Can, or should, we save ARENA?

John Hewson, Australian National University

Once again the essential development of the renewable energy sector has been stymied by short-term, opportunistic politics.

Included in the Turnbull government’s “omnibus” savings bill is a A$1.3 billion cut in the funding of ARENA, the Australian Renewable Energy Agency, a cut, coming on the heels of a couple of previous cuts, that basically wipes out any future role for ARENA. The proposed cut is part of the Abbott legacy that sought to effectively close down the renewable energy sector.

Although the government has presented the bill in the name of budget repair, it is also very much a political manoeuvre designed to wedge opposition leader Bill Shorten, by claiming that he had committed to these cuts during the election campaign, and recognising that a couple of the proposed cuts are either inconsistent with “traditional Labor values”, or with declared Labor policy, such as their commitment to a 50% renewable energy target for 2030.

Shorten is under considerable pressure to demonstrate his bona fides on budget repair, and especially as he has expressed a willingness to “reach across the aisle”, to work with the government on this urgent policy challenge.

However, both sides seem to still be stuck in campaign mode, moving from one stunt to the next. It is all about short-term politics, not good policy and good government.

Much attention has been focused on the savings bill as fundamental to the budget repair task. But it is important to recognise that, even using the very optimistic budget assumptions, the forecast/projected budget deficits for the 4-year budget period total nearly A$70 billion. The savings bill offers savings of just A$6 billion over the period.

It is also worth noting that if all the expenditure cuts and tax increases proposed by both sides in recent years were aggregated (but of course they won’t be) they would still fall well short of the budget repair task.

One view expressed to me recently was that Shorten may punt on the Turnbull government only lasting a year or so, so he could just essentially roll over on the omnibus bill now, including the cuts to ARENA, in support of budget repair, but with the intention of committing to refund ARENA in the run up to an early election.

Whatever. All this short-term politics simply burns the limited time we have to start to respond significantly to the urgent climate change challenge, and burns the considerable business and employment opportunities that such a response carries with it.

Few recognise the little progress that has been made so far, nor the magnitude of the task to base our electricity generation on renewables, moving forward.

For example, only about 15% of our electricity is generated by renewables, still 85% from fossil fuels, and more than 60% from coal. Despite having achieved one of the world’s highest rates of solar PV installation on household roof tops etc., solar PV still only accounts for a mere 2% of our electricity generation, and wind about 4%.

The renewables industry doesn’t help itself politically in this respect by exaggerating the emissions reduction benefits. As the sun doesn’t shine all day, nor the wind blow all day, these renewables need to be backed up by open cycle gas turbines, or by drawing from coal-fired power stations, to satisfy the demand for 24/7 power. The emissions from these negate many of the benefits from sun and wind.

Also, the intermittent nature of solar and wind creates significant morning and afternoon/early evening peaks, forcing consumers to pay. As in South Australia recently, intermittent wind left some consumers exposed to very high gas prices.

Until the renewables sector can develop cost-effective storage, renewable energy will never go anywhere near reaching its full potential to be able to provide 24/7 base-load power, or cost effective peak power, at prices competitive with coal, such that we can hope to make the essential transition from coal-fired to renewables-based electricity generation.

This situation is also not helped by the dishonesty and basic hypocrisy of some of our major power companies that spent a lot of time and money working with the Abbott government to try to close down the renewable energy sector, while at the same time running PR campaigns about how green they were, and how much they supported renewables, as well as exploiting the remaining life out of dirty coal-fired power stations they acquired cheaply.

I now spend considerable time developing working to develop cost-effective heat and battery storage, as well as base-load solar, and the development of natural graphite to enhance the efficiency and reduce the cost of storage. This will, I believe, be the essence of the renewables revolution.

Against this background, it is important to consider why we need an institution such as ARENA.

It is important to recognise that, as shown in the recent UNESCO Science Report, in 2014 Australia produced 3.7% of the world’s scientific publication output, well above what you would expect given the size of our population. But, in 2012, we produced less than 1% of the world’s share of triadic patents – those filed concurrently in Europe, the US and Japan – about a 40% decline over a decade.

So, we clearly “punch above our weight” in research excellence and in the generation of new technologies, but we fall down in commercialising those innovations, in driving significant and appropriate policy development, and creating new industries and new jobs.

This also clearly emphasises the hollowness of mere slogans such as “jobs and growth”!

Renewable energy is one of our most “shovel ready” business opportunities, especially given our natural endowments of sun and wind, and the range of technologies still basically sitting on the shelf in this country. The commercial development of these could easily and quickly establish us as world leaders in this space.

To capitalise on this competitive edge, much needs to change, everything ranging from basic attitudes to science and education and their funding, through approval processes, finance, and a host of government policies.

In this context, institutions such as ARENA can and should play a very significant role in kick starting the development and commercialisation of essential technologies, in a sense laying the basis for the full funding of viable renewables projects.

Given the reluctance of our financial/investor community to fund early stage technology, there is a clear role for ARENA, but the realization of a complete renewables revolution will also require reform of government (at all levels) project approval processes, and a significant shift in attitudes. It will require new funding structures, by our banks and major institutional investors.

I have been involved with several approaches to ARENA for early stage funding on a range of projects – none successful as yet. I can therefore comment, from personal experience, on the role ARENA has played to date.

It is fair to say that some of ARENA’s past grants have been misdirected, on research and projects that will never be commercially viable, or where the benefits have been exaggerated.

One of the most excessive was a grant to AGL of some A$166 million (together with some A$65 million from the New South Wales government) to build a paddock full of solar PV panels in Nyngan, which they claim is enough to power some 17,000 houses. But without storage, no matter how much the plant generates it will not do so at all times of the day.

So, any commitment to fund ARENA moving forward should consider carefully focusing their mandate – for example, no more solar or wind projects should be supported unless they include cost effective storage. ARENA should also not just make cash grants, but also consider loans/convertible note structures as well.

The policy challenges of budget repair, and climate change, are probably the two most significant and urgent confronting government today. An effective response to both necessitates genuine bi-partisanship that, unfortunately, seems inconceivable given the state of our politics today.

On climate, if we are to meet our Paris commitments on emissions reductions (that are about half what they should be to make our national contribution to the global objective of net zero emissions by 2050), there is an urgent need for a genuine National Energy Policy, a centrepiece of which must be innovation and renewable energy.

The renewable energy sector desperately needs a stable, long-term policy framework against which to invest. The proposed cut to ARENA funding, reflecting as it does just more short-term, opportunistic politics, simply compounds the uncertainties of the Abbott years that sought to close the industry down.

The Conversation

John Hewson, Professor and Chair, Tax and Transfer Policy Institute, Crawford School, Australian National University

This article was originally published on The Conversation. Read the original article.


The Climate Change Authority report: a dissenting view

Clive Hamilton and David Karoly, University of Melbourne

As Members of the Climate Change Authority who have participated fully in the Special Review of Australia’s Climate Goals and Policies, we reached the conclusion, after much consideration, that we could not in good conscience lend our names to its report, published last week.

Rather than resign from the Authority we decided to write a minority report. Here we present edited extracts from our report, which is released today.

The basis of our disagreement with the majority report is its failure to recognise the importance of the constraint put on all future emissions-reduction targets and policies by Australia’s carbon budget. The carbon budget is the total emissions that Australia can release between now and 2050 while still contributing its fair share in holding the global temperature rise to less than 2℃ – a key goal of the Paris climate agreement negotiated last December.

The majority report should, but does not, address the relationship between its recommendations and Australia’s carbon budget, consistent with a fair and equitable national contribution to the global carbon budget.

This is all the more regrettable because the requirement to do so is embedded in the Special Review’s terms of reference and was analysed in the First Report of the Special Review released in April 2015 (before the appointment of six new Members to the Authority in October 2015).

The budget constraint

In 2014 the Authority recommended an Australian emissions budget of 10.1 billion tonnes of greenhouse gases for the period 2013-2050. On this basis, it advised that Australia should set an emissions-reduction trajectory for 2030 in the range of 45-65% below 2005 levels. Contrast that with the current 26-28% target set by the Abbott government.

Against the constraints of the carbon budget, the majority report accepts – explicitly in some places, implicitly in others – the government’s current target.

But accepting this less ambitious target for 2030 is consistent neither with the Authority’s own advice to government, nor with Australia’s commitment under the Paris Agreement to play its role in holding warming below 2℃.

The graph below shows the carbon budget for Australia put forward by the Climate Change Authority in its earlier report. (The budget is the area under the curve.)

The embedded pie chart shows the sliver of emissions that would remain to cover the 20-year period after 2030 if there is no change from the 26-28% target. More than 90% of Australia’s carbon budget to 2050 would be used up by 2030. Australia’s emissions would have to decline precipitously and reach net zero by 2035.

Keeping Australia’s current emissions targets in place would leave a huge amount of work to do after 2030.
Author provided

Such a dramatic reduction would be impossible to achieve. So the current target of 26-28% lacks credibility because it is wholly inconsistent with Australia’s international obligations. If pursued it is likely to lead to a policy crisis within a decade or less.

Political independence

In our view, the failure of the majority report to make this clear to government and the public contravenes the Authority’s legislated obligation to deliver independent advice and to recommend measures that are “environmentally effective” and based on science.

We believe that the effect of the majority report will be to sanction further delay and a slow pace of action, with serious consequences for the nation. Those consequences include either very severe and costly emissions cuts in the mid-to-late 2020s, or alternatively a repudiation of Australia’s international commitments, and free-riding on the efforts of the rest of the world.

As we see it, the recommendations of the majority report are framed to suit a particular assessment of the prevailing political circumstances. We believe it is inappropriate and often counterproductive to attempt to second-guess political negotiations, especially for a new and uncertain parliament.

The unduly narrow focus of the majority report, seemingly based on a reading from a political crystal ball, has ruled out policies, such as a strengthened renewables target and stronger land clearing restrictions, that have a proven capacity to respond most effectively to the nation’s climate change goals.

Policy recommendations

At the centre of the majority report’s recommendations is the retention of the current Direct Action policy as the basis for further action. Its two pillars are the Emissions Reduction Fund (ERF) and its incorporated Safeguard Mechanism, which sets an upper limit on emissions from major polluters.

The report also recommends a new emissions trading scheme for electricity generation, based on an emissions-intensity baseline. Such a scheme would have lower price rises than the kind of cap-and-trade scheme favoured everywhere else in the world, and which Australia would have now if not for the Abbott government. After the rancour that engulfed the carbon price, the intensity-based scheme is presumably seen as more appealing to nervous politicians.

The majority report downplays the drawbacks of emissions-intensity schemes and the Safeguard Mechanism. There is not space to discuss them here, but we would like to comment on the flaws in the ERF because the majority report recommends that it be hugely expanded.

Flaws in the ERF

Under an expanded ERF policy, the cost to the federal budget would increase sharply, and even more so if Australia adopted tougher emissions targets in line with the science. Using the ERF in this way would be, in Professor Ross Garnaut’s words, “an immense drain on the budget”.

We believe it is unwise to make Australia’s climate policy hostage to disputes over fiscal policy.

As a rule, the replacement of the widely accepted “polluter pays” principle with the ERF’s “pay the polluter” principle is bad economics, bad ethics and bad policy. The practical drawbacks include the need for an expert bureaucracy to evaluate each prospective project and then to monitor, over several years, each successful project to ensure that the promised emissions reductions actually happen.

There are also serious and continuing concerns about the issue of “additionality”. Under the ERF, it is hard to know whether the Commonwealth is wasting money by paying for emissions reductions that would have taken place anyway – that is, projects that are not additional. Bear in mind that businesses plan energy-saving projects all the time, so why wouldn’t they try to get a subsidy if one is on offer?

Surveys show that a large majority of Australians want stronger action to reduce Australia’s emissions. The role of the Climate Change Authority is to advise on how that desire can be realised, in a way that is consistent with the best scientific and economic evidence.

The full minority report can be read here.

The Conversation

Clive Hamilton, Professor of Public Ethics, Centre For Applied Philosophy & Public Ethics (CAPPE) and David Karoly, Professor of Atmospheric Science, University of Melbourne

This article was originally published on The Conversation. Read the original article.