Australian Democrats
Dissenting Report
The Australian Democrats disagree with the conclusion of the
majority report that action on expanding the existing Mandatory Renewable
Energy Target (MRET) and proceeding with an energy efficiency trading scheme is
premature and must wait until after the establishment of an Emissions Trading
Scheme (ETS), viz:
As the MRET scheme is strongly linked to the proposed ETS,
it is premature to amend the renewable energy power percentages without having
regard to the wider implications of any pre-ETS alterations.
MRET Policy as Industry Support
The report and the logic supporting the conclusion does not
acknowledge the fact that the MRET scheme has been oversubscribed since 2006
nor the fact that the Howard Government’s original policy objective of
increasing the overall proportion of renewable energy in Australia’s
electricity generation effort by 2 per cent was not met. (This policy failure
was due to the conversion of the target to a set number of GWh (9,500) that was
based on a gross underestimation of growth in electricity demand.) Since MRET
commenced the proportion of electricity generated by renewables has in fact
dropped.
Other renewable energy policy initiatives have been
insufficient to drive new investment in renewable energy and as a result, it
has now stalled. This makes no sense when the task of reducing emissions is
both urgent and substantial.
The report’s conclusion does not recognise the significance
of state based energy efficiency trading and renewable energy trading schemes
and targets or the fact that they were initiated because of Federal government
inaction in this area. Neither does it acknowledge requests from industry for
national consistency.
The objective of this Bill is to bring forward to 2008 the
start up of the Rudd Government’s election commitment to expand the MRET target
from 2010. We consider this to be necessary to avoid the further erosion of
the renewable energy industry’s capacity and ongoing viability.
Policy stability and therefore investment stability through
a continued access to a renewable energy market is crucial for a robust and
competitive renewable energy industry.
Interaction between MRET, Energy
Efficiency and Emissions Trading Scheme
The committee considered the two separate but related bills
together and examined their interaction with an ETS.
However, little evidence was advanced in support of the
majority report conclusion that these measures cannot be adopted ahead of an
ETS. Whilst some witnesses argued that this was the case, others said MRET and
energy efficiency trading were complementary to an ETS but beyond its scope.
The Democrats consider the least cost path to reducing
greenhouse emissions to be aggressive energy efficiency, a significant shift to
renewable energy and strategic use of fossil fuel. The evidence presented to
the inquiry supports this position.
In answer to questions, Professor Alan Pears explained:
Senator ALLISON—What has been said several times today is
that you cannot embark on something like an energy efficiency trading system
outside the process of emissions trading. Do you have a comment to make about
that? Should we just wait until 2010, when we have got an overall program?
Prof. Pears—No, I completely disagree with that. Just as we
ran MRET from 2001 without an emissions trading scheme, you could run an energy
efficiency trading scheme completely separately from emissions trading. Or as a
government or a parliament you could introduce the energy efficiency trading
scheme and then, from 2010 or whatever, you could say that efficiency trading
certificates interacted with the emissions trading scheme in these ways. So I
do not see any problem at all. MRET is the example of running a scheme, and I
think they are dealing with the issues of MRET and emissions trading.
Senator ALLISON—People talk about the necessity for them to
be complementary. You have briefly gone into that. Maybe you could explore that
a bit more for the committee.
Prof. Pears—The issue is that there will be some kind of
threshold above which organisations participate in emissions trading. So a
logical thing to me is to focus an energy efficiency trading scheme on the
non-ETS sectors, which is really what, as I understand it, they are doing in
the British scheme. The value of that is that the non-ETS sectors are
essentially only seeing a flow-on price effect from emissions trading. So, for
example, a power station or a large industry is actively engaged in emissions
trading. They are seeing the costs and benefits of options and presumably
making judgements. If I am an electricity consumer—a small to medium
electricity consumer—what will happen is that my energy retailer will buy
electricity from a power station and the power station will pass through some
carbon price costs and then the retailer will pass those costs through to me,
presumably with a profit margin, and then we might add in the GST as well—I do
not know. So we are just going to see price effects on energy and on goods and
services for the bulk of the economy and a large proportion of the emissions
from the economy.
Senator ALLISON—Can I just interrupt there. So you are
saying that from emissions trading all we will get as a driver for efficiency
is a slightly increased cost for generation?
Prof. Pears—Exactly. We will see a small increase in energy
costs or the energy component of goods and services that we buy. The evidence
is that the scale of the price signals will not do very much to change people’s
behaviour. Some work in the US recently showed that in the residential and
commercial sectors a doubling in energy prices might reduce energy consumption
by 15 or 20 per cent. A doubling in electricity prices for those sectors would
be equivalent to a carbon price of $150 or so a tonne. I do not think $150 a
tonne is politically very viable for an emissions-trading scheme, but also $150
a tonne was giving you only a 20 per cent or so reduction. You were not even
capturing anything like the full energy efficiency potential using that price
signal to drive people’s behaviour.
I presented a talk last week where I showed that the effect
of an increase in petrol prices due to a carbon price of $25 a tonne would
really be only a few dollars a week. When the cost for a new car buyer of
running a car is in the hundreds of dollars a week, this is noise. If we want
the non-emissions-trading sector to be actively engaged in energy efficiency,
we need a more powerful program or strategy than just relying on the flow-on
effects from emissions trading.
An ETS will result in only marginal investment in renewable
energy and energy efficiency because it will change the relative costs of
electricity generation based on greenhouse emissions intensity. Renewable
energy will not be considered as an offset and must compete with other low emissions
technologies such as gas.
MRET already exists and was introduced with the objectives
of supporting growth in the emerging renewable energy industry as well as
greenhouse abatement. The ETS will not be a replacement or substitute for
MRET.
Cost Impacts
The preliminary modelling indicates that an ETS may result
in a real increase in energy household bills of between $20 and $40 per annum
on average over the 2010-20 period and between $30 and $55 per year over the
2021-30 period.
As wholesale prices increase, the competitiveness of
renewable energy improves and the level of support required through MRET is
reduced because the cost of the scheme is lower.
Taking action to improve the energy efficiency of the
economy has the benefit of reducing energy demand and, therefore, offsetting
the energy price rise due to MRET and the ETS. Professor Pears told the
committee:
..there is almost universal agreement that we need a more
effective driver to capture energy efficiency potential in Australia. There is such
a powerful case that we are failing to capture the least cost solutions, not
just for climate change but also to avoid unnecessary investment in energy
supply infrastructure and so on. I guess that raises the point that energy
efficiency is not just a climate change mitigation measure; it actually offers
multiple benefits, such as avoiding unnecessary investment in energy supply
capacity, improving productivity and facilitating innovation.
In the context of emissions trading, ... for a given emissions
trading cap, energy efficiency reduces the cost of meeting it. Essentially, if
the cost of energy efficiency is lower than the price of the permit, then
shifting more emphasis onto energy efficiency reduces the overall cost of
emissions trading. At the same time, if we decided to include mechanisms in
emissions trading schemes, then energy efficiency could gain some kinds of
credits to actually tighten the emissions trading cap.
In other words, the total impact on energy price by
combining ETS, EE and expanded MRET will be lower than the sum of the
individual impacts. MRET will increase investment in renewable energy and
energy efficiency will reduce demand and this will reduce the impacts of
meeting the greenhouse caps under the emissions trading scheme.
The Democrats consider that not increasing MRET or failing
to progress aggressive energy efficiency actions is neither strategic nor
defensible. Combining the action on all three policy fronts as well as tax
reform, is more appropriate in managing the cost impacts of restructuring our
economy.
Broader Policy Context
The report’s conclusion does not acknowledge the broader
policy concept of reducing greenhouse emissions and preparing Australia for the
deep cuts in greenhouse that will be required "post Kyoto".
The Government claimed, in its Tracking Kyoto Report, to be
on target to meet its 108% of 1990 levels Kyoto target and attributes this
improvement (on the previous government’s 109% projection) as being due
principally to the expansion of the Mandated Renewable Energy Target (to 20% by
2020). However, because the measure will not commence until 2010; just two
years short of the end of the commitment period in 2012, the take up rate in
these two years will need deliver 6,000 GWh of renewable energy to displace the
6 million tonnes of carbon emissions that must be avoided in order to meet the
target.
The Democrats recommend the passage of these bills as soon as possible.
Senator Lyn
Allison
Australian
Democrats
Navigation: Previous Page | Contents | Next Page