The Take

Positive Energy06/05/18

QUTEFS’ Acting President Lachie Cardiff tackles the National Energy Guarantee and what it will mean for the Australian energy industry in this edition of The Take:

Australia’s current energy policy which currently heavily favours the coal mining and natural gas industries through subsidies for both the production and use of such energy sources makes it extremely difficult to make a reasonable push by both government and business for the use of renewables. Coupled with this, 2015 saw federal energy policy back-flip after the rescission of the carbon tax, reverting the nation back to a ‘pro-coal’ economy, cutting subsidies and targets for alternate and renewable energy sources.

Australia’s heavy dependence on fossil fuels for both a source of energy as well as a significant driver of exports and national income means that introducing policy for lowering both emissions or subsidising for renewable energy sources is no easy task, as was seen in 2014 with the Abbott government’s rescission of the Carbon Tax. Although reportedly dropping Australia’s annual carbon emissions by 17 million tonnes in 2013, the largest single-year drop in carbon emissions since records began, the tax forced electricity prices to rise significantly, with a heavy strain placed on household budgets through both electricity and gas, whilst also forcing a number of energy producers out of business.

Future business leaders should be both cautious but excited about the future of Australia’s federal energy policy. The National Energy Guarantee (NEG) may finally be the key to ensuring that there is a smooth transition from a heavily fossil-fuel dependent economy to one which encourages and rewards the innovation of alternative and renewable energy production. The NEG is a platform for progress through the next five, ten, twenty years. The business leaders of the future will be able to use the NEG as both a platform for policy change and moving forward, as well as a policy which genuinely encourages the transition to more environmentally sustainable energy sources.

 The most recent progress of the NEG that has been released through the Energy Security Board’s February consultation paper demonstrates a policy that has been crafted more around the ‘evolution’ of the economy rather than a ‘revolution’, which has been the case with a number of previous federal policies. The three key elements of the NEG, the emissions and reliability mechanisms as well as the emissions targets have been meticulously planned, with a number of the more extreme and contentious elements of the policy having been foregone in the most recent consultation paper.

The emissions mechanism, designed to reach a reduction of 28% relative to 2005 by 2030 ensures that retailers will be required to prove that the energy they use meets emissions intensity targets, with targets lowering each year to ensure progress towards the 2030 target. This emissions target means that there is now an opportunity and incentive for renewable innovators and producers to gain market share, with fossil-fuel based producers forced to either reduce emissions or look to adopt renewable or alternative energy sources. Recent ABS Data shows that a recent rise in construction aimed to help meet the Federal Government’s 2020 Renewable Energy Target (RET) has been driving jobs growth, however, there have been doubts raised over the industry’s capacity to maintain this growth and progression past the 2020 RET and 2030 NEG targets. For this reason, the NEG needs to be used as both an evolution policy in the short term, but also one which can be built on for the purposes of enabling and encouraging progression in the long term, past the 2030 NEG emissions reduction target.

 The NEG has the potential to be both a catastrophic failure, as well as an innovative and forward thinking policy which encourages growth in both the fossil-fuels and renewables sector. The policy’s emissions and reliability mechanisms will ensure that

a) we have enough electricity generation to meet the economy’s needs; and

b) to drive down the industry’s green-house gas emissions over the 12-year period.

Largely acting as a policy designed to finally overcome a decade of policy uncertainty, the NEG harbours the capability to allow Australia to transition from a heavily fossil fuel-dependent economy to an economy with a strong renewable sector. The NEG is vital to ensuring that Australia’s due diligence in aiming to reach renewable targets is being undertaken, with the economy unable to continue the back-and-forth nature of policy debate which has been ongoing for the past decade. The NEG is a policy which is able to deliver a bipartisan emissions reduction policy, something which Australia has been desperately needing since discussions began, but also harbours the keys to ensuring that the country’s renewable sector has both the opportunity to drive jobs and growth, as well as benefiting the environment.

The National Energy Guarantee is a forward thinking policy, and is one which has the ability to deliver preliminary emissions reduction targets for the economy, but is also a policy which can be used as a stepping-stone policy for long-term implementation, with doubts being cast over the economy’s ability to sustain progress after the NEG’s 2030 deadline. The policy needs to be implemented and rigorously followed in order to drive growth and innovation, not only in the renewables and alternative sector, but within the mining and fossil-fuels industry itself.