Australia's clean energy industrial revolution

A complete version of the climate change minister's speech to delegates at the Clean Energy Week conference, which covers carbon pricing, the CEFC, carbon emissions and the government's continued support for the RET.

The  theme of your conference - ‘Meeting Australia's 20 per cent Renewable Energy Target by 2020’ - is one that goes to the heart of what has been one of the most politically contested issues in recent history.

But the fact is that we must reduce the emissions intensity of our economy, play our part in the international effort to tackle climate change, and stimulate investment in clean energy.

The economies that accept this challenge are those that will be more competitive in the years ahead.

The Clean Energy Industrial Revolution

You are at the forefront of this effort - in Australia's transition from high polluting energy sources to cleaner energy sources, including greater use of renewables, low emissions technologies and greater energy efficiency.

The Gillard government accepts the advice of scientists that greenhouse gas emissions are contributing to climate change and that there are great risks to our environment, our economy and our society.

That is why Australia must join with the rest of the world in cutting carbon pollution dramatically over coming decades.

To play our part in the global effort to tackle climate change, Australia will have to transform one of the most emissions-intensive electricity systems in the world.

As many of you are linked into global clean energy supply chains, you are more aware than most Australians of the drive to cleaner energy sources across the globe.

Bloomberg New Energy Finance estimates that global investment in renewable power and fuels increased 17 per cent to a new record of $257 billion in 2011, with solar being the fastest growing sector.

The global clean energy economy is an opportunity; a necessity; an integral part of our continued prosperity.

The prime minister gave me the twin portfolios of Climate Change and Industry and Innovation for good reason.

The economies that are driven by clean energy will be the ones that prosper in the next century.

If we do not take action and decarbonise the economy, we be unable to compete against modern manufacturing industries powered by clean energy.

It is an almost universal rule of industrial development that the nations that innovate benefit most.

The first great transformation of the global economy was based on iron smelting, textiles and steam power. The United Kingdom developed these technologies and industries first, gaining the greatest benefit and dominating the early 19th century economic world.

The second industrial revolution which transformed economies was based on steel, electricity, chemicals and mass production. The countries that most eagerly embraced this transformation were the United States and Germany, countries that came to dominate the next half century.

The third economic transformation was the telecommunications revolution, based on electronics, in particular the transistor. This transformation was led by the United States and Japan, the dominant economies of the second half of the 20th century.

This brings us to the present day and the great economic transformation that is beginning – the low carbon or clean energy industrial revolution.

The countries that develop and deploy the technologies and products which decouple production from pollution will be the countries that prosper most in the 21st century.

So, Australia must ask itself this question: Do we want to be among the countries that embrace this industrial transformation, or do we want to be a follower – compromising our opportunity to benefit from change?

State of the industry

Many businesses here today have been embracing this clean energy future for some time.

So far the Renewable Energy Target scheme has been successful in supporting over 750,000 households and businesses installing rooftop solar and over 740,000 solar hot water systems and heat pumps.

This means we now have over 1,600 MW of solar PV capacity, with more being added every day.

Over 350 renewable energy power stations have been accredited under the RET Scheme since 2001, and more are on the way.

Wind power has contributed strongly, growing from around 100 MW of generating capacity in 2001 to over 2,000 MW of capacity by 2011. This growth is forecast to continue out to 2020 and beyond.

Clean energy has been dramatically reducing in cost as economies of scale and investment in innovation have delivered cost savings to energy users.

Costs need to come down further.

Competition between clean energy options will drive further efficiencies if the right policy settings are in place.

The right policy settings need to support research and development; they need to overcome barriers to financing and commercialisation; to support additional renewable energy deployment and, most importantly, to put a price on carbon pollution. 

The Government has now legislated comprehensively in favour of clean energy with a policy framework which delivers each of these elements:

-- The carbon price means that carbon pollution is no longer free, making clean energy more competitive and driving investment in clean energy.

-- The Renewable Energy Target complements the carbon price by driving additional large and small-scale renewable energy deployment;

-- The Clean Energy Finance Corporation injects $10 billion of finance over five years to overcome barriers to investment in renewable energy, low emissions technologies and energy efficiency;

-- The $3.2 billion Australian Renewable Energy Agency delivers a legislated and stable research and development funding source, further complemented by the $200 million Clean Technology Innovation Program.

And there are other important measures too - such as the Carbon Farming Initiative and the $1 billion Clean Technology Investment Programs for the manufacturing industry.

Just as no single clean energy technology is a silver bullet, you can't just pick one or two of these policies to drive a clean energy future.

They are a holistic and comprehensive set of measures.

They will improve Australia’s economic competitiveness for the coming decades when clean energy and low-pollution technologies will be the key to international competitive advantage.

This is a policy framework which will allow our economy to grow and employment to grow with less pollution.

An attack on any one of these policies is an attack on the effectiveness of all of these policies.

They are mutually supporting.

Each policy makes the whole package more efficient and broadens the benefits of clean energy for all Australians.

The passage of the Clean Energy Finance Corporation legislation in June was particularly significant.

The CEFC will fill the gap which has been clearly identified between the research and development effort, which will be supported by ARENA, and the deployment of market ready technologies, which is driven by the RET and the carbon price.

Carbon price and the RET

You will all be aware of the misguided calls which have emerged in recent months for the Renewable Energy Target to be wound back or even scrapped because of the introduction of a carbon price.

These calls fail to understand how the carbon price and enhanced Renewable Energy Target were always intended to work together to drive clean energy, particularly in energy infrastructure that will be built in the next few years and still be with us in 2050.

The Renewable Energy Target and the carbon price are both market mechanisms.

They are designed to work together to ensure Australia meets its targets for deployment of renewable energy at the lowest economic cost.

Put simply, a carbon price without a Renewable Energy Target means Australia would not achieve its goal of having 20 per cent of electricity supply coming from renewable sources by 2020.

And a Renewable Energy Target without a carbon price, would increase the economic cost of achieving that goal.

Let me explain why.

The carbon pricing mechanism commenced just over three weeks ago, meaning that Australia has now joined more than three quarters of the world’s advanced economies that are putting a price on carbon.

Most importantly for clean energy investors, the wholesale price of electricity now reflects the price of pollution paid by the largest emitters of carbon pollution in the economy.

Renewable energy generators can now benefit from both the higher return for their electricity in the wholesale market and associated financial markets, as well as the value from renewable energy certificates created under the RET.

Because the carbon price and the RET are both market mechanisms, the carbon price operates to reduce the additional certificate value necessary to make renewable energy projects viable.

This reduces the costs of the RET scheme.

The target can only be delivered if the carbon price and the RET legislation work together to drive around $20 billion of renewable energy investment between now and 2020.

With no carbon price, there is a significant risk that the $20 billion of investment will not be forthcoming.

The RET scheme smooths our economic transition to a low-carbon future.

It delivers large-scale renewable electricity projects sooner than would otherwise occur.

This, in turn, means we avoid the mistake of locking-in higher-polluting electricity generation plant which lasts for decades.

As the International Energy Agency has consistently warned policymakers, for every $1 of clean energy investment delayed this decade, another $4.30 would need to be spent after 2020 to achieve the cuts in carbon pollution that are needed to avoid dangerous climate change.

Together, the RET and the carbon price are expected to leverage around $100 billion in private sector investment over the next four decades.

Last December the Australian Energy Market Commission published a series of reports which looked at the impact of the RET legislation, with and without carbon pricing.

The Commission found that a carbon price and the RET would work together to deliver on the 20 per cent by 2020 target.

But the Commission found that without carbon pricing the RET legislation alone would fail to deliver on the 20 per cent target.

This is the same view that has been presented in the Australian Energy Market Operator's scenario modelling and in the modelling the consultant ROAM carried out for Treasury.

For public policymakers, it is of particular concern that the AEMC report estimates the additional RET costs to electricity consumers from not having a carbon price would be in the order of $20 billion in 2010-11 dollars over the period to 2030.

This reflects the possibility of electricity retailers, in the absence of a carbon price, choosing to pay the penalty price of the RET scheme rather than support investment in new renewable generation in an environment of low wholesale prices and reduced electricity demand.

This is another key reason why a Coalition government will not make a serious attempt to undo carbon pricing - no matter how much political blood is pledged on the subject.

The Coalition has no alternative policy to decouple the growth in the economy from the growth of carbon pollution, no alternative policy to drive investment in clean energy and no alternative plan to transform our energy sector.

It is no surprise that when questioned on climate change all Tony Abbott can do is talk about trees, soil carbon and a "green army" of volunteers to save the planet.

It's a joke!

You need clean energy investors, engineers, construction workers, metal workers and energy market expertise to build the power stations for our clean energy future - not a poorly directed school excursion to the local nursery.

The Coalition is in a parallel universe where carbon dioxide has no weight at all - and where policies similarly have no substance.

How strange that under Tony Abbott the Liberal Party has inherited the “fairies at the bottom of the garden” mantle once held by the Australian Democrats.

My Shadow Minister, Greg Hunt, has abandoned policy substance altogether. He has succumbed to unprincipled, right-wing populism.

Earlier this week the Opposition Leader was in Beijing where he showed complete ignorance of China's actions to start pricing pollution through market mechanisms - proving that even the Chinese Communist Party has a better grasp of market economics than the leader of the Liberal Party.

Let me assure you that the government will continue to support a 20 per cent enhanced Renewable Energy Target along with a carbon price, the CEFC and ARENA - because, together, these policies will drive the transformation that is needed in the most economically responsible way.

We do not support calls from some quarters of industry for the RET to be scrapped – this would fail to deliver the transformation needed in our energy sector and only increase the cost of that transformation in later years.

Nor do we support calls by others for sharp increases in the share of renewable energy being targeted in the short to medium term – this would impose unnecessary additional costs on the economy.

And we reject emphatically the Coalition’s rhetoric that the carbon price should be scrapped in favour of ploughing taxpayer dollars into the most costly and least effective ways of reducing carbon pollution - a policy of subsidies for polluters.

Conclusion

Renewable energy has an important role to play in Australia’s transformation to a clean energy future.

The Government recognises that a stable and predictable investment environment is essential for any form of energy investment and for minimising the price impact of reform on electricity consumers.

We have asked the Climate Change Authority to review the RET to ensure it is operating in the most cost effective and administratively efficient way, which is in the interests of this sector as well as the national interest.

This review should not be interpreted in any way as a risk to the RET itself.

Key Government initiatives, led by the carbon price, the RET, the CEFC and ARENA will continue to provide solid and well-balanced policy support for the sustainable growth of this sector.

As a clean energy sector we expect you to compete with each other to get the greatest share of the clean energy opportunities we have delivered.

We expect you to continue to press for our policies to be implemented effectively and for energy market reform to assist the transformative task ahead of us.

We expect you to engage in the review processes which are underway to enhance our energy markets, the RET and other complementary policies.

We also expect you to play your part in explaining why this transformation is important, how your solutions contribute to this transformation and why a comprehensive set of policies is essential.

The public debate over the last few years has left many Australians confused about renewable energy, clean energy technologies and the science of climate change itself.

The political opponents of action on climate change have joined with vested economic interests in spreading misinformation about sensible policies to drive clean energy.

The government will continue to do its part in explaining why we have priced carbon pollution, assisted households with the cost impacts and implemented a suite of complementary policies and support to transform the economy.

We will fight the misinformation and lies which are being spread in an attempt to undermine confidence in the clean energy sector.

With the economic prosperity of future generations at stake, no responsible Australian Government can turn its back on the reforms we have now legislated.

Common sense tells you that Tony Abbott can't - and won't - repeal the Clean Energy Act.

I am proud to be part of a government that has legislated for Australia to be part of the clean energy revolution and I hope we can work together to grow these sustainable industries and create the jobs of the future.

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