Extract from The Guardian
Energy Security Board issues final advice in bid to convince states to endorse Turnbull’s policy
The Turnbull government’s national energy guarantee will drive a
slight increase in the share of renewables in the electricity market
compared to a scenario where the policy isn’t implemented.
But emissions will also rise over the life of the scheme before pollution falls again towards the end of the decade to 2030.
The Energy Security Board on Wednesday circulated its final advice to state and territory energy ministers on the Neg, complete with a summary of the modelling underpinning the policy.
In an unusually strongly worded recommendation from an official, the ESB’s chair, Kerry Schott, pointedly warned the wavering members of the Coag energy council that delaying agreement on the Neg will “prolong the current investment uncertainty, and deny customers more affordable energy”.
The summary of the modelling provided to the jurisdictions by the ESB says the Neg will increase the share of renewable generation in the national electricity market from 17% in 2017-18 to 36% by 2029-30. Coal will account for more than 60% of all generation in 2029-30.
The modelling forecasts the Neg will drive a further commitment of 1,000MW of renewable generation.
Those increases compare to a “no policy” scenario.
In that scenario, the renewable share of generation would increase from 17% in 2017-18 to 34% by 2029-30, with the coal share still at 60%.
That head-to-head comparison suggests the Turnbull government’s policy will do almost nothing, in and of itself, to boost renewables in the system.
A graphical representation of the emissions trajectory during the decade of the Neg suggests carbon equivalent pollution drops in the first year of the scheme – reflecting a significant build of renewable energy under the existing renewable energy target – then it climbs again from 2022-23 through to 2028-29 before falling in the final year of the scheme.
The forecast says the Neg will lead to wholesale electricity prices being more than 20% lower, on average, between 2020-21 and 2029-30 than if the policy wasn’t implemented. The modelling assumes contracting increases under the Neg, which drives a significant reduction in spot prices, which causes contract prices and then wholesale electricity prices to drop.
While the Turnbull government has resisted calls for a higher emissions reduction target, largely because that would fracture the Coalition, the modelling summary also makes it clear the target could be increased by a future government without the higher pollution target affecting the operation of the scheme.
“The strong disincentives against non-compliance, including a penalty of up to $100m, allow the design to accommodate higher targets and ensure that market participants respond effectively to the investment signals provided by the guarantee,” the document says.
The modelling summary says if no policy was put in place, emissions would fall, then flatten out and rise towards the end of the decade to 2030 as forecast demand increases, then dip again in 2029-30.
If the Neg wasn’t implemented, the material says the national electricity market would “fall short of the emissions reduction target of 26% below 2005 levels”.
Energy experts have been calling for the release of the modelling to allow for more comprehensive examination of the scheme before the states are required to say yes or no at an upcoming meeting of the Coag energy council.
Dylan McConnell, a researcher at the climate and energy college at the University of Melbourne – one of a group who called for the full modelling to be released earlier this week – said the material circulated by the ESB on Wednesday was not a modelling document.
“It is impossible for researchers to validate the modelling on the back of this summary,” McConnell said. “The changes to the national electricity market are too significant to wave this through without proper examination. Researchers need the full modelling and access to the modelling team to conduct a peer review.”
With key states still on the fence, Schott has redoubled efforts to secure an agreement on the policy when the Coag energy council meets this month. She noted that 15 years of climate policy uncertainty had impeded investment, affected the security and reliability of the power system, and increased prices for households and businesses.
“The national energy guarantee can give the energy sector the confidence it needs to plan, source and invest over the longer-term in dispatchable, low emissions energy generation and demand-side energy resources in a transforming market,” she said.
“Once implemented, the guarantee will produce a clear investment signal so the cleanest, cheapest and most reliable generation can get built in the right place at the right time.”
The policy requires a sign-off from all members of the Coag energy council before it can be adopted. Victoria, Queensland and the Australian Capital Territory are yet to endorse the scheme, and have concerns the emissions reduction target is too low to allow Australia to meet its commitments under the Paris agreement.
Queensland and Victoria have raised concerns about the states being expected to give in-principle approval to the Neg before all the Coalition party room processes in Canberra are exhausted.
In an effort to keep the states at the table, the federal energy minister Josh Frydenberg has offered state ministers a 2024 review of the target, and a two-step process before sign-off.
The Coag energy council will meet on 10 August to consider the mechanism, and then there will be a second conversation on 14 August, where Frydenberg will show his counterparts the federal legislation giving effect to the emissions reduction components of the scheme after the package clears the Coalition party room.
The process the commonwealth envisages is in-principle agreement at the first meeting, conditional on the states having no concerns on 14 August.
But emissions will also rise over the life of the scheme before pollution falls again towards the end of the decade to 2030.
The Energy Security Board on Wednesday circulated its final advice to state and territory energy ministers on the Neg, complete with a summary of the modelling underpinning the policy.
In an unusually strongly worded recommendation from an official, the ESB’s chair, Kerry Schott, pointedly warned the wavering members of the Coag energy council that delaying agreement on the Neg will “prolong the current investment uncertainty, and deny customers more affordable energy”.
The summary of the modelling provided to the jurisdictions by the ESB says the Neg will increase the share of renewable generation in the national electricity market from 17% in 2017-18 to 36% by 2029-30. Coal will account for more than 60% of all generation in 2029-30.
The modelling forecasts the Neg will drive a further commitment of 1,000MW of renewable generation.
Those increases compare to a “no policy” scenario.
In that scenario, the renewable share of generation would increase from 17% in 2017-18 to 34% by 2029-30, with the coal share still at 60%.
That head-to-head comparison suggests the Turnbull government’s policy will do almost nothing, in and of itself, to boost renewables in the system.
A graphical representation of the emissions trajectory during the decade of the Neg suggests carbon equivalent pollution drops in the first year of the scheme – reflecting a significant build of renewable energy under the existing renewable energy target – then it climbs again from 2022-23 through to 2028-29 before falling in the final year of the scheme.
The forecast says the Neg will lead to wholesale electricity prices being more than 20% lower, on average, between 2020-21 and 2029-30 than if the policy wasn’t implemented. The modelling assumes contracting increases under the Neg, which drives a significant reduction in spot prices, which causes contract prices and then wholesale electricity prices to drop.
While the Turnbull government has resisted calls for a higher emissions reduction target, largely because that would fracture the Coalition, the modelling summary also makes it clear the target could be increased by a future government without the higher pollution target affecting the operation of the scheme.
“The strong disincentives against non-compliance, including a penalty of up to $100m, allow the design to accommodate higher targets and ensure that market participants respond effectively to the investment signals provided by the guarantee,” the document says.
The modelling summary says if no policy was put in place, emissions would fall, then flatten out and rise towards the end of the decade to 2030 as forecast demand increases, then dip again in 2029-30.
If the Neg wasn’t implemented, the material says the national electricity market would “fall short of the emissions reduction target of 26% below 2005 levels”.
Energy experts have been calling for the release of the modelling to allow for more comprehensive examination of the scheme before the states are required to say yes or no at an upcoming meeting of the Coag energy council.
Dylan McConnell, a researcher at the climate and energy college at the University of Melbourne – one of a group who called for the full modelling to be released earlier this week – said the material circulated by the ESB on Wednesday was not a modelling document.
“It is impossible for researchers to validate the modelling on the back of this summary,” McConnell said. “The changes to the national electricity market are too significant to wave this through without proper examination. Researchers need the full modelling and access to the modelling team to conduct a peer review.”
With key states still on the fence, Schott has redoubled efforts to secure an agreement on the policy when the Coag energy council meets this month. She noted that 15 years of climate policy uncertainty had impeded investment, affected the security and reliability of the power system, and increased prices for households and businesses.
“The national energy guarantee can give the energy sector the confidence it needs to plan, source and invest over the longer-term in dispatchable, low emissions energy generation and demand-side energy resources in a transforming market,” she said.
“Once implemented, the guarantee will produce a clear investment signal so the cleanest, cheapest and most reliable generation can get built in the right place at the right time.”
The policy requires a sign-off from all members of the Coag energy council before it can be adopted. Victoria, Queensland and the Australian Capital Territory are yet to endorse the scheme, and have concerns the emissions reduction target is too low to allow Australia to meet its commitments under the Paris agreement.
Queensland and Victoria have raised concerns about the states being expected to give in-principle approval to the Neg before all the Coalition party room processes in Canberra are exhausted.
In an effort to keep the states at the table, the federal energy minister Josh Frydenberg has offered state ministers a 2024 review of the target, and a two-step process before sign-off.
The Coag energy council will meet on 10 August to consider the mechanism, and then there will be a second conversation on 14 August, where Frydenberg will show his counterparts the federal legislation giving effect to the emissions reduction components of the scheme after the package clears the Coalition party room.
The process the commonwealth envisages is in-principle agreement at the first meeting, conditional on the states having no concerns on 14 August.
One hot summer does not a changing climate make, but the trend in the global data is now irrefutable. When Michael Mann published the “hockey stick” graph back in 1998, there was vociferous public pushback, yet the observed temperature rises match what Mann had predicted. Today’s hockey stick graph isn’t a forward projection but a historical record. The world has been getting hotter, and it will continue to do so. The only question now is how much hotter it gets.
The mechanisms behind this are not difficult to understand. Over a period of millions of years, carbon became trapped in deposits under the Earth’s crust, as coal, oil and natural gas. As the great engines of industrialisation came online across the planet, humanity developed an insatiable hunger for this trapped carbon. Burning it powered the machines that drove economic growth and development, which in turn raised the demand for more machines and more carbon. Carbon that took millions of years to trap has been released into the atmosphere at a rate that is, in geological terms, almost instantaneous.
"Climate change isn’t happening, they said, and even if it is happening it’s nothing to do with us"
We have known about the probable impact that this sudden release of carbon into the atmosphere would have on the Earth’s climate since the middle of the last century. However, we have been unable and unwilling to do anything about it. To pull that carbon out of the ground we created giant corporations whose sole role was to find it, mine it and sell it. Our demand led to vast profits for these companies, and unfathomable riches for the people running them. This meant that when the research showed that our insatiable carbon demand needed to be curbed for the good of the planet, there was a very powerful interest group in place with a vested interest in keeping it going.
But not all businesses are energy companies. Every business and every person lives on the planet now, where costs will rise because of climate change. A study by the Economics of Climate Adaptation (ECA) working group found that losses due to climate change could reach up to 19% of GDP in some parts of the world by 2030.
For all our talk of climate denial being the “business” position, we’ve strangely ignored the insurance industry, especially the climate research branches of the major reinsurance firms. Swiss Re is part of the ECA working group, and Munich Re’s geo risks research department has been in place since 1973, four years before Black wrote his memo. This is not because reinsurance is some enclave of liberal hippies nestled in the bosom of capitalism, but because their industry, by definition, can’t rely on kicking the can down the road and letting someone else pick up the pieces. If we get floods, famines and droughts leading to mass migration events, they’ll be among the ones paying out.
It was easy to let ourselves believe that what was good for energy companies would be good for us all, because the immediate upsides of the cheap carbon windfall were so compelling. There was no problem that couldn’t be solved by throwing more fossil fuels at it, and the reality of climate change threatened to tell us what it cost. The fossil fuel industry told us that we could take out an interest-only mortgage against the future of the planet and prices would always go up, interest rates would always go down and there would never be a reckoning. We now find ourselves facing repayments on the scale of trillions of dollars. That does not even cover the human costs that these dry figures obscure: the lives lost, the homes flooded, the farms wasted away to drought.
It is impossible to map the path not taken. Perhaps a commitment to reducing carbon consumption could have spurred innovation in alternative sources of energy. Or maybe the path we are on is an inevitable result of an economic system that cannot stop unless it crashes. We’ve seen the “Minsky cycle” of speculation leading to crash play out time and again in the financial sector; perhaps climate change is a centuries-long Minsky cycle we could never hope to stop. Maybe we are destined to become the civilisational equivalent of Monty Python’s Mr Creosote, a man who gorged himself until he literally exploded.
Regardless of the alternative histories and the might-have-beens, it may be too late to stop it, but we still need to learn an important lesson. If a CEO tells us that it would be bad for business if they weren’t allowed to pump poison into the air and water, then that’s too bad for them: one business is not an economy, and it certainly isn’t a biosphere. We’d have survived the crisis of an oil CEO missing out on his fifth yacht, but many won’t survive the consequences of letting them lead us by the nose into disaster.
• Phil McDuff writes on economics and social policy