ALP Climate Change Action Plan

The Federal Opposition released its climate change action plan yesterday.  The plan has been under development since mid-2015 and is the result of (for an Opposition party) relatively broad consultation with industry and stakeholders, with particular attention paid to the energy industry.  The timing of the announcement is significant.  It comes before the formal start of the Federal election campaign, which in light of the Senate’s recent rejection of the Australian Building & Construction Commission Bill, is now likely to commence on 11 May 2016 (for a double dissolution election on 2 July 2016).

First to the content.  Typically for climate change policy, the 42 page plan provides only a cursory glance over a wide ranging and inevitably complex set of policy measures.  The headline proposals are:

• A national emissions reduction target of 45 per cent reduction by 2030, based on 2005 levels (the Federal Government target is 26-28 per cent by 2030).
• A renewable energy target of 50 per cent by 2030, via an unspecified, revised policy mechanism once the existing Renewable Energy Target (RET) is reached in 2020.
• An electricity modernisation review of the National Electricity Market (NEM) laws, rules and objectives, and development of an unspecified plan to manage the integration of renewables in the grid.
• Endorsement of a sectoral, market based approach to emissions reduction in electricity generation, based on the Australian Energy Market Commission (AEMC) baseline and credit scheme for electricity generation.
• A guided “orderly” exit of older, high emissions coal generation.  The Jotzo paper (generators bidding for the removal of other generation capacity) is considered but not formally endorsed.
• A blended cap and trade/offsets emissions trading scheme outside the electricity sector, with access to international offsets.  Agriculture, transport and refrigerants will be exempt.
• Introduction of tighter pollution standards on cars and unspecified support for soil sequestration in agriculture, and seek to override state-based land clearing laws.
• Unspecified protection for energy intensive trade exposed industries (EITEs).
• An unspecified energy efficiency plan.
• Increased funding and scope for Australian Renewable Energy Agency (ARENA) and the Clean Energy Finance Corporation (CEFC).

From the Australian Energy Council’s perspective, the three positives from Labor’s plan are: (1) the use of market-based instruments at the core of the policy framework, (2) the recognition of the need for an economy-wide plan to reduce emissions, and (3) the formal recognition of the need for a strategic approach to the integration of higher levels of renewable energy into the electricity grid.  The plan also did not claim the transformation of the economy and the energy sector would be costless, nor did it claim this would be a net job creator.

From an industry perspective, the devil remains in the detail.  The proposed emissions reduction and renewable energy targets are ambitious and appear arbitrary.  It is unclear whether the renewable energy target is aspirational, although there is at least recognition that the current RET design is unlikely to be fit for purpose.  Applying a sectoral approach to emissions reduction within the electricity sector is useful in theory, although specifics have been understandably deferred.

The plan recognises the need for the orderly exit of older, higher emissions generation plant, and while it prefers a market-based approach to deliver this, dabbles with the possibility of a more interventionist approach if required.  The recent paper by ANU academic Frank Jotzo proposing a generator buy-out of capacity (and the remaining buyers then sharing the benefits of the ensuing uplift in wholesale prices) is flagged but not formally proposed.  This is notable given the debate its thesis has generated, along with concern that despite its academic appeal, in practice it may not be workable.

The key to decarbonising energy supply in Australia remains threefold: how to design a scheme that discovers the most efficient price over decades and delivers sufficient returns to investors to enable them to reinvest ($230 billion by 2050), how policy can adapt to constant changes in technology, demand and consumer involvement in the supply and use of energy and how to meet the simultaneous challenges of power supply and quality across the grid to ensure consumer confidence in the transformation being delivered.

The timing of the announcement suggests that Labor believes it can benefit from a debate on climate policy, and is willing to differentiate on the issue well in advance of the double dissolution election in July.  Given the duration of this policy challenge, it remains the Australian Energy Council’s ambition that climate policy design is national and bipartisan, as the commitment of both major parties would be required to enable its execution over the coming decades.