Five energy and climate tasks the election winner must tackle - Grattan Institute

Climate change and energy are closely intertwined policy areas that will need the priority attention of the next government, be it Coalition or Labor.

In both areas, actions are needed to address today’s urgent issues, and complementary policies with a longer-term focus are needed to steer Australia through one of our most challenging transitions outside wartime.

From electricity to agriculture, buildings to road freight, and health to heavy industry, climate change will have an impact on every corner of the economy and every government portfolio. Yet we are captured in a climate change policy gridlock that has ensnared our leaders for too long. Time is not on our side. Australia urgently needs credible policies and focused incentives for carbon-emission reductions across multiple sectors if we are to avoid a very disruptive and costly transition later.

The major parties have committed to a target of net-zero emissions by 2050. A time-based and specific target is necessary, but it is not sufficient to drive the actions and investment needed to meet the target. Whichever side wins the election should implement a suite of sector-based emissions-reduction policies consistent with this target and supported by mechanisms that implicitly or explicitly establish efficient carbon pricing. There are five priority areas.

The first is electricity. The federal government should work with the states to better align policies to support the growth in renewable energy and its connection into the transmission grid.

Second, industrial emissions that are currently growing would begin to decline with the adoption of modest improvements to the current government’s safeguard mechanism.

Third, a mandatory emissions standard, or ceiling, would be a no-regrets way to support the adoption of zero-emission light vehicles in Australia.

The challenge of emissions from grazing livestock will not be addressed overnight. However, a fourth priority is to invest in a national program advising farmers on how to reduce on-farm emissions and create new income streams.

Fifth, and most exciting, the government should work with industry and people in the regions on strategies to deliver the opportunities that lie in Australia’s comparative advantage in renewable energy and critical minerals. Such opportunities could more than replace the export revenues and jobs that currently flow from carbon intensive industries, many in regional Australia.

On energy policy, there has never been a worse time to stall on market reforms. The commitment to net-zero emissions means a transition out of coal and natural gas in less than 30 years. An electricity system dominated by solar and wind generation will require transformative investment in transmission and dispatchable capacity. Energy ministers, market agencies, and the industry have been debating these reforms since before then prime minister Malcolm Turnbull’s support for the National Energy Guarantee contributed to his demise.

Recent announcements on early closure by current and prospective owners of coal-fired power stations have brought the problem into stark focus. They have also demonstrated that there is no shortage of capital to fund the transition. What’s needed is clear rules to maintain reliability of supply while delivering net-zero emissions at lowest cost.

The next federal energy minister must lead their state and territory counterparts to implement three critical market reforms: first, reform the wholesale electricity market to ensure adequate resource capacity; second, prioritise regulatory reforms to deliver new transmission capacity and efficiently allocate its costs across the regions; and third, accelerate the integration of distributed energy resources before their poorly managed growth leads to major disruption.

Finally, the next government should plan for a future without natural gas.

Natural gas has been a valuable contributor to Australia’s energy and chemical industry for 50 years. Building new, long-life gas infrastructure such as major pipelines to support an ongoing role for a fossil fuel makes no sense in a low-emissions world.

Although the transition will not be easy, two initiatives will make a difference. The next government should co-ordinate state and territory policies to degasify gas networks, primarily through electrification. And it should support the development and deployment of gas replacement technologies in manufacturing through the Technology Investment Advisory Council.

This is an ambitious but essential reform agenda. Decades of policy gridlock mean there are many opportunities across government to improve Australians’ living standards through better policy.

The 2022 federal election campaign should be the starting gun for the race to build a better Australia.

Tony Wood

Energy and Climate Change Program Director
Tony has been Director of the Energy Program since 2011 after 14 years working at Origin Energy in senior executive roles. From 2009 to 2014 he was also Program Director of Clean Energy Projects at the Clinton Foundation, advising governments in the Asia-Pacific region on effective deployment of large-scale, low-emission energy technologies.

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