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Success. The Renewable Energy Target’s greatest failing

By. Peter Martin Economics Editor, The Sydney Morning Herald (Click to watch video)

The good news is the Renewable Energy Target has been a success. It’s built up a wind and solar power generation industry at a very low cost to electricity users. In six years’ time it’ll start to push power prices down. The bad news is the panel doesn’t like it.

It thinks it’s been too successful.

Originally intended to snare 20 per cent of Australia’s electricity generation industry by the end of the decade, it’s on track to grab 28 per cent, all the while having an impact on prices the panel says “appears to be small”.

What’s not to like?

It’s killing the coal-fired power generation industry. The panel doesn’t put it that crudely. It refers instead to a “transfer of wealth among participants in the electricity market”. If by 2020 retailers are required to buy 41,000 gigawatt hours from new pollution-free suppliers, the old polluting suppliers are going to sell 41,000 gigawatt hours less.

It would have hurt in any event, but a time when electricity use is sliding (thanks largely to the carbon tax) it means what was to have been 20 per cent is on track to become 28 per cent.

The abolition of the carbon tax gave coal-fired power generators a windfall. Kneecapping the Renewable Energy Target will give them a second helping.

Taking business away from coal-fired generators was never an unintended consequence of the Renewable Energy Target as the report seems to suggest, it was a design feature. It has helped cut pollution.

The review panel finds it’s a “high-cost” means of cutting pollution, at a cost of $34 to $68 per tonne of carbon dioxide equivalent. The carbon tax cost $24.15 per tonne. Buying emission reductions from overseas might cost less than $10 per tonne.

But what it doesn’t say is that each of these options has been ruled out by the government. Without a carbon tax, an emissions trading scheme or the purchase of permits from overseas, $34 to $68 per tonne doesn’t look that bad.

Perhaps feeling obliged to nominate measures that would be cheaper, it says there are “many”, mentioning energy efficiency and grassland management.

But it’s the carbon price that’s been driving energy efficiency. Without it and without the Renewable Energy Target we will have few tools to bring down emissions other than the Coalition’s yet-to-be-detailed (and itself expensive) Direct Action system of grants.

If the government adopts the panel’s recommendations, it’ll be up to the Senate to make the final call. It’ll have to decide whether to back new pollution-free electricity or the kind we had gotten used to.

08/29/2014 – 00:00

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