Aug 20, 2014 - 9:35am
This article first appeared in The Australian on 20 August 2014.
CEO, The Climate Institute
Research finding that slashing the renewable energy target does not benefit consumers has upset a few commentators. This is not surprising. Cost of living scares have become standard talking points for some power companies and politicians. But the impacts of slashing the RET go beyond the impact on power prices.
Good policy development should accurately weigh the costs of government intervention and the benefits. Much commentary around the RET, such as the loud protestations from the Business Council of Australia, fails this test.
Yesterday’s opinion article by Matt Canavan (“Dodgy sums on renewables don’t add up”) makes similar mistakes. The independent analysis we commissioned and our report’s conclusions are consistent with almost all publicly available research in finding that reducing or abolishing the RET would not lower electricity prices.
Analysis by Bloomberg New Energy Finance, ROAM Consulting, and ACIL Allen’s modelling for the government’s RET review show similar results.
The study for the BCA and Australian Chamber of Commerce and Industry achieves a different outcome only by inflating renewable energy costs above the government’s own estimates and real world experience.
All studies note that the RET’s impost on electricity bills (costs of the certificates generated under the scheme) is offset to some extent by its downward pressure on wholesale electricity prices due to the extra low short-run cost generation in the system (wind and solar power stations do not pay for fuel). Reducing (or abolishing) the RET would lower certificate costs but raise wholesale prices.
Our modelling showed that certificate costs would decline after 2020. This decline is not based on some rosy, unsubstantiated vision of “learning by doing”, as Canavan maintains. Modelling by Jacobs uses a detailed database of actual renewable energy projects (existing, committed and proposed) that supports its modelling and includes estimates of capital costs, likely reductions in capital costs over time, operating and fuel costs, connection costs, and other variable costs for over 900 individual projects. (The likely reductions in capital costs used in this modelling are assumed to be small and reflect long-term trends in international equipment prices partially offset by an assumed depreciation of the dollar.)
The key point is that we can’t consider subsidies for renewables and ignore the public subsidy of coal producers’ pollution. As the International Monetary Fund and others continually highlight, not factoring in climate damages into energy markets is distorting, causes overconsumption of fossil fuels, and reduces investment in energy efficiency and renewable energy.
Canavan is right that a carbon price is a more cost-effective way of reducing emissions. But his government just blocked that path for now. The Climate Institute has always supported a technology-neutral limit and price on carbon, structured to contribute to the national interest in limiting global average temperature rise to less than 2C. If such a policy existed we recognise that the RET could be reduced though time as appropriate carbon prices and limits were implemented.
Repeal of the carbon laws lets polluters escape responsibility for their pollution. The uncertainty and weaknesses of the government’s taxpayer-funded alternative, including the lack of an explicit policy to exit emission-intensive coal generation, makes the RET even more central to efforts to decarbonise our economy.
Both the OECD and the IMF warn that we must decarbonise the global economy by the second half of this century. The RET is a market distortion only if you assume they, and every major scientific organisation in the world, are wrong about climate change.
John Connor was CEO of The Climate Institute from 2007 to March 2017. Whilst qualified as a lawyer, John has spent over twenty years working in a variety of policy and advocacy roles with organisations including World Vision, Make Poverty History, the Australian Conservation Foundation and the NSW Nature Conservation Council. Since joining The Climate Institute in 2007 John has been a leading analyst and commentator on the rollercoaster that has been Australia’s domestic and international carbon policy and overseen the Institute’s additional focus on institutional investors and climate risk. John has also worked on numerous government and business advisory panels.