Turnbull energy plan flounders on the same old problem

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Via the AFR:

Federal Labor is open to a deal on energy policy, but has demanded more detail from the government on the new scheme and has indicated it may increase the emissions reduction target for the electricity sector should it win the next election.

With the Turnbull government needing the support of both federal Labor and the Labor states for its National Energy Guarantee, it pledged that all parties would receive economic modelling next month underpinning claimed savings for household power bills and other impacts.

Prime Minister Malcolm Turnbull expressed confidence that “common sense will prevail”, but the opposition said a lot more detail was needed before it could make a decision. Treasurer Scott Morrison revealed that Labor now had as much information before it as did the government which, it emerged on Wednesday, was not much.

…The emissions reduction target for the power sector needs to be established by federal legislation and would be set at about 26 per cent on 2005 levels by 2030. This accords with Australia’s commitment made in Paris when Tony Abbott was prime minster to reduce emissions across the economy by 26 per cent to 28 per cent by 2030.

Labor has already pledged a 45 per cent economy-wide reduction in emissions by 2030 if elected. One source told The Australian Financial Review that Labor, if it agreed to the National Energy Guarantee, could legislate if elected to increase the emissions reduction target on the energy sector.

Labor is concerned about the impact on renewable energy. Under the government’s plan, renewable energy would constitute between 28 per cent and 36 per cent of the energy mix by 2030, whereas the abandoned Clean Energy Target, which Labor was prepared to support, would have had 42 per cent renewable in the mix by the end of next decade.

Quite right. The mechanism must be easily scalable to lower levels of emissions intensity or it is nothing but a coal subsidy.

Amusingly, there is also this:

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Pro-coal government MPs who approved the NEG plan on Tuesday, could yet become suspicious if they are convinced by Labor and industry experts that the scheme contains similar elements to an emissions trading scheme, including a carbon price equivalent.

Australian Energy Council chief executive Matthew Warren said because the NEG involved energy companies pricing the carbon risk, this would become in effect a carbon price.

The government’s own briefing note on the plan appeared to contemplate retailers being able to buy or sell emissions intensity rights if needed.

“Some electricity retailers will not be able to meet the required emissions profile, while others will overachieve,” it says. “Therefore a secondary exchange will occur between retailers to balance their portfolios.”

Given the history of the Coalition’s entrenched opposition to a carbon tax or anything resembling one, the suggestion that the NEG would contain such a mechanism has the potential to cause trouble for Mr Turnbull – a former advocate of carbon trading who has promised his party he would never return to such a system.

This is the Abbott dupe I was discussing a few days ago. By pushing all of the pricing implications into generator’s and retailer’s accounts, the carbon pricing is being buried.

In the end you can’t have mitigation without pricing impacts. It just goes to show how loopy these folks are.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.