States are right to reject NEG, it would have been a gift to Abbott

Queensland, Victoria and the ACT were quite right to reject the proposed National Energy Guarantee in its present form.

None of the federal government, the Energy Security Board or the group of business lobbies behind it were able to make a convincing case to endorse the mechanism. To endorse it now would have been a gift and undeserved reward for the destructive actions of former prime minister Tony Abbott.

Why? Well, the way to think about the NEG is that its primary purpose is to hide the fact that there is a cost to reducing emissions. Not necessarily a very big cost, particularly with wind, solar and storage falling in price, but a cost all the same.

Kevin Rudd’s CPRS was rejected by Opposition leader Tony Abbott, Julia Gillard’s carbon price was killed by prime minister Tony Abbott, and the proposed EIS and CET were rejected by Malcolm Turnbull because of pressure from back-bencher Tony Abbott – all for the simple reason that they had an explicit price on carbon.

(So too, did Tony Abbott’s flawed and ultimately pointless Direct Action policy for that matter, but let’s not go there just for now.)

The NEG aims to bury the price of abatement, and seeks to do so through some extraordinary calisthenics, a maze of contracting and rules so incredibly complex that only a handful of people truly understand it.

That’s not very efficient, nor is it cost effective. Indeed, most independent analysts say it will likely add to costs, and even make it harder for smaller players to enter the market, rather than reduce costs. The ACCC report highlights the danger of reinforcing Australia’s energy oligopoly.

The NEG and its price obscurity might just have been tolerable if it were accompanied by a flexible mechanism that actually allowed, and encouraged, emissions to be reduced over time.

But the NEG in its current form did not. The federal government wanted to lock in a low-ball target – so low it would be virtually met before it came into effect – and lock it in for a decade.

All the states wanted was flexibility to change the target in the future, but the federal Coalition government is not yet prepared to give it to them – all because of back-bencher Tony Abbott and his mates.

The result, as clearly modelled by the Energy Security Board, would be an investment drought that caused no new investment in large-scale wind, large- scale solar, or big batteries before 2030. Even the rate of installation of rooftop solar would be halved.

Now, it may be that the ESB deliberately doctored the modelling inputs so the result could be palatable to, guess who – Tony Abbott and friends. But in doing so it compromised its own credibility, and raised suspicion among the states that this is a policy with bad intent and lousy outcomes.

That is the key concern of the states. Rather than locking in an outcome that promises to bring the energy transition to a halt (an extraordinary thing in itself for our energy regulators to endorse) there needs to be flexibility to able to adjust those targets – and upwards only.

Victoria wants those targets adjusted every three years. The ACT has similar concerns and also wants to ensure that its families and business don’t end up paying twice after its efforts to reach 100 per cent renewable electricity by 2020, and solar households everywhere need to be protected from the same unsatisfactory outcome.

And the states also want more transparency on that price and emissions that the NEG seeks to bury. Even if it makes Abbott unhappy, investors and customers need to know what’s going on – not just the regulator.

The ESB modelling –and it has yet to be fully released – is completely unacceptable. Apart from its bizarre scenario of zero projects, its claim that delivering “certainty” would lower prices by some $150 a year has been laughed out of town.

Simon Holmes à Court, from the Climate and Energy College, surveyed 16 energy analysts and found just one that believed prices would fall.

The best way to reduce prices, everyone agrees, is to build more generation. And besides, having gone to all the trouble of creating a reliability obligation, we might as well use it. And the ESB has made it pretty clear you will need a lot of new wind and solar, and fair few coal retirements, for that reliability obligation to be triggered.

So, more work is needed to be done. The ESB needs to be seen as less partisan – a criticism it has shouldered since the start of this venture when it prepared the outline of the NEG without consulting the states, was further betrayed by its nonsense modelling outcomes and by Kerry Schott’s insistence that the states fall in line today.,

Most of all, the Coalition needs to get its house in order. Only when we have a sensible and honest debate about climate and energy will we be able to move forward. We’ve been stuffed around for a decade on policy. It would be intolerable to lock in failure for another decade.