It is a statement of blindingly obvious that the present is
a period of great uncertainty in the renewable energy sector. So I want to
start with what we do know. Then I want to move to what lessons have been
learnt over the last six years that might be applied in the next year.
So, let's start with the busy timeline for the next nine to 12
months:
·
Carbon repeal legislation to be introduced in
November parliamentary sitting
·
Release of Green Paper on the development of the
Emissions Reduction Fund for public comment in late 2013;
·
a White Paper containing final policy design to
be released in early 2014.
·
Legislation for Direct Action to then be
introduced and operational from 1 July 2014;
At the same time:-
o there
will be a RET review in early 2014
o And
an energy white paper that will focus " on those economy-wide reforms
relevant to the energy sector, including streamlining regulation, improving
workforce development, and stimulating research and development
What do know about
the future of the RET ?
We have been assured by Greg Hunt the Coalition is committed
to the current fixed 41000 gigawatt hour target. However, there will be a
review of it early next year and we also know there are different views within
the Coalition - for example new energy minister Ian Macfarlane who has hinted
strongly in consultations with industry groups that if demand continues to fall
it will be recalibrated; to outright opposition from the newly elected member
for Hume Angus Taylor and other backbenchers such as Senator Chris Back.
However, one of the interesting aspects of the reshuffle of
ministerial responsibilities, responsibility for the RET has gone to Greg Hunt.
Hunt is counting on the RET to help
Australia to hit the minus five percent target. However, the problem for
Hunt is that he may not have strong support within the party for his position.
The draft carbon repeal legislation released last week
contained amendments to RET legislation to remove the Climate Change Authority
as the review body of the RET. However, and this is important, the terms of
that review remain the same. BUT there is now uncertainty about further reviews
after next year's with the amendments giving the minister discretion over
whether two-yearly reviews are done.
It seems highly Minister Hunt will ask his Department to
review the RET. In that way he will keep control of its outcomes.
What do we know about
Direct Action ?
It was developed in the lead up to the 2010 election - using
as a starting point - a directive from Tony Abbott that it not impose a new tax
and not impose additional regulatory burden.
The policy includes Abbott's Green Army and 1 million solar
roofs for low income households. However, the heart of policy is the Emissions
Reduction Fund;
Essentially, it is a baseline and credit emissions intensity
scheme based on the Frontier model produced for Malcolm Turnbull and Nick
Xenophon in 2009. However it is funded from the budget and. cost capped.
Mr Hunt, a former McKinsey consultant, tells us a reverse
auction will be used to buy the lowest cost per tonne up the abatement
"cost curve".
The so-called “incentives” model is the basis of the United
Nations’ clean development mechanism. In Australia, it was used in the NSW
greenhouse gas abatement scheme and also the carbon farming initiative
commenced in 2011.
All have faced major challenges in defining real abatement
and project baselines and the schemes are administrative complexity.
This is because it is inherently counterfactual to say this
particular project reduces emissions from what they otherwise would have been.
Winning bids will enter a contract to cut emissions over a
defined term with payment on delivery. However, it is not clear what length of
the term will be and this could be critical for companies interested in
bidding.
Hunt expects to buy abatement at $8 - $12 a tonne of carbon
(based on industry estimates prior to the 2010 election. However, he has subtly
changed his language from suggesting the principal source of emission
reductions will be tree planting and soil carbon to focus more on energy
efficiency.
There will be penalties. However, the Coalition thinks few
companies will pay it. This is because it will be an emissions intensity
baseline and historical experience is that most companies become less emissions
intensive over time not more as they become more efficient.
To progress this plan an emissions reduction taskforce has
been established within the Department of Environment. Last week, Minster Hunt
released a one page issues paper
asking for submissions to assist in the development of Direct Action:-
·
the likely sources of low cost, large scale
abatement to come forward under the Emissions Reduction Fund;
·
how the Emissions Reduction Fund can facilitate
the development of abatement projects, including through expanding the Carbon
Farming Initiative and drawing on the National Greenhouse and Energy Reporting
Scheme;
·
the details of auction arrangements to deliver
cost effective outcomes;
·
the governance arrangements that will support
the Emissions Reduction Fund,
·
including the role of key institutions such as
the Clean Energy Regulator;
·
the details of the monitoring, verification,
compliance and payments arrangements for
·
successful bidders at auction;
·
transitional issues relating to the existing
Carbon Farming Initiative; and
·
the design and operation of a mechanism applying
to emissions above the business as usual baseline.
The key item will be the last; working out how the baseline
is set and at whether it is applied at a facility or corporate level.
Repeal of carbon
price scheme
The Government has made clear it will not extend the carbon
tax beyond 2013-14, even if the Parliament does not pass the carbon tax repeal
bills until after 1 July 2014. Lawyers better than I have highlighted the
transitional problems that this commencement date will pose if it is not passed
by this date. There are particular problems in the energy sector with supply
contracts and calculating the carbon component in wholesale spot prices. On top
of this, there will be the ACCC looking at whether prices are
"unreasonably high" after 1 July 2014.
Labor has said it won't pass the repeal bills but the
Coalition is confident it will in the same way they passed the WorkChoices repeal
bill after they lost in 2007. However, there is no sign that will occur. In
fact, quite the opposite - after suffering such an electoral backlash in 2010
when back-flipping on the CPRS and again following the election, there are many
who think they are better off standing firm on a key party policy. Former climate change minister Mark
Butler, has also retained the portfolio in Opposition and in my view would be
unlikely to support a repeal.
It's highly likely the repeal bills will be referred to a parliamentary
committee and with Labor and the Greens having the numbers in the Senate it
seems unlikely that will be a short inquiry
As a result, the Coalition will find it difficult to quickly
get a double-dissolution trigger, which the Coalition is threatening to pull if
Labor does not pass the repeal bills.
As a result, it seems more likely that the bills will not be
passed until after 1 July causing the transitional problems I referred to
earlier. It also seems unlikely the Coalition will want to risk a double
dissolution given it will reduce the Senate quota, making it even easier for
micro parties to get elected. So I
won’t go through in detail the D-D procedure.
This brings us to the big uncertainty after 1 July in what
form the repeal bills come out of the other side of the Senate. New
micro-parties – particularly the Palmer United Party - in Senate means the
outcome and form of repeal of the carbon price and Direct Action is highly
uncertain. As a result, it seems highly likely Labor will come under strong
pressure from industry to pass before 1 July to avoid this scenario.
Double Dissolution ?
Unlikely
Under Section 57 of the Commonwealth Constitution, the
Governor-General can dissolve both Houses of Parliament if a bill is twice
rejected or “fails to pass” the Senate, or if it passes with amendments which
are unacceptable to the House of Representatives.
However, there needs to be a three-month interval between
the Senate first rejecting, failing to pass or amending a bill and the second
occasion.
In 1975, in similar circumstances, the High Court ruled the
Petroleum and Minerals Authority Act was not eligible for the
double-dissolution process as it was not one the Senate had failed to pass.
Judges highlighted the Senate was entitled to a “proper opportunity for debate”
and to undertake ordinary “deliberative processes”. Said Justice Harry Gibbs in
that case:
“Nothing in the section favours the notion that the House of
Representatives can require the Senate to treat as urgent any bill that the
House happens to think ought to be treated urgently.”
This brings me to the second part of the speech
What have we learnt
from the last six years ?
Nicola Roxon last week began Labor's painful post mortem of
how it went so wrong over six years of power with her take on the removal of
Kevin Rudd.
In such a post mortem there will need questions asked about
how an issue that helped propel Labor into Government in 2007 and was a key
cause of its loss in September - climate change – with the second lowest vote
in a century.
From this post mortem lessons about policy making and
implementation will need to be learnt by all sides of politics if there is to
be major but necessary economic reform in the future.
As someone who covered the carbon pricing debate in some
detail, I want to offer my own assessment of what went wrong.
By way of summary, here are the lessons that I believe can
be cystallised from the last six years:
·
There is a need to properly explain policies and
reasons for pursuing them
·
Language is important
·
There are dangers of over egging it - eg
"greatest moral challenge"
·
There is a need to bring the community along
·
Support for tackling climate change may turn on
weather events. But not always;
·
There is a danger in conflating weather events
with climate change;
·
People like something they can have a personal
experience of eg Solar.
Let me deal firstly with the first of those two points. I
don't think there is any doubt that Kevin Rudd squandered the goodwill he earnt
from the electorate in 2007 over climate change. He failed to properly explain
the reasons for the carbon pollution reduction scheme and how it worked.
Instead, he used it as a battering ram to undermine two Coalition leaders,
Brendan Nelson and Malcolm Turnbull. There is a clear lesson in this as well
for the Coalition which looks like it will attempt to use the Carbon Repeal
process to damage a new Labor leader without adequately explaining its own Direct
Action policy.
Secondly, Rudd made his task more difficult by calling his
emissions trading scheme the rather unwieldy "Carbon Pollution Reduction
Scheme". As I understand it, it was a title devised by Kevin Rudd’s former
chief of staff Jordan over the objections of government advisers and senior
bureaucrats who wanted the simpler title Emissions Trading Scheme. CPRS was an acronym
that came to signify the scheme’s incomprehensibility. When it came to carbon
price scheme mark 2, climate change minister Greg Combet tried again and came
up with "Clean Energy Future" as it signified what the Government was
working to achieve. But again it didn't really signify what the policy was or
how it worked in the same way that the simple "emissions trading
scheme" moniker would have done.
Rudd made matters worse by initially referring to climate
change as "the greatest moral challenge of our time" and then
refusing to take the issue to a double dissolution when the CPRS was blocked by
the Senate and instead shelving the scheme. I’ll come back to this point about
over-egging it.
The failure to properly explain and bring the community also
plagued the policy process and implementation of the carbon price package. With
a hung Parliament, a deeply divided Labor Party and a pre-election commitment
not to impose a carbon tax, the Gillard government had none of the necessary
conditions for major economic reform with a divided party and a hung
parliament. As a 2010 research paper by the Organisation for Economic
Co-operation and Development made clear:
“It pays to have an electoral mandate for reform,” says the
working paper. “The cohesion of the government is also critical: if the
government is not united around the policy, it will send out mixed messages,
and opponents will exploit its divisions; defeat is usually the result.”
As a result, there was a real need for the Gillard
Government to properly explain the policy and reasons for doing so. However,
Gillard fell into the trap of conceding the scheme was effectively a
"tax" in order to explain its operation - despite the fact it was an
emissions trading scheme with a three-year fixed price. That concession -
apparently in breach of her 2010 election promise - more than anything else
undermined the electorate's trust in her Government. It left the way open to
Tony Abbott to undermine it even further.
To make matters worse, Gillard and Combet announced the bare
bones of the scheme in February and then spent five months in confidential
negotiations trying to work out the detail. With the Government effectively
vacating the field, the Opposition and opponents had free reign to speculate
about possible scheme design, and suggest extreme outcomes. When the Government
eventually got around to explaining the scheme, it was complex and it was
almost impossible to rebut a simple and devastating Opposition attack on it.
Having said all that though the unremarked success story of
Labor's six years in office has been the growth of household solar. Of course,
small-scale solar subsidies are by no means the cheapest and most
cost-effective form of renewable energy but there is no doubt that they are the
most popular and potentially effective. I believe their success reflects an
obvious political truth - people want to feel as though they have a personal
stake in tackling climate change. They don’t want it to be imposed from on
high. As the cost of solar PV drops worldwide, power prices rise and various
schemes to incentivise the uptake have been rolled out, the uptake of solar is
having a major impact on the energy market.
Dangers of Egging It
I want to now spend the rest of the speech dealing with
something I believe really needs to be considered going forward, particularly
with a new Coalition Government. And that is the need to cool the temperature
of the climate change debate.
In the lead up to the release of the most recent report of
the Inter-Governmental Panel on Climate Change an information kit was sent
around to environment groups by a PR firm engaged by the IPCCC .
Contained in the kit was material the groups could use in
their climate change campaigns including a sample opinion piece groups could
submit to media organisations. According to that opinion piece the IPCCC report
contained important information for people "who don’t like to end up in
flames".
As is if to illustrate that point, within weeks large
bushfires began raging throughout NSW after the hottest start to spring on
record. And it didn't take long for some people to start pointing the finger at
climate change.
Greens deputy leader Adam Bandt went one step further and
attempted to link it to the new Government's plans to repeal the carbon.
Those statements make eminent sense to those who already
understand the likelihood and intensity of such events increases as a result of
climate change. But they continue a strategy that too often is
counter-productive. With the election of a new Government there is a need to
assess whether the traditional forms of advocacy and environmental campaigning
are suitable.
The most obvious problem with Bandt's comments is that
repealing the carbon price alone will do little to prevent future climate
change. Much rests on what happens in China and its annual 10 percent emissions
growth, rather than a country that accounts for 1.5 percent of global
greenhouse gases.
More importantly, one of the lessons of the last 10 years of
the climate change debate has been the danger of making overly dramatic claims.
As the IPCCC report details there is a range of possible temperature increases
and sea level rises. Yet too often, it is the top-end of those ranges used to
underscore the need to take urgent action.
Consider for example, prominent scientist Tim Flannery's
claim in 2004: "There is a fair chance Perth will be the 21st century's
first ghost metropolis."
Three years later he was at it again saying:
"In Adelaide, Sydney and Brisbane, water supplies are
so low they need desalinated water urgently, possibly in as little as 18
months".
Such claims have provided endless ammunition and mirth to
people who seek to discredit the science of climate change. I remember speaking
to one internationally respected climate change scientist who said he and his
colleagues dread whenever Tim Flannery gives a speech as inevitably they have
to go in afterwards and clean up.
Flannery's comments also highlight the dangers of conflating
long-term climate change with short-term weather events. It is not possible to
say whether one large bushfire or drought is due to climate change but only
that they are consistent with a trend where such events become more probable.
Even so, Flannery's comments made at the time of the
record-breaking millennial drought, helped feed public concern about climate
change and acceptance of the need to introduce carbon pricing.
Yet when the millennial drought ended and public concern
swung to the impact of the Global Financial Crisis, a great deal of the public
momentum to introduce carbon pricing fell away.
After this time, other major weather events - the 2009
Victorian bushfires and the Queensland floods - failed to stir the same public
opinion, so highlighting the dangers of basing a campaign on long-term climate
change simply on short-term weather events.
Another of the problems of the climate change debate over
the last 10 years has been how otherwise intelligent people become more and
more entrenched in their climate scepticism as more and more scientific
information about the likelihood of damaging climate change becomes available.
It is the most curious paradoxes of the whole debate. There is a also seeming
contradiction in the fact that those arguing most fervently against a market
based mechanism to tackle climate change are those who otherwise believe
markets are the best and most efficient way of dealing with social and economic
issues.
In the United
States, there is an increasing
body of academic research that political ideology—and in particular
conservative or free marketeer —is a major factor
preventing acceptance of climate science.
One US study found individuals’ worldviews explained
individuals’ beliefs about global warming more fully than any other individual characteristic; So-called
"hierarchs" and individualists tend to dismiss the claim that global
warming is occurring and is serious threat to our society due to the belief it
would lead to a redistribution of resources, whereas egalitarians and
communitarians take the opposite view.
Further, it found with increasing levels of scientific
literacy, liberals ("egalitarian communitarians") and conservatives
("hierarchical individualists") become more polarized over global
warming.
However, the same research showed people who endorsed
free-market economic principles become less hostile when they are presented
with policy responses that do not seem to be as threatening to their world
view, such as geo-engineering or nuclear engineering. In one experiment,
subjects were supplied with one of two versions of a newspaper article. In both
versions, a report was described as finding that the temperature of the earth
is increasing, that humans are the source of this condition, and that this could
have disastrous environmental economic In one version, however, the scientific
report was described as calling for “increased anti- pollution regulation,”
whereas in another it was described as calling for “revitalization of the
nation’s nuclear power industry.” Those subjects receiving the “nuclear power”
version of the article were less culturally polarized than ones receiving the
“anti-pollution” version.
In a recent New Scientist article Cardiff University
research associate Adam Corner said the implication of this research was that
climate change communicators needed to understand that debates about the
science were often simply a proxy for more fundamental disagreements.
"Too often, they assume that the facts will speak
for themselves – ignoring the research that reveals how real people
respond.
If communicators were to start with ideas that resonated
more powerfully with the right – the beauty of the local environment, or the
need to enhance energy security – the conversation about climate change would
likely flow much more easily."
There is some substance in that suggestion when you examine
Prime Minister's Tony Abbott's oft-stated views on "practical
environmentalism". In announcing his "Green Army" signature
policy earlier this year he stated:
Australia
has a beautiful environment and Australians want to look after it. We
are all conservationists now. But as well as climate change, important though
that is, we have very big environmental challenges much nearer to home,
chief amongst them are our degraded land and our polluted waterways
In other words, if people are concerned about climate change
and want to convince the new Government to take action now, they need to come
with better and smarter ways of doing so than simply expecting moral outrage
and condemenation to suffice.
So let me finish with my three take-outs from these lessons.
·
Remember your audience;
·
Keep it measured;
·
Keep it simple - don't over complicate. However,
that is different from being simplistic.
The first two of those take-outs are pretty much to
summarise what I have just been saying. So I will finish by explaining the
third. Many, many times when speaking to clean energy lobby groups and
companies I have been bombarded with facts, figures and colourful graphs. In an
extremely complicated and technical area, a lot of knowledge about the energy
market, the RET and carbon pricing was also assumed. In order to rebut the
simple claim, the RET was the cause of high power prices, I was given data on
the South Australian wholesale market and NSW IPART's findings. It seemed to be
based on an assumption that rational enlightment would result from providing
more and more data and information. As we have already seen, that won't always
be the case. And even if the listener does not have a fixed position, the
complexity of the subject often ends up confusing rather than enlightening. So
my final message is where possible keep it simple and remember your audience.
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