Labor gives up RET negotiations, will the Libs buckle?

Labor has said it is not worthwhile continuing negotiations with the government over its attempt to make cuts to the Renewable Energy Target. A letter from Labor's Mark Butler sent to Industry Minister Ian Macfarlane indicated negotiations were fruitless because the government was unwilling to back away from its preferred position of “deep and devastating” cuts in the level of the target currently legislated. The letter states:

"Considering the government's fundamental position remains a 40 per cent cut to the RET, I do not see there being any value in continuing discussions at this point in time".

In the lead up to the federal election the Coalition had provided no indication that they wished to make cuts to the level of support provided by the Renewable Energy Target. However Industry Minister Ian Macfarlane recently revealed that they would like to make a 40 per cent cut to the level of the large-scale RET which supports projects such as wind farms, reducing it from 41,000 gigawatt-hours of energy down to a level around 27,000GWh.

In addition a source has informed Climate Spectator that the government has revealed to them they also want to make changes to the small-scale scheme which largely supports rooftop solar systems. According to this source, the government wants to change eligibility for systems to qualify as small-scale from 100 kilowatts down to 10kW. This would effectively act to further reduce the amount of renewable energy built in Australia, because any growth in rooftop solar systems above 10kW would come at the expense of other large-scale projects under the capped and fixed large-scale scheme, whereas the small-scale scheme has no cap in the number of systems it will support.

To date the government has only indicated publicly that it would leave the level of support for household solar systems unchanged, while refusing to clarify what this meant for solar that was installed on rooftops of businesses and community buildings such as churches, schools, sports facilities and council offices.

Butler states Labor was willing to accept some changes to the target in the interests of getting a bipartisan agreement that would restore investment confidence in the scheme. This confidence has evaporated since the Coalition won power with investment in large-scale renewable energy projects completely drying up. This was due to concerns the Coalition could make changes to the scheme that would reduce the price of renewable energy certificates that make up 50 per cent or more of revenue. This is even though the a majority of senators have said they will block any such changes, because financiers cannot be certain this might change after the next election.

Labor's position has been that there was no justification for reducing the target. However without a compromise agreement where the Coalition agrees to not seek any further changes to the scheme, investment in projects such as wind, bioenergy and large-scale ground-mounted solar will remain at a standstill due to uncertainty. Butler stated in his letter that while Labor wanted to restore a bipartisan consensus it "will not support certainty if that means certainty of destroying the renewable energy sector".

The Clean Energy Council's chief executive Kane Thornton explained to Climate Spectator that while they were disappointed negotiations have broken down, if all the government was willing to offer was a 27,000GWh target and cuts to rooftop solar, then they'd prefer no deal. 

The Australian Solar Council's John Grimes was more blunt stating, “We congratulate Bill Shorten for walking away from a bad deal. Only one political leader is breaking their election promise to support the existing Renewable Energy Target and that is Prime Minister Abbott”.

While this impasse should do little to hold back the small-scale rooftop solar sector, it leaves wind, bioenergy and large-scale solar at an investment standstill.

In the end Labor has little to lose from playing hardball with the Coalition on this issue. Polling suggests that a very large majority – close to 80 per cent – of the general community are keen to see an expansion in the use of renewable energy. In addition if the government were to try to whip-up fears around electricity prices, Labor can simply wave the government's own economic modelling showing cuts to the scheme would actually increase household power bills.

Labor's only real driver to negotiate was that the renewable energy sector itself would like the uncertainty resolved.

The question now shifts to how vulnerable does the government feel it is leaving this issue unresolved as we get closer to an election.

Before the Ukraine plane tragedy and shortly after the release of the Warburton Review, the noises and rumours leaking out of government were that they'd picked a fight they shouldn't have, and wanted to back out of making big cuts to the RET.

After the plane crash, with polling improving, the tone changed.

But given Abbott's insipid shirtfront of Vladimir Putin has now become the butt of jokes, including a comic segment on the normally dour ABC 7.30 Report, this could now become a liability.

The Victorian election will be the next test, with suggestions the poor polling of the State Government is partly a function of deep unpopularity of Abbott in the state. If things go badly in Victoria pressure will build on the Federal Government to unwind some of their perceived broken promises.