Thursday, September 04, 2014

Would an emissions trading scheme have helped the Abbott government handle the renewable energy target mess?

You have to be careful about locking yourself in via rhetoric and targets. A case in point is the abolition of Labor’s emission trading scheme. I mention this now because of an interesting piece in yesterday’s Australian Financial Review by economics editor Alan Mitchell, Abbott misplays  greenhouse policy.

The crux of Alan Mitchell’s argument can be summarised thus: “Abbott should have seized the opportunity presented by the Senate to keep Labor’s emission trading scheme.” Hang on”, you might say, “isn’t this a core promise? How could Alan Mitchell say this?”

The challenge can be summarised this way.

During the election campaign, the opposition committed to the abolition of the ETS (Emissions Trading Scheme) and its replacement by a direct action program. The second involved the expenditure of real money. It was actually a slightly odd response in ideological terms for a market oriented government; the replacement of a market mechanism by direct action and Government cash.

Now the Government has a problem with its Renewable Energy Target. This is where things get complicated for simple mortals like me just trying to understand.

Back in 2001, the Howard Government introduced a Mandatory Renewable Energy Target of 9,500 GWh of new generation, with the scheme running until at least 2020. This represented  a doubling of renewable generation from 1997 levels. So far so good.

In August 2009, the Rudd Labor Government passed new legislation extending the target to ensure renewable energy obtained a 20% share of electricity supply in Australia by 2020. This was expressed not in percentage terms but as an absolute number; 45,000 gigawatt-hours by 2020 equal to 20% of projected electricity demand.

A teensy, weensy problem now emerged. Sadly, or perhaps good depending on your views, demand for electricity actually declined. Now that 45,000 GWh is not 20% but far higher. If the target had been expressed as a percentage, then it would have left the marketplace to make its own estimates. Now all sorts of investment decisions have been made not on a percentage but an absolute number. You see the Government’s problem?

The Warburton report into the future of the target has not been of especial help to the Government. While Mr Warburton’s appointment was much criticised because of his views on climate change, the report appears to be an objective assessment of trends and options. In this sense, it has handed the problem back to the Government where, indeed, it rightly belongs.

I have no idea just what the Australian Government might do. However, and this was Mr Mitchell’s point. the Government might well have had more flexibility if it had gracefully accepted the retention of the ETS. 

Perhaps I’m wrong. I often am. But emissions policy is emerging as another Government mess.      



2 tanners said...


I think the basic area where Mr Abbott has miscalculated is that he ha shown an incomplete disregard for campaign promises. I don't think it's clear to anyone why he chooses to honour some and flagrantly disregard others. Who honestly cuts benefits and reduces other spending citing a budget disaster, but then gets rid of successful revenue measures and reduces the general rate of corporate taxation?

Unlike some commentators, I am not suggesting a right-wing zealot/culture warrior/slave-to-mining-interests poltician or any similar cardboard cutout characterisation. I am agreeing that he seems very out of touch with what the majority of Australians want and he has a lot of rebuilding to do if he wishes to regain trust and give people a sense of security that his word is his bond. It smacks of Keating-level arrogance without the clear message that Keating had of his agenda.

Finally, he seems to have gained the cancellation of the mining tax at the expense of Australian supperannuants, the perception of more broken promises, the failure to pass some of the spending offsets and the reinforcement of Clive Palmer's image as the real controller of Canberra.

Now, with Clive having publicly opposed RET changes, Mr Abbott will either have to cut a deal sufficiently attractive to make Clive back down for the first time, or chalk up yet another loss. I can't see a win for him in any of these outcomes.

Evan said...

It makes sense if you see they are governing in corporate interests
finance industry
mining industry
existing energy companies

Jim Belshaw said...

Interesting point on the incomplete disregard for promises, 2 tanners.

This morning's (Sunday) papers suggest that a compromise will be worked out on the RET.

On the political front, it's still to early to make any call on the next election. On the policy front, its all very messy at the moment.