Finkel’s Clean Energy Target plan ‘better than nothing’: economists poll


Bruce Mountain, Victoria University

Few topics have attracted as much political attention in Australia over the past decade as emissions reduction policy.

Amid mounting concern over electricity price increases across Australia and coinciding with blackouts in South Australia and near-misses in New South Wales, the Australian government asked Chief Scientist Alan Finkel to provide a blueprint for reform of the electricity industry, in a context in which emissions reduction policy was an underlying drumbeat.

In a new poll of the ESA Monash Forum of leading economists, a majority said that Finkel’s suggested Clean Energy Target was not necessarily a better option than previously suggested policies such as an emissions trading scheme. But many added that doing nothing would be worse still.


Read more: The Finkel Review: finally, a sensible and solid footing for the electricity sector.


The Finkel Review’s terms of reference explicitly precluded it from advising on economy-wide emissions reduction policy, and implicitly required it also to reject emission reduction policies such as an emissions tax or cap and trade scheme.

One of the Finkel Review’s major recommendations was a Clean Energy Target (CET). This is effectively an extension of the existing Renewable Energy Target to cover power generation which has a greenhouse gas emissions intensity below a defined hurdle. Such generation can sell certificates which electricity retailers (and directly connected large customers) will be required to buy.

The ESA Monash Forum panel was asked to consider whether this approach was “preferable” to an emission tax or cap and trade scheme. As usual, responses could range from strong disagreement to strong agreement with an option to neither agree nor disagree. Twenty-five members of the 53-member panel voted, and most added commentary to their response – you can see a summary of their verdicts below, and their detailed comments at the end of this article.

https://datawrapper.dwcdn.net/Kzu9L/2/

A headline result from the survey is that a large majority of the panel does not think the CET is preferable to a tax or cap and trade scheme. None strongly agreed that the CET was preferable, whereas 16 either disagreed or strongly disagreed, and four agreed.

Of the four who agreed, three provided commentary to their response. Stephen King preferred the CET on the grounds of its ease of implementation but otherwise would have preferred a tax or cap and trade scheme. Michael Knox agreed on the basis that the CET was preferable to the existing Renewable Energy Target. Harry Bloch unconditionally endorsed the CET.

Of the five who neither agreed nor disagreed, three commented and two of them (Paul Frijters and John Quiggin) said there was not much to distinguish a CET from a tax or cap and trade scheme. Warwick McKibbin, who disagreed with the proposition, nonetheless also suggested that the CET, tax and cap and trade scheme were comparably effective if applied only to the electricity sector.

However, closer examination of the comments suggests much greater sympathy with Finkel’s CET recommendation than the bare numbers indicate. Even for those who strongly disagreed that the CET was preferable, none suggested that proceeding with a CET would be worse than doing nothing. But eight (Stephen King, Harry Bloch, Alison Booth, Saul Eslake, Julie Toth, Flavio Menezes, Margaret Nowak and John Quiggin) commented that proceeding with the CET would be better than doing nothing. Interestingly none of these eight explained why they thought doing something was better than doing nothing. Does it reflect a desire for greater investment certainty or a conviction that reducing emissions from electricity production in Australia is important?

Seven respondents (Stephen King, Alison Booth, Saul Eslake, Julie Toth, Gigi Foster, Lin Crase and John Quiggin) alluded to the political constraints affecting the choice, of which several drew attention to Finkel’s own observations. None of these seven suggested that the political constraint invalidated proceeding with the CET.

Of the 19 economists who provided comments on their response, 16 thought a tax or cap and trade scheme better than a CET. Numbers were equally drawn (three each) as to whether a tax or cap and trade was better than the other, with the remaining 10 invariant between a tax or cap and trade.

My overall impression is that in judging Dr Finkel’s CET recommendation, most of the panel might agree with the proposition that the “the perfect is the enemy of the roughly acceptable”. I surmise that in a decade past, many members of the panel would have held out for greater perfection, but now they think prevarication is more cost than benefit, and it is better to move on and make the best of the cards that have been dealt.

In emissions reduction policy the mainstream advice from Australia’s economists has not been persuasive. But this is hardly unique to Australia, as the pervasiveness of regulatory approaches in other countries shows. Perhaps an unavoidably compromised policy that is nonetheless well executed may be better than a brilliant policy that is poorly executed. Even if they could not have been more persuasive in design, Australia’s economists should still have much that is useful to contribute in execution. Hopefully more can be drawn into it.

Read the panel’s full responses below:

https://cdn.theconversation.com/infographics/115/8c22ecaf49b3a727fb96e8c3b50da37fd0c28f49/site/index.html


The ConversationThis is an edited version of the summary of the report’s findings originally published by the ESA Monash Forum.

Bruce Mountain, Director, Carbon and Energy Markets., Victoria University

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

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Critical backbenchers push back on Finkel clean energy target plan



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Josh Frydenberg’s task of garnering broad support for the Finkel scheme is proving to be more difficult than expected.
Lukas Coch/AAP

Michelle Grattan, University of Canberra

A sizeable slice of his backbench has sent Malcolm Turnbull a forceful message that his road to implementing the clean energy target (CET) proposed by the Finkel inquiry will be rocky even within his own ranks.

After Energy Minister Josh Frydenberg gave an extensive briefing on the Finkel plan to the Coalition partyroom on Tuesday morning, MPs later reconvened for nearly three hours of questions and debate.

About one-third of the 30-32 who spoke expressed misgivings, according to Coalition sources. There was broad support from another third. The rest didn’t express a firm view, asking questions and seeking more information.

The report from the panel led by Chief Scientist Alan Finkel says a CET “will encourage new low emissions generation [below a threshold level of carbon dioxide per megawatt hour] into the market in a technology neutral fashion”.

A key issue will be where the government, which is disposed to adopt the Finkel plan, sets the threshold. It is clear that to accommodate the Nationals and a section of the Liberal Party it will have to be at a level that allows for the inclusion of “clean” coal.

The meeting was to gauge backbench views ahead of cabinet considering the report. Ministers, apart from the minister with carriage of the issue, don’t speak on these occasions.

Tony Abbott, who had publicly flagged his belief that the Finkel scheme represents a tax on coal, spoke strongly at the meeting.

The degree of pushback against a CET was stronger than had been anticipated, given the intense lobbying of the backbench that Frydenberg had done ahead of the meeting.

Frydenberg said afterwards: “I want to emphasise that this meeting was not making any decisions about Dr Finkel’s proposal. Rather, it was an information-gathering session.”

A common theme from backbenchers was that it was vital to be able to be confident the Finkel plan would make energy more affordable. A number of MPs, especially from outer suburban and regional areas, said affordability was what mattered most to their electorates.

Some questioned the Finkel modelling showing that prices would fall. The chairman of the backbench environment committee, Craig Kelly, said: “If you believe that you can lower prices by replacing existing coal-fired generation with higher-cost renewables, then I have a harbour bridge to sell you.”

Concern was expressed about the place of coal, and there was criticism of Finkel’s projection of an effective renewable energy target of 42% by 2030. Some backbenchers believed it would take the Coalition too close to Labor, which has a 50% target. There were also queries about the status of the Paris targets.

But Frydenberg told the ABC: “There was an overwhelming feeling among those in the party room tonight that business-as-usual is not an option.”

Asked on 7.30 “are you going to be able to get your colleagues to agree to support a clean energy target?,” Frydenberg replied: “It is too early to say.”

Finkel met with the government’s backbench environment committee on Tuesday to explain his plan and answer questions.

Frydenberg conceded that backbenchers “are concerned about the future of coal”. But he flatly rejected the Abbott suggestion that the Finkel plan amounted to a tax on coal, saying it was “absolutely not”.

“Dr Finkel has made it very clear he is not putting in place any prohibitions on coal or any form of generation capacity. He is putting in place incentives for lower emission generation. It is not a price on carbon or a tax on coal.”

The CET had “similarities to what John Howard put forward back in 2007”, Frydenberg said – a point he made in his briefing to the party meeting.

Deputy Prime Minister Barnaby Joyce also slapped down Abbott’s proposition that the CET amounted to a tax on coal, telling Sky that “Mr Abbott’s entitled to his opinion” but “there is no penalty placed on coal.

The Conversation“There is an advantage that is placed on those that are below the line. An advantage, because they get a section of a permit, which is like a payment. Those above the lines don’t … I suppose ipso facto it could be seen as not having the same advantage.”

https://www.podbean.com/media/player/icjdu-6b9a25?from=site&skin=1&share=1&fonts=Helvetica&auto=0&download=0

Michelle Grattan, Professorial Fellow, University of Canberra

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

The Finkel Review at a glance


Madeleine De Gabriele, The Conversation; Michael Hopkin, The Conversation, and Wes Mountain, The Conversation

The long-awaited report from Chief Scientist Alan Finkel into Australia’s National Electricity Market was released today.

The key recommendation is the adoption of a Clean Energy Target. This mandates that energy retailers provide a certain amount of their electricity from “low-emissions” generators – sources that produce emissions below a threshold level of carbon dioxide per megawatt.

Crucially, Dr Finkel has not made a recommendation as to the precise threshold or the number of certificates to be issued, saying:

The Panel acknowledges that the specific emissions reduction trajectory that should be set for the electricity sector is a question for governments.

The ConversationAt a minimum, the electricity sector should have a trajectory consistent with a direct application of the national target of 26-28% reduction on 2005 levels by 2030, as per Australia’s international obligations under the Paris Agreement.



Independent Review into the Future Security of the National Electricity Market/The Conversation, CC BY-ND

Madeleine De Gabriele, Deputy Editor: Energy + Environment, The Conversation; Michael Hopkin, Environment + Energy Editor, The Conversation, and Wes Mountain, Deputy Multimedia Editor, The Conversation

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

Energy solutions but weak on climate – experts react to the Finkel Review



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The Finkel Review is scientifically modest but politically deft.
Lukas Coch/AAP

Hugh Saddler, Australian National University; Alan Pears, RMIT University, and David Karoly, University of Melbourne

The keenly anticipated Finkel Review, commissioned in the wake of last year’s South Australian blackout, has made a range of recommendations aimed at delivering a reliable, secure and sustainable National Electricity Market.

Among the proposals is a new Clean Energy Target to boost investment in low-carbon electricity generation, as well as moves to require high-emitting power stations to give three years’ notice before shutting down.

Below, our experts react to the measures.


“Security and reliability are first”

Hugh Saddler, Honorary Associate Professor, Australian National University

With so much focus on the design of a mechanism to support a shift towards lower-emissions generation, it is easy to forget that the primary purpose of the Review, commissioned following the “system black” event in South Australia on September 28, 2016, was “to develop a national reform blueprint to maintain energy security and reliability”. It is thus appropriate that security and reliability are the first topics to be addressed in the main body of the report.

System security is defined as the ability of the system to tolerate disturbances. Maintaining security requires the system to be able to prevent very high rates of change of frequency. At present the system has no explicit mechanism for doing this, but relies implicitly on the inertia provided, effectively as a free service, by existing large thermal generators.

The report recommends a series of regulatory energy security obligations to provide this service by various additional means, falling on the transmission network service providers in each of the five NEM regions (states), and also on all new generators connecting to the system.

System reliability is defined as the ability of the system to meet consumer demand at all times. In the old system, this is achieved by “dispatchable” generators, meaning coal and gas generators that can vary their output as required to meet demand.

In the new system, with large amounts of variable wind and solar generation, other supply sources are needed to meet demand at times of low wind speed and/or lack of sun – that is, to act as complements to wind and solar. Existing hydro and open-cycle gas turbine generators are ideally suited to this task, but with the growth in wind and solar generation, this capacity will very soon be insufficient for the task across the NEM (and is already insufficient in SA).

The Report recommends what it calls a Generator Reliability Obligation, which would be triggered whenever the proportion of dispatchable generation (which could include batteries and other forms of storage) in a region is falling towards a predetermined minimum acceptable level. The obligation would fall on all new renewable generators wishing to connect thereafter and, in the words of the Report “would not need to be located on site, and could utilise economies of scale” through multiple renewable generation projects “pairing” with “one new large-scale battery of gas fired generation project for example”.

If implemented, this recommendation would seem certain to greatly complicate, slow down and add to the administrative overhead cost of building new renewable generation. It would involve putting together a consortium of multiple parties with potentially differing objectives and who would otherwise be competing with one another in the wholesale electricity market.

A far better approach would be to recognise that dispatchable generation provides a distinct and more valuable product than non-dispatchable generation. There should be a separate market mechanism, possibly based on a contracting approach, to provide this service. If well designed, this would automatically ensure that economies of scale, as may be realised by pumped hydro storage, for example, would be captured. This approach would be far more economically efficient, and thus less costly to electricity consumers, than the messy processes required under the Report’s obligation approach.


“Energy efficiency is effectively handballed to governments”

Alan Pears, Senior Industry Fellow, RMIT University

The Review’s approach to the demand side is very focused. Demand response, the capacity to reduce demand at times of extreme pressure on the supply system, is addressed thoroughly. The past under-utilisation of this approach is acknowledged, and the actions of the Australian Energy Market Operator (AEMO) intended to capture some of its potential in time for next summer are outlined.

However, the deep cultural problems within the Australian Energy Markets Commission regarding demand response are not tackled. Instead, the AEMC is asked (yet again) to develop facilitation mechanisms in the wholesale market by mid-2018.

Energy efficiency is effectively handballed to governments. After making some positive comments about its valuable roles, recommendation 6.10 states that governments “should accelerate the roll out of broader energy efficiency measures to complement the reforms recommended in this Review”.

This is a disappointing outcome, given the enormous untapped potential of energy markets to drive effective energy efficiency improvement. But it clearly shows governments that they have to drive energy-efficiency initiatives unless they instruct energy market participants to act.


“It follows the wrong path on greenhouse emissions”

David Karoly, Professor of Atmospheric Science, University of Melbourne and Member, Climate Change Authority

The Finkel Review says many sensible things about ways to improve the security and reliability of Australia’s electricity sector. However, it follows completely the wrong path in what it says about lower greenhouse emissions from the electricity sector and Australia’s commitments under the Paris Agreement. This is disappointing, as Alan Finkel is Australia’s Chief Scientist and a member of the Climate Change Authority.

All economy-wide modelling shows that the electricity sector must do a larger share of future emissions reductions than other sectors, because there are easier and cheaper solutions for reducing emissions in that sector. However, this review’s vision is for “emissions reduced by 28% below 2005 levels by 2030” – exactly the same as Australia’s target under the Paris Agreement. It should be much more.

The ConversationAustralia’s commitments under the Paris Agreement are “to undertake ambitious efforts” to limit global warming “to well below 2℃ above pre-industrial levels”. The Targets Report from the Climate Change Authority in 2015 showed that this means Australia and the electricity sector must aim for zero emissions before 2050, not in the second half of the century, as suggested in the Finkel Review.

Hugh Saddler, Honorary Associate Professor, Centre for Climate Economics and Policy, Australian National University; Alan Pears, Senior Industry Fellow, RMIT University, and David Karoly, Professor of Atmospheric Science, University of Melbourne

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

The Finkel Review: finally, a sensible and solid footing for the electricity sector


David Blowers, Grattan Institute

Chief Scientist Alan Finkel’s long-awaited review of the National Electricity Market, released today, will make a significant difference to Australia’s electricity system in three key areas: reliability (making sure the system generates enough power to meet demand), security (making sure the system doesn’t break), and governance (making sure the electricity market can run effectively).

Reliability

The review recommends a Clean Energy Target (CET), which will provide subsidies to new low-emissions generation. The actual choice of scheme is less important than its durability. If broad political agreement can be reached on this target, it can provide the policy certainty that industry crucially needs to build new generation capacity and meet electricity demand.

Finkel also proposes a Generator Reliability Obligation, which places a limit on further wind and solar power in regions that already have a high proportion of intermittent generation. New intermittent generators will have to provide backup for some of their supply, in the form of new storage or contracts with new dispatchable generators such as gas. The aim is to ensure that federal and state subsidies for renewables do not push too much intermittent generation into the market without adequate backup.

Large generators will also need to provide a reasonable notice of closure – the review suggests a period of three years – before leaving the market. The aim here is to ensure the market has enough time to respond by installing new generation.

Finally, the review floats the possibility of further changes to ensure reliability, potentially a day-ahead market to lock in supply ahead of time, or a strategic reserve – a mechanism by which the market operator can sign contracts requiring generators to sit idle unless needed in an emergency.

The market operator (AEMO) can already do this, and the report is silent on how a strategic reserve would be different or whether it is definitely needed.

Security

To secure the electricity system, Finkel calls for existing standards to be tightened and new mechanisms to be introduced.

Transmission companies will be required to provide and maintain a prescribed level of inertia in the system – high levels of inertia can prevent rapid changes in frequency that harm the system. Fossil fuel generators may be required to change their settings to control the frequency in the system, whereas new generators, including renewables, will be required to provide fast frequency-response services to help avoid frequency fluctuations that can damage the grid.

While technical in their nature, these measures will reduce the likelihood of instability in the system and provide extra tools to fix the it if instability arises.

Finkel also makes recommendations to bolster the emergency management plan for the 2017-18 summer and to encourage consumers – both residential and business – to reduce their demand at peak times. The review strongly encourages the development of “demand response” schemes to give consumers incentives to switch off and help smooth the load at peak times.

Governance

The biggest change to how the market will be run is the proposed creation of an Energy Security Board (ESB). The ESB will comprise an independent chair and vice-chair, as well as the heads of the three governing bodies: the AEMC, AEMO and the market regulator (the AER). At a minimum, the ESB will be responsible for implementing many of the Finkel Review recommendations, although the panel leaves scope for it to do much more.

Finkel recommends a comprehensive review of the rules governing the electricity market. It also argues for increased accountability for market bodies and the COAG Energy Council, through enhanced performance indicators and a beefed-up process for determining and monitoring priorities for the energy sector.

What happens next?

The report makes a range of other recommendations designed to ensure better service for energy consumers, more transparency in gas markets, and improved planning and coordination of electricity networks.

The Finkel Review successfully addresses the main issues confronting the electricity sector today. At the very least, it is a step towards a more reliable and secure system.

The ConversationThe devil, as always, will be in the detail. Much will depend on how the recommendations are implemented. Australian households and business can only hope that the new Energy Security Board and the nation’s political leaders will see this through.

David Blowers, Energy Fellow, Grattan Institute

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