The Five Things We Can't Answer About The National Energy Guarantee

Fairfax - Cole Latimer | Peter Hannam

The National Energy Guarantee will face one of its last major tests in August, yet despite nearly a year of development, there are still a number of unanswered questions.

Will the policy work?
The Energy Security Board, which includes the main energy regulators, has spent the past eight months coming up with a scheme it says will reduce power prices, bolster grid stability and meet a "pro-rata" reduction in carbon emissions in line with Australia's Paris climate pledges.

The National Energy Guarantee will be decided on by state energy ministers on August 10. Photo: Nick Moir

The board thinks it has created a scheme that will meet its goals without generating a carbon price that would be political Kryptonite to the Coalition party room. Others think a shadow price will soon emerge.
The refusal of the board to release the modelling that spits out the stated results - such as helping to cut household prices by $550 a year over the decade starting from 2021 - undermines confidence the guarantee will work as projected.
Industry is generally supportive, at least in public, but some chief executives say in private they worry about further concentration of the market and a halt to the renewable energy boom.

Illustration: Matt Golding

Will renewables construction and investment come to a halt under the NEG?
The NEG will begin after the end of the Renewable Energy Target runs out in 2020. The policy, introduced by the Howard government, has driven large-scale investment in wind and solar energy.
The main concern is that there is no obvious incentive for the industry given about 97 per cent of the emissions target - or more - will be achieved on the current goal even before it starts. They note too that the model summary provided by the board excludes the second phases of both Victoria and Queensland's state-based renewable energy targets.
Against those concerns, though, is the understanding that renewable energy prices are only going to continue to fall, making them ever more viable than new coal or gas-fired power. The rise in the number of companies underwriting renewable generation projects is a sign of that trend. In addition, the current timing of when ageing coal-fired power plants will exit may prove optimistic, with the result that wholesale power prices may be higher than forecast, helping renewables.

Illustration: Matt Golding

Hydropower generator Meridian Energy chief executive Ed McManus said, “regardless of the target we will still see renewable investment, coal is not part of Australia's future energy mix".

Can it be scaled?
Despite its name, the National Energy Guarantee isn't national. It only applies to the eastern states (and most of South Australia) as members of the National Electricity Market. Without Western Australia and the Northern Territory, which will be permitted to increase emissions, the power sector's so-called 26 per cent "pro-rata" emissions cut will actually turn out to be less.
While Energy Minister Josh Frydenberg and the states say the scheme they want is scalable, they differ in how the goals should be changed. The Labor-led states want the power to lift the emissions goal - federal Labor wants a 45 per cent cut - to sit with the minister. Mr Frydenberg and the Energy Security Board say any change should have to be approved by the Federal Parliament.

Illustration: Matt Golding

For now, Mr Frydenberg has offered a review by mid-2024 to assess the progress. Labor, the Greens and environmental groups say the goal should be sooner, not least because Australia committed at Paris in 2015 along with all other signatories to consider lifting the climate pledge by 2019.

What will be the impact on non-energy industries?
The low emissions reduction targets for the energy sector – which itself wants more ambitious targets – means other industries will have to have work harder to cut pollution. Almost no other policies are in place to support such cuts, adding to the expectation they will be more costly for the economy.
“Government policy will need to include these other sectors, such as transport and agriculture, because if we don’t we will miss our targets,” Grattan Institute energy director Tony Wood told Fairfax Media.

Illustration: Matt Golding

The government is yet to indicate whether they will implement a target for other industries.
If the agricultural industry moved in sync, it would need to slash emissions by 18.7 million tonnes of carbon dioxide equivalent annually by 2030, according to The Australia Institute. That reduction is not small, and would be about 2.9 million fewer head of beef cattle, 8 million sheep, 300,000 dairy cattle, and 270,000 pigs.

So what will happen?
Nobody can be certain, given the shifting politics. Odds still favour a conditional approval by the Council of Australian Governments' ministers on August 10 - which leaves open revisiting the policy later on, such as after Victoria's state elections in November.
Still, it would take a courageous jurisdiction to oppose the policy given it could be blamed for anything that goes wrong in the electricity sector from here on.

Illustration: Matt Golding

On the other hand, some view an opportunity for mischief. On the Coalition side, restive backbenchers are demanding a "point of difference" with Labor after recent less-than-hoped for byelection results.
For federal Labor, there is a reluctance to grant the Turnbull government a win that could lift its flagging fortunes. As one Labor senator told Fairfax Media, a stalling in approval could also help further strain tensions within the Coalition. Nationals are none too happy that agricultural emission cuts are next.
Whatever happens next week, it is unlikely the so-called climate wars will cease with approval of the scheme. Shifting politics could reopen new fronts at any time, and because the climate threat is unlikely to abate, it won't be too long before the need for more serious emissions action returns.

WHAT WE DO KNOW

Illustration: Matt Golding

• There will a reduction target of 26 per cent of 2005-level emissions by 2030 for the National Electricity Market that serves eastern Australia.
• The energy industry broadly backs the policy but thinks the emissions goal is too low.
• It is projected to cut household power bills $150 a year, over 10 years.
• COAG energy ministers will meet in Sydney on August 10 to sign-off - or not.
• Federal Coalition party room meets on August 14 to debate what it approves after the COAG result.
• States and the ACT will then develop and pass legislation - as will the Turnbull government - to approve the changes.
• Final changes to bring the policy into effect will need to pass through the South Australia parliament, which the Turnbull government hopes will happen by November at the latest.

Links

• States Combine To Pressure Turnbull On Climate Target
• Don't forget the 'big picture' says man who could kill energy plan
• 'Nut case stuff': Barnaby Joyce threatens to oppose government's energy policy
• Final Detailed Design of the National Energy Guarantee
• Federal Labor, Experts Call For Full Release Of Energy Plan Modelling
• Government's Energy Plan Would Guarantee A 'Nightmare' Of Complexity
• Electricity Plan Would All But Hit Emissions Goal Before It Starts
• Tender Will Allow Coalition To Dig Its Way Out Of Coal Hole
• Renewables Will Replace Ageing Coal Plants At Lowest Cost, AEMO Says
• Prolong The Life Of Coal-Fired Power Stations In The National Electricity Market, Says Australian Energy Market Operator
• Greenpeace And Getup Launch Campaign To Kill National Energy Guarantee
• National Energy Guarantee 'Clumsy, Inefficient', Says VEPC's Mountain
• Phony Peace? Challenges To Energy Plan Sent Back To Modelling Board
• 'Not A Big Drama' For Electricity Industry To Slash Emissions, Says Scheme Architect
• Victoria Demands New Detailed Analysis On NEG After COAG Meeting
• NEG: A Bipartisan Agreement To Disagree?