TUESDAY, 31 JULY 2018
***CHECK AGAINST DELIVERY**
(Acknowledgements omitted)
I don’t think there have been many boring periods over the last several years in energy policy, it’s fair to say, but this is a particularly timely occasion to come together and talk about where we are with energy policy. As a number of people have already said, there is a very important COAG meeting at the end of next week which Lily D'Ambrosio and Don Harwin will talk more about. And, after that there will, depending on what happens of course, potentially be a very significant debate in the Australian Parliament about those areas of Commonwealth responsibility related to the NEG (National Energy Guarantee).
After a period where there’s been so much focus on the Budget and by-elections, I don’t think there’s any question the public attention, the media attention is going to turn to policy questions and the politics of Australia’s energy crisis.
After a couple of years of pretty focused debate at a national level, we now generally understand how we got ourselves, frankly, into the mess we find ourselves in - particularly in the NEM jurisdictions - in energy policy. And there is a slowly emerging consensus, I think, about the best way to find a path out of the energy crisis. It’s not a full consensus - there’s still a level of contest about this question. No doubt as we return to Canberra, you will see the same old stories about pulling out of Paris and about building a fleet of new coal-fired power stations up the eastern seaboard being the path to low power prices and a reliable system.
I read this morning that George Christensen is currently on a Mineral Councils funded trip to Japan to drum up support for Japanese companies to come to Australia and build so-called HELE power stations. I wasn’t invited to that trip, but there is still a strong body of opinion that is agitating for taxpayer funding for new coal-fired power stations. They’ve had to move to that position after 18 months of business figures in the energy sector and the finance sector saying there is absolutely no investor appetite for new coal-fired power stations. The only business figure in Australia who indicated any interest when Malcolm Turnbull, 18 months ago, issued an invitation to partner in the building of new coal-fired power stations was Clive Palmer, whose last great idea of was building Titanic II. So George has had to travel to Japan, I don’t imagine he’s going to have any more success there, and hopefully the silliness of the new-coal ideologues in the Coalition party room will recede further and further into the fringes of energy policy and we can have a serious debate about where we’re heading.
Because, at the more serious end of the debate about energy policy, there is now an increasing body of really important work for us to base important policy and political decisions upon. The work of the Chief Scientist moved into the shadows a bit after the fiftieth recommendation for a Clean Energy Target was speared in the Coalition party room, but there are still forty-nine really important recommendations for us to continue to work on from that report. AEMO’s Integrated System Plan, which stems from Alan Finkel’s work, is a really impressive body of work, which deserves really focused attention - and I think it’s getting that attention. It’s important to point out, of course, that the 'neutral scenario' in AEMO's ISP would see renewables at 46 per cent by 2030 - that’s just the neutral scenario.
We’ve also seen over the last couple of weeks, a very important report released by the ACCC - some level of misrepresentation, particularly around the meaning of recommendation four in that report, but broadly speaking I think a really important piece of analysis about the shortcomings in the retail sector, particularly since a series of pretty disastrous privatisation decisions were taken that failed to deliver competition and price relief for consumers in the way that was promised back in the 1990s.
There’s good work coming out of AEMC around demand response, particularly focused on the reliability and security benefits in the system from demand response. I’d like to see more of a focus as well on energy efficiency and energy productivity on the demand side to deliver real bill relief, not necessarily unit price relief, but bill relief to consumers. But the work coming out of the AEMC now on the demand side is really welcome.
But, as the previous speakers have all said, the key focus, for a little while at least, is going to be on the NEG; the latest attempt to construct an enduring investment framework in the electricity generation sector. Because we know that, with the abolition of Labor’s carbon price mechanism, we’ve had five years in this country, with a vacuum of energy investment policy beyond the Renewable Energy Target - which is obviously going to taper off over the next little while.
Two years ago, Federal Labor put aside our preferred policy mechanisms in this space, because we recognised, and heard the calls from industry arguing, that we needed to find some bipartisanship in this area - the two major parties agreeing at least on the investment rules, the investment architecture in the energy space. We expressed a willingness in 2016 to sit down and negotiate an Emissions Intensity Scheme proposed by the AEMC - until that was speared in the Coalition party room by Tony Abbott’s forces. Then, last year, we indicated a willingness, not that it was our preferred policy, to at least sit-down and negotiate around a Clean Energy Target - until that too was speared in the Coalition party room by the Tony Abbott forces.
And although, I’ve got to say, by the end of that period we were getting a little frustrated with this willingness to sit down and negotiate bipartisan policy, we did indicate an open mind around the concept - because, frankly, it was just a concept in the initial stages - of the National Energy Guarantee. The early versions of the NEG did have some substantial problems in terms of transparency, in terms of the likelihood that it would entrench market power of the big three gentailers, and a risk that it would damage the depth and liquidity in the contract market as well. I think over time, though, the Energy Security Board has done really good work in addressing those concerns and working with industry and other stakeholders to make this mechanism something that looks far more workable than it did in its earliest iterations.
I am attracted, I have to say, to the idea of embedding an investment framework into the NEM architecture, into the National Electricity Law. I think there’s an attraction in its simplicity - not to mention, frankly, in Abbott-proofing the policy, to use a term that we were using back in 2012. So there’s a lot that is attractive about this proposal. But there is, as John and Kane have indicated, a lot of work still to do on that detail and I’ll leave, perhaps, some of the discussion around those things to Lily and to Don. I must say though, before I move away from the architecture, it is still beyond me why Josh has not released the modelling around this. That is utterly central to our ability really to interrogate and kick the tyres on the application and the assumptions under the NEG. The idea that, at the end of next week, elected governments are expected to tick off on a proposal that stakeholders have not been able to interrogate fully, I think shows a very unfortunate degree of arrogance.
So, there is more work to do and we do need to interrogate the modelling. But Federal Labor’s quarrel is not particularly with the architecture of the NEG. Our quarrel, fundamentally, is with the settings proposed by Malcolm Turnbull.
Malcolm Turnbull is proposing this as a new investment framework for the energy sector, an investment framework that will guide investment in the energy sector beyond 2020. But it is an investment framework set to ensure there is no investment, set to ensure there is absolutely no investment pulled through into the system by the National Energy Guarantee.
The settings proposed by Malcolm Turnbull would support not a single large scale renewable energy project built in the system through the entire decade of the 2020s. And the projections on rooftop solar see installation rates at about half the current rate of rooftop solar installation.
As you all understand, the fundamental flaw in this proposal from the Prime Minister is in the emissions reduction target - the so-called 26 per cent target. We’ve heard a number of speakers refer to it as such already this morning, but '26 per cent' ignores the fact that it is a target off a baseline of 2005. And, since 2005, we have seen very substantial emissions reduction in the NEM because of Labor’s Renewable Energy Target. Now I’ve been saying for some time that '26 per cent' is really, probably, 3 or 4 per cent emissions reduction through the 2020s. But the Energy Security Board belled the cat over the last couple of weeks and, in their final design paper, indicated it’s actually 2 per cent. What we’re talking about here is an emissions reduction task for the electricity generation sector over the course of an entire decade of 2 per cent - an obligation that will effectively have been met before the NEG even commences operation.
And, I can tell you, Labor intends to fight vigorously against this pathetic target - the centrepiece of the National Energy Guarantee - because it will smash investment and jobs in the sector, it will fail to achieve any serious cuts to dangerous pollution from our power plants, and it will cause wholesale power prices to rise again - just as they did when Tony Abbott caused a crash in investor confidence with his review of the Renewable Energy Target.
And it simply shifts the responsibility of emissions reduction across the economy to sectors that don't have low-cost technology available to them in the way that the electricity generation sector does.
There’s a piece circulating produced by ACIL Allen that puts it really well, in the context of the government’s own projections about the Paris emissions reductions obligations to 2030. They indicate that, over that decade - to reach the Paris target signed onto by Malcolm Turnbull - we need to get about 900 million tonnes of cumulative emissions reduction in the economy. The electricity sector, under the NEG, will only deliver forty million tonnes. So, a sector that is responsible for a third of the emissions in the economy, that has all of the lowest cost technology available to it, that can drive decarbonisation in sectors of the economy like transport, will deliver one twentieth of the economy’s emissions reduction obligations under the already inadequate Paris targets.
Labor will also fight any attempt by the government to seek to tie the hands of future governments in ratcheting the emissions reduction obligations in the electricity sector and more broadly in the economy - whether that’s a future Labor Government or, frankly, a future Liberal Government that finds itself finally willing to stand up to the hard-right forces in the Coalition. Much has been made over the last few days about the so-called 'olive branch' presented by Josh Frydenberg in the form of a 2024 review. For me, that is hopeless. A 2024 review would be asking a question to which we already have the answer - in the Energy Security Board’s own design paper. We know from their paper this emissions reduction obligation is hopelessly inadequate - it doesn’t do the lifting that should be expected of the electricity generation sector, and it will smash investment in a sector that is doing great things for the Australian economy, particularly in the regions.
And, finally, in relation to the matters likely to be presented to the Commonwealth Parliament, we also oppose the use of any offsets in the electricity generation sector. I am a supporter access to offsets for sectors of the economy that do not have abatement technology, or at least affordable abatement technology, available to them. And there are many of those sectors in Australia, but the electricity generation sector is not one of them. We will oppose anything that simply defers investment in renewing the electricity generation infrastructure of this country.
So you might conclude that, even if COAG does reach some agreement around the architectural rules in the NEG, there will be a furious debate later this year in the Federal Parliament over those matters that are presented in Canberra. Now I understand the deep desire among many in this room and beyond to get a settled framework, a settled architecture at least, that establishes the rules for investing in electricity generation - even if the ambition remains something that is hotly contested between the major parties. But, there is a real risk here that these pathetic settings around emissions reduction will be embedded into federal law in a way that will prove difficult to correct into the future, particularly if there is some lock-in that is difficult to change through a future Senate.
As Bill Shorten said in his Budget Reply earlier this year, Labor remains firmly committed to our key three anchors in Climate and Energy policy - our commitment to policy that sees us reach net zero emissions by 2050 - a commitment to a 45 per cent emissions reduction off 2005 levels by 2030 - and our commitment to ensure that at least 50 per cent of our electricity is sourced from renewables by 2030 as well.
And, I assure you that we are determined to prosecute all three of those positions with business, with the broader community and in the Federal Parliament if and when the NEG laws come to us later this year.
Thanks very much and best wishes for the rest of your summit.