States agree to let energy guarantee go out for consultation, provided Josh Frydenberg gets party room agreement on emissions reductions

The commonwealth and the states have agreed to keep talking on the national energy guarantee – keeping the policy alive – but a final process of determination won’t happen before September, and possibly not for months.

In a partial step back from some of the brinkmanship of the week leading up to Friday’s meeting of the Coag energy council in Sydney, the energy minister Josh Frydenberg and his state and territory counterparts agreed to inch forward on the policy, rather than torpedo it.

The ministers agreed to move to the next stage, and allow legislation required in the states to implement changes to the national energy market rules to go out for a month of consultation – provided Frydenberg emerges with an agreement from his party room colleagues next week on the emissions reduction components of the scheme.

The lack of a firm in-principle agreement from the states makes life more difficult for Frydenberg when he faces his government colleagues next Tuesday. The energy minister is seeking a party room signoff for the emissions reduction component of the scheme and some government colleagues are already posturing in advance of that discussion.

If Frydenberg stares down objections from Tony Abbott and others and gets a green light for the commonwealth elements of the scheme, the required state legislation will go out to stakeholders next week.

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The Labor states continued to express strong objections to the scheme on a number of fronts during Friday’s talks, with Queensland also joining the concerns telegraphed publicly by Victorian and the Australian Capital Territory.

The objections the states have outlined could ultimately kill the policy, because the commonwealth is signalling it won’t budge, and it is not yet clear how those differences will be settled.

In Friday’s meeting, Frydenberg continued to tell the states he would not move on their red line issues, including boosting ambition in the target, or setting it in regulation rather than legislation, according to officials in the room.

The states and territories think the most Frydenberg is prepared to offer is bringing forward a review of the emissions reduction target he has proposed in 2024, and Victoria has already declared that concession will not be enough.

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The Victorian energy minister, Lily D’Ambrosio, declared on Friday she would continue to withhold endorsement for the scheme “until it supports lower bills, lower emissions and more renewable energy jobs for Victoria”.

“Victoria will only support the Neg if the following conditions are met: emissions reduction targets can only be allowed to increase over time and never go backwards; future targets will need to be set by regulation; the targets will need to be set every three years, three years in advance; and the establishment of a transparent registry, with access by regulators and governments to ensure the Neg is working in the best interests of consumers”.

She signalled a final resolution would take at least a month, and gave no guarantee that Victoria would sign on before going into caretaker mode. The state is due to go to the polls in November.

The ACT’s climate change minister, Shane Rattenbury, said if the states and territories were to sign up in the coming weeks, the federal government would need to give ground. “We are going to need some flexibility on the part of the Commonwealth.

“Any negotiation requires all sides to move, and, you know, having been involved in negotiating a balance-of-power government three times, we know a bit in the ACT about how to get an outcome and how to negotiate,” Rattenbury said.

“I am pleased to see some indication from the Commonwealth that they’re prepared to look at some of the proposals we’ve put forward, but I think we’ve still got a lot of work to do in the coming weeks and months to find that final agreement point.”

Queensland issued a statement confirming the issues it had pursued at the meeting. The state’s resources minister, Cameron Dick, standing in for his colleague Anthony Lynham, who is on leave, said the current emissions reduction target of 26% was “inadequate”.

“The target should not be able to be decreased,” Dick said. “The target must be able to increase as technology changes, without becoming hostage to extremists and climate change denialists in the federal Coalition party room and in the Commonwealth parliament.”

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He said Queensland also needed certainty about emissions reduction and growth in renewables to secure cheaper power.

Dick said it was appropriate that further action on the Neg be on hold until after next Tuesday, because “the Coalition party room is the biggest risk to energy and price stability – and has been for 10 years – so we need that party room certainty.”

Friday’s agreement to continue negotiations is less comprehensive than Frydenberg wanted at the start of the process. He wanted an in-principle sign-off on the mechanism. But given the substantive objections in the states, Friday’s outcome is the best the federal energy minister could have secured.

The Australian Conservation Foundation urged government MPs to accept the ”sensible changes” being sought by the states.

“Many parts of our community, including some business groups, have been calling for compromise on the Neg so that we can have a workable plan that helps deliver the deep pollution cuts needed to tackle climate change.

“The states have done their bit by putting forward constructive proposals that would go some way to helping improve the ludicrously weak pollution target proposed for the Neg by the Turnbull government.

“It is troubling that another genuine attempt to reach a hard-won compromise over climate and energy policy may be railroaded by a small band of sceptics on one side of politics who want to wreck any action to stop global warming.”

The Ai Group said Friday’s events represented progress given the differences of views, but the group’s chief executive, Innes Willox, said the Coag energy council needed to move the issue to a resolution “or risk condemning Australian industry to years more of damaging uncertainty”.

He said a resolution was required by September.

“We welcome the decision of Victoria, Queensland and the ACT to allow policy development of the Neg to continue,” Willox said.

“In mid-September, the critical legislation to amend the national electricity law will be ready for a real decision. That decision should be to approve the guarantee mechanism and commence implementation”.