Tony Abbott may need CEFC to save Direct Action

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Tony Abbott faces a near impossible task tailoring Direct Action to meet current and future emission reduction targets. The CEFC could deliver abatement at negative cost to the government, and help solve its problems about what to do with ageing coal assets.

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Prime Minister Tony Abbott’s vow to close the Clean Energy Finance Corporation was one of the key planks of the sloganeering campaign that got him elected to power on September 7.

But this particular element of his government’s dismantling of the Labor/Green climate policy infrastructure may get reviewed if the new government realises it cannot meet its emission reduction targets without it – and can’t usher some of the oldest and most polluting generators out of an oversupplied market.

The Abbott government has a commitment to reduce emissions by 5 per cent through its Direct Action policy. The details of this policy are only vague, and will be for some time. But most analysts doubt that it can be done within the budget Abbott has provided. And Abbott has indicated he’d rather the government fall short of that target than allocate more funds.

But the Coalition will come under intense pressure in the international arena to increase – rather than dilute –  its 5 per cent reduction target following the release of the 5th assessment report by the Intergovernmental Panel on Climate Change late last month, and the new efforts by the two biggest polluters, China and the US, to curb their coal consumption.

The upcoming caps and targets and carbon budget recommendations to be delivered by the Climate Change Authority will also put the case for more ambitious targets, while the inevitable rise in gas prices on the east coast will likely lead to more coal-fired generation, particularly given the uncertainty around the renewable energy target.

On the international front, the IPCC’s main conclusions were that climate change was unequivocal, mankind’s role in it was clear, and it was essential to make deep and rapid cuts to emissions to avoid the worst impacts of runaway climate change. It reinforced the need for governments to take into account a carbon budget that would likely require at least 2/3 of known fossil fuel reserves to remain in the ground – an unpalatable proposition for a major fossil fuel exporter such as Australia.

The CCA will likely come up with a similar conclusion. In its second, and possible final review, before it is dismantled and consigned to Abbott’s climate sin bin, the CCA is likely to recommend an emissions reduction target of at least 15 per cent by 2020, and the imposition of the country’s first climate budget. Even major emitters such as AGL Energy support such a concept.

The Abbott government faces other issues too. Most of the emission reductions achieved to date have come through the electricity industry, where the carbon price, the renewable energy target and reduced demand (mostly due to solar panels and energy efficiency), has had an impact.

But according to Deutsche Bank, rising gas prices will likely result in gas-fired generation being priced out of the market, and more generation from coal-fired generators. This will reverse the trend of falling emissions.

So Abbott will come under pressure on two fronts – international and domestic – to increase his targets. The Climate Institute says it will likely be $4 billion short on the 5 per cent reduction, and up to $15 billion short if higher targets are required. What to do?

This is where the CEFC could in fact be useful to the Abbott government. Despite being maligned as a great big “green hedge fund” – the CEFC works off balance sheet, which means the investment it makes could leverage the private money needed to deliver emissions reductions, and to do so at no cost to the taxpayer. In fact, it actually delivers a negative cost.

This, of course, has been the CEFC line all along, but it appears that the Abbott government is now tuning in to such proposals. The Australian Financial Review last week reported that Treasurer Joe Hockey, who has carriage over the future of CEFC, is looking for a similar “off-budget” mechanism to finance Abbott’s grand infrastructure plans.

It wouldn’t be that hard to reframe the CEFC to achieve that ambition. It could, for instance, be tasked to help companies reduce their carbon intensity and emissions. It could even provide finance to help close ageing brown coal generators.

The closure of these ageing generators remains one of the vexed issues for the electricity industry, which through a combination of factors is losing money. The principal reason it pushes back against mechanisms such as the renewable energy target is because earnings from incumbent generators are eroded. Some generators have been mothballed, or sidelined – and the 1,000MW Wallerawang generator in NSW may be the next.

Removing excess capacity on a permanent basis will be a key part of negotiations around the future of the renewable energy target.

The issue is how these assets can be closed permanently, and the infrastructure re-used for new generation such as solar thermal or solar PV.  These hybrid concepts have become a central plank of the Australian Renewable Energy Agency program – and Collinsville in north Queensland and the generators at Port Augusta are obvious starting points.

The CEFC could also play a critical role in catalyzing finance from commercial operators and reduce the burden on government funds. This will be critical if emission reduction targets are to be raised, and government budget concerns continue.

Of course, the CEFC may have to be rebadged; a return to the old name of Low Carbon Australia, the institution that was absorbed by the CEFC when it was created, cannot be ruled out. And if Hockey and Hunt are worried that Australia is sticking its neck where others fear to tread, they can console themselves in the knowledge that the US is already there – the Department of Energy loans program and the various tax incentives – already do a similar job.

Ultimately, though, it will depend on where exactly the Abbott government is positioning itself on climate. More and more conservative politicians – and conservative writers – are parroting the lines of Bjorn Lomborg – a commentator the fossil fuel industry would probably have to invent if he didn’t already exist.

Lomborg has been wrong about just about everything he has said.  He was wrong about his first position, that climate change was not happening; he was wrong about his second position, which was that climate change was happening but action was not urgent; and he is wrong about his third position, which is that cost reductions can only occur in the test tube.

Of course, all Lomborg’s positions have one thing in common, they favour the incumbent fossil fuel industry. But the experience with solar, in particular, make a nonsense of his claims. Costs have fallen 80 per cent in the last five years because of mass deployment, manufacturing gains, and competition on costs – an achievement that would have been impossible in the lab.

 

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3 Comments
  1. John P 6 years ago

    A couple of weeks back we had Greg Hunt on Lateline telling us he was closing the Climate Commission to save money.
    In the same week we had Joe Hockey telling us he was closing the CEFC despite the fact that it makes money, because . . . well, he didn’t seem to have a reason!
    I suggest that Direct Action was not intended to deal with climate change.
    It was merely intended to help win an election.
    If you listen to the Liberal Party across the nation, you won’t even hear the term ‘climate change’ mentioned.
    They simply refuse to acknowledge it and so there is no need to comment on it.
    And there is no need to do anything about it.
    Very consistent!
    And the media doesn’t even challenge them – worse still!

    • Miles Harding 6 years ago

      Closing the Climate Commission to save money was a joke – it had such a small budget that it made no difference to national finances. However, it was an impediment to denial and ignorance.

      People power to the rescue!
      The reborn Climate Council is now funded by ‘direct action’ of the public and off the leash, undoubtedly a worst case outcome for the coal-ition.

  2. Chris Fraser 6 years ago

    To save the CEFC, the coalition would need to save face. The CEFC makes money, but from the proceeds of a price on carbon. Saving the price on carbon would have political ‘ouch’ attached.

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