Published in The Age, 3 May 2021
Victoria’s climate change strategy provides a stark illustration of why Australia needs a national strategy to reduce emissions at lowest cost over the next few decades.
Drawing from the work of an independent expert panel led by Labor’s former federal climate change minister Greg Combet, the Victorian government has announced interim emissions reduction targets against the state’s 2005 level of 28-33 per cent by 2025, and 45-50 per cent by 2030. These targets are arguably consistent with the government’s target of net-zero by 2050.
The Victorian government’s strategy includes some elements previously announced, for example, actions on renewable electricity generation and building new renewable energy zones in regional areas. The substance of the strategy, however, is a series of pledges focused on individual sectors including energy, transport and agriculture. Each pledge is supported by government funding for specific activities in those sectors.
Few, if any, of the proposed actions are inherently bad. The first concern is that the government itself is making the decisions on what actions should be taken. It is far better for a state government to set statewide rules, linked directly to the targets, that allow investors, businesses and consumers to decide the lowest-cost ways to reduce emissions. The result of the government’s strategy is almost certainly higher costs.
Thirdly, Victoria now has a combination of targets that may or may not work together to reduce emissions efficiently. For example, Victoria’s Renewable Energy Target for 2030 is for 50 per cent of electricity generated in Victoria to be renewables. It is clearly not the government’s intent, but it would seem at least possible, for this target to be achieved with more of Victoria’s electricity coming from other states and not necessarily renewable sources. By contrast, the NSW government’s Electricity Infrastructure Roadmap, admittedly with its own problems, has an absolute target of 12 gigawatts of renewable generation capacity by 2030.
Finally, there are consequences that flow from unilateral actions by states in a single nation. The best way to deliver national emissions reductions at lowest cost is to begin with the cheapest and easiest actions today – no matter which state they are in – and progressively move towards the more expensive and hardest, with a parallel focus on technology development to reduce some of those future costs.
During the last years of the Howard government, the states, mostly under Labor governments, planned on an economy-wide climate policy that would have delivered lowest-cost emissions reduction. That work was abandoned with the election of the Rudd government, in the expectation that a credible, national climate change policy would follow.
There is considerable difference in the emissions profiles of our states and territories. It logically follows that a strategy to hit a national target of net-zero emissions would mean different states carrying more of the load at different times. Even though all the states and territories are committed to a target of net-zero emissions by 2050, unilateral action such as that by the Victorian government works against a lowest-cost national solution.
The Victorian government deserves credit for adopting emissions reduction targets based on science and expert advice. But the broader strategy is not first-best policy and is a sad reflection on our federal system. It is, however, a practical consequence of the as-yet-unfinished climate war. Maybe other states will introduce their own unilateral programs to deliver both interim targets and ultimately a net-zero target. Australia might muddle through separately, but together we could do so much better.