

I have heard of policies being abolished because they are failing, but it is a rare thing for a policy to be abolished because of its success. Unless, of course, those recommending its abolition don’t believe in the thing it is successfully doing.



The renewable energy target (RET) – according to its official website – is supposed to “reduce emissions of greenhouse gases in the electricity sector, encourage the additional generation of renewable energy through financial incentives, and ensure that at least 20% of Australia’s electricity supply will come from renewable sources by 2020.”

According to the Abbott government’s review of the target, it is a roaring success on every one of those measures.

If the RET continued in its current form it would reduce emissions by an additional 299m tonnes of carbon dioxide by 2030 – the equivalent of taking around 100,000 cars off the road. So that’s a tick.

And it has encouraged $20bn worth of investment in renewable energy, with $15bn more in prospect if it continued as planned. Another tick.

It was intended to meet a target of 41,000 gigawatt hours of renewable power by 2020, but because electricity demand fell in a way that had not been anticipated, this was set to represent around 28% of the Australian market.

Originally the government said the review was needed because this overshoot meant the cost of power was rising.

“We have to accept that in the changed circumstances of today, the renewable energy target is causing pretty significant price pressure in the system and we ought to be an affordable energy superpower … cheap energy ought to be one of our comparative advantages,” the prime minister said last year.

But then modelling – including for the review itself – found that this was not true. It found wholesale electricity prices would fall, and that the impact on household bills was very small.

So the review recommended the RET’s closure for different reasons.

The RET is, according to review chairman and self-professed climate sceptic Dick Warburton, a relatively expensive way of reducing carbon emissions. Hmmm, expensive compared to what? At between $35 and $68 per tonne of carbon abated (according to modelling done for the review) it is expensive when compared with the carbon price ($23 a tonne, set to fall to an international price of around $10) but the government just abolished that.

So Warburton said the RET was expensive compared with the government’s proposed emissions reduction fund (ERF).

The government has not modelled the cost of abatement under the ERF, so that assertion is impossible to check. The prime minister said that, rather than model the $2.5bn fund the government would just “have a crack”.

Rough estimates for the ERF are around $10 to $15 a tonne of carbon, but independent modelling done for The Climate Institute by Sinclair Knight Merz found the government would need twice as much money to meet even the minimum 5% target, and it is entirely unclear whether any of that abatement would come from the electricity sector, which makes up 33% of Australia’s emissions and where most abatement options cost a lot more than $10 a tonne.

And of course Direct Action has not yet been legislated. So the review is really saying the RET should be canned because it is more expensive than something that hasn’t been quantified and might not happen.

Warburton’s other argument is that the RET causes the misallocation of resources, because it is forcing the construction of generation capacity Australia would not otherwise need – he says it amounts to a $22bn cross subsidy from fossil fuel generators to renewable generators over the next 16 years.

He says it will push the construction of $15bn in new generation capacity when, without the RET, we would only need $2bn worth and he argues there is no need for that new investment when there is so much cheap coal-fired power already in the system.

Of course, in order to avoid bankrupting existing renewable investments – made on the basis of a bipartisan political commitment to the RET – a good portion of that cross subsidy is going to have to be paid anyway, in the form of grandfathering arrangements or direct compensation.

And the Climate Institute points out that this cross subsidy argument ignores the effective subsidies provided to the fossil fuel industry. Along with the Climate Institute, WWF and the Australian Conservation Foundation, it has also released modelling showing that abolishing the RET will boost the profits of fossil fuel generators by around $10bn.

But putting all that to one side – pushing investment from fossil fuel generation to renewable generation is what the RET is supposed to do. That’s the whole point of having it.

If you don’t think that a gradual shift in how we generate electricity is desirable or necessary for Australia to play its part in addressing global warming, if you think it’s fine for Australia to continue to produce electricity from our existing, old and often high emitting coal-fired power stations indefinitely, then this report makes total sense.

If you do think that shift is necessary, crashing renewable investment and possibly bankrupting some existing players in order to increase Australia’s emissions, while having no impact on electricity prices and providing an $8bn windfall to the profits of fossil fuel generators is almost the definition of crazy.