Response to RET Review19 December 2012
Today the Climate Change Authority (CCA) released the final report of its Renewable Energy Target review. It repeats all the same arguments I debunked in my response to the discussion paper released in October, and makes similar recommendations (though some of the details have been refined).
The RET Review fails to acknowledge that Australia and the world urgently need to phase out fossil fuel burning to avoid dangerous climate change, and the policies in place are completely inadequate to do so. Instead, on most matters it insists the status quo must be maintained to minimize policy uncertainty. But climate policy will be subject to uncertainty for the foreseeable future anyway, because it challenges powerful interests, so the best way to design the RET is to send the strongest signal possible to incentivize investment in renewable energy. The reason for the existence of a Climate Change Authority and regularly scheduled reviews is to provide regular opportunities to strengthen Australia’s climate policies and thus accelerate decarbonization over time. CCA’s rigid determination to recommend little change is creating the ludicrous situation where the body is making itself irrelevant.
CCA refuses to recommend increasing or strengthening the Large-Scale Renewable Energy Target (LRET). It recommends future reviews be scheduled at four-year instead of two-year intervals (though fortunately unscheduled reviews can be commissioned at any time by the Minister, the Parliament, or CCA itself). It envisages the 2016 review will consider the issue of post-2020 targets, and rules out consideration of accelerating renewable energy deployment before 2020 except “in the event of extenuating circumstances” (p. xi); it is unclear what would qualify as such a circumstance. The problem with this is that the RET is currently inadequate, a higher target is needed to incentivize new projects, and accelerating action cannot wait until 2016 or 2020.
CCA recommends no change to the shortfall charge that applies when a liable entity does not surrender the required number of certificates. This is despite the review’s modeling showing the price of Large-scale Generation Certificates (LGCs) will rise to equal or nearly equal the shortfall charge (meaning liable entities would pay the penalty instead of investing in renewable energy), and then plummet toward zero (halting investment). The shortfall charge should rise with inflation so there is a high penalty for non-compliance to ensure the RET is achieved. CCA has deferred consideration of this proposal until the next review, but it should be made now to give investors confidence that the RET will continue to drive investment in the future.
The RET Review recommends weakening the RET in one key way (here the details have changed from the discussion paper, but the same wrongheaded policy intention remains). Although it recommends the Small-scale Renewable Energy Scheme (SRES) remain separate to the LRET and notionally uncapped, CCA has bought claims by the Australian Industry Group (AIG) and others that it is necessary to contain its costs. It has not escaped my attention that CCA board member Heather Ridout is a former chief executive of AIG. The report recommends “mechanisms that reduce the risk of a possible rise in installations” (p. x) – yes, the Climate Change Authority believes an increase in solar PV installation is a risk!
This is blatantly at odds with the imperative of climate change mitigation and the objective of the RET (not to mention CCA’s stated goal of policy stability). Instead of attempting to contain solar PV deployment, the government should design policies to further accelerate it. The more small-scale renewable energy technologies are installed, the better. In addition to having zero greenhouse gas emissions, they remove demand from the grid and lower wholesale electricity prices.
The final report discounts the discussion paper’s proposal of discounting, instead recommending the SRES be phased out from 2017, solar PV systems larger than 10 kW be moved to the LRET to prevent a boom in solar PV on commercial buildings, and the Minister use their existing discretionary power to lower the price cap as an “emergency brake” should installations take off again. CCA is optimistic these changes, combined with the windback of state-level feed-in tariffs, will contain the epidemic of irresponsible solar PV installation.
The RET Review is blinded by a fundamentally flawed paradigm on Australia’s role in responding to climate change advocated by government climate advisor Ross Garnaut, which doesn’t bode well for the review which will recommend emissions targets. Garnaut argues Australia’s role in the absence of a global agreement is merely to implement its (inadequate) emissions reduction target of 5% by 2020 at the lowest possible cost. He further argues the cheapest way of doing this is with a carbon price (including unlimited international offsets), and that with the carbon price in place the RET should become redundant over time.
Garnaut’s view is reflected in the RET Review final report: “the RET is viewed as a transitional measure… ahead of a carbon price trajectory consistent with delivering on Australia’s long-term environmental goals” (p. vii). I am pleased to see CCA now recognizes an extra reason for the RET’s existence, “the risk that the carbon price is lower than optimal to achieve long-run mitigation goals” (p. 30), but it fails to recognize this as a reason to increase the 2020 LRET. CCA also continues to cite the Productivity Commission’s claims about the relative cost-effectiveness of climate policies, which I have comprehensively debunked.
In the real world, where UN negotiations have not only failed to agree on an international regime of national emissions targets adding up to a safe global target, but have even agreed to delay such an agreement until it will be too late, radical unilateral action is needed to get a momentum for global action. Ambitious action by Australia should not be conditional on international action. We should not limit our role to implementing its inadequate existing emissions target, but use every lever at its disposal to accelerate decarbonization, including (though not limited to) cutting our domestic emissions to zero as rapidly as possible. In doing so, we should not limit ourselves to least-cost mechanisms, but use a comprehensive range of complementary measures.
The Government is required to respond to the recommendations within six months.
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