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Mar 22 2013

Forget policy certainty, just raise the RET

What a week it’s been in Australian politics! Failed media regulations, a failed leadership spill, mass ministerial resignations, and more… But in today’s post I’ll focus on a piece of news that didn’t make the front page: yesterday Australia’s Climate Change Minister Greg Combet finally announced the Labor government’s response to the recommendations of last year’s Renewable Energy Target (RET) Review by the Climate Change Authority (CCA).

The government has accepted almost all of CCA’s recommendations, including the main recommendation to leave the Large-scale Renewable Energy Target (LRET) at its current level of 41,000 GWh by 2020 (projected to equal about 25% of demand in that year). The decision is fortunate insofar that the government has rejected calls to reduce the target to account for falling electricity demand (made by electricity gentailers and coal-fired generators concerned new renewables will crowd out existing fossil fuels, and comprehensively debunked by CCA). Unfortunately, the level of the RET remains inadequate considering Australia and the world urgently need to phase out fossil fuel burning to avoid dangerous climate change.

As Combet remarked yesterday, the key theme of the RET Review was “investment certainty”. Policies must remain unchanged, the argument goes, so companies can be sure about where to invest. The problem with this approach was illustrated by Combet’s lament today that the Liberal/National Coalition’s ambiguous policy is undermining investment certainty by “creating mayhem”. It was also illustrated when on Monday Origin Energy reiterated its attack on the RET, this time expanding its condemnation to the carbon price too. They are not about to give up – renewable energy threatens their business model. The reality is certainty in climate policy is unachievable because of the fossil fuel lobby’s constant attempts to sabotage it. Instead, to send the strongest possible investment signal the government must adopt ambitious policies. The LRET must be increased to incentivize investment in renewable energy.

Adherents of the investor certainty argument claim uncertainty about the RET is causing an “investment strike”. The real reason why investment has stalled is the current oversupply of LRET certificates, which will last until 2015. In other words, retailers have already met their obligations out to 2015 and thus may choose to purchase no new renewable energy before then – and that is exactly what Origin intends to do. This problem cannot be addressed by policy certainty. It can only be fixed by increasing the LRET, both the 2020 target and the interim targets for the next few years.

To its credit, Labor rejected one of CCA’s recommendations that would weaken the Small-scale Renewable Energy Scheme (SRES). However, they did accept recommendations to phase out the SRES from 2017, and give the Climate Change Minister the power to lower the price cap for SRES certificates. CCA’s recommendations on SRES came at the insistence of the Australian Industry Group (AIG), who claimed it was necessary to “contain” the “cost” of solar PV deployment. Instead of attempting to contain solar PV deployment, the government should design policies to further accelerate it.

Labor also agreed to delay the next RET Review, currently scheduled for 2014, until 2016, again in the name of investment certainty. Accelerating climate action cannot wait until 2016.

The Greens support Labor’s decisions.

The Coalition differs in that they would proceed with the 2014 review, though who would conduct the review is unclear since the Coalition would abolish CCA. Unfortunately, nothing good is likely to come out of the Coalition’s 2014 review. Liberal environment spokesperson Greg Hunt said yesterday: “Unlike the Gillard Government, the Coalition understands the importance of full consultation with the energy and resources sector.” This is a strange comment because CCA did consult with the energy and resources sector; perhaps the Coalition believes consultation consists of caving to the fossil fuel lobby? Hunt has also said the Coalition’s RET review will focus on electricity demand, a strong hint that they intend to use it as an excuse to reduce the RET, though they still officially deny that is their intention. Coalition politicians have continued to attack the RET this week. Also, there are increasing signs of a close relationship between the Coalition and Origin Energy, one example being rumors that a Coalition government might allocate climate funding for a pet project of Origin’s.

PS: In case you were wondering, the climate implications of the week’s headline events are a mixed bag. The defeat of legislation that would have restricted media ownership leaves climate change deniers like Gina Rinehart unimpeded in their attempts to take over the media. The Labor leadership spill appears to have decisively ended Kevin Rudd’s ambitions, a blow to AIG’s devious campaign to bring forward emissions trading. And the resignation of Resources and Energy Minister Martin Ferguson raises hope for some improvement on Australian energy policy.

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