Crossbench deal to cut RET may help renewables industry

After a meeting with Environment Minister Greg Hunt, Tasmanian senator Jacqui Lambie said she was close to voting for a government proposal to cut the Renewable Energy Target, but said that she believed a target of 32,500GWh in 2020 for the large-scale component of the scheme – rather than the government's preferred position of 26,000GWh – was the right number.  

A Senate crossbench deal of 32,500GWh for the large-scale scheme or LRET – which has been proposed by the Tasmanian Minerals and Energy Council and heavy industry, such as metal smelters – is a big cut from the current legislated target of 41,000GWh. Yet such a deal could work out better for the renewable energy sector in the long run, rather than waiting out for a possible deal between Labor and the government.  

Now it's true that Labor have made it clear 32,500GWh is too low to be acceptable to them. For that reason you might think that it's better for the renewables sector to have the crossbench continue to block the Coalition. This forces the government to deal with Labor to get this issue resolved, providing a prospect of something higher than 32,500GWh by 2020.

However, how much higher a target can Labor manage to extract from the Coalition?

One industry lobbyist suggested to Climate Spectator that in negotiations over the RET, Labor was willing to concede to 35,000GWh but the government wouldn't budge from 30,000GWh. Sure, 35,000GWh is better than 32,500GWh but not all that much, and it comes at the risk that there may be no deal at all.

In addition, if a deal is done with the crossbench it leaves Labor free to continue to criticise the cut in the target, painting Abbott and his government as anti-clean energy and in the pocket of big polluting power companies. It would be hard to do such a thing if you've voted for the government legislation that executed that cut.  

This is where there is some significant upside for the renewables sector. That's because for a Labor attack on the government over cutting the RET to have any credibility, Labor would have to promise to re-enlarge the target and do it by a level considerably greater than 32,500GWh. One can imagine that 30 per cent by 2030 (53,000GWh) would have some electoral appeal, especially given the Coalition government's own review found this would deliver lower consumer power bills than a RET of 32,500GWh.

Indeed it's even possible that if the Coalition felt vulnerable of losing in 2016, they might even promise an enlarged target after 2020, say 25 per cent by 2025 (roughly back at the old 41,000GWh target). This is a little hard to believe at present, but if the run in to the Paris climate meeting sees China play a constructive role, and the polls fail to improve for the Coalition, then anything is possible.  

So in effect a deal with the crossbench could act to lock in a lower-bound worst case scenario that is significantly better than what the government originally wanted to offer and only slightly worse than what Labor might manage to extract. At the same time it preserves the potential for significant upside if Labor were to win government in 2016.

Therefore, the renewable energy lobby might be tempted to subtly and quietly encourage, or at least not discourage, the likes of Ricky Muir or the Palmer United Party to vote for such a deal.

Alas, if only life were so simple.

The problem once the crossbenchers get involved is that, unless you've got Nick Xenophon corralling them, they don't have a clue what they're doing. That means the government will be tempted to try to slip through a few tricky amendments that would act to water down the scheme beyond simply reducing the large-scale project component of the scheme to 32,500GWh.

The biggest one of these tricks was revealed in Senator David Leyonhjelm's proposed plan to amend the RET. It is widely believed in Canberra that Leyonhjelm had some backroom assistance from sections of the Liberal Party in dreaming up this plan.

It outlined that the small-scale scheme, which largely supports rooftop solar systems, would remain untouched. However for every gigawatt-hour of energy this scheme produced beyond 4000GWh, the LRET would be reduced by a gigawatt-hour.

Now the thing is that the 4 gigawatts of solar already installed would be estimated to generate 5000GWh per annum. So even if no more solar was installed, you'd automatically reduce the large-scale scheme by 1000GWh from the 32,500GWh that Lambie has endorsed.

And of course, more solar will be installed. By 2020 there's an expectation that solar would contribute approximately 10,000GWh. So in fact the LRET wouldn't be 32,500GWh but, in fact, 26,500GWh. This is precisely what the government was after from the start.

Other obscure amendments to both the legislation and regulations are also possible that would act to subtly reduce the amount of renewable energy supported by the scheme. 

So while on face value a crossbench deal could actually work out well for the renewables sector, it is fraught with danger.