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Finkel report likely to puncture myth that the only form of energy security is "base-load coal". How a new concept of "base-cost" renewables is embraced will likely decide the path of Australia's energy and climate policy.

The new Popemobile is an all electric Opel Ampera-e, the Italian version of the Chevy Bolt.

The main job of the Finkel Review, to be released this week, is to set out ways to reform the National Electricity Market (NEM) to ensure it delivers reliable and affordable power in the transition to low-carbon energy. Yet most of the attention has been focused on what type of carbon-reduction scheme Australia’s chief scientist, Alan Finkel, will recommend.

The expectation is that he will advocate a “low emissions target” (LET), and it looks like industry is getting behind this.

That would be instead of an emissions intensity scheme (EIS), which had been supported by much of industry as well as regulators and analysts, but the government rejected this.

Both types of scheme are second-best approaches to a carbon price. They can have similar effects depending on their design and implementation, although an EIS would probably be more robust overall.

How a LET might work

A LET would give certificates to generators of each unit of electricity below a threshold carbon intensity. Electricity retailers and industry would be obliged to buy the certificates, creating a market price and extra revenue for low-emission power generators.

How many certificates get allocated to what type of power generator is an important design choice. Government would also determine the demand for the certificates, and this defines the overall ambition of the scheme.

At its core, the scheme would work rather like the existing Renewable Energy Target, which it would replace. But the new scheme would also include some rewards for gas-fired generators, and perhaps even for coal-fired generators that are not quite as polluting as others. The question is how to do this.

A simple but crude way of implementing a LET would be to give the same number of certificates for every megawatt hour (MWh) of electricity generated using technologies below a benchmark level of emissions intensity. In practice, that would be renewables and gas. In principle, the scheme could include nuclear power as well as coal plants with carbon capture and storage, but neither exists in Australia, nor are they likely to be built.

Such a simple implementation would have two drawbacks. One, it would create a strong threshold effect: if your plant is slightly above the benchmark, you’re out, slightly below and you’re in. Two, it would give the same reward to gas-fired generators as to renewables, which is inefficient from the point of view of emissions reduction.

A better way is to scale the amount of certificates issued to the emissions intensity of each plant.

If the benchmark was 0.7 tonnes of carbon dioxide per MWh of electricity (as some media reports have predicted), then a gas plant producing 0.5 tonnes of CO₂ per MWh would get 0.2 certificates per MWh generated. A wind or solar farm, with zero emissions, would receive 0.7 certificates per MWh generated.

The benchmark could also be set at a higher level, potentially so high that all power stations get certificates in proportion to how far below the benchmark they are. For example, a benchmark of 1.4 tonnes CO₂ per MWh would give 1.4 certificates to renewables, 0.9 certificates to the gas plant, 0.5 certificates to an average black coal plant and 0.2 certificates to a typical brown coal plant.

Including existing coal plants in the LET in this way would create an incentive for the sector to move towards less polluting generators. It would thus help to reduce emissions from the coal fleet, and perhaps pave the way for the most polluting plants to be retired earlier. But the optics would not be good, as the “low emissions” mechanism would be giving credits to coal.

Whichever way certificates are distributed, the government also has to specify how many certificates electricity retailers need to buy. Together with the benchmark and with how electricity demand turns out, this will determine the emissions intensity of overall power supply. The benchmark would need to decline over time; alternatively, the amount of certificates to be bought could be increased.

The price of LET certificates would depend on all of these parameters, together with the cost of energy technologies, and industry expectations about the future levels of all of these variables. As the experience of the RET has shown, these can be difficult to predict.

Low emissions target vs emissions intensity scheme

An emissions intensity scheme (EIS) is the proposal that in recent times had the broadest support in the policy debate. Finkel’s preliminary report referenced it and the Climate Change Authority earlier put significant emphasis on it. But it got caught in the internal politics of the Liberal-National Coalition and was ruled out.

Under an EIS, the government would set a benchmark emissions intensity, declining over time. Generators below the benchmark would be issued credits, whereas those running above the benchmark would need to buy credits to cover their excess emissions. Supply and demand set the price in this market.

Depending on how the parameters are set, the effects of a LET and an EIS on the power mix and on power prices would differ, but not necessarily in fundamental ways.

There are some key differences though. Under a LET, electricity retailers will need to buy certificates and not all power plants may be covered by a low-carbon incentive. Under an EIS, the higher-polluting plants buy credits from the cleaner ones, and all types of plants are automatically covered. The EIS market would be closely related to the wholesale electricity market, with the same participants, whereas a LET market would be separate and distinct, like the RET market now.

Further, the benchmark in an EIS directly defines the emissions intensity of the grid and its change over time. Not so for the benchmark in a LET. A LET will also require assumptions about future electricity demand in setting the total amount of credits that should be purchased – and bear in mind that the estimates used to calibrate the RET were wildly off the mark.

What’s more, an EIS might present a chance to circumvent the various special rules and exemptions that exist in the RET, and which might be carried over to the LET.

Politics vs economics

Neither a LET nor an EIS provides revenue to government. Since the demise of Australia’s previous carbon price this has often been considered desirable politically, as it avoids the connotations of “carbon tax”. But economically and fiscally it is a missed opportunity.

Globally, most emissions trading schemes generate revenue that can be used to cut other taxes, help low-income households, or pay for clean energy research and infrastructure.

An economically efficient system should make carbon-based electricity more expensive, which encourages energy consumers to invest in energy-saving technology. Both a LET and an EIS purposefully minimise this effect, and thus miss out on a key factor: energy efficiency.

Ambition and confidence

More important than the choice of mechanism is the level of ambition and the political durability of the policy.

Bringing emissions into line with the Paris climate goals will require fundamental restructuring of Australia’s power supply. Coal would need to be replaced well before the end of the lifetime of the current plants, probably mostly with renewables.

To prompt large-scale investment in low-carbon electricity, we need a reliable policy framework with a genuine and lasting objective to reduce emissions. And investors need confidence that the NEM will be governed by rules that facilitate this transition.

Of any policy mechanism, investors will ask the hard questions: what will be its actual ambition and effects? Would the scheme survive a change in prime minister or government? Would it stand up to industry lobbying? Investor confidence requires a level of predictability of policy.

If a LET were supported by the government and acceptable to the Coalition backbench, and if the Labor opposition could see it as a building block of its climate policy platform, then the LET might be a workable second best, even if there are better options. Over the longer term, it could be rolled into a more comprehensive and efficient climate policy framework.

Frank Jotzo has received research funding from various organisations including the ARC and Australian government.

Unlikely environmentalist Frances Bender is taking legal action against Tasmanian government for failing to protect the environment

There’s trouble brewing in Tasmania’s waterways once again.

In the 1980s, protests over the proposed Franklin River hydroelectric dam threw the Apple Isle’s conservation plight onto the national stage. This time, it is the state’s salmon farming industry that is under a cloud. The relatively young industry is worth over $700m a year and now outpaces all other farming activities on the island but environmental campaigners are worried about its impact on the region’s pristine waters.

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Energy rule-maker canvasses a network "solar tax" to ping households who export back to the grid as grid owners panic about declining revenues.

Fossils of five early humans have been found in North Africa that show Homo sapiens emerged at least 100,000 years earlier than previously recognised.

IRENA has today launched a global company survey questionnaire on the corporate sourcing of renewables.

A British man is thought to have broken the World Record for greatest peak speed flown in a wingsuit.

SENG Age of Consequence Movie Night - Unmissable event!

China, Thailand, Indonesia and the Philippines say they will act to stop plastic polluting the oceans.

CEFC commits a further $180m to extend NAB Energy Efficient Bonus program, after huge success with Australian farmers.

A number of business and energy groups are calling for all sides of politics to seize the opportunity and come up with a climate policy which is "enduring and credible."

Over the past few days there has been a lot of talk about the Paris climate agreement, from which the United States is planning to withdraw. Although this is a setback, there is still near-complete consensus from the world’s governments that a strong effort to tackle climate change is needed.

The Paris Agreement aims to limit global warming relative to a pre-industrial baseline. Its precise commitment is:

Holding the increase in the global average temperature to well below 2℃ above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5℃ above pre-industrial levels, recognising that this would significantly reduce the risks and impacts of climate change.

But this begs the question: what are “pre-industrial levels”?

Clearly, if we’re aiming to limit global warming to 1.5℃ or 2℃ above a certain point, we need a common understanding of what we’re working from. But the Paris Agreement doesn’t provide a definition.

This becomes key as governments expect climate scientists to coherently compare different plans to reach their Paris targets. It’s crucial to be clear on what researchers mean when we say “pre-industrial”, and what assumptions our projections are based on.

Of course, as the chart below shows, no matter which baseline we use it’s clear there’s been a drastic rise in global temperature over the last century.

Global temperatures are on the rise and are about 1℃ above late 19th century levels. Author provided Defining a pre-industrial baseline

The Industrial Revolution began in the late 1700s in Britain, and spread around the world. But this only marked the beginning of a gradual rise in our greenhouse gas emissions. Various studies have found climate change signals appearing on a global scale as early as the 1830s, or as recently as the 1930s.

Besides the evolving and increasing human influence on the climate, we also know that plenty of other natural factors can affect Earth’s temperature. This natural variability in the climate makes it harder to determine a single precise pre-industrial baseline.

Scientists separate these natural influences on the climate into two groups: internal and external forcings.

Internal forcings transfer heat between different parts of Earth’s climate system. The El Niño-Southern Oscillation, for example, moves heat between the atmosphere and the ocean, causing year-to-year variations in global average surface temperatures of about 0.2℃. Similar variations also happen on decadal timescales, which are associated with slower energy transfers and longer variations in Earth’s temperature.

External forcings come from outside Earth’s climate system to influence global temperature. One example of an external forcing is volcanic eruptions, which send particles into the upper atmosphere. This prevents energy from the Sun reaching Earth’s surface, and leads to a temporary cooling.

Another external influence on Earth’s climate is the variability in the amount of energy the Sun emits.

The Sun’s total energy output varies on multiple cycles and is related to the number of sunspots, with slightly higher temperatures when there are more sunspots, and vice versa.

Earth has experienced extended periods of cooling due to more frequent explosive volcanic eruptions and periods of few sunspots – such as during the “Little Ice Age” which lasted roughly from 1300 to the 1800s.

There is high variability in the solar and volcanic influences on the climate (top row) while greenhouse gas influences rise over time (bottom row). A suggested 1720-1800 baseline is highlighted in grey. Adapted from Hawkins et al. (2017).

All of these factors mean that Earth’s climate can vary quite substantially even without human interference.

It also means that if we choose a pre-industrial baseline when there was low solar activity, like the late 1600s, or in a period of high volcanic activity, like the 1810s or the 1880s, then we would have a lower reference point and we would pass through 1.5℃ or 2℃ sooner.

A challenge not only for scientists

At the moment there is a drive among the climate science community to better understand the impacts of 1.5℃ of global warming. The Intergovernmental Panel on Climate Change will deliver a special report on 1.5℃ next year.

But scientists are defining “pre-industrial” or “natural” climate in different ways. Some work from the beginning of global temperature records in the late 19th century, while others use climate model simulations that exclude human influences over a more recent period. One recent study suggested that the best baseline might be 1720-1800.

These different definitions make it harder to synthesise the results from individual studies, which is vital to informing decision-making.

This will have to be a consideration in the writing of the IPCC’s report, as policymakers will need to easily compare impacts at different levels of global warming.

There is no definitive way to determine the best “pre-industrial” reference point. An alternative might be to avoid the pre-industrial baseline altogether, and instead set targets from more recent periods, when we have a better grasp of what the global climate looked like.

You can read more about defining a pre-industrial climate here and here.

Andrew King receives funding from the ARC Centre of Excellence for Climate System Science.

Ben Henley receives funding from an ARC Linkage Project and is an associate investigator with the ARC Centre of Excellence for Climate System Science.

Ed Hawkins receives funding from the UK's Natural Environment Research Council and National Centre for Atmospheric Science.

Exclusive: On the eve of the long-awaited Finkel review, analysis shows Australia’s emissions rose sharply in the first quarter of 2017

Australia’s carbon emissions jumped at the start of 2017, the first time they have risen in the first few months of a year for more than a decade, according to projections produced exclusively for the Guardian.

Emissions in the first three months of the year normally drop compared with the previous quarter, driven by seasonal factors and holidays. But in something not seen in since 2005, emissions rose in the first quarter of 2017 compared with the last quarter of 2016 by 1.54m tonnes of CO2, according to the study by consultants NDEVR Environmental. The rise was driven by increases in emissions from electricity generation.

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In a change of tone, Utah governor Gary Herbert has backpedaled and asked the federal government not to allow oil and gas drilling around the famous park

When Utah governor Gary Herbert changed his mind last week and decided oil and gas companies should not be allowed to drill near Zion national park, it seemed like a remarkable change of tone.

The Republican has been a staunch advocate for rolling back public land protections and had earlier endorsed the idea of drilling near the 229 sq mile park. In February, he signed a resolution urging Donald Trump to rescind national monument status for the 1.3m acres known as Bears Ears in south-eastern Utah. Doing so would allow expansion of current leases for oil and gas development and grazing.

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In just 31 hours, Guardian US exceeded its target to support a new series on the threat to America’s public lands. We’d like to thank you for your generosity

• In Montana, land transfer threatens the American rancher’s way of life
  

We would like to extend a huge thank you to the more than 1,000 Guardian readers who made contributions to support This Land is Your Land, our series on the threat to America’s public lands. We launched our fundraising campaign on Monday morning, and hit our $50,000 goal at 1pm Tuesday, just 31 hours after the launch. When this article was published we had exceeded our goal by 20%, with $60,166 pledged. More than 1,000 readers have contributed.

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HUMAN EVOLUTION: The discovery of fossil remains of Stone Age humans in Morocco pushes back the date of the origin of Homo sapiens by 100,000 years.

Nuclear, wind and solar power in UK generate more electricity than gas and coal combined for first time ever

The windy weather across Europe in the past 24 hours may have been a curse for summer picnics, but it has set records for renewable power.

Related: 'Spectacular' drop in renewable energy costs leads to record global boost

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Fossils of modern humans uncovered in north Africa are at least 300,000 years old.

A peacock which found its way into a Californian liquor store causes hundreds of dollars of damage before an animal control officer and the store manager are able to capture it

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