CCA suggests LRET be deferred, allow new technologies longer term

The Climate Change Authority has recommended that Australia defer the 2020 renewable energy target by up to three years, but suggests that the scheme be expanded over the long term as it is the only credible abatement policy the Abbott government has.

Controversially, it also suggests that any longer term target could morph from a renewables-only target, to a low emissions target, one which could include gas-fired generation, and nuclear energy if it was made legal in Australia.

In a damming assessment of Abbott government climate policy, the CCA – which the Abbott government has tried to abolish – raised questions about the effectiveness of Direct Action’s Emissions Reduction Fund, and recommended no changes to the RET, apart from a delay of up to three years. It also suggests now changes to the small scale target, based around household and commercial solar.

The CCA completed its report because it has a statutory requirement to do so, although the Abbott government commissioned its own, now discredited review led by pro-nuclear climate science denier Dick Warburton.

The Warburton Review said the RET should be closed, or reduced to a “real” 20 per cent target – effectively cutting the target from 41,000GWh to less than 26,000GWh. The government is pursuing the latter recommendation, although it has yet to find agreement with Labor or Senate cross-benchers.

The CCA said that in the absence of effective alternatives, the RET was essential to help reduce emissions. The CCA has previously suggested that Australia should have a target of 19 per cent reduction in emissions by 2020, and it has doubts that Direct Action can meet the current target of 5 per cent.

It is also dismissive of the calls by industry, fossil fuel generators, and the federal government, of imposing a “real” 20 per cent target.

“The Authority does not see any magic in a ‘real’ 20 per cent figure, or in other figures of this kind,” it writes. “What really matters is that sustained emissions reductions be made in the electricity sector.

“And, in the absence of better alternatives, this means the RET—and LRET in particular—will have to continue to lead this transformation. The Authority is not, therefore, recommending any reduction in the level of the LRET.”

However, it suggests that the target could be delayed by up to 3 years because there is now doubt that the 41,00GWh target can be met in the 2020 timeframe. This is disputed by many project developers and the Clean Energy Council – and by those with solar projects in the pipeline – but the CCA recommends it as a way of avoiding a large penalty price.

The Abbott government is using the threat of a so-called “penalty price” as a means of trying to force Labor into accepting a compromise deal, but it won’t budge above its target of 26,000GWh, or around a “real” 20 per cent.

Labor, with the support of the CEC, has indicated it may come down to the “mid to high 30,000s”, but no further. The CCA says without bipartisan support, and a strong commitment by the government, bankers would be reluctant to finance new projects.

The CCA said it was clear that fossil fuel generators were feeling the pinch from reduced demand – cause by energy efficiency and solar PV – but this would not be solved by slashing the target.

Indeed, it suggests that the RET should be increased and extended targets, and even open to a wider set of technologies. “This reflects the Authority’s view that, particularly in the absence of credible alternative policies, RET-type arrangements might be required to support increased penetration of renewables in electricity for some time.”

“On balance, the Authority considers it is better to extend the 2020 target and increase confidence it can be met, than to retain the target and miss it.“

The CCA strongly rejected the overtures of the fossil fuel industry in its last review published at the end of 2012. It says that the echanged circumstances since its last review – mostly declining demand and a stalemate over policy – do not warrant a reduction in the target.

“In particular, there is no compelling justification for reducing the target to a level representing 20 per cent of an updated electricity demand forecast for 2020. There is no reason to think that 20 per cent is the ‘right’ amount of renewable energy.”

“Any significant reduction in the target would not decrease consumer prices and would not provide a satisfactory solution to the current oversupply problem. It would, however, defer investment in renewable generation, leading to higher electricity sector emissions, making it harder for Australia to achieve the deeper emissions reductions required beyond 2020.

It said the LRET was a relatively low cost abatement program – with prices of around $32 per tonne of CO2 abated. His compared to costs of $95/t/CO2 in the small scale scheme.

“In the Authority’s view, the RET is the only currently prospective policy instrument in the electricity supply sector that can be relied upon to deliver sizeable volumes of emissions reductions.“

It was scathing about the government’s assumed concerns about fossil fuel generators. It said impacts on fossil fuel companies were inevitable if any emissions were to be reduced. “While modelling indicates that maintaining the current target level reduces fossil fuel generators’ profits, it is likely that any effective mitigation policy will have this kind of effect.”

It noted that more than half the coal-fired generation capacity had been bought or refinanced since 2009 – when the carbon price was well flagged by the then Rudd government.

And it noted that thanks to the repeal of the carbon price by the Abbott government, coal fired generators had pocked a combined $2 billion for “compensation” and had not been obliged to repay any of this assistance.

The CCA says the target could be delayed two or three years, because between 2017 and 2020 the steep increases in the RET target from 25,181 GWh to 41,000 GWh could be difficult to meeet.

It proposes this as a possible solution, deferring the target to either 2022 or 2023, and extending the target by three years – so it closes in 2032 or 2033. This was essential for financing of such projects.

But it’s most controversial suggestion is that an increased or extended RET target could be modified to become a “low emissions” target, as some in government have suggested.

“This could include waste coal-mine methane generation plants, plants burning industrial waste gases derived from fossil fuels, potentially coal or gas carbon capture and storage plant, and, if ever permitted by law, nuclear energy.”

It said certificates created for non-zero-emissions plant could be discounted relative to zero-emissions plant.

The Abbott government has been an enthusiastic supporter of nuclear, with Abbott, foreign minister Julie Bishop and industry minister Ian Macfarlane all expressing support for the technology, despite the huge costs incurred by proposed projects in the UK and elsewhere.