Take the next step

It’s hardly rocket science to observe that Josh Frydenberg has a hard row to hoe on Friday when he chairs the next CoAG Energy Council meeting and thereafter, assuming his confidence in a positive outcome in Melbourne comes to fruition, of harvesting the “national energy guarantee” in a form that is politically marketable to the voting public before this year is out.

I recommend reading his 11 April address to the National Press Club in Canberra. (You’ll find it on his website.) We pretty well all rely on media coverage of these things and, thereby, lose the full flavor of presentations.

In finally getting round to reading his talk, I’m struck by a number of aspects of what was clearly a carefully-crafted manifesto for the Environment & Energy Minister’s big challenge.

One is his observation that Fatih Birol, the International Energy Agency head, has pointed out to him that what is driving a rapid uptake of new renewable technologies is not so much the carbon abatement they deliver but their declining cost curve. What the government is trying to make clear via the NEG, Frydenberg says, is that the time for further subsidization of renewables is over, adding “It strikes me as paradoxical that the first to say that renewables are cost competitive are often the loudest to call for another round of subsidies.”

Another is his defence of the existing and ongoing role for fossil fuelled generation in the NEM. He points out that in the summer (almost) just gone – it is taking a remarkably long time to shift to autumn this year – coal and gas plants produced 82 per cent of the NEM’s power production and, in calendar 2017, the top 20 power stations by output included 17 that were coal-burning.

Coal-based generation still has plenty of life in the NEM, he adds, and the market is signaling that investors are more willing to upgrade existing plants than to build new ones.

A third home truth, he told the Press Club, is that, like it or not, we are moving to a carbon-constrained future and this is shaping the energy system. He quotes former US Energy Secretary Ernest Moniz saying that, with the weight of global politics, technology and capital markets all leaning in one direction, “you can’t stop the waves crashing on the beach.” Nonetheless, Frydenberg says, calls to decarbonize the Australian economy virtually overnight “are as irresponsible as they are futile.” The government, he pledges, will not engage in virtue signaling and gesture politics “at the expense of our blue collar workers, their industries and our international competitiveness.” This, he told journalists, is not a time for ideological big experiments and reckless emission targets.

But the hardest nut to crack, he acknowledges, is integrating energy and climate policy – to which I would add that the still harder one is doing so while dealing with the community’s insistence that it wants lower energy bills right now and in an environment where supply investment decisions are influenced by user actions to reduce their consumption and charges in the face of high bills.

The alternative to finding a workable market-based solution, Frydenberg points out, is more expensive short-term government interventions and higher costs to be paid by Australians either as consumers or taxpayers.

It doesn’t follow, of course, that the NEG is the ideal answer to all this, which, inevitably, given the nature of politics, is what the Turnbull government must argue, but right now it is the only game in town – unless this exercise is dragged out until the next federal election and, assuming the opinion polls are right, we then get a new Labor government with a whole new set of propositions and a whole new slanging match.

This situation is not helped by the public’s confusion about energy issues – which, Frydenberg told the Press Club, is worsened when we hear “both ends of the political spectrum singing from the same hymn sheet, calling for government intervention in the market but to achieve diametrically opposite outcomes.”

The question, says the minister, comes down to “how do we establish a policy framework that manages the (electricity) transition, achieves the objectives of lower prices, higher reliability and lower emissions – and provides constancy and consistency through political cycles?”

The Frydenberg/Turnbull assertion is that the NEG is “the first and best opportunity” to do so. Knocking it back, Frydenberg argues, is a “vote for higher prices, higher emissions and less (NEM) reliability.”

And supporting it, he asserts, is not going to limit growth in renewable energy, one of the main arguments against it from the green activist corner, because modelling by the Energy Security Board shows the wind and solar share of the NEM will rise from 17 per cent now to between 32 and 36 per cent in 2030.

So where do we go from here?

Frydenberg explains that Friday’s meeting of CoAG ministers will be asked to support “a move to the next phase of detailed design.” His goal is to get the Energy Council to approve a final design in August and then, before 2018’s end, to have federal legislation to set a national carbon emissions target and State legislation to enact the NEG mechanisms. To make the measure reality, he told the Press Club, all NEM jurisdictions, Coalition and Labor, need to agree.

Few meetings at this level of government have attracted as much attention. Stakeholders across the spectrum are wound up to a high level of angst and anticipation about the outcome.

Mark Collette of EnergyAustralia, I see in this morning’s Australian Financial Review, is describing it as “the best chance in a decade” to end the political impasse in climate and energy policy, urging ministers not to get bogged down in detail and to “take the next step.”

The paper, in an editorial, asserts that the power industry, big manufacturers and the renewable energy itself are all now urging ministers to agree and let the Energy Security Board take the plan to the full design stage. It adds: “There is therefore nothing to gain for Labor governments attempting to veto the NEG on Friday. A grand bargain between reliability, carbon reduction and price lets Australia face any energy future with confidence.”

Only three more sleeps……….

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