Don’t waste time on CET – there are other options for renewables, efficiency

In the toxic world of Australian politics, and the degree to which it is influenced by business interests, I don’t believe we will ever have an effective broad-based emission reduction policy – no matter who is in government.

I’m not saying this just to be negative, but to highlight the importance of focussing on the broad range of other options available to enable uptake of renewable energy and energy efficiency.

The problems with ‘flagship’ policies

I view the Clean Energy Target as a ‘flagship’ policy, which should form the basis of a sound emissions reduction platform. If such an emissions trading scheme is well designed and implemented, it can be both effective and efficient in reducing emissions.

Unfortunately such schemes suffer from being both (i) large and (ii) complex. Their large coverage means that powerful vested interests are likely to be affected, and to a significant degree, and so will oppose them, or attempt to alter the scheme design to their advantage (see more discussion here).

Their complexity makes it harder for smaller less powerful organisations to understand and critique them, and it is more difficult to see whether the scheme is being effective, as well as understand the impacts of changes to the design.

In fact, because of their complexity, it is even possible for flagship policies to make things worse. This can occur both directly and indirectly.

Flagship policies can make things worse directly because their complexity means that it is often very difficult to understand what the final impacts will be.

This is especially the case when incumbents successfully lobby for exemptions and compensations (as has occurred for every emissions reduction scheme in Australia), which when combined may actually result in significant financial flows in their direction with little additional abatement.

They can make things worse indirectly by soaking up the time of the various groups dedicated to reducing emissions. Think of all the time and wasted effort that went into the numerous discussion papers stretching all the way back to Australian Greenhouse Offices National Emissions Trading Discussion Papers in 1999.

The intervening 18 years is literally littered with the corpses of failed attempts. Even the CET proposed by Finkel is openly regarded as the third best option.

They can also create a false sense of achievement. The NSW Greenhouse Gas Reduction Scheme and the Emissions Reduction Fund are perfect examples.

In the GGRS, much of the claimed ‘abatement’ was actually just pre-existing plants doing what they were already doing, and so emissions were not actually reduced below what they were when the scheme started (see here).

It should come as no surprise that these very same plant (built as early as 1998) were the first off the blocks for the Emission Reduction Fund, and had to provide no additional abatement to create even more ‘abatement’ certificates.

The only flagship scheme that has worked is the Renewable Energy Target, which I suspect was successfully implemented simply because the incumbents didn’t believe that renewables ‘worked’. As soon as they realised they did, and were actually having a real impact, the target was reduced as much as politically feasible.

Flotilla policies are more likely to be effective

I think we would be much better off putting our efforts into ‘flotilla’ policies, which are more likely to be successful because they can be designed to be targeted and so (i) individually have less impact on incumbents, and (ii) benefit a specific group who can then provide political support.

So what are these flotilla policies? They are pretty much anything that isn’t large and complex.

They include the targeted state-based reverse auctions and tenders for renewables and storage because they are fairly straight forward (compared to an emissions trading scheme the design can’t be distorted by lobbying pressure), end up benefiting particular organisations (who will provide political support), and lock in long-term certainty for that particular project.

They include the large number of ARENA and CEFC-supported projects, as well as pretty much any policy that targets residential end-users (not least because they vote).

Time will tell, and I would love to be proven wrong, but I don’t think we’ll see an effective and stable carbon pricing mechanism for quite some time (including the state-based schemes).

Fortunately by that time renewables will no longer need such support (energy efficiency never really has, but of course requires other kinds of support), but then there’s the rest of the economy to consider…