No carbon-free lunch or emissions-free guarantee

Malcolm Turnbull needs a circuit-breaker to rescue his national energy guarantee, revive his government’s direction and protect his leadership. As expected, finding an accommodation within the Coalition on climate and energy policy is proving even more difficult than satisfying the Labor premiers or Bill Shorten. This is hardly surprising given this has been the most hotly contested policy ground between the major parties for more than a decade. In 2013 the Coalition won in a landslide under Tony Abbott promising to repeal Labor’s carbon tax. Despite having made good on that promise, the government has seen the consequences of the renewable energy target and other climate policies push up power prices and undermine the reliability of the electricity grid. While emissions reductions (at differing levels) have remained as a bipartisan commitment, under both Mr Abbott and Mr Turnbull the Coalition has steadfastly avoided introducing a price on carbon, an emissions trading scheme or an emissions intensity scheme because it has understood its mandate.

The central problem for the Prime Minister now is that as the detail of his NEG is revealed, the public and his MPs have realised that it is a scheme whose primary purpose is to deliver reduced emissions in the electricity sector. The NEG’s positive attribute is that as well as enforcing and facilitating lower emissions it will place a premium on reliable or dispatchable electricity generation. Yet the fact it was designed to render the voluntary Paris targets enforceable under domestic law belled the cat — the driving force of the NEG is the emissions reduction target. What is more, because of the state and federal overlap in the National Electricity Market, the government’s slender lower house majority, a host of Coalition dissenters and fraught numbers in the Senate, realistically the NEG can succeed only with Labor support. Mr Turnbull is actually trying to deliver a bipartisan agreement to meet emissions reduction targets, a carbon copy of what he tried to do as opposition leader in 2009 when his colleagues revolted and installed Mr Abbott to change policy direction. Mr Turnbull’s highwire act is an attempt to deliver from government a similar climate compromise to that which undid him in opposition.

Little wonder that last night he moved to dump the government’s plans to legislate the 26 per cent Paris emissions reduction target. It was a capitulation to rebel MPs and ministers threatening to cross the floor and vote it down. Under the backdown, the 2015 climate change commitment would be retained but mandated through a ministerial order and only after advice from the competition regulator that it would not increase power prices.

The Prime Minister has said many times that to reduce emissions the nation must bear an economic cost. “There is no free lunch in terms of carbon abatement,” he said in 2011, “someone has to pay.” In 2013 he put it this way: “There is no such thing as a carbon-free free lunch.” So when he talks about the NEG attempting to solve the “trilemma” of electricity affordability, reliability and reducing emissions, Mr Turnbull knows the emissions reduction side of the equation compromises the pricing side. Yet the government’s rhetoric is all about cheaper energy prices. This is an obvious contradiction and makes for a muddled political message.

Australia has a natural advantage in cheap energy and we account for only 1.2 per cent of global emissions. (China is 26 per cent and increasing while the US is 15 per cent and not in Paris.) So it is incongruous that we are the only nation inflicting economic and political pain on ourselves to adhere to the Paris Agreement. India, Indonesia and other developing nations, naturally enough, are continuing to increase their emissions as they expand their economies and lift millions of their people out of poverty. Many European nations benefit from nuclear energy or recent transitions to gas generation, while other nations on track to miss their targets accept that reality. The US withdrew from Paris just as Donald Trump always promised he would do. Inexplicably, Mr Turnbull ratified the Paris Agreement the day after Mr Trump’s election win was declared, when this would have been the most sensible time to stall and take stock.

Mr Turnbull and Environment and Energy Minister Josh Frydenberg have now moved to assuage the concerns of their partyroom colleagues while keeping Labor at the table. Their compromise plans are also likely to include pricing measures directed at the large power companies, so tangible progress on costs can be demonstrated. Labor is unlikely to have a problem with this. But the government also might look to underwrite new coal generation investment or act to extend the life of existing coal-fired power plants: initiatives that might prove a step too far for Labor. Regardless, a complex policy fix has started to look even more complicated and difficult to explain and manage. Through all this Mr Turnbull and Mr Frydenberg need to keep in mind a simple reality. The Coalition was elected in 2013 largely on a promise to defend electricity prices from conceitful climate gestures. They will abandon that policy and political ground at the grave peril of their own positions and that of the Coalition.