Malcolm Turnbull convinces party to unite on energy policy

Extract from The Guardian

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Energy

Prime minister wins party room backing despite Tony Abbott bid for delay, but policy may be resisted by states

Malcolm Turnbull releasing the Coalition’s energy policy on Monday. Photograph: Mike Bowers for the Guardian

Katharine Murphy Political editor

Tuesday 17 October 2017 17.41 AEDT Last modified on Tuesday 17 October 2017 19.45 AEDT

Malcolm Turnbull has secured party room backing to impose new reliability and emissions reduction guarantees on energy retailers and large energy users from 2020.
But the emissions reduction trajectory, the most internally sensitive component of the reform, will require new legislation, and the government has been advised to implement the new scheme with the support of state governments passing complementary laws – which could render Turnbull’s reworked proposal dead on arrival.
While the government characterised its new energy guarantee as a “game changer”, Labor quickly blasted the decision to dump the clean energy target recommended by the chief scientist, Alan Finkel. A handful of government MPs, including Tony Abbott, expressed objections to the emissions reduction element of the overhaul during party room debate.

Labor has also zeroed in on the price aspects of the scheme. The government contends its new energy framework will lower prices for households by between $100 and $115 per year, but the opposition suggests those estimates are rubbery, given serious modelling has not yet been undertaken.
After months of internal controversy, the government on Tuesday dumped the clean energy target favoured by Finkel in favour of a new “national energy guarantee” which will impose a reliability and emissions reduction guarantee on retailers and some large energy users.
With Coalition conservatives fiercely opposing the Finkel clean energy target on the basis it would provide ongoing subsidies to renewable energy, the prime minister and the energy minister have sold the policy internally as an end to picking winners, and the beginning of technological neutrality.
The new rules would oblige retailers to meet a percentage of their load requirements with flexible and dispatchable power resources which can be scheduled by the energy market operator depending on the requirements of the system.
The emissions reduction obligation, like the reliability requirement, will require retailers to enter into contracts for the supply of energy at a certain emissions level. If retailers don’t meet their new obligations on a persistent basis, the penalty is market deregistration.

The government says the new emissions reduction target for electricity will likely be 26% on 2005 levels by 2030.
But if that’s where the target is ultimately set, that will require other sectors of the economy to do most of the heavy lifting if Australia is to have any hope of meeting our target under the Paris climate agreement.
Heavy emitters exposed to international competition will be excluded from the emissions reduction obligation, and speaking to reporters on Tuesday, the prime minister said there was “potential for back-ending a fair bit” of the emissions reduction task for electricity because of declining costs.
As foreshadowed by Guardian Australia, retailers will also be able to use international permits to help meet their abatement obligations.
The existing federal renewable energy target will peak in 2020 and run through to 2030, with projects grandfathered, which means the existing rules and frameworks continue to apply until the scheme wraps.
During Tuesday’s party room discussion, Tony Abbott, Matt Canavan, David Gillespie and George Christensen raised concerns about the policy, and Abbott argued that the government should delay any decision.
Given there was some dissent, Turnbull asked MPs whether they wanted to continue the discussion later in the afternoon or next week – but the overwhelming view in the party room was to settle the issue by agreement on Tuesday.
The government has elevated electricity prices to the centre of the political debate, and is claiming positive price impacts as a consequence of the energy guarantee when compared with the impact of Finkel’s clean energy target.
The Energy Security Board, which is a regulatory body set up by the Council of Australian Governments (Coag) to implement the Finkel review, has told the government the guarantee “could lead to a reduction in residential bills in the order of $100 to $115 per annum over the 2020-2030 period”.
It contends an end to the policy uncertainty will prompt a reduction in wholesale prices of 20% to 25% a year over the same period.
But John Pierce, the chair of the Australian Energy Market Commission, made it clear the figure was based on only preliminary analysis. He said more detailed analysis would be carried out in the lead-up to the Coag meeting in November.
He said “firmer estimates of those price effects” would be provided later in the year.
In question time on Tuesday, Labor asked Turnbull whether the Energy Security Board had provided lower figures to the government about the level of household savings associated with the policy.
The prime minister said the “only information I have” was the $100 to $115 figure, and he rounded on Labor for pursuing the question.
“The leader of the opposition is impugning the integrity of the members of the Energy Security Board,” the prime minister said.
Australia’s energy sector says no policy solution will fix the current problems unless there is bipartisan support for the reforms to create certainty for investors.

Labor is reserving its position on the package. The shadow climate minister, Mark Butler, said the government’s new framework was thin on detail, lacked proper modelling, and was little more than “bare bones”.
Butler said the government has presided over an “utterly shambolic process”.
Finkel was more diplomatic. He told reporters he had been consulted on the government’s alternative proposal at a late stage, and he had not seen any economic modelling underpinning the national energy guarantee.
But Finkel gave the proposal, cautious endorsement, suggesting the approach was “logical” and would likely to have a similar price impact to the clean energy target modelled in his review.
Two Labor premiers, Jay Weatherill and Daniel Andrews, were negative about the Turnbull plan.
The attitude of the states is crucial to whether or not it can be rolled out without significant controversy. The issue will come before Coag formally in November.
While Turnbull emerged with the backing of the party room, the dissidents are also likely to continue their efforts to generate controversy over the emissions reduction commitments, and it is unclear whether some MPs would support legislation establishing a target for the electricity sector.
Business groups and the energy retailer AGL gave the proposal cautious backing, but pointed to the need for bipartisanship.

Andy Vesey

✔ @AndyVesey_AGL

Govt announcement an important step, keen to work together to make it work. With bipartisan support, it will provide investment certainty

1:09 PM - Oct 17, 2017

The chief executive of the Business Council of Australia, Jennifer Westacott, said the plan might be a better option than the clean energy target if it was “well implemented”.

Jennifer Westacott @JAWestacott

The Govt's plan, if well implemented, has the potential to provide greater investor confidence than a more complex CET may have.

12:59 PM - Oct 17, 2017

The Australian Industry Group chief executive, Innes Willox, said the proposal “offers a plausible new direction for energy policy with a welcome focus on energy security”.
But he cautioned “further work will be needed by all concerned to help significantly drive down energy prices for hard-pressed domestic and industrial energy users”.
“The government will need to consult deeply with industry, the community, the states and the opposition to make this approach a success, but we are hopeful that cooperation is possible to achieve lower prices, maintain reliability and meet Australia’s emissions commitments.”
Tony Wood, energy analyst with the Grattan Institute, gave the proposal strong support.

“The Turnbull government’s long-awaited national energy guarantee should be supported, not only within the Coalition but by Labor, the states, the energy industry and by electricity consumers,” Wood said in a column for the Australian Financial Review.
“It should be supported within the Coalition because it will reduce electricity prices, maintain reliable supply and meet Australia’s international commitment to reduce greenhouse gas emissions.”
“It will do this without subsidies for renewable energy and without excluding coal. Indeed, this policy provides a case for maintaining existing coal generators through increasing their efficiency and reducing their emissions.”
“The policy should be supported by Labor because it will deliver an environmental outcome as good as the clean energy target recommended by chief scientist Alan Finkel – and it can be scaled up by any future Labor government.”