9
Aug
2018

What’s your state’s position at the crucial National Energy Guarantee meeting?

by Tony Wood


Published at The Conversation, Thursday 9 August

State and territory energy ministers will hold a crucial meeting today with their federal counterpart Josh Frydenberg.

At stake is the future of the federal government’s flagship National Energy Guarantee (NEG), which if implemented could finally end Australia’s long-running uncertainty over climate and energy policy.

The policy has attracted criticism from a range of perspectives, both for its perceived lack of climate ambition and its failure to placate pro-coal backbenchers. Energy analysts, meanwhile, have taken issue with the lack of publicly released modelling, and raised questions over its ability to drive down emissions and prices.

However, the policy has been endorsed by the majority of the energy industry, including smaller retailers and the Clean Energy Council, the major body representing the renewable energy sector. Further support has come from energy consumers and their representative associations. A number of these stakeholders share the concern about the emissions target, but have argued that the COAG Energy Council should focus on the NEG framework and that emissions policy should be left to the Commonwealth government and parliament.

What’s being decided?

The implementation of the NEG requires two legislative outcomes. The first is Commonwealth legislation to set a target for emissions reduction in the national electricity sector and address associated issues such as the use of offsets and the treatment of energy intensive, trade-exposed activities.

The second is legislation to alter the National Electricity Law to accommodate the two obligations imposed by the NEG. This law covers the states (Queensland, New South Wales, Victoria, Tasmania and South Australia) and the ACT that are part of the National Electricity Market, and is required to be passed by the South Australian parliament.

The COAG Energy Council will be asked to support the NEG as contained in a series of reports from the Energy Security Board. If this is successful, the final stage will be to prepare, agree on and then pass the legislation through the SA parliament.

In parallel, the federal government will seek to prepare and pass the emissions reduction legislation. One challenge for federal energy minister Josh Frydenberg is to coordinate the two legislative processes to accommodate those on both sides of the climate change debate, who are suspicious of one another.

Every state and territory finds itself in a different position, both politically and logistically, with regard to the NEG. See below for a detailed breakdown of each state’s energy landscape and the likelihood that it will support the federal government’s policy. (Note: WA and NT do not have a vote on the NEG as they are outside the National Electricity Market, although they are covered by national emissions targets.)

Commonwealth – Yes

Governing party: Coalition

The National Energy Guarantee (NEG) was originally proposed to the federal government by the Energy Security Board, which was set up in the wake of the Finkel Review. The policy was conceived as a circuit-breaker to unite energy and climate policy, at a time when the federal government was considering its position on Chief Scientist Alan Finkel’s proposed Clean Energy Target (which it decided not to implement).

As a Turnbull government policy, the Commonwealth naturally supports the NEG. However, some Coalition MPs have voiced concerns about the emissions target, the proportion of renewable energy the policy should deliver, and the level of support for coal. The Australian Competition and Consumer Commission’s proposal for the government to underwrite certain types of electricity generation seems to have attracted them as a way of supporting new coal plants, although that was not the ACCC’s intention.

The Coalition parties are expected to meet next Tuesday to evaluate their position. A key question is whether they will focus only on the legislation itself (and accept that the NEG has party-room support), or open that debate again. Queensland and Victoria have suggested that their ultimate support for the NEG will be subject to the outcome of Tuesday’s meeting.

The Commonwealth will not change the emissions reduction target, and is very unlikely to move from its position of setting the emissions target through legislation rather than regulation (the latter would allow it to be more easily scaled up). Some further compromise on the review process may still be possible.

New South Wales – Yes

Governing party: Coalition

New South Wales has history of leadership on climate change policy courtesy of its Greenhouse Gas Abatement Scheme, which ran for most of the first part of this century. This was an emissions intensity scheme with an obligation on electricity retailers, backed by tradable certificates. It was shot down when the Gillard government introduced the carbon price in 2012. The state’s electricity generation sector is dominated by black coal, although NSW is also home to Snowy Hydro and has significant transmission interconnections with other states. With the recent partial sale of its transmission and distribution businesses, the energy system is largely privatised.

The Liberal-led government aims to achieve net zero emissions by mid-century and has a range of policies that support renewable energy. The intended closure of the Liddell power station in 2022 looms as a significant challenge.

In the NEG debate, energy minister Don Harwin has been clear on the state’s priorities but supportive of the policy, and the government is expected to back it.

Tasmania – Yes

Governing party: Liberal

Tasmania’s electricity sector is dominated by hydro and wind energy, with some gas generation and a transmission interconnector with Victoria. This interconnection allows the state to both import and export electricity depending on market conditions, and Tasmania was left badly exposed in 2016 when the transmission link failed and was offline for six months.

The Liberal government is expected to support the NEG.

South Australia – Yes

Governing party: Liberal

South Australia’s electricity sector has undergone huge change in the past five years, with the closure of all coal-fired power, rapid growth in wind generation (now at more than 40%), and fluctuating fortunes for gas. It is connected to Victoria via a transmission interconnection that exports excess wind energy from the state and imports electricity from other sources when wind is unavailable. SA suffered a statewide blackout in 2016 that was the trigger for the Finkel Review and subsequently to the creation of the Energy Security Board. After the blackout, the previous Labor government moved to secure the Tesla battery, short-term diesel generation and government-owned gas generation, as part of a wide-ranging energy security package.

Before being defeated at the last state election, former premier Jay Weatherill had a long-running dispute with the federal government over renewable energy and reliability. The Weatherill government previously voted against further policy development work on the NEG, but new Liberal Premier Steven Marshall is expected to support the policy.

Western Australia – Yes

Governing party: Labor

WA and the NT are not covered by the National Electricity Market, and therefore will not directly influence the debate over the NEG. However, they will be covered by the Commonwealth’s emissions reduction legislation, albeit with no policy to deliver the target. WA and the NT were also covered by the national Renewable Energy Target, which the NEG will replace.

As with other sectors of the economy such a s transport and agriculture, there will be a future need to deal with their emissions to help meet the national emissions target of 26-28% below 2005 levels by 2030, committed by the Abbott government in 2015.

Northern Territory – Yes

Governing party: Labor

WA and the NT are not covered by the National Electricity Market, and therefore will not directly influence the debate over the NEG. However, they will be covered by the Commonwealth’s emissions reduction legislation, albeit with no policy to deliver the target. WA and the NT were also covered by the national Renewable Energy Target, which the NEG will replace.

As with other sectors of the economy such a s transport and agriculture, there will be a future need to deal with their emissions to help meet the national emissions target of 26-28% below 2005 levels by 2030, committed by the Abbott government in 2015.

Queensland – Yes, with caveats

Governing party: Labor

Queensland’s energy sector contains a complex mix of privatised and government-owned businesses. Annastacia Palaszczuk’s government has amalgamated the distribution network businesses into a single government entity, Energy Queensland, and also owns a majority position in generation. The state has a target of 50% renewable energy by 2030, and is proposing a further government-owned renewable energy generation company. Queensland also faces complex challenges with the Adani coal mine and the LNG export facilities in Gladstone, the latter of which is supported by an extensive coal seam gas sector.

In the debate on the NEG, both Palaszczuk and energy minister Anthony Lynham have argued that the state’s renewables policy must not be threatened. However, while expressing concerns about the NEG’s emissions reduction target, Queensland seems inclined to support the policy, albeit with caveats.

Victoria – Significant issues

Governing party: Labor

Victoria’s electricity system has been the most emissions-intensive in the country because of its dependence on brown coal, which has traditionally also been the cheapest source of power generation. Victoria is also unique in that it is connected to three other states via transmission lines. Its electricity sector is fully privatised.

Two brown coal-fired power stations have recently closed, the Hazelwood closure in 2017 being the most significant. The state has a controversial moratorium on onshore gas development and a ban on onshore conventional gas development.

The Andrews government has committed to zero net emissions, and has set renewable energy targets of 25% by 2020 and 40% by 2025. The first phase of this process has already begun, with a round of reverse auctions for 650 megawatts of renewable energy. In contrast to the ACT, one objective is to deliver the economic activity and jobs that come with having the projects within the state, rather than importing electricity.

Victoria’s government has been a particularly strident voice on the weakness of the NEG’s emissions reduction target, and on seeking no impediment to its own renewables target. It has called for emissions targets to be regularly reviewed, and voiced concerns that its renewable energy target could allow others states to freeload.

The Andrews government has not given a clear indication on which way it will ultimately vote on the NEG, although energy minister Lily D’Ambrosio will be a crucial voice at the meeting as she outlines her government’s concerns.

ACT – No

Governing party: Labor/Greens

The ACT has a minority Labor government, supported by the Greens, whose leader Shane Rattenbury is the territory’s energy minister. The ACT is also unusual in that its electricity overwhelmingly comes from outside the territory.

The government has a target of 100% renewables and has supported this with a successful policy of reverse emissions auctions. This arrangement complicates its position in relation to the national emissions target of 26-28% below 2005 levels by 2030.

Like other Labor-led governments, the ACT has consistently focused on the inadequacy of the NEG’s emissions reduction target, and on how it will meet its own target if the policy is implemented. The territory’s government has arguably been the most critical of all, and looks the most likely to refuse to adopt the NEG. Recognising the territory’s relative size, Rattenbury has raised the possibility of abstaining on the final vote if the ACT is the only jurisdiction in the National Electricity Market with a firm position of rejection.

The Conversation