Blog | 8th Nov, 2017

7 reasons why the Turnbull government’s National Energy Guarantee fails to deliver cleaner, cheaper electricity for Australians

In October 2017 the Turnbull government unveiled their new ‘energy policy’ – the National Energy Guarantee (NEG) – with much fanfare. In doing so they ignored the advice of the Chief Scientist, Dr Alan Finkel, and rejected his proposed Clean Energy Target.

The NEG proposal is a new idea, underpinned by less analysis or thought than other comparable mechanisms such as a carbon tax, emissions trading scheme, emissions intensity scheme, clean energy target or reverse auctions to bring online clean energy projects and storage.

The motive for developing this new policy mechanism seems to be purely political – any better alternative had simply become unacceptable to the Coalition party room.

The NEG was recommended by the newly appointed Energy Security Board. It proposes to establish an obligation on electricity retailers to meet targets for sourcing ‘flexible and dispatchable’ generation, and to meet an average emissions intensity standard. While the approach of the NEG could potentially be viable, the Turnbull government and Energy Security Board have revealed enough about their thinking for us at Environment Victoria to conclude that the NEG as proposed is fundamentally flawed and should be rejected.

Australia’s energy system is outdated and highly polluting. It must be replaced. Renewable energy is the cheapest, smartest and safest way to do so, and yet the NEG provides less support for renewable energy than we currently have, and therefore represents a major backward step.

HERE ARE 7 REASONS WHY THE NATIONAL ENERGY GUARANTEE WILL FAIL TO DELIVER CLEANER, CHEAPER ENERGY AND THEREFORE SHOULD BE REJECTED:

1. It is worse than doing nothing for our renewable energy industry.

The NEG is forecast to deliver more climate pollution and less renewable energy than if the Turnbull government simply continued to do nothing.

On release of the NEG ‘letter of advice’ the Energy Security Board estimated that it would deliver around 28-36 percent renewables by 2030, which is less than business as usual and much less than we need to stop global warming. Meeting the NEG target would require a significant contraction of annual installations of renewables and the loss of many jobs. This is an anti-renewables policy from a government with a track-record of slashing support to our renewable energy industry.

2. It may give polluting coal generators an incentive to keep polluting for longer.

When briefing the media on the release of the NEG, the Prime Minister and Energy Minister suggested that coal generators would be included in the definition of ‘flexible and dispatchable generation’. Indeed, in a media interview Minister Frydenberg said that the NEG “gives coal a very good chance of extending its existing life”[1]. Any policy measure that extends the life of coal-burning power stations makes it harder to meet Australia’s international climate commitments and brings false hope and uncertainty for communities transitioning their local economies away from coal.

3. It is inconsistent with our Paris climate agreement commitments or stronger targets necessary to limit global warming to 1.5 to 2°.

In his instructions to the Energy Security Board, Minister Frydenberg requested that they design a scheme that would deliver 26 percent emissions reductions from the National Electricity markets by 2030. Given that the electricity sector is the biggest opportunity for reducing emissions, adopting this target makes it highly unlikely that Australia would meet its (albeit unambitious) 26 to 28 percent by 2030 Paris pollution reduction target across the entire economy.

4. It concentrates market power with the ‘Big Three’ energy retailers (leading to higher electricity bills for consumers).

The big three  ‘gentailers’ (Origin Energy, AGL and EnergyAustralia which all own both generation and retail assets) cover 48 percent of the generation market and 70 percent of the retail market.

The NEG places even more responsibility and power in the hands of the big three. It requires retailers to enter into more long-term contracts with both dispatchable and low emissions generators, which naturally favours the existing gentailers who can preferentially purchase electricity from their own eligible generators.

Concentrating market power with the big three is likely to negate any potential cost savings for consumers.

5. A major loophole – international offsets instead of domestic action.

The Energy Security board proposes that instead of meeting their emissions targets through investing in clean energy in Australia, electricity retailers could instead purchase international carbon credits. This would delay Australia’s transition to a renewable energy powered economy and extend the life of polluting coal-burning power stations that need to be retired, while propping up at times questionable carbon offset programs overseas.

6. It undermines state renewable energy and greenhouse pollution reduction targets.

The Turnbull government has consistently criticised state governments for introducing renewable energy and greenhouse pollution reduction targets. And yet now they are proposing to count renewable energy projects towards the NEG’s emissions targets, which would reduce the amount of renewable energy projects that would be built to meet the NEG.

7. It ignores the advice of the Chief Scientist and is a thought bubble with no economic modelling.

The NEG is a hastily devised plan that ignores the expert advice of the Chief Scientist, Dr Alan Finkel. Economic modelling to understand the implications of the NEG is only hurriedly being undertaken now. Meanwhile the Clean Energy Target as proposed by the Chief Scientist has been the subject of economic modelling and is ready for implementation by state governments even if the federal government is unwilling to adopt a policy based on evidence.

What should we be doing instead of the NEG?

Australia’s energy system is outdated and must be replaced. Renewables are the cheapest and smartest way to modernise our electricity system. We know now that the cheapest way to commission new renewable energy projects is through a long-term certificate scheme such as a Clean Energy Target, or through a series of government-run auctions to bring online renewables investment.Both these approaches can include a component that encourages investment in storage capacity to strengthen our electricity grid.

The NEG risks further delaying Australia’s long overdue transition to a renewable energy powered nation. It  should be rejected by state governments and those interested in the federal government having an effective national plan to cut pollution and modernise our energy system.

In the absence of a credible national plan, Environment Victoria is calling for state governments to use COAG or a multi-state agreement, to pursue a national clean energy target as proposed by the Chief Scientist or a series of renewable energy auctions that accelerate Australia’s transition to a clean, reliable and modern electricity system.

Download the briefer here

[1] Minister Frydenberg, ABC Insiders, October 22nd 2017.

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