The politics of the Finkel review
At Wednesday’s three-hour Coalition party room meeting, thrashing out proposals to overhaul electricity policy and address climate change, Tony Abbott became increasingly agitated.
The former prime minister began interjecting as 30 MPs and senators made their contributions, with Environment and Energy Minister Josh Frydenberg responding.
Abbott was focused on what should be done to address what he sees as two key issues – rising electricity prices and the need to keep coal-fired power in the mix, with its associated implications for industry.
Two of his suggestions raised a few eyebrows.
He declared himself opposed to restricting gas exports – a reference to Prime Minister Malcolm Turnbull’s plan to divert exports to the domestic market if gas is in short supply at home, which is designed to boost availability and ease price.
And he wanted the government to effectively nationalise parts of the coal industry by buying the recently closed Hazelwood power station in Victoria’s Latrobe Valley and reopening it.
As one colleague observed later: “He’s not in a happy place.”
There is a lot at stake in this current energy debate and not only for Australia’s future access to reliable, lowest-cost electricity and contribution to lowering greenhouse gas emissions and addressing climate change.
There’s also a lot at stake in the ongoing battle between Tony Abbott and Malcolm Turnbull.
Of all the issues serving as proxies for their leadership war, this one is the most volatile and the most potent. It’s the issue that brought Turnbull and Abbott up against each other in the first place and on which Abbott secured his one-vote leadership victory over Turnbull in 2009.
Some believe if Turnbull can achieve agreement on lowering emissions through some kind of market mechanism while also stabilising and securing energy supply and bringing down prices, it would represent not only a victory on the substantive issues of addressing climate change and electricity prices but a victory over Abbott, too – and possibly a permanent one.
And that gives Abbott a good reason to fight it.
Australia’s chief scientist, Professor Alan Finkel, and his review panel were given a brief to focus on energy security, reliability, affordability and emissions reduction.
Their report recommends seeking to achieve energy stability by mixing sources into the future, drawing increasingly on sustainable renewable energy such as wind and solar power alongside traditionally more reliable but non-renewable baseload sources, such as coal and gas, plus pumped hydro, which is both.
Key among the Finkel review’s recommendations is the creation of a “clean energy target”, contributing to having 42 per cent of all of Australia’s energy drawn from renewable sources by 2030.
Finkel recommends setting a level of carbon emissions below which types of energy are deemed to be “clean”. He suggests it be set around 0.6 tonnes of carbon emissions per megawatt hour of power generation.
Energy production that met or exceeded the standard would be rewarded with certificates that could then be traded.
At that level, coal-fired power would not be defined as clean. But if the threshold was to be increased to 0.75 tonnes, at least one form of it could fall within the definition.
The government is now considering this possibility.
The system would differ from an emissions trading scheme because polluters would not pay a direct penalty, or tax. But they would be disadvantaged relative to cleaner forms of power.
The Finkel review estimated that kind of system would bring down household electricity costs by about $90 a year, compared with now, and said it would also be better for prices than an emissions intensity scheme that contained penalties.
To address the reliability issue – and possibly also level the field a little on cost – Finkel recommended renewable energy producers be required to invest in storage, such as batteries, to guarantee consistency.
Big electricity generators – the owners of coal-fired power stations, for example – would be required to give three years’ notice of closing a plant, not mere months, as has happened recently.
In the Coalition party room, MPs raised three key queries about Finkel’s findings: how to lower household power costs quickly, and whether a $90 cut was enough; where the baseline definition of “clean” should be set, and why coal was being excluded if the whole idea was to lower emissions overall rather than favour one technology over another; and whether the 42 per cent renewables target was too high, both because renewables were less reliable and because it posed a political problem by being too close to Labor’s target of 50 per cent.
In his half-hour presentation, Frydenberg gave a detailed breakdown of the 42 per cent.
He sought to ease his colleagues’ concerns by explaining that 24 per cent of that was large-scale wind and solar power. Under the business-as-usual scenario, with no change from now, it already accounted for 17 per cent.
He argued it was only an increase of 7 percentage points and that requiring producers to include storage should address doubts about stability.
Another 9 per cent came from hydro, which was considered a more reliable baseline form of power, and the other 9 per cent came from rooftop solar, which was not affected by the clean energy target so that would be the same regardless.
Frydenberg promised to test Finkel’s assumptions about price. He also said investors had been reluctant to back coal-fired power and that a decade of uncertainty around energy policy had contributed to high prices.
Speaking to The Saturday Paper, Frydenberg declined to say what he would recommend to cabinet or whether he considered anything in the Finkel review non-negotiable. He said the whole issue was “political kryptonite” in terms of its sensitivity and would not be rushed.
Alan Finkel’s prognosis for the future of coal is blunt.
“Investors have signalled that they are unlikely to invest in new coal-fired generation,” his report says. The government emphasises that nine coal-fired power stations had closed in the past five years.
So far, one government backbencher, Queensland Nationals MP George Christensen, has publicly supported Abbott’s proposal for the government to buy into coal directly.
Christensen also said he cannot support Finkel’s clean energy target proposal.
“The onus is going to be on the federal government to either seriously invest or build a coal-fired power station,” Christensen told Sky News on Wednesday.
“You’d need more than one, perhaps it’s several … What’s wrong with that? I mean, we invest heavily in renewables. No one complains about that.”
He then laughed and corrected himself, saying: “Well, some people do complain about that.”
Indeed, they do. And some still are complaining.
Liberal MP Tony Pasin, from South Australia, has called for what he describes as “an aggressive intervention into the gas price”, noting several states have refused to allow their gas reserves to be tapped.
South Australia has the greatest reliance on renewable energy and, plagued by ferocious storms and blackouts last year, its energy mix remains the subject of fierce political debate.
The chairman of the Coalition’s backbench energy committee, New South Wales Liberal MP Craig Kelly, favours government intervention, too – not necessarily to build or run coal-fired power stations but to boost gas availability and lower prices.
Kelly acknowledged that kind of sentiment sounded contradictory from a free marketeer.
“Forgive me, for I have sinned,” he said, arguing that under the circumstances, governments had to consider stepping in.
Kelly pointed to the intervention the Turnbull government had already made to support hydro and said supporting the gas industry would be an extension of that.
“That’s an issue of national security, it’s an issue of an essential service,” Kelly told The Saturday Paper. “A government can’t stand by and say we haven’t got enough power, there will have to be blackouts.”
In his briefing, Frydenberg told his colleagues that power price hikes overall had been higher under Labor – he blamed what’s generally described as “gold-plating” of the poles-and-wires support systems and the impact of the carbon tax – but conceded prices had still risen under the Coalition. He said this was largely due to the 30 per cent wholesale component increasing steeply.
Frydenberg attributed that to three things: the level of policy uncertainty; the closure of coal-fired power stations; and higher gas prices, due to what the federal government argues is state governments refusing to allow more domestic gas extraction and too much of the existing supplies being sold offshore.
Labor argues prices would have stabilised had an emissions trading scheme been allowed to flourish, bringing certainty for investors and encouraging the use of cheaper renewable energy.
Frydenberg won praise for his presentation, including from Abbott, who described it as “long, thorough and impressive” and the ensuing discussion as “constructive”.
Nevertheless, not all Coalition MPs were satisfied the Finkel proposals could do what they forecast or maximise the opportunities for coal as an abundant Australian resource. Opponents of fossil fuels argue that’s precisely the point.
But opposing measures to address climate change that involve disadvantaging fossil fuels – and particularly coal – is an article of faith for former prime minister Abbott and some of his colleagues.
Having declared in office that coal is “good for humanity”, he is much more enthusiastic about defending industry than he is about meeting the global commitment his government made to reducing emissions. He now suggests it wasn’t a commitment at all.
“The problem with the Finkel report is that it’s all about reducing emissions,” Abbott told 2GB on Wednesday. “Now, it’s nice to reduce emissions and we have an aspiration – and I stress, an aspiration – to reduce our emissions by 26 to 28 per cent by 2030. But frankly, we shouldn’t be doing that if it’s going to clobber power prices, hurt households and cost jobs. We shouldn’t be doing that and I think there’s pretty well a general consensus in our party room along those lines.”
Abbott is correct that there is strong concern among Liberal and National MPs about the rocketing cost of electricity. This was the dominant theme in questions to Frydenberg at Wednesday’s marathon meeting, including from those inclined to support Finkel’s plan.
Some questioned the basis for the Finkel review’s assertion that prices would fall most substantially under the clean energy target proposal.
Malcolm Turnbull has already ruled out an emissions intensity scheme and Finkel does not recommend it as his first choice.
“We live in a world of carrots and sticks,” Finkel told the ABC’s Q&A on Monday. “The clean energy target is all about the carrot, the rewards.”
Finkel would not agree that offering incentives to the cleanest energy amounted to disadvantaging the dirtiest and was effectively setting a carbon price or a de facto carbon tax. The government insists a clean energy target is not the same as a carbon tax.
But the visiting head of taxation for the global Association of Certified Chartered Accountants, Chas Roy-Chowdhury, says it would amount to a form of indirect tax because it would be “singling out a particular source” of energy to “effectively put their price up” relative to other sources.
Frydenberg described it as a “market signal” but not a tax on coal, seeking to avoid the opportunity for critics to label it another “great big new tax”.
Abbott has called the proposed clean energy target “effectively a tax on coal” but also “a magic pudding” because it doesn’t include an inbuilt penalty.
Turnbull’s exasperation with the criticisms boiled over on Wednesday.
“Glib answers and one-liners have been of no assistance in keeping Australians’ energy secure and affordable,” Turnbull said.
“What Australians need is wise leadership, not glib leadership. What Australians need is economics and engineering, not ideology and politics. They’ve had too much of that. All that has done is drive electricity prices up and put reliability at risk.”
The Labor opposition also says it’s the same as a carbon price.
“We’ve got to be honest about it,” shadow climate change and energy spokesman Mark Butler told The Saturday Paper. “We’re not going to sugar-coat this. Of course it’s a carbon price.”
But there has been debate inside Labor about how to approach the Finkel proposals and whether to offer outright bipartisan support or add to the pressure already on Malcolm Turnbull by talking the Finkel proposals up as an effective reversal of his position.
The decision is to do both.
Opposition Leader Bill Shorten has offered what he calls “an olive branch” in the form of in-principle support for Finkel’s clean energy target, reminding the government at every opportunity that while Labor’s preferred policy is an emissions intensity scheme, it is prepared to “set that aside” and discuss this alternative.
But Butler also emphasises that Labor won’t support anything that amends Finkel’s proposals to offer further concessions to the coal industry.
“We’re not giving a blank cheque to the government on this,” Butler said.
With the Greens having been widely blamed for missing the chance to introduce emissions trading under Kevin Rudd’s government by refusing to vote for it because they believed the scheme wasn’t good enough, Labor does not want to find itself in the same position.
Butler acknowledges there was a political risk to both the Coalition and Labor if, yet again, agreement couldn’t be reached.
“A pox on both their houses – yeah, I think that’s a risk,” Butler says. But he argues Labor has an obligation to its constituents not to give too much ground.
“There’s also a risk that we’ll be seen as participating in a process that’s softened our commitment to progressive energy policy.”
Speaking to their colleagues, Malcolm Turnbull and Josh Frydenberg were careful to present the findings as belonging to Alan Finkel and his review panel, not the government.
They reversed the usual order of things, taking the Finkel proposals to the party room before cabinet considered them, rather than the other way around. That minimised – although did not completely eliminate – rancour in the party room.
Cabinet members will now consider both the report and their colleagues’ feedback.
“We’ve got to get it right,” Frydenberg told The Saturday Paper. “We’re not putting a time frame on it. It’s a detailed report and it’s got to be properly considered.”
Tony Abbott has already made up his mind.
Some of his senior colleagues are frustrated at what they see as spoiling.
“I think he could be doing more to help,” Deputy Prime Minister Barnaby Joyce said on the ABC’s 7.30 on Wednesday night. Asked if Abbott had gone too far in his criticisms of government policy, Joyce said: “That is a question for Tony.”
“He has held an incredible position of respect in our nation. He’s been the prime minister and with that respect comes the responsibility that at times you have to temper your expressions. Other things that other backbenchers may say are understandable but if you’ve held the highest office, you understand how the game works.”
Abbott and his closest supporters are not the only ones in the Coalition who continue to harbour reservations about the Finkel blueprint.
But even some other hesitaters say the climate change debate has now shifted beyond the science to the economics. They say that’s a good thing.
Increasingly, Liberal and National MPs have concluded that something needs to be done to address both climate change and the crisis in the electricity sector that is forcing some Australians to turn off lights and heaters on winter nights because they can’t afford the bills.
This article was first published in the print edition of The Saturday Paper on Jun 17, 2017 as "Whip through Finkel".
A free press is one you pay for. In the short term, the economic fallout from coronavirus has taken about a third of our revenue. We will survive this crisis, but we need the support of readers. Now is the time to subscribe.
Letters & Editorial