What’s in a percentage? The 2014 Review of Australia’s 20% Renewable Energy Target

ret UPDATE

The most popular, and contentious, emissions reduction policy currently at play in Australia is our carbon tax.  Barely a day goes by without another mention of the carbon tax in the media, and it wouldn’t be surprising to find that ‘scrap the tax’ is Tony Abbott’s second favourite slogan (after ‘stop the boats’).  But there’s a policy that doesn’t get nearly as much attention and may be just as pivotal to Australia reducing its greenhouse gas emissions.  This is the Renewable Energy Target.  The Renewable Energy Target, first initiated by the then-Coalition Commonwealth government in 2001, aims to increase the proportion of Australian electricity sourced from renewable technologies.

Reviewing the Target

Leading up to last year’s federal election Tony Abbott committed to a comprehensive review of the Renewable Energy Target if the Coalition was elected.  The commitment to review the target was greeted with enthusiasm by fossil-fuel energy and high energy consumption industry, keen to see the target reduced or eliminated altogether, and with frustration and disappointment by the renewable and mixed-generation industry, who were suffering under the effects of policy inconsistency from repeated review processes.  The last public consultation-based review process was in 2012, with the Commonwealth Government responding to review recommendations just one year prior to Abbott’s proposal for a new review.

The commitment to re-review the Renewable Energy Target was made in spite of the then Labor Government’s intention to change legislation around the timing of review processes – from every two years to every four.  In fact, the key finding of the previous review process was that review processes themselves were having a negative impact on renewable energy investments.  Unfortunately, amendments to the legislation were not completed prior to the change in government.  In not succeeding in changing the legislation Labor inadvertently gave Tony Abbott and the Coalition a free pass to review – they could undertake the review Abbott had promised under the guises of necessity, thereby rebuking claims from the renewable energy industry that the new PM was knowingly undermining renewables by increasing policy uncertainty.

Things look bad for the Renewable Energy Target…

While Dick Warburton, the Chair of the committee appointed to review the Renewable Energy Target, strenuously denies that the outcome of the review has already been pre-determined, several factors indicate that a lack of support for renewables is likely to be the outcome.  In particular, the decision to appoint a chair who does not believe in anthropogenic climate change represents a firm commitment to financially efficient outcomes, without the consideration of environmental externalities in policy decisions.  The Terms of Reference for the Review also indicate a clear alignment with fossil fuel and high energy consumption industry, including the Commonwealth Government’s commitment to reduce business costs and cut red and green tape.

The Terms of Reference include another tell-tale sign that a reduction in the target is on the horizon – the move away from the Labor Government’s stance of ‘at least 20 per cent of Australia’s electricity from renewable sources by 2020’, with the ‘at least’ now removed from the background policy statement.  This may seem like a minor detail, but in the context of the Renewable Energy Target these two little words represent the difference between a legislated, firm generation-based target and a shifting percentage-of-demand target.

Historical bipartisanship

The enhanced Renewable Energy Target adopted in 2009 by the Labor Government included a ‘minimum of 20 per cent renewable electricity generation contribution by 2020‘ as a policy phrase that the media could grab hold of and that those outside the energy sector could understand.  In practice, this target was converted into a firm GWh target in legislation, using 2009 modelling to forecast likely 2020 electricity demand.  The conversion of the per cent target to a GWh target was based on the need to provide industry – both renewable energy generators and electricity consumers – with reliable measures of market volumes.  This decision was in line with the previous Liberal Government’s legislation of a GWh target for their Mandatory Renewable Energy Target, which was also reinforced by the 2003 Tambling Review – the most extensive review of the Target at the time.

Policy certainty versus Industry certainty

The difference between the per cent policy statement and the legislated GWh target has always been a political hot potato – stakeholders hop from one side of the debate to the other depending on their interests.

Under the Liberal Government’s Mandatory Renewable Energy Target a 12.5 per cent renewable energy target was set, representing a 2 per cent increase in renewable energy generation by 2010.  This 2 per cent was then translated into a legislated GWh target based on 2001 modelling of likely 2010 electricity demand.  Unfortunately, then, as now, the ability to model future electricity demand proved to be difficult.

In the case of the Liberal Government’s Mandatory Renewable Energy Target the demand forecasting underestimated future demand, resulting in the legislated GWh target being less than a 2 per cent increase in renewable energy contribution to electricity generation.  In fact, by 2010 the contribution of renewable energy was right back where it started – at 10%.  And what were stakeholder responses to the previous state of play?  Funnily enough they were the inverse of what they are todayfossil fuel generators and large energy consumers were requesting that the legislated GWh target be maintained as the basis for the target, stating this would provide certainty for industry.  Conversely, green groups advocated for a change in legislation to match the policy intent of a two per cent increase.

Here we are, in 2014 (as we were in 2012) and experiencing the opposite reaction.  A decrease in electricity demand has seen the GWh target now reflect a forecast 27% of electricity generation by 2020 (and possibly more with the recent announcement of the closure of Alcoa’s Port Henry aluminium smelting plant).  Green groups are advocating for maintenance of the GWh target, if not an increase, while fossil fuel generators and, in particular, high energy consumers are advocating for a reduction in the GWh target to match the 20 per cent policy commitment, if not abolition of the scheme altogether.

Where does the renewable energy industry sit?

The renewable energy industry has largely remained the piggie-in-the-middle around the target value debate – their prime concern has been to maintain policy consistency.  In the 2012 Climate Change Authority review of the target, the renewable energy industry largely supported maintenance of the legislated GWh target to 2020, not an increase to the target as requested by green groups like ‘100% Renewable Energy’ and ‘Beyond Zero Emissions’ and not a decrease as requested by the fossil fuel generators and energy consumers.  As an industry they require bankable certainty, not pie-in-the-sky dreamy targets that can’t reasonably be met, and not shifting goalposts.

‘Public consultation’ a dirty term?

The term ‘public consultation’ has become synonymous with 21st century policy development.  The more information Governments can garner from stakeholders and not have to research themselves the better, and this consultative mode of public policy allows governments to determine which groups will be supportive of policy before it’s released.  However, the case of the Renewable Energy Target serves as a useful reminder that stakeholders are largely concerned with what the policy means for them.  There’s no guarantee that any groups will maintain enthusiasm for a consistent policy model – which is why we need an experienced independent board to oversee review processes.

I’m not sure if Dick Warburton really represents my idea of ‘independent‘.  Based on the Government’s purposeful exclusion of ‘at least’ from the policy statement included in its Renewable Energy Target review Terms of Reference it could be concluded that the board will be favouring the position most recently advocated for by fossil fuel generators and large energy consumers – that of reducing the GWh legislated target to meet the ’20 per cent’ policy promise.

Bad news either way…

Regardless of the outcomes of the review process, the future of the renewable energy industry in Australia may be stymied.  There is no guarantee that the Coalition Government will endorse any recommendations made by the committee, no matter how well considered they may be.  The 2003 Tambling Review recommended maintenance of the legislated GWh target to 2010, in order to provide certainty to industry, but also recommended the expansion of the scheme beyond 2010.  The then Howard-led Coalition Government rejected this recommendation – inadvertently throwing the renewable energy industry into decline.

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