Tuesday, October 17, 2017

NEG.Out of the ashes, a chance to put the climate wars behind us

Out of the ashes of repeated failed attempts to give us cleaner and more reliable electricity – the emissions trading scheme, the emissions intensity scheme, and the clean energy target – has come something surprisingly good.

The national energy guarantee will do more or less what each of the other schemes would have done. It will make the electricity system cleaner (in accordance with the Abbott government's commitments under the Paris climate agreement) while giving investors the certainty they need to work out what kind of power stations to build and when.

Because most of the other schemes were never implemented and the one that was (the renewable energy target) wasn't made permanent, investors have been denied that certainty until now.

Chloe Munro was a member of the Finkel review into the future security of the national electricity market. She told a conference in Melbourne last week that merely having a scheme, any sort of scheme that could withstand repeated electoral cycles, would be enough to give investors the confidence to spend the billions of dollars needed to build plants likely to last as long as half a century. With no national scheme (apart from the renewable energy target, which ends from 2020) they've had to guess what the future schemes will require of them. The details of the scheme adopted weren't as important as knowing it was there.

But the details of the scheme adopted by the Coalition are pretty good. Unlike earlier proposals, this new plan requires nothing of generators: no certificates, no baselines and credits. Instead, responsibility for achieving emissions reduction and reliability targets will be handed to the retailers. They will need to ensure that the mix of electricity they buy meets a known emissions-reduction trajectory and mandated reliability standard. They're best placed to do it for the lowest possible price. They are in the business of getting value for money.

After the renewable energy target ends in 2020 there will be no requirement for retailers to buy electricity from any particular source, merely electricity whose overall mix brings about lower emissions year after year.

Will being a scheme that's "technologically blind" give investors the confidence to build new coal-fired power stations? I doubt it. The Abbott government signed Australia up to reduce emissions by 26 to 28 per cent on 2005 levels by 2030. The targets that will be given to the retailers will reflect that. Coal will have less and less place in their mix.

It's true that they would also be given reliability standards to maintain, and that coal could help with that. But with batteries, gas and solar able to come on at the flick of a switch when renewable output is low and with coal cumbersome to fire up and difficult to fire down, they are likely to find cheaper ways of keeping power reliable.

The retailers might be asked to cut emissions by more. The Paris Agreement requires Australia to go beyond 26 to 28 per cent, reviewing its target every five years in order to ensure global warming is kept below 2°. If Australia signs up to do more, the retailers will be signed up to do more.

And they might have to do more in any event. Initially they will be asked to adopt a trajectory that cuts emissions by 26 per cent because that's Australia's commitment. But they might need to do more than their share. Other polluters – in air transport, road transport, industry and farming – are finding cutting hard, and expensive. Over time it will be cheaper to ask electricity to shoulder more of the weight because that's where the easy gains are.

Malcolm Turnbull has found a scheme that will appeal to the backers of coal (because it won't discriminate against it), to would-be electricity investors (who want to know what the rules are), to consumers worried about prices (because it will put the suppliers in charge of getting value for money), to households concerned about blackouts (because it will require retailers to concern themselves with reliability), and to his predecessor who signed Australia up the Paris emissions reduction target. The energy guarantee provides a means of achieving it.

In The Age and Sydney Morning Herald