Is the RET a market-distorting subsidy to renewable energy? | RenewEconomy

Is the RET a market-distorting subsidy to renewable energy?

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The RET has been criticised as a subsidy to renewable energy investors that distorts the electricity market. How true are these claims?

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source: solarbusiness

The Renewable Energy Target has been criticised as a subsidy to renewable energy investors that distorts the electricity market and gives clean energy an unfair advantage.

How true are these claims?

Would the electricity market be fair without the RET?

false

There are many historic and current subsidies in the energy sector. These range from government-built power stations to tax breaks that lower the cost of coal mining. The International Monetary Fund calculated that post-tax energy subsidies in Australia to oil, coal and gas amounted to over $23 billion in 2011 alone.1

The biggest subsidy is not fully pricing the costs of climate change. This transfers the costs of carbon pollution from the company balance sheet to the public and future generations. The cost of carbon pollution emitted in 2013 is very conservatively estimated at $40 per tonne.

Factoring in the risk of greater climate change increases this to $116 per tonne.2 This suggests that, in the absence of direct or indirect carbon pricing, Australia’s fossil-fuelled power stations are currently subsidised to the tune of $7- 20 billion a year. Moreover, the costs of pollution increase every year, so this subsidy is set to grow.

Is the RET a subsidy to renewable generation?

true

The Renewable Energy Target is a subsidy. Building new wind and solar costs more than existing coal and gas generation. The RET enables solar and wind providers to sell renewable energy certificates to make up the difference between the electricity they sell and the costs of building new power stations. The cost of the certificates—the subsidy to renewables—is paid by electricity consumers through their power bills.

This cost totals approximately $2 billion per year. To date this support has driven $18 billion investment in renewable energy, which has increased wind and solar power twenty- four-fold since 2001. This underpins around 21,000 jobs and has reduced carbon emissions by more than 20 million tonnes.4 5

Figure 1. Social costs of carbon from fossil-fuelled electricity, top 13 emitters in power sector, 2012-13.

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Is the RET a “market-distorting” subsidy?

false
The Renewable Energy Target, like a price on carbon pollution, is a way of correcting the electricity market to ensure it is not distorted by ignoring climate change and its impacts. In a world where the costs of climate change

are explicitly priced and factored into decision-making the RET may not be necessary, but until this is the case such corrective subsidies will be required.

Ultimately your view on whether the RET is a distorting subsidy depends on whether you accept the warning of the world’s scientists that climate change is a major threat, and with 192 countries’ agreement to limit global temperature rise to less than 2°C.

This is a fact check document prepared by The Climate Institute as part of their reports on the renewable energy target, which can be found here: http://www.climateinstitute.org.au/news/renewable-energy-target.html/

 

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2 Comments
  1. Dr George 6 years ago

    “The biggest subsidy is not fully pricing the costs of climate change.” In the long term yes, but in the short term the biggest externality relates to the health impacts of air pollutants. (for example see papers by Epstein at Harvard and US Economist Nordhaus – both published in 2011). Air pollutants especially fine particulate matter and ozone (a secondary pollutant) confer the majority of health impacts that include heart disease, stroke, asthma and lung cancer. These costs are paid by communities now and cumulatively into the future

    When the costs of these illnesses and their economic impacts are included, the full price of coal more than doubles. Nordhaus found the externalized costs of coal fired generation to be 0.8 to 5.6 time value added. Meaning coal is at best worth nothing to communities. That is how much we are subsidising fossil fuels electricity generation.

  2. Andrew Thaler 6 years ago

    Why isn’t their mention of the fact that Governments repeatedly spent public money building the large centralised Coal fired power stations and then also paid for the maintenance, upgrades, retrofits etc since. The govt also mostly built and developed the mines that fed the power stations, the roads and rail lines, also the power lines that carried the power away from the power stations.

    That some of these stations have been recently sold to private enterprise for fractions of their inherent value is apparently inconsequential, and for the present argument also not important. It is also *never* considered to have been a ‘subsidy’.

    That private industry is encouraged (RET) & prepared to invest the significant time to plan and develop, the money the to build the Renewable Energy apparatus all the while face off against the inevitable sovereign risk that we now see… that the RE industry should do ALL of that without some form of compensatory payment on top of their ’emissions free electricity’ production is, quite frankly, rude.

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