Using the NEG as a Leadership Battleground Denies Us the Energy Transition We Need. - Hope 103.2

Using the NEG as a Leadership Battleground Denies Us the Energy Transition We Need.

"The history of climate change in this country is, sadly, a battlefield littered with the dead carcasses of leaders who have been brought down by it." says Grattan Institute Energy Director, Tony Wood, on Open House

By Anne RinaudoThursday 23 Aug 2018Open House InterviewsFinance and BusinessReading Time: 6 minutes

Listen: Tony Wood in conversation with Stephen O’Doherty.  

According to Grattan Institute Energy Policy Director, Tony Wood AM, the NEG, while not perfect, is actually a pretty good policy “At its core it provides a platform for delivering the sort of energy transition we so desperately need, while not adversely affecting power prices or reliability.”

“The policy itself has become a proxy for at least two other political battles and the history of climate change in this country is sadly a battlefield littered with the dead carcasses of leaders who have been brought down by it.” he says.

NEG from energy policy to leadership test

On Open House this week, before the most recent leadership circus, Tony Wood was very prescient when he told us “Maybe the worst outcome in some ways would be if Malcolm Turnbull was brought down by it. Now that’s not a statement of sympathy for Malcolm Turnbull. I think that if this policy goes down, then we once again will have forfeited, very sadly, some progress toward those objectives.”

“To those in the coalition who are arguing that we should be more concerned about prices and less about emissions it says, well look this gives you what you want.” says Tony Wood.

Protecting reliability

“What you have now got on the table is a policy that will not adversely increase emissions in a way that would impact on prices. If you are concerned you want baseline coal-fired power stations for reliability, this policy makes sure that reliability is protected. Whether that turns out to be coal-fired power stations or large-scale wind and solar with back-up or whatever, this policy has that in place.”

“So the fundamental policy concerns you have got will be satisfied by this National guarantee or NEG. On that basis, if you are concerned about good policy – and you’d like to think good political leaders of conviction are – then you should support this policy. If there are things you don’t like about it they can be progressively adjusted over time. At its core it provides a platform for delivering the sort of energy transition we so desperately need while not adversely affecting power prices or reliability.” says Mr Wood.

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A political roundabout of leadership

“In Australia, it has encapsulated a political roundabout of leadership, both in the Labor Party and the coalition in the last 10 or 15 years. Secondly, in common with most other parts of the world, I guess most notably the United States, the debate around climate science is something that people want to continue to debate – despite the mounting evidence to the country – and I certainly heard your interview with Will Steffen in this regard quite recently.” says Tony Wood.

Horrible “witches brew”

‘So those things get complicated, and then we add into that things that are completely disassociated with the actual energy policy itself but external issues that have caused our electricity prices to go up anyway. Put all those three together and you’ve got a horrible witches brew – and the brewers have certainly had fun with it – but if it had been about policy, I’m sure we would have solved this in 2007, 2009, 2011 and so forth but clearly we have not.”

If I were you I would not be looking up the dictionary definition of the work guarantee. Because this is not a guarantee; the trick there was that the language became politicised and we couldn’t call it anything but a guarantee.

Actually very simple

“At its core,  this is actually, even though people tend to describe it as being very complicated; at the core of it is actually very simple. All that is being said really, is that we are going to put an obligation on energy retailers; that’s the people that sell homes and businesses their electricity. That progressively at the moment, over the next 14 years – 12 to 14 years we will sell you electricity that is consistent with meeting an emissions reduction target. Now the actual mechanism itself is completely indifferent as to what the target has to be.” Tony Wood explained on Open House.

Reduce emissions over 20 to 30 years

“It is just a mechanism that simply says now retailers you have to reduce emissions over the next 20 to 30 years to meet this target. Secondly, it says that in doing so you have to ensure that, you have the electricity available through your suppliers for your customers to meet the needs arising including at peak times. Now that doesn’t seem particularly controversial. If someone enters into a contract to sell you something in the future, you’d like to think they have actually got that something to sell in the future. So at the core of it it doesn’t seem that controversial, but when its been put together in this political environment it’s been made so. At the core of it, it’s actually a combination of two related – but in some ways, different obligations on energy retailers ”

The energy trilemma; affordability, reliability and sustainability

ACCC reported on affordability

“The ACCC work on affordability was looking at the concentration of market power; not enough players in that market. It said we are hearing from stakeholders in the industry that as we move forward into this policy space with the NEG. We want more generators we don’t want the same generators dominating the game. We want new generators. The problem is that they are finding it difficult to get customers to sign up for more than five years or so. If you are going to make a major investment you want longer term credibility, you want to bank the deal. So what they said is, ‘maybe it would be a good idea if the government was the financier of last resort.’ ” Tony Wood explained on Open House.

More competition in electricity generation

“What they’ve said is the intention is not [for government] to pay for electricity. The intention is if the money those generators get paid by the retailers – that’s the wholesale market – falls dramatically in the future, then we will come in a prop it up. The trigger, the number for the government to then prop it up, would be quite low and the companies investing in them, and their bankers in particular, would get their money back. I’m not sure it’s a great idea, but that would provide more competition in the generation market and that would arguably be a good thing for putting more [downward] pressure on prices.” he says.

A reduction to 26 percent against a 2005 base line by 2030

Legislated or regulated?

Tony Wood from the Grattan Institute explained that “Most of the key policies on climate change at Federal or at the state level, have been legislated. The difficulty is if you want to change the legislation that means you’ve got to go through parliament.”

“The Commonwealth was proposing to legislate the reduction to 26 percent against a 2005 baseline by 2030. That would mean to change that target would require a change in legislation which would mean whoever was in power at the time, including a Labor government would have to go back to the Lower House and the Upper House to change the legislation, and who knows what they might be facing?”

Is the target high enough?

“So the Labor Party in particular, and some of the states who do have influence over this process, even though they obviously are not in the Commonwealth Parliament, they have contrived what gets changed in the national electricity law which is not the emissions target side of things, but specifically how that target is put in place in the electricity market. They, I think in good faith to some extent, have said that target is not high enough and in the future would be very difficult to change. it would be better if it was put in regulation, not legislation.” Tony Wood told Open House.

To listen to the podcast of this conversation click the red play button at the top of the page, or you can subscribe to Open House podcasts in iTunes and they will appear in your feed.