The electricity price hike blame game: a sad product of a dismal climate change debate - Grattan Institute

Published by The GuardianThursday 21 July

Recent news reports highlighting that the price of generating electricity in South Australia has increased three to four times its historic levels have left politicians, commentators and renewables advocates in an agitated state. One side of the debate blames renewables, the other argues vociferously that it’s the fault of evil fossil-fuel generators and that renewables actually reduce the price of electricity.

This blame game is a sad product of the dismal debate Australia has had about climate change and the transition to a low-emissions electricity sector over the past decade. Transitions tend to be painful. The challenge for policymakers is not to avoid the transition because it’s painful – running away at the first sign of high prices does not make a brave politician. It is to make the transition as painless as possible.

But a debate about how best to make the transition is not the debate the country has been having. Instead we have oscillated from arguing that climate change does not need a substantial response, to introducing policies such as Direct Action that have no perceived impact on consumers and limited impact on the environment, to advocacy for an immediate transition to cheap, job-creating renewable electricity. The result is a policy mess, with no clear direction forward.

The high prices in South Australia should serve as a warning to all. This is what happens when climate change policy is not aligned with energy sector policy and when state policy is not aligned with federal policy. Setting a 50% renewable electricity target in South Australia appears foolish when it is not clear that the electricity system can handle that level of intermittent wind and solar power.

The Commonwealth has already taken a small step to address the problem by combining energy and climate change in a single portfolio under Josh Frydenberg. But much more needs to be done.

First, Australia’s climate change policies need strengthening. The government should immediately bring forward its 2017 review into climate change policies.

As they stand, the Coalition’s policies place little pressure on the electricity sector to reduce emissions. While there is an industry-wide cap on emissions – known as a baseline – it has been set very high with no policy in place to make it come down over time. This has to change.

The review should outline the steps needed to turn current policy – the “safeguard mechanism” which puts pollution limits on 140 of Australia’s biggest-emitting businesses – into an effective, credible and long-lasting climate change policy. While the safeguard mechanism is not the ideal starting point for climate change policy, it does have the ability to achieve bipartisan support which has been sadly lacking for a number of years.

The steps should outline how Australia will move to a zero-emissions electricity sector. All main players, whatever their political persuasion or whether they are from federal or state governments, need to agree on this pathway. Then governments must stick to the pathway. Only with this level of certainty will business start investing in the low-emissions technologies we need if we are to effectively transform our electricity sector.

Second, any new federal or state climate change policies will need to be consistent with the Commonwealth’s central climate change policy and the way Australia’s electricity system works. If they are not, emissions will be reduced at a greater cost than they need to be, the reliability of the electricity system will be damaged, power prices will rise – or all three.

Third, the COAG Energy Council, the governing body of federal and state ministers, needs to work properly. States can no longer go off in their own direction without considering the consequences of their actions on all states and consumers. State ministers have been parochial in their approach to energy policy for too long. They need to make decisions with the national market in mind.

Refusal to tackle climate change is not an option. The weight of evidence that human behaviour is leading to catastrophic global warming is overwhelming. The question for policymakers is not whether we act to reduce emissions, but how we can do so in a way that will make the transition to zero emissions as smooth as possible. In the past, politicians have failed to rise to this challenge. Maybe events in South Australia will provide the painful but necessary spur.