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Technology roadmaps won’t drive us to clean energy

by Tony Wood

Published in The Australian Financial Review, 24 May 2020

The federal government’s Technology Investment Roadmap discussion paper, published last week, paints a comprehensive picture of the technologies that will be necessary for Australia’s transition to a low-emissions future. It is not, and does not purport to be, the vehicle to deliver that future.

It is self-evident that the mix of technologies that contribute to Australia’s greenhouse gas emissions today must change if we are to meet our future emissions reduction targets. The road map provides an excellent review of the technologies that could contribute to that change, and how much each could contribute. It also provides an analysis of the technical and commercial readiness of those technologies.

The inclusion of technologies such as gas, carbon capture and storage (CCS) and nuclear power attracted inevitable criticism, even though the road map sees their roles as minor. Indeed, there is little in the road map to support the contention that it is all about gas or fossil fuels.

Yet, gas does have a role. One example is balancing intermittent supply from solar and wind. Another may be in manufacturing green steel. Those roles will become smaller over time as other, lower-emissions technologies emerge.

The number of technologies (140 of them) illustrates why it’s important for the role of public funding to be well defined. The road map is on firm ground with its argument that “government has an important role to play in supporting innovation to overcome a range of market failures”. It also makes a start in setting out how that support should be structured, using existing bodies and agencies such as the CSIRO and the Australian Renewable Energy Agency (ARENA), with co-funding from industry.

Supporting new or emerging technologies to achieve major cost reductions is a well-recognised economic policy function. Continuing subsidies are not. The government must be prepared to walk away from failures and to release likely winners to the commercial pressures of the market. This process and its funding are the big hurdles to the road map’s success.

The road map is more open to criticism when it touches on what comes next. It suggests that the plan’s processes can deliver low- to zero-emission technologies that will be cost-competitive with their high-emission competitors.

In some cases, such as solar generation, this is arguably true. With others, such as renewable hydrogen and CCS, it is unlikely ever to be true. Genuinely viable markets for low-emissions technologies will be those that include a value on lower emissions, either through market incentives or penalties.

Australia’s current cupboard of policy settings at this end of the supply chain is bare. The Renewable Energy Target was not funded by governments and expires this year, and the Climate Solutions Fund is constrained by its dependence on budget allocations.

Angus Taylor, the federal Minister for Energy and Emissions Reduction, is correct when he describes the road map and the government’s position as being “about technology and not taxes”. The problem for that framing is that it suggests these are alternatives when they must be mutually dependent partners.

In 2012, the Grattan Institute published a report, Building the bridgethat proposed a practical plan to support early-stage technologies. It was not dissimilar to the road map. However, that was in the context of it being a necessary support to some form of emissions constraint or carbon price.

This second role, harder for the current federal government, is to create the policy environment in which lowest-cost technologies are deployed. Picking technologies for deployment is a game for investors and punters, and best left to the market to sort out. The race that includes the runners with the best preparation and training will determine the winner.

Policy purity is unhelpful in the emissions reduction debate, and Australia is a world-leading example of failure in that regard. A recommendation in the King Review of sources for low-cost abatement would expand the role of the government’s Safeguard Mechanism. This recommendation provides an inkling of what might yet be possible if the expansion could be used to create a further market in tradable credits and transfer the financial burden of the Climate Solutions Fund to the polluters.

There are grounds to be optimistic. The road map suggests the Morrison government is committed to finding a way out of the climate wars that have been a plague on our house for well over a decade. It is worth recognising a clear, albeit small, step towards a long-term emissions reduction strategy.

The road map is a map and not a vehicle. Yet it should be supported as a valuable guide for our journey.