The half-baked Neg needs more time in the oven
As a small child I heard there was a book called “Real Men Don’t Eat Quiche”. From that point on, as if it would elevate me to manhood, I refused to touch the stuff. My mother folded and instead would serve up something she called “egg and bacon pie”, which I relished.
Who would imagine that this simple strategy for dealing with toddlers would be required for energy policy negotiations?
By now everyone paying attention realises that there’s a carbon emissions intensity scheme at the core of the National Energy Guarantee. But because we’re afraid of tantrums from the coalition backbench – justifiably, given their ideological attacks on the carbon policy alphabet soup of the CPRS, CPM, RET, EIS and CET – the details of the Neg have been carefully disguised.
So that it doesn’t look like a carbon trading scheme, the Neg’s tradable emissions allocations aren’t readily reducible to certificates. The complex system, never before implemented, has no price discovery, no third party access to provide liquidity, no easy way to manage pricing risks and no transparency.
We were promised it would solve the energy trilemma – to deliver us cheaper, cleaner and more reliable power – but the Neg’s many design trade-offs have left it deeply compromised.
We’re told that the the Neg will deliver business certainty. While some 8,600MW of new wind and solar will be built under the renewable energy target over the next four years, by the government’s own modelling, the “certainty” provided by the Neg will result in just four wind turbines and half a gas plant between 2021 and 2030. That’s not an outcome worth fighting for.
Under the government’s vision, as told through the modelling, Australia’s energy system stays remarkably unchanged. Rooftop solar installation rates are forecast to halve, the battery revolution never arrives, and emissions barely budge. Despite this, current forecasts have the electricity sector meeting the government’s paltry targets almost before the Neg begins. Either this modelling is bogus, or this iteration of the Neg isn’t worth fighting for.
The modelling relies on heroic assumptions to arrive at a position that generators will change their bidding behaviour and gladly forego $27.3bn of revenue from their assets. The average household is promised a $550 annual saving, which would only be the case if the Neg shaved an incredible 74% off the energy component of electricity bills. Has anyone seen any credible modelling that shows the Neg will reduce prices?
Remarkably, $550 is the same magic savings Tony Abbott promised when he axed Australia’s effective carbon price. Did someone accidentally send out the old media release?
So does the Neg address reliability? It turns out that’s the wrong question. The scare campaign was undeniably effective, but we simply don’t have a reliability problem. Our generation system has met the 99.998% reliability standard in every region every year this decade and the Australian Energy Market Operator’s conservative processes predict we’ll enjoy worldleading system reliability over the next 10 years.
While reliability cannot be taken for granted, there is nothing in the Neg that would have prevented or ameliorated the tornadoes that ultimately caused South Australia’s 2016 blackout nor the equipment failures and human error that led to the load shedding events in New South Wales and South Australia in February 2017.
Our elected representatives are not even close to delivering certainty for investors. As we saw with the renewable energy target during the Howard and Abbott eras, whenever there is a lack of bipartisanship on targets, business down their tools. Investment and the jobs that follow come only when business knows the goalposts are unlikely to move.
The Neg, as it currently stands, is not a solution to the problems it purports to address.
That’s not to say it should be thrown out, there are some decent ideas in it and enough goodwill that continued work is warranted. We have time. Under the Energy Security Board’s own timeline, we have three years before the Neg’s proposed first compulsory compliance period commences.
The states now need to take the time to conduct proper due diligence. Remarkably, the commonwealth’s modelling assumes that Victoria’s and Queensland’s renewable energy targets are abandoned. Both states should commission their own modelling with scenarios that reflect their own policies.
In the meantime, a state should run a trial of the Neg. Just as we trialled the NDIS and the cashless welfare card before rolling them out nationwide, thankfully, it makes perfect sense to test and study this fledgling policy.
Meanwhile, the Coalition must settle on a unified and durable position. Even if Frydenberg does report after Tuesday’s party room meeting that his broad church has fallen in line, as sure as night follows day, Craig Kelly will be white-anting the policy on his Sky News evening shift. The states won’t accept confident yet empty assurances given over a phone hook up.
The Neg has some decent ideas, but it’s not fully baked. Full marks to Frydenberg for almost convincing his most recalcitrant colleagues to order the egg and bacon pie when the fussy eaters have already refused the quiche, five times previously.
But he forgot one thing: the electricity grid belongs to the states. It’s their kitchen and if they’re going to be stuck with the commonwealth’s recipe, you can’t blame them for wanting to try it before they dish it out to us all.
Simon Holmes à Court is senior adviser to the Climate and Energy College at Melbourne University