CLIMATE SPECTATOR: Garnaut's RET plug

Climate Spectator

No one could ever claim Ross Garnaut was a huge fan of the Renewable Energy Target, but he strongly defends it in his submission to the Climate Change Authority. 

This will come as quite a surprise to some. Indeed the chief lobby group for heavy carbon emitters – the Australian Industry Greenhouse Network – cites him in support of their own effort to reduce the RET using this statement from his 2011 Update Report:

"Unlike economy-wide carbon pricing, the Renewable Energy Target does not necessarily encourage the lowest-cost means of reducing emissions. Nor does it encourage innovation: it favours the lowest-cost established technologies that are eligible within the scheme.

"With a carbon price in place, current climate change mitigation policies would not be a cost effective way to reduce emissions. Most, including the Renewable Energy Target and feed-in tariffs, should be phased out. The Renewable Energy Target could be phased out by fixing the established price for not meeting the requirements at its current dollar level.”

Garnaut's reviews have provided insufficient attention to the role of learning by doing in technological advancement. Consequently he has failed to recognise the importance of deploying technology, not just inventing it.

Nonetheless if we could start Australian climate change policy again with a fresh sheet of paper, you wouldn't have a RET as it is currently structured. Garnaut is right that it doesn't do a particularly good job of encouraging a portfolio of low emission technologies, which together would provide a good chance of decarbonising our economy.

While supporting global improvement and innovation in wind and solar PV is an incredibly useful thing, we also need to be progressing other technologies. Technologies such as solar thermal with energy storage, battery technology, bioenergy, and carbon capture and storage – in combination with wind and solar PV – would greatly enhance our ability to produce low carbon electricity on a reliable basis.

In addition, if we had a fresh sheet of paper, you'd also question the value of an emissions trading scheme plagued by such an oversupply of European permits that it fails to provide a strong signal to investors about future requirements. In an ideal world you'd certainly aim for such a policy to have bi-partisan support so investors could be confident about its longevity. Also the damage imposed on the community from emitting a tonne of CO2 is far greater than $23 – according to Stern something close to $85 – so you'd hike up the emissions price too.

Unfortunately we don't have a fresh piece of paper and we can't wish away our present circumstances and politics. Garnaut, like any practical policymaker, recognises that. 

Garnaut points out that if we were really serious about containing temperature rise to 2 degrees we'd be starting with a carbon price of $40 per tonne of CO2. This would then rise steadily over time, with minimal carve-outs or special exemptions. This would be far more efficient in reducing emissions than government picking and choosing which forms of abatement to encourage.

Yet: "This ideal has not been favoured politically in Australia or anywhere else. Recent experience in Australia demonstrates that it is particularly difficult for one country to approach the ideal of economically efficient abatement while the rest of the world is a long way away from the ideal.”

According to Garnaut: "With uncertainty about the future of carbon pricing, the Renewable Energy Target has to play a more central role in the reduction of emissions in the Australian electricity sector. The acceptance of the Renewable Energy Target by both sides of partisan politics in Australia means that it can now provide a more secure basis than politically contested carbon pricing for emissions-reducing investments in the electricity sector.

"We can look forward to the day when carbon pricing is politically secure in Australia, but the reality now is that no Australian business will take investment decisions on the basis that it is certain to continue, let alone continue with a carbon price that gives comparable incentives for abatement to the current carbon pricing arrangements.”

And he concludes: "The Authority would be wise to confirm the current legislated quantitative targets, and further to reduce uncertainty by announcing limitations on the range of circumstances under which it would recommend change to the legislated quantitative target in future.”

Garnaut also takes a swipe at a few of the myths pushed by those seeking to undermine the RET. He points out that the extra costs on consumers will be noticeably moderated by its depressive effect on wholesale electricity prices. He also points out that with the large increase in gas prices driven by LNG, it is unlikely to undermine the potential for abatement through substituting coal with gas.

And while Garnaut is not a fan of the RET, he points out that he recommended it be retained in its current legislated form, not rescinded or scaled-back, as: "Many business decisions have been made on the basis of current legislation and changes in the law increase uncertainty about the stability of future policies. Uncertainty raises the supply price of investment and the costs of electricity to users. Change in the law should not be contemplated without compelling policy reasons.”

The RET is very far from perfect. It is entirely appropriate that a policy measure involving such a large quantity of money should be heavily scrutinised. But any policy review must recognise that we live in a world polluted by politics. One needs to be careful that the perfect not become the enemy of the good.