The latest version of the National Energy Guarantee has raised concerns that it could put a de-facto cap on efforts by state governments, retailers and even corporate buyers to go beyond the federal government’s weak targets.
The NEG – enthusiastically embraced by the federal Coalition government as a “political” solution to the climate and energy policy failures of its own creation – has already been widely criticised, because it will provide little or no incentive for new renewable energy investment.
That is largely down to the federal government’s weak target of a 26 per cent cut in electricity sector emissions by 2030 – a target that will likely be all but met by the 2020 renewable energy target, itself a policy the Coalition sought to destroy.
It effectively means that the NEG will introduce two obligations that may not even be triggered under the current government policy setting; either because the target is too weak, in the case of the emissions obligation, or because there is no forecast reliability issue.
But focus has returned to the actual mechanism of the NEG, as more and more of the detailed policies are rolled out in a mad rush to have legislation finished in just six weeks before the August meeting of COAG energy ministers.
Many in the energy industry think this is an insanely short timetable, and are wary of hidden booby-traps – laid intentionally or otherwise – in the legislation.
In the words of Labor’s climate change spokesman Mark Butler, the goal is to try and ensure that the NEG “does no harm”, even if it is incapable under current policy settings of doing much good.
At least two potential problems have emerged in the latest draft presented to COAG energy ministers on Friday afternoon by the ESB.
There is already an issue around “additionality” for state-based targets – meaning that even though the likes of the ACT, Victoria and Queensland have targets well beyond the national target, the structure of the NEG means that slow-moving states like NSW will be able to sponge off their efforts.
Under the renewable energy target, the ACT deliberately made its own 100 per cent renewable energy target by 2020 “additional” to the national target by jettisoning the renewable energy certificates created by the wind and solar farms it has contracted.
But no such mechanism exists under the NEG as currently drafted, although there is no reason why it couldn’t be added, says Dylan McConnell, of the Climate and Energy College in Melbourne.
There is also concern over limits to “over-achievement” on emissions intensity targets – ostensibly to ensure competition, according to the ESB – which McConnell says would act as an effective cap on efforts of retailers to go beyond the legislated targets, or for corporates to do the same.
“My concern is not so much that it could do little, it could actually be detrimental,” McConnell says. “It is not clear to me that it will do no harm … the draft proposal explicitly limits over achievement.”
Bizarrely, says Bruce Mountain, the director of the newly formed Victoria Energy Policy Centre, the risk of penalties appears more likely for those who exceed the targets and refuse to share their virtue, and not for those who fail.
He notes that $100 million penalties mentioned by ESB deputy chair Clare Savage on Friday only apply to increased “upper penalties” in any civil action.
But the documents make clear that the primary approach will be to “build a culture of compliance” and, specifically, that “minimising non-compliance through informing, educating and engaging stakeholders is better than enforcement action after a breach has occurred.”
“This is not credible,” Mountain says.
Another issue is around the proposed registry, which McConnell says risks repeating some of the mistakes of the RET legislation by being closed and all but invisible to the markets.
“The registry will only be accessible to market customers and generators. That means it will be behind closed doors, so there is no price discovery and it keeps a lot of power with the companies who are able to sign contracts.”
Tristan Edis, another analyst at Green Energy Market, said he was horrified by the proposal.
“This is very strange,” he said in an emailed statement.
“What is the benefit to the community of obscuring data on the registry? The REC-Registry is open for any member of the public to review the entire history of every single transfer, so we know that there is no technical reason for why we have to constrain access to the NEG registry.
“This is a government mandated policy market that the government is claiming will help them achieve emission goals – it should be open to full public scrutiny.
“One is left wondering whether there is something the government or perhaps incumbent power companies want to hide from the public and potential new entrants. If the ESB is concerned about competition then they need as transparent a market as they can possibly get.”
Another issue is the fact that, rather than allocating emissions to the ‘controlling corporation’ – that is, the likes of AGL (largest emitter in the country) or Energy Australia (which owns the most emissions intensive generator Yallourn) – they are not directly held accountable/responsible for their emissions.
(We go into detail on this in our Energy Insiders Podcast today).
While the efforts of the ESB to try and make this a workable document are being admired in some quarters, the politics of the debate means that the detail is being largely swept aside.
Several energy industry insiders pointed out to RenewEconomy over the weekend that the NEG is simply emerging as some sort of highly complex but de-facto emissions intensity scheme, or a clean energy target.
That can’t be acknowledged by the ESB, or the government, because of the likely reaction of the furious conservatives in the Coalition, whose intransigence and hopeless misunderstanding of climate science and modern technology has forced the dumping of the most obvious solution – a carbon price, and a rejection of proposals marked EIS or CET.
Instead, the Coalition clings to the remnants of Direct Action, which has turned into a sort of carbon market of its own, but using taxpayers money handed out to some business schemes of questionable merit.
It still has no policy to define how the country can meet its 2030 climate commitment, which will have to be raised in any case.
Media on Saturday were describing a victory, of sorts, for Frydenberg over the right wing, for the government decision to adopt a linear approach to the 2030 target, rather than a “j-curve” favoured by the back bench.
But when the target is basically met – in 2020 – by the renewable energy target, the mechanism which the government sought to destroy – then the trajectory is actually flat, or close to it, so it doesn’t matter whether it’s linear or not (unless a government that takes climate science seriously is elected).
ITK analyst David Leitch says the NEG itself might only cause 650MW – two terawatt-hours – of new wind and solar investment to be built out to … compared to more than 60TWh required to satisfy the Queensland and Victoria state targets and the likely closure of more coal fired generators.
“The NEG … is something that was cobbled together in a hurry to get electricity off the front page of the newspapers and something that is acceptable to the right wing of the party,” Leitch says on Energy Insiders. “But we are going to have to live with it.”
The approach of mainstream media has been either to criticise the NEG for “going too far,” in case of Murdoch commentators, or just wave it through and don’t worry about the detail in the case of some in Fairfax and The Guardian.
What could be done to improve it? Mountain suggested the above, at a minimum, when launching his new centre last week.
But Mountain says details are critical. “This stuff does matter”, he tells RenewEconomy, adding that the key difference between this and other models such as an EIS, CET or carbon price is the lack of a visible price.
That is a quite deliberate ploy to satisfy the only grouping that opposes such a thing – the right wing of the Coalition. One of the solutions to make it workable, he says, is to ensure there is a visible price. McConnell fears all pricing would disappear behind contracting not visible to the market.
“The ESB’s approach is without precedent; there are much simpler ways to deal with these challenges using the existing mechanisms,” Mountain says.
“Complexity has a cost, and customers are forced to bear it. The complex approach the ESB is proposing is unnecessary and easily avoidable.”
The difficulty is that the “politics” of the NEG means it might be hard for state and territory governments to oppose it, but there is not enough time to properly analyse the detail.
The ESB proposes to bombard governments and policy makers and players in the market with another 10 detailed documents this week providing further details of how the mechanisms might work.