In the final, shambolic years of Labor’s long reign in New South Wales, ending with massive defeat at the polls in March last year, the “solar bonus scheme” epitomised what was wrong with policymaking.
As part of a long report on the financial situation for the incoming O’Farrell government, Michael Lambert described it as “poor policy process that has proven very expensive for only minimal, highly inefficient outcomes.”
There is every chance that the Clean Energy Finance Corporation, soon to be put before federal parliament for approval, is of the same ilk.
When people like Richard Denniss of the Australia Institute (writing with Andrew Macintosh of the ANU Centre for Climate Law & Policy) can speak of the “great fear that the CEFC will prove to be yet another under-spent, under-performing renewable/climate slush fund,” then this exercise really is questionable.
Denniss and Mackintosh decry the CEFC on the grounds that there is significant risk it will duplicate other programs or disrupt their operation, potentially prematurely pushing technologies in to commercialisation.
“It could cannibalise the operation of the RET by pushing down the cost of RECs,” they say, “effectively punishing early movers.
“While the RET may not be the ideal vehicle for driving down renewable energy costs, we will now have two policy instruments potentially pulling in opposite directions.”
Then we have Tristan Edis, the editor of “Climate Spectator,” describing the CEFC as “the wrong answer,” earning him a rebuke from the Australian Conservation Foundation that he misunderstands the “clear strengths and purpose” of what the Coalition calls the “Bob Brown Bank.”
As the ACF sees it, this is much more than a renewable energy fund – it’s “a catalyst towards reaching our long-term emissions target of 80 per cent (below 2000 levels) by 2050 as its $10 billion is invested again and again over the coming decades, resulting in up to $100 billion of investment in clean energy.”
Contrast this with the views of Denniss and Mackintosh, who say that “in reality the CEFC is unlikely to materially affect the trajectory of Australia’s emissions and could ultimately increase the cost of transitioning to a low carbon economy.”
The Grattan Institute, in its submission to the panel chaired by Jillian Broadbent, quite neatly encapsulates the environment in to which the federal government is pushing the CEFC: “Clean energy projects are being financed in Australia. There is not essentially an endemic problem of capital availability, but of projects that meet the financial return hurdles of investors.”
The institute adds: “The clean energy sector has more than its fair share of companies and organisations seeking government subsidies for their models and this is very much complicated by the political overtones and influences that surround green, clean or renewable energy.”
It notes that politicians have delivered a plethora of policies, instruments and regulations, often with poorly-defined objectives and “unintended consequences are common.”
The CEFC, it warns, should not be a response to these problems and nor should it subsidise industries that are simply not commercially viable.
Coalition spokesman Greg Hunt put his finger on the big weakness of the proposal, I think, when he observed that the government, through the CEFC, “a giant slush fund,” is going to make taxpayers put their money on the line on projects the private sector declines to fund.
Edis has come up with a five-point plan he suggests even the Coalition could support as it intends to rescind the carbon price regime and abolish the CEFC on winning office.
He argues for (1) an emissions trigger to be inserted in the Environment Protection & Heritage Act for evaluating generation proposals, (2) the establishment of an independent authority of engineers with 10 years of block funding to evaluate and develop carbon emissions best practice standards for industrial facilities, buildings and appliances, (3) imposing a greenhouse gas intensity limit of 0.5 tonnes of CO2 per megawatt hour on new power stations, (4) the insertion of environmental criteria in to the national energy market objectives, and (5) extending and increasing the RET to 2030 and dividing it in to sub-targets to support a portfolio of low-emission technology options.
These are steps that would help the Coalition drive its “direct action” approach, he says.
There is logic to this approach – except for the very last bit.
Why on Earth should the RET be sliced and diced to allow niche rent-seekers to claim their share?
Why further distort the RET to make room for technologies that have been unsuccessful in reducing their costs to a point where they can take advantage of the legislation?
The RET is already under fierce fire from big business over its impact on their input costs — why opt for an approach that would guarantee higher costs and a much stronger pushback from consumers?
The whole point of the RET is that it provides a market in which the most cost-efficient renewable technologies are taken up.
None of them are cheaper than coal or gas, which is why the government is also opting for a carbon price.
The RET has already been impacted by the federal government choosing to use it to boost household solar PVs and solar hot water units, creating a large glut in renewable energy certificates that has frustrated investment of several billion dollars in wind farms.
Because CEFC-funded projects will also be eligible for inclusion under the RET umbrella, there is now concern that the target program will be further distorted.
It seems logical that financial institutions are more likely to be attracted to CEFC-backed projects than other renewable ventures, inevitably further crowding out wind power.
Wind equipment manufacturer Vestas in its submission to the Broadbent panel warned against the CEFC frustrating, delaying, deferring or displacing investments in wind farms.
As Edis points out in his “wrong answer” commentary, the reason only a small number of wind farm projects have proceeded in the past two years has nothing to do with financial market failures and everything to do with the market (including the RECs) setting prices around $70 per megawatt hour when wind generation needs $90 to $110 to be commercially viable.
This situation could be expected to change between now and 2014 because the mandated target for 2016 will be sufficiently high to drive new investment – except that the CEFC is now introducing a new “bugger factor.”
As the Grattan Institute observes in its submission to Broadbent & Co, “By definition, government intervention means that something will be impacted and many attempts by governments to intervene in markets, often for well-argued reasons, end up with unintended consequences.
“The proposition that intervention in a financial market by government has no impact on the private sector is simply wrong.”