Direct Action waits for a RET precedent
After the release of the Warburton review at the end of last month, momentum appears to be building for a compromise between the federal Opposition and the Coalition to salvage Australia's renewable energy target, with initial discussions underway between Environment Minister Greg Hunt, Industry Minister Ian Macfarlane and the ALP’s Chris Bowen, Mark Butler and Gary Gray.
The initiation of discussions on the RET comes after a challenging party room process for the Coalition, with reports that the majority of Liberal National Party MPs have shifted their support away from closing the scheme to new projects, as supported by the Prime Minister, Treasurer Joe Hockey and Finance Minister Mathias Cormann, in favour of a 'real 20 per cent' option.
While the partyroom division creates an internal headache for the government, reports that Hunt and Macfarlane have been given a negotiating mandate to ‘get it done’ on the RET suggests that Coalition may be entering a new phase of pragmatism, favouring compromise instead of taking a hard line stance on policy, without the support to execute its plan.
Following the shelving of the government’s controversial higher education and Medicare co-payment reforms, and backlash over proposals to segregate women wearing burqas in Parliament House, the government needs a win – and it may be positioned to deliver one on the RET.
Shadow of uncertainty may drive a compromise on RET
Unlike the proposed education and Medicare co-payment reforms, the Coalition may have some leverage to deal with the Opposition on the RET, with the policy uncertainty hanging over the scheme incentivising the major parties to at least come to the table in order to limit further damage to the RET.
Without a firm commitment to support or amend the RET it is unlikely that the market will obtain the necessary investment to support the development of capacity required to meet the 41,000 gigawatt-hour large-scale target, a fact seeming not lost on the ALP, evidenced by its willingness to join the Coalition at the negotiating table.
As we outlined in our recent update, in this ‘delayed investment’ scenario (due to policy uncertainty) renewables output is expected to grow to just 30,000 GWh by 2020, less than the current target, yet above current estimates for a proposed ‘real’ 20 per cent target in 2020.
Notably, this delayed investment scenario also results in the addition of 35 Mt to Australia’s greenhouse gas abatement budget during the second commitment period, roughly equivalent the emissions reductions made after two years of the Carbon Price Mechanism (39 Mt).
As a result, a ‘do nothing on the RET’ scenario, whereby policy uncertainty continues to erode the scheme, may actually work to strengthen the government’s hand at the negotiating table, with the Opposition expected to potentially be open to conceding some ground in order to sure up market confidence in the RET.
While the Industry Minister has recently distanced himself from calls to scrap the RET, Macfarlane continues to push for the 41,000 GWh target to be decreased to reduce the amount of fossil fuel capacity that must be closed. In response, the Labor Party continues to hold firm on its commitment not to reduce the RET, and is unlikely to shift from the 41,000 GWh target, yet may consider the extension of the fixed target timeline, a proposal supported by Climate Change Authority chair Bernie Fraser.
RET outcome may shape Direct Action progress
For its part, the Greens also want the RET to be left untouched, with Christine Milne indicating that she is open to dealing with the government on its Direct Action Plan in return for an assurance that the renewables target will not be wound back.
The Greens have shown a willingness to re-engage in the Senate over the past fortnight, most notably by working with the ALP and the Palmer United Party to block the government’s plan to hand environmental approval powers to the states, and to establish a Senate inquiry into the administration of the Queensland government.
How the government deals on the RET is likely to set the precedent for progress on climate policy with the Greens and PUP, specifically on the Direct Action Plan, with the more that the government compromises on the RET, the more the supportive the minor parties will be on the Emissions Reduction Fund.
The ERF continues to be an area where the Parliament will be keen to see some progress prior to the end of the year, with the Carbon Farming Initiative standing to lose investment of up to $1.4 billion should Australia’s climate policy vacuum continue beyond the current spring session of parliament – something the major parties and the crossbench alike will be keen to avoid.
As a result, it will be a frantic end to the year, and while we are likely to see some movement on the ERF over the next six weeks, nothing is likely to happen until the government shows its hand on the RET, which is expected to be the first domino to fall before any further climate policy progress.
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