The government needs to look beyond its 2020 climate vision

Perhaps the best advice that Dick Warburton and his renewable energy target review panel have received over the past quarter has come from the Grattan Institute’s Tony Wood.

“The current target has no underpinning policy rationale,” Wood told the panel in a submission. “There is no correct answer as to what target should be recommended by the review. The panel will need to strike a balance between investor certainty and consumer costs.”

Back in February, when the review was set up, the Abbott government said Warburton and co are required to report “by mid-2014”, so in theory, we should not have long to wait to hear their recommendations.

They are needed to help the government make sense of its energy white paper, at least so far as electricity supply is concerned. The Department of Industry, which is responsible for this task, has missed its initial green paper deadline of the end of May. It is now saying that “late June” will see its first product.

Almost the only certainty in the RET exercise is that the Warburton panel won’t buy the green lobby’s vehement arguments for the target to be left at its fixed level of 41,000 gigawatt hours in 2020.

The odds against this target will be stacked higher by the Australian Energy Market Operator, which will come out this month with a new projection of electricity demand that will be lower than those that have gone before.

While the green lobby is cracking hardy about the need to retain the RET at 41,000 GWh regardless of the level of consumption at the decade’s end, its real fear is that Warburton’s panel may also give the elbow to the “20 per cent by 2020” proposal, which many (including mainstream market players) have put forward.

Killing the RET altogether, which the green lobby throws up as the great danger, is unlikely to be acceptable to the Abbott government even if the review panel decides to go all hard-line.

The politics of this are just too hard, especially in the light of promises made before the 2013 election and the furore over what is seen as the government trespassing across the truth line in the recent budget.

Grandfathering the RET’s present investments and moving on to a new approach, however, is a possibility. Warburton’s panel has received a number of proposals along these lines, including one from the independent Grattan Institute.

The think tank makes the point that the government has to look beyond 2020.

“Uncertainty on climate change policy and the lack of bipartisan support for specific mechanisms to meet agreed climate change objectives constitute a major threat to efficient investment and create unmanageable risks for investors,” it says. “A carefully crafted expansion of the RET to include non-renewable sources of emissions reduction could form the basis for a credible, long-term policy.”

Interestingly enough, the opponents to this idea are not just those of deep green persuasion. Major Energy Users Inc, a lobby group for 30 large energy-using companies across the country -- including steel, minerals processing, paper and pulp and automotive manufacturers -- doesn’t want a bar of it either.

The MEU says lower-emitting, non-renewable forms of power production should be supported through the Abbott government’s Direct Action policy.

The role of the RET, it adds, should be to efficiently deliver the original 20 per cent target. It shouldn’t have been enlarged by the Labor regime via regulation and the open-slather aspect dealing with solar power is a bad idea that “has resulted in a market distortion causing considerable harm to consumers.”

One of the submissions quantifying the RET burden for energy-intensive industry comes from the Queensland government’s Stanwell Corporation, which is not only that state’s second-largest generator but also a retailer with corporate customers in other jurisdictions.

Stanwell says that a large industrial operation using 700,000 megawatt hours a year, compared with a typical east coast house using five to seven megawatts annually, will shell out about $5 million in 2014 in RET charges.

These customers, it adds, are exposed to overseas rivals who don’t have this weight in their saddlebags, “and the impost of the RET is even higher when indirect costs, including higher network charges, associated with it are considered”.

Both Stanwell and its generation twin, CS Energy, which are targets for privatisation by the Newman government, argue that in the interests of market efficiency, all the federal and state green schemes should be rolled in to the emissions reduction fund the Abbott government is proposing.

Just where the RET review and the following decisions by Abbott and his cabinet on overall energy policy will ultimately land is anyone’s guess.

It’s entirely possible the government itself doesn’t know yet.

The sole point of agreement among the RET protagonists across the board is that the current uncertainty is poison for investment. Whether the Warburton antidote is palatable and whether Abbott’s government will swallow it remains to be seen.

Keith Orchison, director of consultancy Coolibah Pty Ltd and editor of OnPower, was chief executive of two national energy associations from 1980 to 2003. He was made a Member of the Order of Australia for services to the energy industry in 2004.