Crack open in case of an emissions crisis

In a discussion with the Climate Change Authority’s chief executive Anthea Harris and chair Bernie Fraser they revealed that, rather than simply duplicate yet another review of the Renewable Energy Target, they will be undertaking a study looking at a range of policy options for how we might reduce emissions from the electricity sector. 

Why do such a study?

The reality is that while the government is saying that it's confident the Emissions Reduction Fund will do the job of delivering Australia's emission reduction target, no one is quite sure how the scheme will actually work - indeed, if it can work. And there’s a range of ideas being floated for how it might evolve over time to address obvious inadequacies, such as the dependence on funding from the budget.

For example, Carbon Market Institute chief executive Peter Castellas said yesterday what many are thinking:

“If the ERF is to continue as the primary basis for reducing emissions … the call on the government budget may increase to very high levels. Therefore the transition into a market-based scheme, using the safeguard mechanism in concert with other regulations and the Renewable Energy Target, will be necessary to defray the ongoing, indefinite public cost of funding emissions reduction.”

Given what little time is left to 2020, there’s good reason to believe that if the government is to achieve its emission reduction target, it will need to draw on multiple policy measures, not rely just on the ERF.

For example, Danny Price of Frontier Economics, who chairs the government’s expert reference group on the ERF, has floated the idea of modifying the Renewable Energy Target to allow for it to support a broader range of abatement options, such as gas-fired power.

Another idea is expanding nationwide the energy efficiency credits schemes operating in Victoria and NSW. 

One other possibility is that we take electricity generation out of eligibility for the ERF and instead apply a penalties and credits scheme. This would involve generators below an emissions intensity benchmark earning credits which generators above the benchmark would have to buy as offsets for exceeding the benchmark.

The work by the Climate Change Authority will incorporate energy market modelling that would help to illustrate potential flow-on effects from choosing a particular policy or initiative which might prompt the need to consider supplemental measures. These flow-on effects can be incredibly important as they can impact on how effective such a policy is likely to be in lowering emissions, and also other important factors such as electricity prices.

For example, one idea that Origin Energy, Energy Australia and also environmental groups have promoted to government is to pay a high polluting coal generator to permanently shut down, such as Hazelwood or Yallourn. Getting rid of such a high emitting generator might seem like a great thing for the environment, but there’s the issue of what will replace it. Origin Energy in a submission to the Senate states:

“If such a policy [payment for coal plant closure] was to be pursued it would make sense to back it up with an emissions standard on new generation, so that the retired generation was not replaced by coal fired plant at a later stage."

Yet it’s not likely to be a newly built generator that would replace the output from a closed Hazelwood. That’s because there are many other high polluting coal generators in the market who have lots of spare capacity. For example, the huge 2880 megawatt Eraring black coal power station (owned by Origin Energy) ran at only 39 per cent of its total capacity last year and the 2000 megawatt ageing Liddell power station ran at just 37 per cent last financial year. Shutting Hazelwood may be great for lifting wholesale electricity prices and providing a lifeline to other coal generators, but may not be quite so great for the environment as it initially appears.

Is the Climate Change Authority trying to embarrass the government?

How dare the Climate Change Authority second guess the government, I hear you say?

Well, one of the most frustrating things about my short experience in the federal government bureaucracy was that no one seemed to do any serious planning or analysis of the range of plausible alternative policy options that government might want to consider in the future. 

At the time it was plainly obvious that the Howard Government’s response to controlling greenhouse gas emissions was completely and utterly inadequate. So if you took the research published in respected scientific journals seriously, you knew that something had to inevitably change. (Even if the current government didn’t necessarily want to implement any serious new policies, they might be forced to by a change in public sentiment.)

But ‘no’ I was told, ‘we couldn’t possibly look at policies that the government might not like, because what if the media found out about it and then the government might get embarrassed’. 

This was also a problem under the Rudd/Gillard Government. All the focus went into developing the emissions trading scheme as the cure-all, that there wasn’t much thought given to other policy mechanisms.

Yet as sure as night followed day, a political crisis would hit and politicians would turn frantically to the senior public servants pleading, '“Time for plan B, I need something and I need it quick!'. The public servants would then turn around and all they’d find was an empty cupboard. 

This is when lobbyists of the clean and green and the dirty and black persuasions all rush in to fill the vacuum with half-baked ideas. These are usually designed around their specific commercial interests or, in the case of environmental groups, they’d found the idea really popular down at the grungy café in Brunswick, Melbourne or some other inner-city locale that votes Greens and drinks lots of lattes.

Out of such processes you end up with junk, like the Coalition’s million solar roofs rebate or Labor’s 2010 brainwave of Cash for Clunkers. Or you implement solar feed-in tariffs with no adjustment mechanism to step-down the level of tariff in line with the plummeting cost of solar systems.

No doubt Coalition politicians will dismiss this plan B study, puff their chest out and say they’re confident their existing policies are sound.

And no doubt some time in the future, maybe within 12 months or maybe two years, a public servant will take a frantic call from a minister, blow the dust off the Climate Change Authority’s plan B report and say, 'here’s something I cooked up earlier you might want to consider...'