Take a breather on the carbon bonfire

Like boy scouts at a bonfire, it has all got a bit too exciting. Green tape, greenhouse gas abatement schemes, feed in tariffs, clean energy funds and the renewable energy target. Now we have a carbon price it all has to go (and wouldn’t that burn well too). Whoosh!

It’s time for a breather. What’s at risk here is in fact some old fashioned business virtues of long term cost effectiveness, investor confidence and competitiveness in growth sectors of the 21st century economy.

While it is appropriate that some policies like NSW’s Greenhouse Gas Abatement Scheme are now ended, others like the renewable energy target or the Clean Energy Finance Corporation shouldn’t be fodder for the fire.

Back in September 2010, BHP CEO Marius Kloppers reminded us that Australia has one of the dirtiest power sectors on the planet when it comes to carbon pollution. We are ninth dirtiest in fact.

In a global economy which has been volatile, clean energy has continued to be a bright spot with growth continuing. It now accounts for over 40 per cent of global investment in power generation, a 400 per cent growth in investment from less than a decade ago.

While not perfect, the Renewable Energy Target (RET) is an effective, efficient policy mechanism. It helps Australia significantly reduce its emissions, grows jobs and investment, and reduces long term costs.

Long term costs are critical here not only because energy plant is so long lived but because we are talking about a now legislated long term target of 80 per cent reduction in our carbon pollution by 2050. The atmospheric physics of global warming require greater urgency but even that target requires a lifting of the focus from short term abatement cost comparisons

Far from rendering the RET unnecessary, the carbon price and the RET are mutually supportive and together produce far better results.

The International Energy Agency has said that a pollution price is fundamental in driving systematic change across the entire economy, but combined with targeted, complementary policies, pollution can be cut even more quickly and, in the long-term, more cheaply.

Independent modelling commissioned by The Climate Institute reached the same conclusion. It found that the RET will reduce the investments required in the electricity sector to meet a long-term pollution target by $5 to $6 billion due to fast-tracked market experience and innovation.

Without the RET and in the absence of higher carbon prices, renewable energy in Australia would take much longer to develop. This would increase the economic costs of reducing emissions in the longer-term and make the structural adjustment to a world moving to clean energy more difficult and more painful.

Large scale deployment of renewable energy is a precondition for effective climate policy. More than 100 countries now have made the strategic economic decision to invest in clean energy, fostering growth in the industries and technologies that will deliver long-term emission cuts as well as smarter, cleaner and healthier development.

So there’s a real global mega-trend here that Australia could benefit from both here and in regional clean energy investment markets. But investor capacity and confidence is at risk after a turbulent period for clean energy policies.

Some business attacks on the RET are just cynical and costly carbon protectionism. Economic arguments disguise efforts to reduce the amount major polluting industries pay to help the nation move to clean energy. This just shifts the effort on to households and other businesses that would pay higher energy costs than they need to.

Our research shows that existing subsidies to industry already makes the RET cost households more. While still relatively small, the costs of the RET have been pushed up by around 23 per cent due to these discounts granted to big polluting, trade-exposed industries.

As IPART noted again yesterday aging electricity infrastructure has been the primary driver for rising prices – this was going to happen even in an Australia where the words ‘carbon price’ had never been heard.

In addition, IPART not only confirmed that the electricity price rise from the carbon price was within the designs of the compensation package that will see most households better off. IPART found the additional price impact in 2012/13 of the RET to be zero.

With the RET in place, Australia’s share of electricity coming from renewable energy between 2010 and 2030 will rise to 20 per cent. It will drive thousands of jobs and investments worth tens of billions of dollars in regional areas. In the process, some 30 million tonnes of carbon pollution will be avoided by 2020 – around 15 per cent of current electricity emissions.

The carbon price is necessary but can’t achieve everything on its own. The carbon price and the RET can get us much closer to the emissions reductions and growing investment in clean energy that we need. Neither should be burnt.

John Connor is CEO of  The Climate Institute (and former boy scout).