by 2050. Admittedly, that gives it plenty of leeway over the next 35 years but it nevertheless is a significant step for a company that has long relied on low cost coal.

As well, following the lead of Tesla, AGL announced last week it would be selling storage batteries for residential and small business use. It also is promising to continue to make major investments in renewable energy.

The pressure to reduce reliance on fossil fuels is steadily building. The G20 countries have commissioned the Financial Stability Board, which monitors the health of the global financial system and is based in Basel, to conduct an inquiry into the risks of fossil fuel investments.

This reflects concerns over coal and other fossil fuel resources becoming stranded assets in a world that is curbing carbon emissions. Australia is a member of the G20, though not one that took the initiative in this case.

The Asset Owners Disclosure Project, chaired by former Liberal Party leader John Hewson, is prodding the world's 500 largest superannuation, pension, insurance and sovereign wealth funds, together with foundations and endowments, to factor climate risks into their investment equation. In the results of the survey it released last week, Australia's Local Government Super, a relatively small fund, heads the global list and Australian Super, this country's largest superannuation fund, is seventh. In overall performance, Australia comes second to Norway, suggesting that some Australian businesses are well ahead of the Government in preparing for the future. On the other hand, 13 Australian funds, including the Future Fund, scored the lowest rating.

According to John Connor, chief executive of The Climate Institute, which pioneered the approach and is now the Australian agent of the overall project:

Top rated funds protect their investments by engaging with the companies they own, divesting of heavily carbon-exposed assets or deploying hedging strategies... The laggards seem ignorant of climate risks, as well as risks that high carbon investments will be left stranded or made worthless by cleaner technologies, pollution controls or changes in consumption.

If global emissions are to be restricted to 450 parts per million, which is estimated to give the world a reasonable chance of limiting warming to 2C, then much of the world's coal reserves will need to be left in the ground. The Abbott Government has subscribed to the 2C goal but it has not been prepared to face up to the reality of what it means.

According to one analysis, based on government projections, emissions that originate in Australia, including those exported as well as domestic, could rise from 3.6 per cent of global emissions to 16 per cent by 2050. This would occur if the Australian projections were realised under the most ambitious scenario for tackling climate change outlined in the latest report of the International Panel on Climate Change - the scenario that it increasingly is argued is necessary to achieve the 2C goal. It demonstrates how incompatible Australian plans to continue reaping a bonanza from fossil fuel exports are with the steps required to tackle climate change.

The Government and large parts of the business community are betting that the decarbonisation of the world economy under the IPCC scenario will not occur. We can only hope they're wrong and that they wake up early enough to help the Australian economy adjust to the new reality.

Mike Steketee is a freelance journalist. He was formerly a columnist and national affairs editor for The Australian.