After decade of energy wars, emissions plans still stir political strife

The remarkable thing about a decade of energy wars is that emissions reduction policies can still blow up governments.

Josh Frydenberg and PM Malcolm Turnbull in Question Time in the House of Representatives Chamber at Parliament House in Canberra. Picture Kym Smith

The remarkable thing about a decade of energy wars is that emissions reduction policies can still blow up governments.

Malcolm Turnbull’s national energy guarantee survived last Tuesday’s Coalition meeting but is ­undergoing radical surgery to toughen up its effects on power prices. The Australian’s Paul Kelly on Wednesday criticised “the great furphy” that the NEG meeting could destroy the policy. By Friday morning the Prime Minister was facing attempts to rally a challenge to the NEG, and by extension his leadership, a potential repeat of 2009, when he lost the opposition leadership to Tony Abbott over an emissions trading scheme.

Coalition dissidents led by Abbott now oppose the Paris Agreement on carbon emissions reductions and the NEG. West Australian Liberal Andrew Hastie told Peta Credlin on Sky News on Thursday he was worried about both power prices and economic security. By late Friday The Australian reported online that Turnbull was prepared to regulate rather than legislate the target to allay such concerns. NSW Liberal Craig Kelly warned Credlin that a future Labor government would find it easier to lift a target set by ministerial regulation, which is exactly why the government preferred legislation and Labor opposed it.

Hastie, Abbott and potentially another eight conservatives risk a far higher target of 45 per cent by 2030 if Labor wins the next election. Conservatives, according to Sharri Markson in The Daily Telegraph on Friday, were urging Immigration Minister Peter Dutton, whose marginal seat of Dickson north of Brisbane is at risk, to lead the rebellion against the NEG. My bet is he won’t. Yet Turnbull should have seen this coming after the Longman by-election last month produced a Liberal primary vote of less than 30 per cent.

Let’s look at the truth of the NEG. It is not actually what boosters claim in terms of price, being more focused on reliability of supply. Yet it is relatively light-touch emissions reduction compared with Labor’s. Because of actions already taken, the electricity sector will reach a 24 per cent reduction on 2005 emission levels by 2020-21, when the NEG kicks in. This will leave only 2 per cent more to be taken from electricity emissions by 2030, which the Greens and Labor claim it is not ambitious enough.

Energy Minister Josh Frydenberg and Turnbull can’t really advertise this fact because they don’t want to undermine their chances of getting their target through parliament and signing up the states, particularly Victoria, which faces an election on November 24 and where Labor is concerned about losing seats to the Greens in inner Melbourne. Nor do they wish to inflame Abbott’s supporters by pointing out it was Abbott who committed to the Paris target. Abbott would argue circumstances changed when Donald Trump pulled the US out of the accord.

The Daily Telegraph’s Miranda Devine pointed out correctly on Tuesday that Abbott “had a mandate at the 2013 election to end the climate madness … effectively to do a Donald Trump”. But as PM, Abbott appeased climate alarmists “by legislating the renewable energy target, committing Australia to the Paris climate agreement, pledging $200 million to the international Green Climate Fund and shovelling $3 billion into direct action”. All true, but Abbott has a point about fighting an election on power prices. Labor and the Greens are deluded on the issue.

Labor gambles it will surf into office on a wave of public opinion supporting renewables because people believe wind and sun are free. My view is public support falls away rapidly when voters understand the adverse price and reliability effects Labor’s 45 per cent target and 50 per cent renewables ambition would have.

Whether Frydenberg and Turnbull have the political skill to drive the points of difference home is a moot point, but the task of reducing emissions by 0.2 per cent a year over a decade, compared with Labor’s target of an extra 21 per cent in the same period, should give the government plenty of ammunition. Abbott believes walking away from Paris would give it even more ammunition.

While this may be appealing to the Coalition base, polling shows the wider community remains favourably disposed to renewables and worried about climate change, an attitude the present drought is likely to sharpen even though it has little to do with climate change. Remember, drought was one of the key drivers of John Howard’s decision to take an ETS to the 2007 election. Abbott in The Daily Telegraph on Friday pointed to polling showing voters want power price reductions ahead of greenhouse gas reductions.

Last month’s Australian Competition & Consumer Commission report provides ammunition for thoughtful politicians. The ACCC found a range of market issues had lifted power prices and only about 6 per cent of bills are attributable to environmental costs. Most of the increases in the past decade were to do with “gold plating’’ of networks and manipulation of markets because of a lack of competition in generation and retailing, where operators simply maximised prices to lift profits.

The July 17 ACCC and the Australian Energy Market Operator report make it clear we will need to rely on coal-fired power generation to underwrite reliability for decades.

On renewables, subsidies opposed by Abbott were designed to be phased out, which could occur as early as 2020. The ACCC says the rise in power prices last year was mainly the result of shutting down the Hazelwood and Northern power stations in Victoria and South Australia, and price increases in coal and gas for dispatchable power.

Prices for renewable energy are falling, but that does not mean, as Labor claims, that increasing renewables would reduce prices. As Tony Wood explained in The Australian Financial Review last Thursday, rapidly increasing renewables would accelerate plant closures for dispatchable power and “would require higher consumer prices to pay for the subsidies”.

As this paper has argued for more than a decade, national policy on power and emissions reduction is a disaster. Yet we are where we are and the NEG may be the cheapest way to prevent the sort of disruption endured by South Australia in 2016.

Frydenberg and Turnbull are almost certain to adopt ACCC recommendations four and 30 to constrain prices. Four provides for the government to underwrite new power generation projects and 30 allows the regulator to set maximum prices for electricity supply contracts. Together these should do what the NEG does not.