Trashing energy targets in pursuit of profits Opinion Article

Aug 18, 2014 - 1:21pm

This article first appeared in ABC's The Drum on 18 August 2014.  

Olivia Kember    
National Policy & Research Manager, The Climate Institute

Power companies have learnt they have two options for making money. One is the widely complained about but generally accepted method of charging people to use their electricity. The other is less obvious but should cause even greater outrage: lobbying governments to tilt the playing field in their favour.

Right now, for companies heavily invested in coal and gas stations, option two is looking like the good bet. It has worked well several times before, back at least as far as the set-up of the National Electricity Market (NEM), when policymakers were persuaded to exclude managing environmental impacts from the market's objectives.

Now the power companies are hoping to pull the same move again with the Renewable Energy Target.

The stakes are high. The Renewable Energy Target, a bipartisan policy dating back to prime minister John Howard's era, aims to reduce carbon pollution from the electricity sector and develop Australia's renewable energy industry. According to our calculations, since it was expanded five years ago, wind and solar power has tripled and the carbon intensity of the NEM has fallen by about 9 per cent (helped in the last couple of years by the carbon price).

Jobs in renewable energy grew to 21,000 last year.

But, since more renewables mean less reliance on fossil fuels, the owners of coal and gas stations have spent the last couple of years pushing for the target to be weakened or abolished completely.

Their arguments are usually couched as public-spirited concerns for consumers. Energy Australia and Origin, particularly, have claimed that the target must be lowered to bring down their customers' power bills.

Yes, that's right. Your power company says it wants you to pay less for power.

But as our new independent analysis shows, weakening the target benefits the power companies rather than consumers. Owners of coal power generators would earn an extra $8 billion, while gas would bring in another $2 billion (net present value of future profits). This is driven by a 7 per cent increase in coal-fired power production and higher wholesale electricity prices.

Under current ownership arrangements, EnergyAustralia stands to gain the biggest slice of this. EnergyAustralia's potential extra profit is worth about $1.9 billion if the target is reduced (and $2.2 billion if it is abolished). AGL benefits too, and if it goes ahead with its purchase of Macquarie Generation, it could pick up an extra $2.7 billion if the RET is reduced. Rounding out the big three, Origin Energy stands to gain about $1.5 billion.

And for the rest of us?

Consistent with other studies, we found that reducing the Renewable Energy Target would be more likely to raise our power bills, although the impact is fairly minor - averaging about $30 a year over the next 15 years, for the average household.

We also see a rise in pollution. Changes to the target would lead to an extra 150 million tonnes of carbon pollution by 2030 and 240 million tonnes by 2040. We calculated the costs of this extra pollution, using a method developed by the United States government, to be about $14 billion.

These costs, which include damage from increased heatwaves, lost food production, property lost to sea level rise and some health impacts, are imposed on future generations as well as the current one. As many other consequences of climate change are excluded from the estimates (such as increased regional instability), these costs are likely to be an under-estimate.

And then the community will also have to deal with the loss of $8 billion investment in a strategic industry.

Renewable energy isn't a "nice to have"; not only is its development critical to avoiding dangerous climate change, it contributes to energy security, industry development and pollution reduction, as other countries already recognise. Australia needs to maximise use of its renewable energy resources to remain prosperous in a world moving to limit carbon pollution. Cutting the target will deter investment and result in job-shedding.

So who really benefits from reducing the Renewable Energy Target? Put it this way: not you.

Olivia Kember    
National Policy & Research Manager, The Climate Institute
Olivia Kember    
National Policy & Research Manager, The Climate Institute

Olivia Kember

Olivia is the Acting CEO of The Climate Institute. She has worked in the US, UK, Australia and New Zealand across the fields of journalism, diplomacy and resources. Olivia has provided policy analysis and advice for the New Zealand Ministry of Foreign Affairs and Trade and the NSW Minerals Council. She was the recipient of a Fulbright award to study in the United States and holds an MA in Security Studies from the University of Georgetown

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