Climate policy optimists have reason to believe the blackouts in South Australia may be a catalyst for a new bipartisan approach following what the Grattan Institute has described as “eight years of toxic debate on climate policy”. An opportunity has also arisen for industry stakeholders to have their say on energy policy in Australia.

On 7 October 2016, the Federal Government convened a snap meeting of State and Federal energy ministers in response to the South Australian power failure. An outcome of that meeting was the appointment of the Federal Government’s chief scientist, Dr Alan Finkel, to conduct an independent review of Australia’s energy security.

Prior to the meeting of energy ministers, Prime Minister Malcolm Turnbull took aim at the Labor state governments by claiming that they have set ‘heroic’ renewable energy targets without assessing energy security.

State targets

No agreement has been reached between the state and federal energy ministers on the possible harmonisation of renewable energy targets.

At the date of writing, the South Australian government has set a renewable energy target of 50% by 2025, subject to national renewable energy policy being retained. The Victorian government has committed to a two-stage renewable energy target of 25 per cent by 2020 and 40 per cent by 2025. The Queensland government has set a renewable energy target of 50% by 2030.

Federal targets

The Federal Government’s large scale renewable energy generation target for large-scale generation of 33,000 GWh in 2020, which the former government regulator estimated to mean about 23.5% of Australia’s electricity generation will be from renewable sources by 2020.

The Federal Government’s Renewable Energy Target (RET) scheme allows large power stations (under the large-scale renewable energy target) and the owners of small or domestic systems (under the small-scale renewable energy target) to create tradeable certificates when they generate renewable energy. Wholesale purchasers of electricity, mainly electricity retailers, buy these certificates and surrender them to the Clean Energy Regulator.

Industry consultation and possible outcomes

The review by Dr Finkel gives stakeholders an opportunity, through industry consultation, to contribute to Australia’s energy policy framework.

Dr Finkel is an ex officio member of the federal government’s Climate Change Authority. On 31 August 2016, the Authority delivered its report ‘Towards a climate policy toolkit: Special Review on Australia’s Climate Goals and Policies’.

The Climate Change Authority’s report recommends:

  1. The introduction of an emissions intensity scheme for the electricity sector in 2018. The emissions intensity baseline should decline linearly to reach zero well before 2050.
  2. Generators should be able to use credits from eligible efficiency projects (including from the ERF and state white certificate schemes) to meet their obligations under the emissions intensity scheme.
  3. The emissions intensity scheme should be closed to international credits and permits and domestic offset (other than eligible energy efficiency credits) to increased certainty and support investment in low-emissions electricity.
  4. The existing federal RET scheme should be unchanged to 2020 and remain in place until 2030. Support for small scale technologies through the Small- scale Renewable Energy Scheme (SRES) should also continue and phase out as planned.

Two dissenting members of the Climate Change Authority delivered a minority report. Dr Finkel was not a dissenting member and as such the recommendations contained in the main report may indicate the approach favoured by Dr Finkel.

The policy think tank, Grattan Institute, also advocates for an emissions intensity scheme albeit as a transitional step towards a ‘cap and trade’ scheme. In a report delivered on 25 September 2016, (‘Keeping the lights on – Lessons from South Australia’s power shock’), the Grattan Institute warned that the Federal RET scheme cannot operate effectively as the sole national policy for the reduction of emissions in the electricity sector. In an earlier report delivered on 10 April 2016, (‘Climate Phoenix: a sustainable Australian climate policy’), the Grattan Institute advocated for a three-step roadmap for the electricity sector, namely:

Step 1: Strengthen the Safeguard Mechanism. The existing sector-wide, absolute baseline should be reduced consistent with Australia’s emissions reduction targets.

Step 2: Move to an intensity baseline scheme. If the sector-wide baseline has not been breached, an intensity baseline scheme should be introduced. But generators should be able use any type of permit or offset to meet their obligations, including international credits and permits.

Step 3: Evolve into a cap and trade scheme with full auctioning of permits.

Under the Grattan Institute’s three-step roadmap, the Federal RET scheme would remain in place until 2030 but it would not be extended beyond that date.

The Australian Energy Market Commission (AEMC) has previously endorsed an emissions intensity scheme, which adds weight to the recommendations of the Climate Change Authority. AEMC is also currently consulting with stakeholders for a report to the COAG Energy Council on the effectiveness of the economic regulatory framework for electricity networks in responding to the increased uptake of decentralised energy supply. AEMC will publish an approach paper by 1 December 2016.

However, it is understood that Dr Finkel’s review will be independent of the AEMC review.