The Pears Report: Changing states

Alan_Pears

Alan Pears looks at the rapid changes in electricity policy, provides some practical perspectives on carbon pricing and discusses some good news about the national appliance energy efficiency program.

We are seeing some interesting developments in clean energy at the state level as the states (predictably) move to fill the hole left by the national government.

Victoria has announced it is developing an Energy Efficiency and Productivity Strategy to be released this year. It has also announced development of its Renewable Energy Roadmap intended to re-establish Victoria as a “global renewable energy leader”. In Western Australia, former head of the Institute of Public Affairs (a conservative lobby group), now energy minister and treasurer, Mike Nahan has flagged a central role for solar. Meanwhile, the ACT and South Australia continue to lead the pack.

In contrast, the electricity industry continues its struggle to come to terms with the significance of energy efficiency and demand-side management. AEMO has just released its latest Statement of Opportunities (SOO). It predicts higher consumption and peak demand than previously, reflecting stabilising prices, loss of momentum in energy efficiency policy and slower PV growth—with no discussion of the importance of actively driving demand management harder to avoid this. Its low-demand scenario suggests planned generation is adequate to beyond the next decade, while its medium scenario requires investment to provide 5780 megawatt hours of additional supply over the next decade, 3.2% higher than 2014–15 consumption. AEMO does, however, flag that next year’s SOO will include analysis of demand management. That could dramatically change the outlook.

Energy companies continue to lobby for the right to apply anti-clean energy measures such as high fixed charges and low feed-in prices, while moving into the solar PV market!
The Energy Networks Association published a paper in August proposing a range of options, including grid connection fees, network exit fees, payment for grid access and payment for risk of stranded assets. It continues to assume that network operators are entitled to make a profit, and that their shareholders should be protected from losses. The age of entitlement continues.

Carbon pricing
We need some practical perspectives on carbon pricing. Although I wouldn’t call a carbon price the ‘centrepiece’ of climate policy—as Labor has claimed in the past—it is important because it sends a signal to change, particularly to investors. And the revenue a carbon price raises can fund other abatement action. To cut emissions we now face a choice between ‘polluter pays’ (pricing emissions) and ‘taxpayers pay the polluter’ (the Emission Reduction Fund).

By removing Labor’s carbon price but leaving in place assistance measures, this government has not saved Australians any money: in fact it may have increased costs to taxpayers. Under Labor, the assistance was funded by revenue from the carbon price. It must still be funded, but now through consolidated revenue, gained from taxes or borrowings eventually repaid by taxpayers, or offset by reduced services. On top of this cost, we must also pay for ‘Direct Action’. Simple slogans can be very misleading.

The good news is that the cost of managing climate is proving to be far lower than expected: many measures such as energy efficiency and some renewables are even profitable. The polarised politics of ‘carbon taxes’ and ‘Direct Action’ is dumb and distracting. We need both a price on carbon emissions and direct action, along with other measures.

Empowering people to cut emissions
I and others from the Voluntary Carbon Markets Association spent a lot of time trying to get Labor to modify its carbon trading model to empower individuals, business, and local and state governments to cut emissions. Our basic concept was that all voluntary abatement should be matched by the government cancelling Kyoto permits (allocated by the UN based on our national target). This would ensure our efforts were recognised as globally ‘additional’ abatement beyond government-driven measures.

For example, if Australia has a target of 500 million tonnes (Mt) of emissions in a given period and households are expected to emit 60 Mt, this means other emitters are able to emit 440 Mt (440+60=500 Mt). But if households (or some other group) voluntarily cut their emissions by an extra 10 Mt in that year down to 50 Mt, the government should cancel 10 Mt of permits. The target would then effectively be 490 Mt so other emitters still have a target of 440 M t (440+50=490 Mt). If the government doesn’t cancel permits, other emitters would now be able to emit 450 Mt and Australia would still meet its 500 Mt target (450+50=500 Mt). So those other emitters would be ‘free riding’ on the voluntary efforts of households. And from a global perspective, Australia’s emissions would not be reduced below the 500 Mt it was originally allowed to emit; the planet would not see a reduction in emissions as a result of the efforts of households and their efforts would not lead to additional abatement beyond what the Australian government has previously agreed to.

After a carbon price was introduced, conservative state governments justified cutting abatement action with the excuse that their actions would not be additional to national action—so there was no point in a state having its own climate target or actively pursuing emission reduction. We had warned the national Labor government, but they did not want to hear: the arrogance of policy makers swamped our efforts.

Recently, one of the emissions trading scheme (ETS) architects, Martin Parkinson, gave a speech (reported by Gareth Hutchens, The Age 30/6/15) in which he acknowledged that they had failed to engage and empower the community. Hutchens wrote:
“[He] never gave enough weight to the fact, when designing the trading scheme, that voters wanted to feel they were making a contribution to emissions reductions, and emissions trading systems do not provide them with that feeling because they are too abstract. ‘We got so hung up on the [idea that] we’ve got this really big problem that we have to deal with, and we’ve got to do it at least cost to the economy, so we delivered a least-cost way of doing it,’ he said.”

The situation is even worse now. The present government is using our money to pay polluters to cut emissions (including subsidising things they were already doing). And abatement actions that households, businesses, and local and state governments take which fall outside the Emission Reduction Fund (like installing rooftop solar or saving energy) allow the government to use our investments to make it easier to meet its weak and globally irresponsible abatement targets.

Positive news for energy efficiency
COAG has announced that the national appliance efficiency program (GEMS) has survived a review, and will even be expanded because it is so cost-effective. This is a relief for the many who were concerned that this review was yet another government attempt to undermine progress in clean energy. The Alternative Technology Association (ReNew’s publisher) played a key role by making a comprehensive submission.

The program faces other hurdles, including the requirement that any additional regulations be offset by reductions in related areas. And undoubtedly the Office of Best Practice Regulation will continue to do its best to delay and block new Mandatory Energy Performance Standards, which it opposes on ideological (neo-classical economic) grounds.

State energy policies
I’ve recently been spending some time in South Australia and the ACT. This has led me to ask what makes them so different in their approach to sustainable energy? Could it be that the lack of powerful coal and resources industries makes it easier for them to be more progressive?

It will also be interesting to see how the Victorian government responds to a scathing study by the Brotherhood of St Laurence that shows the state’s retail electricity market model is a disaster. It delivers remarkably high profit margins for retailers while many disadvantaged people pay the highest prices. This is the model lauded by many in the electricity industry as the template other states should use!

Alan Pears, AM, is one of Australia’s best-regarded sustainability experts. He is a Senior Industry Fellow at RMIT University, advises a number of industry and community organisations and works as a consultant.

This article was first published in ReNew 133.

EOFY ReNew 2017

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