Nov 15 2012

Response to RET Review discussion paper

I have submitted feedback (which you can read here) to the Climate Change Authority (CCA) on its Renewable Energy Target review discussion paper, released last month containing draft recommendations. A report with final recommendations will be released by 31 December.

In September, I wrote:

The RET review will be a key test of the Greens’ climate strategy. The Greens argued the independent reviews would provide regular opportunities to improve climate policies in future. The RET review is the first test of whether it will play out that way, or if the reviews will instead be regular opportunities for polluting industries to sabotage climate policies. The role of the Climate Change Authority is crucial, as in 2014 it will be tasked with recommending five years of emissions targets. The Authority is as yet an unknown quantity (though I am concerned that two board members have conflicts of interests). Will the Authority prove to be a strong advocate for climate action, or will it fall prey to the siren songs of vested interests?

So far, it appears the answer is neither, with a bit of the latter. On the one hand, the discussion paper rejects the proposals by 25% of submissions (almost all from businesses and business lobby groups) to abolish the RET or decrease the 2020 Large-scale Renewable Energy Target (LRET). It acknowledges the RET plays an important role and the possibility of overachieving is not a bad thing (CCA estimates renewables will meet 25% of demand in 2020 instead of 20%). On the other hand, it completely ignored the 41% of submissions calling for the RET to be increased and/or strengthened (99% if you count the 8,500 submissions in the GetUp! campaign to increase the 2020 target and the Hepburn Wind campaign for a post-2020 target). It recommends neither increasing the 2020 target, nor introducing post-2020 targets, nor making Clean Energy Finance Corporation investments additional, nor strengthening the policy in any other way.

Instead, the discussion paper generally accepts the argument made by 23% of submissions (most importantly the Clean Energy Council) that the status quo must be maintained to minimize policy uncertainty. It recommends future reviews occur at four-year instead of two-year intervals, with the 2016 review to consider the issues of post-2020 targets and the shortfall charge. The problem with this is that the RET is currently inadequate (for reasons I explain in my feedback), and accelerating action cannot wait until 2016. Climate policy will be subject to uncertainty for the foreseeable future anyway, because it challenges powerful interests, so the best way to design the RET is to send the strongest signal possible to incentivize investment in renewable energy.

CCA recommends no change to the shortfall charge that applies when a liable entity does not surrender the required number of certificates. This is despite the review’s modeling showing the price of Large-scale Generation Certificates (LGCs) will rise to equal or nearly equal the shortfall charge (meaning liable entities would pay the penalty instead of investing in renewable energy), and then plummet toward zero (halting investment). The shortfall charge should rise with inflation so there is a high penalty for non-compliance to ensure the RET is achieved. This change should be made now, to give investors confidence that the RET will continue to drive investment in the future.

CCA argues there is no need to promote technological diversity. I disagree: there is a need to promote emerging renewable energy technologies. A more diverse set of technologies can better complement each other (eg. flexible generation technologies complement inflexible ones), meaning more reliable electricity supply than if only the cheapest technologies are developed. Concentrated solar thermal is a promising technology in this regard, because it has the storage capacity to dispatch power continuously throughout the day and year.

The discussion paper does recommend weakening the RET in one key way. Although it recommends the Small-scale Renewable Energy Scheme (SRES) remain separate to the LRET and notionally uncapped, CCA has bought claims by the Australian Industry Group (AIG) and others that it is necessary to contain its costs, and recommends reducing the Solar Credits multiplier to less than 1 so it becomes a discount. This is despite the conclusion of the review’s own modeling that weakening the LRET would not significantly affect household bills; presumably weakening the SRES would have even less effect. The value of the discount would be determined by a formula proposed by AIG. It has not escaped my attention that CCA board member Heather Ridout is a former chief executive of AIG.

A broader concern I have is the discussion paper’s closeness to government climate advisor Ross Garnaut’s fundamentally flawed paradigm on Australia’s role in responding to climate change, which doesn’t bode well for the review which will recommend emissions targets. Garnaut argues Australia’s role in the absence of a global agreement is merely to implement its (inadequate) emissions reduction target of 5% by 2020 at the lowest possible cost. He further argues the cheapest way of doing this is with a carbon price (including unlimited international offsets), and that with the carbon price in place the RET should become redundant over time. The discussion paper seems to agree with Garnaut by saying “the RET is not a ‘least cost’ way of reducing greenhouse gas emissions and that if a carbon price remains in place and gradually rises over time, the RET would phase itself out, as certificate prices drop to zero” (p. 37).

In the real world, where UN negotiations have not only failed to agree on an international regime of national emissions targets adding up to a safe global target, but have even agreed to delay such an agreement until it will be too late, radical unilateral action is needed to get a momentum for global action. Ambitious action by Australia should not be conditional on international action. Australia should not limit its role to implementing its inadequate existing emissions target, but use every lever at its disposal to accelerate decarbonization, including (though not limited to) cutting our domestic emissions to zero as rapidly as possible. In doing so, Australia should not limit itself to least-cost mechanisms, but use a comprehensive range of complementary measures.

Hopefully the RET Review’s final recommendations will be better.

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