With Tony Abbott’s recent suggestion that there should be a “serious review” of the Renewable Energy Target due to its impact on electricity prices, there are a few factors that he should bear in mind.
The RET contributes minimally to electricity prices
According to the latest assessment by the Australian Energy Market Commission, the RET only contributes 3-4 per cent to retail electricity prices, and this is projected to decrease over time.
The Large-scale Renewable Energy Target, responsible for the bulk of renewable energy produced under the RET, is only responsible for 2 per cent of retail electricity prices. In other words, if Abbott took away the RET, consumers would hardly notice, but we would lose the rapid ramp-up in renewables anticipated.
Compounding uncertainty undermines investment of all kinds
By threatening the RET, Abbott compounds the significant uncertainty already facing the electricity sector in Australia. If the government were to take away the RET there is a real possibility of companies writing off Australia as a risky environment for investment, and taking their business elsewhere.
In the mild case, this makes financing premiums go up, increasing costs for consumers. In the extreme case, companies may not take future government schemes seriously, and we could see a lack of willingness to invest in any kind of generation.
Renewables protect consumers from price volatility and uncertainty
With the rapid expansion of a vast LNG export industry on the east coast, the National Electricity Market is about to become exposed to international gas markets. This means that there is great uncertainty over future gas prices, and large potential for price volatility.
Without the RET supporting investment in renewables, new power sector investment will be in gas-fired technologies, increasingly exposing electricity prices to international gas price volatility. Renewables provide a good hedge against this, providing stable, long-term price certainty for consumers.
The RET has already undergone “serious review”
The Climate Change Authority completed a comprehensive independent review of the RET very recently, in December 2012. Based upon that comprehensive review, minimal changes to the RET scheme were recommended. Is Abbott proposing a repeat of this process, at taxpayers’ expense?
Say goodbye to the renewable energy industry
Australia has worked hard to establish a vibrant renewable energy industry. Without the RET to support continued investment in renewables these companies will not be able to exist. Say goodbye to the jobs and economic development created, particularly in regional areas where most renewable deployment would be focused.
Australia’s economy is vulnerable to the impending carbon-constrained future
Whether or not Abbott believes in climate change, it would be foolish to ignore the fact that the rest of the world is accelerating towards a low carbon economy. With Australia’s highly carbon intensive economy and high reliance upon coal-fired generation, Australia ranks 17th amongst the G20 in terms of our competitiveness in a carbon constrained world. China, by comparison, ranks third.
If we want to continue our prosperity, we need to urgently diversify our economy into a portfolio of industries that will be sustainable in a low carbon future. Given Australia’s abundant renewable resources we can continue to be the powerhouse for the world and a low cost, low risk home for energy intensive industry. But we need to start the transition now, because we are at the back of the pack and other nations are racing ahead.
A “gas transition” doesn’t make sense
There is a pervasive idea that Australia can begin the decarbonisation process with investment in gas-fired technologies – after all, the greenhouse emissions from a gas plant are around half those from a coal-fired plant, so it seems like a natural transitional technology. But the numbers simply don’t add up.
Forecasts show the National Electricity Market consuming 50 per cent more electricity by 2035 than we do today. Modelling from the University of Queensland therefore shows that even if gas-fired generation produces a substantial decrease in our carbon intensity, absolute emission remain essentially at present levels. Only continued investment in renewable generation can produce the kinds of emissions reductions that we know are necessary over the next few decades.
What Australia does really matters
Opponents of action on climate change often like to point out that Australia’s direct emissions are only 1.5 per cent of the global total, and claim that it therefore doesn’t matter what we do. However, other nations care a great deal about what we do, and due to the popularity of Australia in the international psyche, this influence is far in excess of 1.5 per cent.
In particular, as our most important trading partner, China cares deeply about what Australia does. Their actions, which control a vast proportion of global emissions, will undoubtedly be affected by their perception of whether Australia is ‘doing its fair share’.
As one of the most prosperous and developed economies in the world, if Australia removes the RET and the carbon price, how much action on climate change should we expect to see from others? And as a national highly vulnerable to climate change, is this in our best interests?
Dr Jenny Riesz is the Principal Energy Market Analyst at Riesz Consulting.
CORRECTION: A earlier version of this article listed Jenny Riesz position as a senior consultant in the Energy Strategic Advisory division at AECOM which was incorrect. She longer works for AECOM having established her own consulting business. To restate, the views expressed above are those of the author alone.