Renewable Energy Target is holding back the nation

GIVEN the state of climate science it is proper to ask whether the rush to a RET is money well spent.

THE strongest argument for taking immediate action on climate change has always been about insurance risk: acting quickly will produce big savings over the long run. Even if the worst predictions do not come true, the potential impact is so great it would be irresponsible not to guard against them. For some people, however, there seems no need to consider the premium cost of the climate-change insurance being offered. The Labor-Greens compact produced a $26-a-tonne carbon tax, in front of much of the world. The Rudd-Gillard government also boosted the Renewable Energy Target to the point that it will most likely account for 27 per cent of our electricity generation by 2020 rather than the 20 per cent that was widely assured. Modelling for Dick Warburton’s RET review estimates that over the period to 2040 the RET will increase electricity costs by $12.8 billion. Deloitte Access Economics says the RET costs about $125 a tonne of carbon abatement — or five times the cost of the outgoing carbon tax.

Given the state of climate science — including legitimate questions about what has caused a seven-year pause in average global surface temperatures that climate models failed to predict and what this might mean about the true sensitivity of Earth’s climate to rising levels of atmospheric CO2 — it is proper to ask whether the rush to a RET is money well spent. For some, the RET is an expensive, kneejerk policy that is pumping billions of dollars into existing technologies that are a short-term solution, at best, ultimately destined to fail. This view is gaining currency, with feed-in tariffs and other subsidies being cut back in Germany, Spain and Britain, which are among the most enthusiastic supporters of global action to cut CO2 emissions. European governments are concluding the cost benefit of subsidising renewable energy does not stack up when put alongside the political and economic cost of rising electricity prices.

It is telling that US President Barack Obama did not highlight renewables in his ambitions to cut CO2 emissions by 30 per cent from electricity generation. He chose gas and nuclear ahead of wind and solar. In Australia, forcing investment into renewables risks stifling non-renewable but greenhouse-friendly energy sources such as gas. Renewable energy advocates have tried to muddy the waters on the cost of the RET by claiming incumbent fossil fuel generators enjoy an unfair advantage and that the mining industry receives heavy subsidies via infrastructure spending. But, as Henry Ergas has outlined, a proper analysis shows the subsidy mining gets is one-fortieth of that claimed by renewable energy supporters and is swamped by the billions earned by government in royalties from mining.

While support for the RET owes more to ideology than common sense, the issue is now politically red-hot. Like Labor and the Greens, Clive Palmer wants to retain the RET. The Coalition is likely to support a “true” benchmark, which would see the large-scale RET target cut by about 15,000GW/h. Those who argue there are similarities between climate change policy and tariff reforms of the Hawke and Keating era confuse the liberating effect on business of globalisation with the stifling constraints of higher energy costs. There are chances for innovation and enterprise in promoting renewable energy use, but government has shown itself to be a poor judge when it comes to picking winners. The RET is more like industry protection of old; holding back innovation and featherbedding an industry that must learn to stand on its own feet. It is also holding back investment in other technologies that may be a better long-term solution for the planet — and the wallet.