Smog of uncertainty ruins a clean energy Christmas

Now that the Emissions Reduction Fund is on the budget backburner, from solar roofs to renewable reviews it's hard to find a climate policy not shrouded in grey.

The mid-year budget update – or MYEFO – released this week by the Australian government this week, has provided an appropriate end to the renewable energy industry’s annus horribilis.

The clean energy industry ends 2013 with no certainty about the future of the carbon price or its potential replacement (the Emissions Reduction Fund), a cloud over the Australian Renewable Energy Agency and the Clean Energy Finance Corporation, and a lack of clarity about the future of the Renewable Energy Target. Demand for household solar is down more than 20 per cent on this time last year and large-scale renewable energy projects have stalled.

With the release this year of the latest Intergovernmental Panel on Climate Change report, the science of climate change has become more certain, and while the impacts of climate change have become more obvious and more immediate, funding for climate action in Australia is set to decline from $5.5 billion in 2013-14 to less than $1 billion by 2015-16.

With uncertainty about the carbon price, the ERF and the RET, as well as continuing funding cuts, the government’s 5 per cent emissions reduction target is in danger of becoming a distant dream.

MYEFO has confirmed the cost to the budget of repealing the carbon price is $13.7 billion over the forward estimates period – astronomical in the context of a soaring budget deficit – and the cost of abolishing the CEFC is $439 million in foregone revenue over the same time. We simply cannot afford to abolish the carbon price and the CEFC.

MYEFO has cast the ERF – the $2.55 billion centrepiece of the government’s capped $3.2 billion Direct Action Plan – into the wilderness of the budget’s Contingency Fund. Despite a clear commitment from the Coalition before the election, there is now no budget allocation for the ERF. The Contingency Fund is the government’s back-up plan – a pot of money it can access to fund promises in the lead-up to an election or dip into in emergency situations. It is also where unloved policies go to die, with the promise they might be resuscitated if economic circumstances permit.

The Million Solar Roofs program – originally a $1 billion commitment to help low income earners access solar – has fared even worse, not even rating a mention in MYEFO. It may not be seen again.

If it doesn’t make economic sense to repeal the carbon price, it also doesn’t make political sense to repeal the carbon price when there is no replacement in sight. The most logical approach is to move to an emissions trading scheme at the earliest opportunity, taking the cost of climate action off budget and into the hands of the market.

There is another advantage in moving rapidly to an emissions trading scheme – it will avoid double compensation being paid by taxpayers to our biggest polluters as well as an additional $2.8 billion over four years for the buyback of free permits issued to the polluters. The previous government had already allocated $7.5 billion (up to July 1, 2014) in compensation for industry for the implementation of the carbon price.

The Review of the Renewable Energy Target is another cloud hanging over Australia’s clean energy industry – 2013 began with the conclusion of the last comprehensive RET review and the year is concluding with the threat of another review early next year. In a nice piece of symmetry, the last RET review was conducted by the Climate Change Authority and the authority might just have to repeat the job next year.

The government was planning to abolish the CCA, but the failure to get the repeal legislation through the Senate means the authority is left with a statutory obligation to review the RET in 2014. That is clearly not the government’s preferred option, but it is impossible to see how the CCA could be abolished before July next year, when the Senate composition changes, at the earliest.

The solution for the government is clear, if not preferred. The government should either accept the CCA has an obligation to review the RET next year and let it get on with that work or accept the CCA’s recommendation from its last review that the RET not be reviewed again until 2016, and legislate to that effect. The latter approach would provide the clean energy industry with some of the certainty that it so desires.

The future of the RET is no trifle matter. The REC Agents Association – representing companies that create and trade in renewable energy certificates – has shown the household solar industry alone is now a $3.5 billion industry, employing some 18,500 Australians in 2012 through 4500 small and medium sized businesses. Some five million Australians now have solar on their roofs with the support of the RET, at a net cost of just $1.90 out of an average $500 quarterly power bill.

For Greenbank – Australia’s leading independent trader of clean energy certificates – 2013 has been a tough year but as the New Year approaches, I think we can all draw inspiration from the Australian cricket team in seeing how quickly fortunes can turn around. Just as the cricket selectors provided some certainty for the Australian players, the Australian government can help the clean energy industry by providing them with a bit more certainty.    

Fiona O’Hehir is the chief executive of Greenbank Environmental and Vice-President of the REC Agents Association.