Frydenberg’s Folly: Australia’s Renewable Energy Target Destined to be Capped or Scrapped

When a policy is unsustainable, either it will collapse under its own ponderous weight, or its promoters will eventually be forced to scrap it.

Australia’s Large-Scale Renewable Energy Target is just such a policy.

In the cutting British satire, Extras, the hapless Andy Millman (Ricky Gervais) is always foiled by his gormless but lovable side-kick, Maggie Jacobs (Ashley Jensen).

Maggie, when she’s not inadvertently ruining Andy’s romantic hopes and/or acting career prospects, poses puzzling rhetoricals such as “would you rather be trampled by elephants or eaten by lions?”

The Maggie Jacob’s conundrum facing Josh Frydenberg, the Federal Energy and Environment Minister, is would you rather face an electorate seething over the imposition of a $20 billion Federal government fine tacked on top of retail power bills (because the ultimate 33,000 GWh LRET can never be met); or would you rather face an electorate who, like long-suffering South Australians, experience routine load shedding and statewide blackouts, with alarming regularity?

STT hears from its Canberra contacts that the experience in South Australia has utterly spooked Malcolm Turnbull and Josh Frydenberg, to the extent that they are both paralysed with fear: fear that the wind power debacle playing out in South Australia will spread to the more prosperous and populous states to the East.

Fear and perpetual panic is, of course, no way to run a country. But, then again, nor is maintaining a policy on the books which is designed to throw $45 billion in subsidies at wind power over the next 16 years.

Clearly panicked, one of Frydenberg’s frightened moves was to float a carbon credit trading scheme (which we discussed last week). As we pointed out, predictably, the mainstream media went ballistic. Here’s The Australian’s Chris Kenny on the warpath.

Emissions intensity scheme: Turnbull shared in Frydenberg’s folly
The Australian
Chris Kenny
10 December 2016

Carbon pricing and emissions trading have returned like Banquo’s ghost to haunt Malcolm Turnbull. The disunity and damage was controlled within 48 hours but the flirtation with an emissions intensity scheme killed off the Prime Minister’s post-parliament momentum and revived visceral doubts in the Coalition and the electorate about his climate policy intentions.

The lunacy of extra climate action to put more upward pressure on electricity prices at a time of economic fragility is only made worse by the fact it would be environmentally inconsequential and politically suicidal.

Yet there was the Prime Minister, fresh from his better-than-expected showing in parliament, about to sit down with his ministers at a Sydney cabinet meeting and pulling up a chair was Abbott’s — I mean Banquo’s — ghost.

Turnbull’s history on climate policy is known to all. So while conservative politicians and mainstream voters are wary of his intentions, senior bureaucrats, environmental activists and “love media” journalists see him as a soft touch to take up their fashionable cause. Labor and the Greens tease and goad. Every time Turnbull or one of his ministers says anything to please this climate action crowd, the Coalition falls into the trap.

The culprit this time was Environment and Energy Minister Josh Frydenberg, who explicitly referenced a possible “emissions intensity” scheme on Monday morning when announcing the terms of reference for a routine climate policy review. By Tuesday night, after backbenchers, ministers and others publicly and privately pushed for an urgent retreat, he ruled it out. “The government will not introduce an emissions intensity scheme,” he said in a statement agreed with Turnbull, with input from former environment minister Greg Hunt.

The statement quoted a pledge from Tony Abbott in August 2015 (just days before he was toppled) and emphasised continuity. “We are committed to tackling climate change without a carbon tax or an emissions trading scheme,” Abbott had said.

This is so obvious it hardly needed saying. It has been the explicit understanding between the Coalition and the electorate since Abbott knifed Turnbull as Liberal leader specifically to withdraw Coalition support for a carbon price in 2009.

Coalition antipathy towards carbon pricing and emissions trading has been embedded since by voting down Kevin Rudd’s emissions trading scheme (Turnbull crossed the floor to support it) and then winning government on the back of the pledge to axe Julia Gillard’s carbon tax.

If Turnbull reverted to anything that resembled his 2009 policies he would break faith with the electorate and destroy Coalition cohesion.

Yet the Energy and Environment Minister was publicly floating the consideration of a form of emissions trading on Monday morning, and in interviews that day and the next, Turnbull did not contradict or admonish him.

That night conservative Liberal senator Cory Bernardi railed against the idea and on Tuesday morning the Prime Minister was asked about it at a press conference. “Cory Bernardi has attacked carbon pricing being included in the climate policy review as the ‘dumbest’ thing he’s ever heard,” a journalist asked. “Are you afraid this type of debate reopens the wounds of 2009?”

Turnbull responded by saying the review had been part of Coalition policy since long before he was Prime Minister. “So this is business as usual,” he said. The review itself was uncontroversial but allowing emissions trading or carbon pricing as live options was anathema. Such talk should have triggered alarm bells, but Turnbull let it go.

Five things would transpire if the Coalition embraced a carbon price or emissions trading scheme and none of them is beneficial: electricity prices would rise; jobs, growth and energy security would be further eroded; global carbon emissions would still continue to rise; the Coalition would cede the entire climate policy argument to Labor; and the Nationals likely would split from the Liberal Party, which would itself be torn apart.

While the politics of this are simple — keep to existing policies, avoid Banquo’s ghost and highlight the risks and costs of Labor’s adventurism — the policy debate is complex. All the more reason for the Coalition, whose policy is settled, to stay out of it.

Turnbull and Frydenberg, backed by their departmental experts, have confirmed that existing policies can deliver the current emissions reductions target of 26-28 per cent from 2005 levels by 2030. Labor promises higher targets, an unquantified carbon price and an uncosted 50 per cent national renewable energy target.

With green groups pushing for ever higher international emissions reduction targets, rent-seekers abundant in this space, the existing RET ending in 2020 and current energy policy in a self-evident shambles, there is constant pressure for policy reform. The RET has been inefficient and poorly implemented — as we have seen in South Australia, where the rush to a 40 per cent renewable share has forced out two coal-fired power stations, rendered gas-fired generators idle, delivered the highest prices in the country and triggered massive blackouts by leaving the state vulnerable to the vagaries of its interconnector supplying power from Victoria — but it has always been popular.

Voters embrace renewable energy because it sounds comforting and easy, even though it is costly and unreliable. Perhaps Adelaide’s ongoing trauma will provide the reality check, especially with a long, hot summer of peak electricity demand ahead.

The point is the renewables push, lack of investment in baseload generation and continuing uncertainty have left the energy market in disarray — prompting renewed examination of energy policy and the inquiry by chief scientist Alan Finkel, which has questioned whether targets will be met. This is the background to the re-emergence of the emissions intensity scheme — a model that Turnbull promoted with Nick Xenophon from opposition in 2009.

In theory it sounds efficient and while proponents argue it will be less costly than other emissions reduction schemes, it still increases power prices. It uses a cost impost on heavy polluters to subsidise less intense emitters.

Its heaviest impact would be on brown coal generators, thereby reducing capital value and investment plans of baseload generators, probably hastening their exit. It would also provide another boost to renewables. With less base­load power and more intermittent renewable energy, we can all do the maths on energy security.

Proponents argue it would trigger more investment in gas generation. But the experience in South Australia shows that gas price volatility together with unpredictable market conditions caused by large amounts of intermittent wind energy sees gas generators sitting idle, even when their power is sorely needed. To help rescue the state after this year’s blackouts, Adelaide’s Pelican Point gas plant was brought back online after two years in mothballs. But it still takes hours to fire up to meet any needs triggered by demand spikes or wind dips. The introduction of an emissions intensity scheme would possibly see it mothballed again.

There is much conceit in this debate. Producing only 1.3 per cent of global emissions (and diminishing) there is nothing Australia can do that will have any discernible benefit for the earth’s atmosphere.

Yet we put ourselves through economic pain — and consider more — just for the sake of political gestures, both domestic and international.

The easiest way to fix South Australia’s electricity pricing and security woes would be to make its coal-fired northern power station — which closed in April — commercially viable again.

Perhaps try a reverse emissions intensity scheme and impose an anti-carbon tax on each megawatt hour of renewable electricity and use the proceeds to subsidise the baseload power on which the entire system hinges. My joke is no more absurd than existing aspects of the energy policy debate.
The Australian

As another scorching summer bears down on South Australia, it’s likely to become Australia’s ‘State of Emergency’: load shedding will become a daily experience for plenty in regional SA; and more statewide blackouts are inevitable.

With the carbon credit trading scheme consigned to the political dustbin, the Coalition have got virtually nothing left to play with. That scheme was designed to satisfy the LRET without the need to increase the capacity of intermittent renewables and, instead, to give Carbon Credit Units to highly efficient gas-fired plant, which would reduce CO2 emissions in the electricity sector, while providing reliable baseload power.

Now, the only option left is to cap or scrap Australia’s Large-Scale RET to prevent the possibility of any more wind power capacity being added to an already destabilised grid and sending the whole country into the Dark Ages.

The LRET is doomed: its demise is a matter of when, not if.