Turnbull has surprised us, but the fight continues

Malcolm Turnbull and Energy and Environment Minister Josh Frydenberg have redefined the energy crisis to produce yet another new policy design guaranteed to upset both the anti-climate change warriors of the right, and the religious champions of renewables on the left — but aspiring to a workable investment framework based on changed priorities.

This solution is part technocratic, part politics. Its policy essence is to tie together the two goals of system reliability and emissions reduction, previously separate. It is a pivotal step. But the prospect of bipartisan support is remote. The policy’s electoral bite in its appeal to the Coalition backbench and ultimately the public is that it will reduce power prices from present levels and by more than the discarded Clean Energy Target proposed by Chief Scientist Alan Finkel.

The Prime Minister and Frydenberg have paraded the official energy advisers. The policy flows from their recommendations. They estimate typical household bills will fall by an average of $110-$115 a year in the 2020-30 period, a claim with critical consequences for Turnbull’s hopes. While a step in the right direction after the recent price rip-offs such gains are incremental, reflecting the reality, as the Australian Competition & Consumer Commission said, that the forces driving much of our energy costs will linger for decades.

This policy is a surprise in its new conceptual framework. The debate yesterday was between the new energy and old energy paradigms. Turnbull and Frydenberg seek to reshape the politics of energy with their new mechanism.

They won qualified support from the industry and notably from the Business Council of Australia, calling for stakeholders to respond in good faith.

The government mobilised the ammunition for its attack — this is the recommendation of the regulatory experts; the numbers are their numbers; if you believe in bipartisan rules, get behind this model; the predicted price gains for families are superior to the CET championed by Labor; the chairman of the Energy Security Board, Kerry Schott, declares the new policy will “bring certainty to this industry” — and that has two consequences, more investment and lower prices.

Finally, Frydenberg boasts the new model is premised on ideas of no subsidies, no taxes, no trading schemes. Much of the debate in recent days is reduced to nonsense. This is a Turnbull government policy, not a Tony Abbott policy. Contrary to numerous predictions, it is not a renewables love-in, not a right-wing ideological crusade, not a surrender to coal power, not a carbon price, not an abandonment of the Paris targets. Every label put on it is wrong.

This will disappoint and infuriate many on the right and the left. Their attacks will be vicious. It positions Turnbull and Frydenberg to campaign against the old paradigm of renewable subsidies and the bizarre renewable energy target world with its risk of blackouts and price pressures.

The policy design, as Schott explained, is superior because it integrates the two needs — energy reliability and emissions reductions in the form of obligations imposed on the energy retailers.

Turnbull’s body language yesterday radiated a confidence in his new policy. It reveals him, again, as a problem-solver and fixer, not an ideologue. But having sorted the policy, he must sell it — and much of his future hinges on that. Turnbull calls this a game-changer. He also told colleagues it had the potential to end the climate change political wars. But this is a forlorn dream. The energy battle will run to the next election, with the Coalition and Labor offering competing prescriptions.

The old paradigm, along with its stakeholders, is far too entrenched. So that energy-policy walking failure, South Australian Premier Jay Weatherill, was out of the blocks yesterday branding the policy a sellout to coal. The message yesterday was that Labor would reject the new policy structure of retailer guarantees with their implications for renewables. Energy spokesman Mark Butler says it “will kill the renewable energy industry”. The Greens merely accused Turnbull of capitulation to “climate terrorists”. And you expect the politics will improve?

After the release, Butler, while sceptical, said Labor would need to consult on a policy that cast doubt on how the Paris targets could be achieved.

The National Energy Guarantee policy reflects the transformation in the debate since the midyear Finkel report with its dramatic warnings about unreliability, the risk of blackouts and the need to address the problem of baseload power.

For Turnbull and Frydenberg, there are three positives in the new policy: It keeps the bulk of the Coalition partyroom united, it signals changed priorities in favour of price and reliability over emissions reduction, and it enshrines the principles of subsidy reduction and moving away from technology winner-picking.

The differences with Abbott are significant. There is no government commitment to a new coal-fired power station and no reduction of the 26-28 per cent Paris targets. The rejection of the CET is the dramatic event. The Finkel blueprint won wide industry backing and was embraced by Labor as part of its strategy of legislating a bipartisan framework. But Finkel was swamped by a combination of reliability and politics.

By keeping the RET but abandoning the boost for renewables offered by Finkel, the policy will see a slowing in the renewables share of the market over time. Frydenberg estimates this at 28-36 per cent by 2030 and the wind-solar share at only 18-24 per cent — a long way from Labor’s targets.

Product discrimination between the government and the opposition remains significant, with Labor sitting on its emissions reduction target of 45 per cent and its renewables target of 50 per cent. How the politics will play defies prediction, given the dream world of a deluded public with this week’s Newspoll showing 63 per cent want renewable subsidies continued (contrary to new government policy) while 58 per cent refuse to pay anything more for power bills inflated by the commitment to renewables.

The government will put its new policy first to state premiers via the Council of Australian Governments. In principle, endorsement at that level will be vital — but it might also occasion the start of the next political war.

The policy is based on two standards retailers must meet. The first is a reliability standard forcing them to purchase a level of baseload power (coal, gas, hydro) to match renewable energy. The aim is to prevent blackouts, impose a national interest obligation on retailers, prioritise dispatchable power and, in the process, assist coal and gas.

Frydenberg says by 2030 the coal/gas share of the energy mix would be in the 64-72 per cent range and there were “more likely” to be upgrades or extensions in coal plants. It was a measured response, suggesting a degree of fresh investment in coal or upgrading coal-fired power stations beyond their expectations, but no talk of new coal-fired stations.

The second standard for retailers concerns emission reductions but leaves them with discretion to choose the mix of energy sources. Frydenberg says the RET is now a 95 per cent done deal. The Coalition is correct in calling time on more subsidies for renewables, given their falling costs. It is also correct in not underwriting a new coal-fired power station. Its main problem is obvious: relief for families and business will be modest given past blunders and the politics of energy conflict is likely to remain an investment uncertainty.