Labor embraces renewables at the cost of good climate policy

Tony Wood, Grattan Institute

At this weekend’s ALP National Conference, Bill Shorten is likely to propose a target of 50% renewable electricity by 2030 as Labor’s central climate change policy.

This proposal demonstrates in spades how poisonous climate change politics has trumped good policy. As with taxation, neither main party seems prepared to develop an effective and efficient climate change policy and make a case for it in a way the electorate will embrace.

From emissions trading to the carbon tax

For a brief golden moment around 2008 we had the prospect that a firm cap on emissions would drive an economically efficient carbon price – an emissions trading scheme – with bipartisan support.

And, for the majority of economists and policy architects this represented the preferred policy approach to effectively address climate change at lowest cost.

As this carbon price steadily increased, the need for a Renewable Energy Target, also a policy with bipartisan support, would simply fall away as the carbon price did all the lifting to reduce emissions.

Alas, the fixed carbon price that was finally introduced in 2012 was not economically efficient as a falling European price meant it looked unreasonably high at its fixed level of A$23 per tonne.

It was removed in 2014, leaving the RET as “the central policy instrument for reducing electricity sector emissions,” to quote the Climate Change Authority.

Yet the Authority also noted the RET was not the best approach to reducing emissions in the electricity sector.

Economic modelling for the Warburton Review of the RET also concluded that “whilst the policy is somewhat effective in the abatement of emissions, it is at high cost compared to current global pricing and is therefore not the most efficient means of emissions abatement”.

Renewables over carbon pricing

Yet the Labor Party seems prepared to embrace renewable energy as the central plank of the climate change platform it will take to the next election and into government if it wins. It is a brave move, given the inevitable accusations of high cost this approach will attract.

Bill Shorten and Mark Butler have committed to an emissions cap to meet Australia’s post-2020 target for emissions reductions.

In an ideal policy world, a market mechanism such as emissions trading would be used to meet the target, and renewable energy would play whatever role was economically efficient to meet the cap at lowest cost.

Yet Labor seems unprepared, at least for now, to advocate such a lowest-cost policy to turn the cap into a carbon price. The scorning response last week from some media outlets and the government to a leaked Labor Part policy option paper indicates why Labor is being so circumspect.

Labor must now put together a comprehensive climate policy framework that can deliver Australia’s fair share of a global emissions target, provide a credible and predictable direction for investors, and survive the political barrage that the government will no doubt unleash against it.

This will likely involve a series of carefully crafted individual elements stitched together into an ugly, albeit comforting, patchwork policy quilt. Although not the ideal policy mix, it may yet turn out to be politically astute. Labor’s assessment of political reality seems to be that it has no other option.

No solutions on the other side either

Of course, the government remains bereft of a policy to achieve these same objectives. Direct Action, with its Emissions Reduction Fund and Safeguard Mechanism, is designed to help meet the government’s target of a 5% reduction in emissions against 2000 levels by 2020. The government is expected to announce its post-2020 target in August.

This target is likely to be for 2025 or 2030 and will require a lift in aspiration. Indeed, the Prime Minister pledged that Australia will “take a strong and credible position” to December’s United Nations climate negotiations in Paris.

Yet the current policy is not fit for that purpose and will require replacement or substantial re-engineering to make it so. The government has spent more time defining what its policy will not be than the alternative. That flexibility is about to expire as a credible domestic policy will be required to achieve the announced target.

Many political pundits and advocates for vested interests on both sides will welcome a genuine debate over alternative climate change policies in the lead-up to the next election. Let the battle and blood-letting continue.

Yet investors in the energy sector and those concerned about the urgency with which climate change must be addressed will mourn the passing of one more opportunity to forge a genuine consensus on how to address a problem that will hurt all Australians as well as our global sisters and brothers.

The Conversation

Tony Wood is Program Director, Energy at Grattan Institute.

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Labor seeks to turn climate policy into a positive with ambitious renewables goal

Michelle Grattan, University of Canberra

If Bill Shorten and his climate spokesman Mark Butler can’t sell Labor’s proposal for Australia to have 50% of its electricity provided by renewable energy by 2030, they should probably vacate the political persuasion game.

They start with the advantage that renewables are very popular with voters. An Essential poll out this week found 50% believed the government should prioritise support for the renewable energy industry over the coal industry. Only 6% thought support for coal should be the priority; 28% said both industries should be treated equally.

This was in contrast to people’s perceptions of what the government’s current priorities are – coal, 49%; renewables, 12%; equal treatment, 13%.
When people were asked whether the government gave enough support to various sectors, majorities thought renewables did not get sufficient support: wind farms, 56%; large scale solar, 55%; roof top solar, 57%. Only 12% said coal did not get enough government support.

These findings come after the Coalition’s lack of enthusiasm for renewables has been on display with Tony Abbott’s attack on wind farms and the government’s directive to restrict what the Clean Energy Finance Corporation invests in.

The 50% renewables goal is just the first stage in Labor’s climate policy. Shorten has released it ahead of the ALP national conference, which starts Friday. He won’t be putting out the more challenging aspects of that policy – Labor’s position on post-2020 emission reduction targets and its planned emissions trading scheme – until some unspecified time later. A section of the party would like to write post-2020 targets into the ALP platform but that is unlikely to get up at the conference.

After the renewable energy announcement, the government quickly ramped up the scare campaign. Environment Minister Greg Hunt said it would have “massive costs”, and even quoted the militant CFMEU – a rather startling source for the government to invoke. Hunt said the main thing was that this was a “desperate diversion” by “Electricity Bill” from his planned “massive new electricity tax” which would drive up power prices.

At present, the Renewable Energy Target (RET), recently legislated afresh after difficult negotiations with the opposition, is equivalent to 23.5% by 2020.

To support its argument, the opposition points to the targets of a range of other places: Denmark, 50% by 2020; California, 50% by 2030; Germany, 55-60% by 2035; Sweden, 63% by 2020; New Zealand, 90% by 2025; and Norway, 114% by 2020.

Butler was reluctant on Wednesday to be definite on what would happen to power prices, because many variables are involved. But he pointed to the government’s own Warburton inquiry into renewables, reporting in August 2014, which said that overall the RET was “exerting some downward pressure on wholesale electricity prices” when demand for electricity had been falling.

The Warburton report also said the direct costs of the RET “currently increase retail electricity bills for households by around 4%, but modelling suggests that the net impact of the RET over time is relatively small”.

Shorten uses a broad brush in promoting his 50% goal. “I believe in the long term it’s going to save consumers money,” he told the ABC, adding that it “ticks all the boxes” on jobs, investment and tackling climate change.

The government is attacking Labor’s failure to be precise about the effect on prices and its lack of modelling.

But let’s be realistic: in a discussion about an ambition for 15 years on, precise modelling risks not being worth the spreadsheet it appears on. The desire that we see in political debate for absolute precision when talking about long-run policies is unrealistic and potentially misleading, especially because much will depend on rapidly changing technologies.

It’s true that there are costs in increasing renewable energy, although they are particularly transitional. And as the use of renewables grows, the fossil fuel sector will be disadvantaged.

But with mounting pressure to act strongly on climate change, the world will be moving towards cleaner energy over coming decades and there will be costs to Australia if it does not do the same.

The renewables issue provides Labor with a chance to highlight that Abbott is out of touch with public opinion in this area. But it is harder to judge where the electorate will be, come election time, on the wider carbon issue. That will depend on factors such as the outcome of the Paris climate conference, and the respective advocacy skills of Labor and government.

Abbott had considerable success with his anti-carbon tax campaign in the 2013 election, much helped by the issue itself being entwined with Julia Gillard’s broken promise.

But parties always need to be beware of thinking they can fight the next election on the same formula as the last one.

Having said that, Labor can’t delude itself. Its overall climate policy will be a difficult sell. It is sensibly backing into it via the easiest route.

Listen to the latest Politics with Michelle Grattan, with Australian Institute director Ben Oquist, here or on iTunes. Conversation

Michelle Grattan is Professorial Fellow at University of Canberra.

This article was originally published on The Conversation.
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