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.

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:

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.

Renewable energy deal gives no certainty over coming decades

Ken Baldwin, Australian National University

Over the past 14 months the uncertainty over the future of the Renewable Energy Target (RET) has completely stalled Australia’s electricity industry (both renewables and fossil fuels), causing many companies to reconsider their future in this country.

A compromise target of 33,000 gigawatt hours (GWh) in 2020 agreed between Labor and the Coalition has finally ended the deadlock. Or has it?

The electricity industry needs certainty to invest in long-term generating capacity, but the target itself is only in force until 2020 (just four years and seven months away). At least the major parties have agreed to get rid of the intermediate biennial reviews which would have thrown certainty out the window.

But Labor has promised to increase the target after the next election, and who knows what a re-energised post-election Coalition government might do if they were to retain power.

So where does that leave the sector over the coming decades?

Falling demand increases renewable share

The ostensible reason for the current review was that for a notional goal of 20% renewables by 2020, the original target of 41,000 GWh would have been “too high” (23% to 26%) – given that grid-based electricity demand has fallen over the last seven years (see the chart below).

Pitt and Sherry Emissions Index, May 2015

This fall is the result of a combination of reasons: the changing structure of our economy away from manufacturing, fallout from the global financial crisis, increases in electricity prices arising from over-investment in networks to meet projected peak demand, improvements in energy efficiency, and the explosion of rooftop solar to replace grid-based electricity.

The decline is marked: 9% in the four years and seven months since September 2010 or around 2% a year. If this decline continues to 2020 – a similar time interval away – then it could significantly increase the percentage contribution of renewables.

Minister for the Environment Greg Hunt currently estimates that the 33,000 GWh target will provide 23.5% renewables by 2020. This is similar to projections by ACIL Allen in their report commissioned for the RET Review Committee which assumes that electricity generation will rise (not fall) each year by 1.6% on average.

Alternatively, if demand flatlines until 2020, then the contribution of renewables (currently around 16%) could exceed 25% based on the other ACIL Allen parameters.

Even more significantly, if demand continues to fall at the same rate as in recent years, then the number could surpass 28%.

By comparison, a 41,000 GWh RET would have yielded around 26% renewables under the growth scenario, around 29% with flatlined demand, or around 32% with declining demand.

Pushing out large solar

In any event, without a price on carbon, the lower renewable uptake created by the 33,000 GWh target will slow the much-needed decarbonisation of Australia’s economy. The electricity sector’s emissions have dramatically increased since the removal of the carbon tax (see the chart above), at a time when the international imperative to reduce emissions is increasing.

Further, because of the backlog of wind projects already stalled by the RET uncertainty, large-scale solar may be squeezed out even though it will be increasingly competitive towards 2020. While wind is currently the cheapest new-build renewable, the Australian Energy Technology Assessment shows it will be followed hard on its heels by solar in 2020 because of rapid cost reductions. But the potential to overtake wind on price may come too late if the 33,000 GWh is already built out by new and pipelined wind projects.

In addition, the predicted potential for the RET to eventually reduce electricity prices (due to increased competition with incumbent generators) will be less effective now that the RET is reduced and future low-price competitors are potentially squeezed out.

No room for wood-burning

One thing is for sure, there should be no room in the RET for the burning of so-called “native timber waste” left over from other logging operations. Even if leftover timber that would otherwise decay is used, this is not a zero-carbon source of electricity for two key reasons.

First, the timber decay process itself takes many decades and retains some of the carbon in the soil, whereas burning the waste timber releases it immediately into the atmosphere.

Second, there is an additional and ongoing carbon footprint from the collection, transport and further processing of the waste timber before burning.

This is the best-case scenario. The worst case is that burning timber waste is a stalking horse for logging trees that would otherwise have locked up carbon naturally or in timber products.

With the current RET deadlock over, our next focus should be on Australia’s emissions reduction trajectory post-2020. If Australia is to meet its international obligation to keep global warming below dangerous levels, we need to provide the electricity sector with the certainty needed to make this happen.

The Conversation

Ken Baldwin is Director, Energy Change Institute at Australian National University.

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