Subject to enough transmission being available, ITK is of the view that 50% renewable electricity by 2030 as proposed by Labor can be achieved without undue difficulty, and would be more likely to lead to lower prices than higher prices and electricity supply would be reliable.
Even if this policy were not formally legislated at a Federal level until late 2022. it’s still an entirely manageable target and progress will continue to be made despite the Federal Government busting a gut to stop it.
If renewable energy certificates were to be valued in the broader economy, as instruments capable of satisfying an abatement requirement for different sectors, then electricity prices would fall with the cost passed onto carbon emitting facilities. This was the missing linkage in the prior ALP policy.
The reality is that 45% emissions reduction target for 2030 for the broader economy was and is just a slogan. The details of the policy released prior to the election would have been most unlikely to achieve the desired target and probably the burden would have fallen unduly harshly on those covered facilities that were neither in the electricity sector or in the energy intensive export sector.
That part of the policy does need a review and more importantly a review that is developed in concert with stakeholders. There really isn’t any good substitute in the broader economy for a carbon tax or price. So much hard work has been done in that area.
However, whatever the policy is the public won’t vote for it if the ALP leadership don’t commit to it and they don’t look like they are competent to deliver it.
ALP states policies under review
Various media outlets have stated that the ALP is reviewing all of its key policies including those relating to Australia’s decarbonisation.
It’s two years too early to be talking about opposition party policy.
However, since the Federal Coalition has in practice a defacto “more emisisons are good” policy, and since there is in practice no plausible alternative Government other than the ALP, it follows that ALP policy is important.
And of course carbon policy is particularly important today to the electricity, energy producing and energy consuming sectors. By default the ALP has the only Federal policy worth taking seriously in the energy and climate change area.
It is true that 45% reduction will be harder to meet starting at least 3 years later than the current policy assumes. But as we show below that policy was highly unlikely to achieve 45% reduction anyway.
It is of course always possible that a Coalition Cabinet full of people with very high quality academic achievements and presumably also a strong sense of personal and social morality could actually come up with a policy built on science and perhaps provide a legacy to the country, like gun control or reducing tobacco consumption rates.
After all in my view South Australia’s Liberal Govt, admittedly advantaged by having neither a National party partner nor any vested coal interests, is arguably doing a better job in decarbonising electricity than the prior ALP Government.
However, Federally the chance of the Coalition doing the right thing appears zero . Parliamentary nuclear inquiries, forced divestment, blatant disregard of the work of COAG, AEMO and the ESB, make it clear that the Coalition is not for changing. “Coal is king, long live coal.”
Lack of belief on all sides the main problem last time
In essence there are three points to be made about the policy the ALP took to the last election.
The ALP neither understood nor cared about their own climate change and electricity policy except in a negative way. It was or looked like a “grudge” policy that had been forced on the then leadership.
It’s a pity the then leadership was both conflicted and didn’t care because with a bit more work on the detail the policy was reasonably good in terms of what is actually achievable in Australia in the face of the difficulty of transforming Australia’s carbon intensive economy, and in the face of the political difficulty of a carbon tax. But being neither ready nor able to explain about the cost of the policy is indicative of how little real thinking had been done.
Not only did the leadership do one of the worst sales jobs in this area in recorded history, but they allowed open opposition to their policy in key Queensland electorates. This reflects the disproportionate influence of the CFMMEU in both the public’s eye and the leadership of the ALP.
Having the QLD ALP candidates sign a declaration that they supported coal mining was effectively like having the CFMMEU working for the Coalition in QLD. If the ALP had committed to the policy the result might have been the same but at least voters would have known what they stood for.
It’s worth noting that the CFMMEU is about the 4th largest in Australia with around 132,000 members, but it gets all the headlines whereas the 250,000 members of the Australian nursing federation are never heard from, and neither are three other unions significantly larger in numbers than the CFMMEU.
Whatever the importance of the CFMMEU if the ALP wants to sell the policy to the electorate it first needs to sell it to the unions. In short where is Bill Kelty or Greg Combet when you need them?
If you want Queenslanders to buy into your policy you need Queenslanders to sell it. The Liberal party might as well have paid Bob Brown, in the same way that they might as well pay John Setka.
If you wanted to sabotage the ALP in Qld and and unite Queenslanders on an issue it couldn’t be done better than having an outsider ride in and tell them whats wrong with them and their lives. Whatever one thinks of Anna Paluszcuk it’s pretty clear she thinks about things from a QLD point of view.
45% + 50% = 20% only further reduction
We wrote about this before the election. The ALP never detailed what was going to happen to carbon intensive export industries. If you don’t include them you can’t get to the 45% target. Here’s a quote from what we wrote before the election.
“Electricity is responsible for about 32% of Australia’s carbon emissions and the 50% renewable policy would/will reduce those emissions by about 60 million tonnes.”
The new element of the policy is a sketch of the 45% emissions reduction target by 2030. If the EITE sector is excused from making any contribution then we will be surprised if the total of all ALP policies can bring about more than 100 mt of emission reduction.
We get a less than 20% carbon reduction from the announced policy. Actually we only add up 15% but electric vehicles and changes in land clearing could assist as well.
The plan covers non electricity facilities emitting more that 25 Kt and those facilities will have to reduce emissions by 45%
Emissions intensive, trade exposed industries [EITE] will have “tailored” policies that conceptually allow them to face comparable impacts as international competitors
To meet the obligations facilities can
- Reduce emissions;
- Buy permits from facilities that have reduced below their baseline;
- Buy international permits
- Buy ACCUs (these are basically carbon farming permits);
Potentially buy generation offsets
According to the National Greenhouse Accounts, there were 291 facilities with emissions over 25 Kt and totaling about 335 mt.
Based on our general knowledge of the name of the facility and its business we classified the top 100 of these facilities into electricity sector, EITE or other. Its really only the “other” sector that faces the certainty of being required to cut by 45%.
The electricity sector had a separate target of 50% renewables by 2030. According to the detail released at the time.
- $10 bn to the CEFC over the period to 2025 to fund:
- reverse auctions for wind, solar and storage projects;
- Support the ALP’s proposed household battery program via concessional loans (100,000 households can get a $2000 grant). 2025 target of 1 mn households.
- Boost energy efficiency
- Establish an “Energy Security Fund” with $5 bn of capital which will explicitly use the Integrated System Plan [ISP] as its base to develop transmission infrastructure including into Renewable Energy Zones
There was no linkage of the electricity sector scheme and the broader 45% reduction
In ITK’s opinion this is where the ALP really missed a trick. If renewable energy credits could be used to satisfy broader emissions reduction requirements electricity prices would be lower and the sector best able to abate emissions would be incentivised. Here again we extract from a pre election Reneweconomy note.
“We estimate that allowing RECs to be used to satisfy emission obligations under the ALP tightened safeguard mechanism could lower electricity prices by say $15 MWh to say $40 MWh and falling and set the cost of abatement at $15 t for about 47 mt of abatement, 2/3 of the maximum amount required under the Safeguard mechanism even if there was no EITE exemption.
Let’s assume, at the stroke of a legislative pen, that surplus was available to meet obligations under the emissions safeguard mechanism, that is the broader industry requirement outside of the electricity industry for liable business to reduce their emissions by 45% by 2030.
The price of those certificates would be set by supply and demand but lets assume, for the time being it was roughly the price of ACCUs today, call it $15 a certificate.
Finally, let’s assume that all the calculations about the LCOE of wind and solar are broadly correct and that the required price for such energy is around say A$55 MWh at current exchange rates, no MLF worries, and a reliable long term PPA.
Then we can calculate that subtracting a $15 REC value from $55 gets us to $40/MWh required price under the PPA and that price will continue to fall as the LCOE for wind and solar falls as forecast under learning rate assumptions.
Put some flesh on the bones, and some detail to go with the slogans
Carbon policy requires less politics and more execution. It requires convincing enough stakeholder groups that you can be trusted to deliver.
Slogans are not the answer. It’s hard work. There is massive public support for action on climate change and in my opinion there would be plenty of think tanks that would help the ALP develop its policies properly if asked. Electricity and decarbonisation are topics with a lot of money and vested interest. Coal is either the largest or second largest export in terms of dollars.
LNG equally is a top export. But so is inbound tourism eg the barrier reef. Australia’s resource industries are energy intensive.
These businesses also need to be sold on a policy and be willing to see it as an acceptable long term solution. Yet those business leaders understand that their shareholders, their auditors, their bank financiers, their insurance companies, employees and their families are all pushing towards decarbonisation.
David Leitch is a regular contributor to Renew Economy. He is principal at ITK, specialising in analysis of electricity, gas and decarbonisation drawn from 33 years experience in stockbroking research & analysis for UBS, JPMorgan and predecessor firms.