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National Energy ‘Guarantee’: can our power ‘trilemma’ become a policy trifecta – or quinella?

By Geoff Carmody - posted Wednesday, 25 October 2017


First, unlike regulations prescribing reliability standards and use of renewables, investment effects will depend on the investment environment.

Second, if all RET subsidies cease, and are 'grandfathered' to existing/approved projects (albeit out to 2030 even though the RET ends in 2020), then new renewable energy projects, presumably needed for 'responsibility' target reasons, won't be so subsidised. So will they actually be forthcoming? Many assert that such energy investments don't need subsidies now, so presumably they conclude the answer is 'yes'. The Greens try to have it both ways, saying such energy is cheapest but needs subsidies for 'investment certainty'! Best case scenario might be to assume no further subsidies are needed, so costs will fall by the amount of the implicit RET subsidies, only to the extent new investments occur.

Third, for reliability, at present we're talking mainly coal, diesel, petrol, gas, and the like. For coal, are we talking anything other than, critical, super-critical, or HELE plants (plus CCS)? With long investment horizons and expected carbon pricing, I suspect the answer is 'no'. So coal-based reliability costs rise, on average. Diesel and petrol might be cheaper. Gas looks more expensive, at least now. Batteries are coming, but storage is an issue for large scale base load, as is cost, and market penetration has a long way to go. Hard to see a price reduction soon.

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Fourth, balancing needed investment in supply meeting both reliability and 'responsibility' targets, where do we end up? I suspect, from where we are now, we need a lot more 'reliability' investment than 'responsibility' investment to hit both targets.

This is an empirical question. Let's see the numbers. That said, a net cost reduction, at best, looks 'iffy' to me.

Government denials about what the NE'G' entails

The political argy-bargy about what the NE'G' means is well underway.

Labor says it looks like an emissions intensity scheme, and/or emissions trading, and/or pricing carbon.

The Coalition denies all three charges and asserts (on trading) that no certificates are involved, only trading contracts in physical volumes!

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Oh please! The punter is not so dumb. Try a little honesty. The truth (even if politicians of all stripes can't handle it) is as follows.

First, any policy that is intended to reduce emissions puts a price on them, one way or another. That price may be obvious (a carbon tax, or an emissions trading price), or less and less transparent ('direct action', the 'shadow carbon price' arising from the RET, or an 'uncertain expected price' built into long term investment plans for new power plants after all the policy flip-flops, etc, on climate policy). Officials at the PM's press conference asserting no carbon price is involved in the NE'G' know better. If it cuts emissions, the NE'G' prices carbon. If there's no carbon price, there's no emissions reduction. Period.

Second, the NE'G' at least offers the prospect (if COAG agrees) that an emissions trading-type system will evolve. Governments (the Commonwealth, with agreement from the States?) are supposed to set (national?) reliability and emissions targets, and retailers are supposed to work out the most cost-effective way of delivering them. Prices will then reflect the private sectors' best efforts to deliver these targets as cheaply as possible. In doing so, their efforts on 'responsibility' (if not reliability) will tend to reduce emissions intensity in production. For those believing in anthropogenic (or other) global warming, isn't that a good thing? (Well it is, if taken in splendid national isolation and ignoring Australia's minuscule contribution – 1.4% and falling – to anthropogenic global emissions, themselves a fraction of total global emissions.)

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About the Author

Geoff Carmody is Director, Geoff Carmody & Associates, a former co-founder of Access Economics, and before that was a senior officer in the Commonwealth Treasury. He favours a national consumption-based climate policy, preferably using a carbon tax to put a price on carbon. He has prepared papers entitled Effective climate change policy: the seven Cs. Paper #1: Some design principles for evaluating greenhouse gas abatement policies. Paper #2: Implementing design principles for effective climate change policy. Paper #3: ETS or carbon tax?

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