Frydenberg’s energy battle over coal
Some of those in the federal government who support action on climate change are using a historical analogy to sum up the task of trying to strike an emissions-reducing national electricity agreement.
It is, they say drily, “like Nixon to China”.
In other words, they believe the poisonous nature of Coalition climate politics that drove a decade of leadership turmoil in both major parties means if Australia is ever to adopt an enduring mechanism to drive down greenhouse gas emissions – one that can withstand attempts at ideological sabotage – it will have to come from a Coalition government.
That appears to explain why, with the publication this week of a 20-year national electricity supply blueprint from energy regulator the Australian Energy Market Operator (AEMO), Environment and Energy Minister Josh Frydenberg’s focus has been on reassuring pro-coal critics on his own side.
Although the report says the cheapest dispatchable electricity in future will come from renewable sources, Frydenberg is emphasising its other finding – that coal will remain part of the mix until at least mid century.
“I’m sure a lot of my colleagues will be pleased with what they’ve seen in this report which says that coal will continue to be critical in the years ahead,” he told ABC Radio National ahead of the report’s release on Tuesday – but after it had been summarised under a “king coal” headline on the front page of News Corp’s The Australian.
The minister denies applying political spin to the recommendations in the AEMO system plan and the previous week’s Australian Competition and Consumer Commission’s electricity pricing report.
“The AEMO report sends an important message that while the cost curve for renewables and storage is coming down significantly, existing coal remains the cheapest form of power generation,” Frydenberg told The Saturday Paper.
“We’re emphasising the realities as explained in these reports, which for some on the extreme left and right of these debates are inconvenient truths.”
But his public responses to AEMO have focused particularly on the regulator’s finding that coal-fired power stations should not be shut down early but left operating on their existing retirement schedules.
“The report does not preclude a new coal-fired power station being built,” Frydenberg told Radio National on Tuesday.
In fact, it explicitly indicates that’s unlikely. The report says when existing coal-fired power stations reach the end of their lives, the new high-energy, low-emissions – or HELE – coal generators won’t be what replaces them.
“Once these generators retire, a new generation mix based on renewables is projected to be lower-cost than new coal-fired generation,” it reads.
AEMO recommends upgrading transmission infrastructure, developing renewable energy production zones or clusters and encouraging a mix of dispatchable sources of power including coal, gas and renewables plus storage, with emphasis on reliability and cost.
It also notes that the sharp rise in rooftop solar photovoltaic panels has reduced daytime electricity demand but also risks destabilising the system in the short term by prompting baseload sources to ease back during low-demand periods.
“I want to reinforce it’s a portfolio. They need to work together. They need to be optimised. And by doing that we’re actually producing a lowest cost for consumers,” says AEMO’s chief executive Audrey Zibelman.
Frydenberg’s Labor opponent, shadow environment minister Mark Butler, detects a pattern of government spin.
“The Turnbull government has a well-established history of misrepresenting independent reports as pro-coal and that’s what they’re doing with the latest reports from the ACCC and AEMO,” he told The Saturday Paper.
Nevertheless, Butler has some sympathy for the political task Malcolm Turnbull and his energy minister are up against, offering them a backhanded compliment.
“It reflects the challenge the PM faces: to appease an ideological pro-coal, climate-dismissing right wing, while attempting to put forward rational policy that will deliver for consumers and industry.”
As ever, though, cross-party sympathy has its limits.
“In order to succeed in implementing a NEG that will deliver investment, lower prices and support the energy transition that’s irreversibly under way, Malcolm Turnbull must stand up to the coal ideologues in his own ranks,” Butler says.
“The Coalition’s internal civil war cannot continue to dictate the nation’s energy future. So far, there are few indications the PM is capable of doing this.”
Frydenberg rejects the politicised rhetoric but also believes an agreed future-focused national energy market system should have been in place by now.
“The national energy guarantee is a critical economic reform to create a more effective market which is long overdue,” Frydenberg says. “It’s all about putting the national interest and consumers first and prioritising engineering and economics over ideology.”
If the minister’s emphasis on coal this week was aimed at placating those on the Coalition’s right flank campaigning aggressively for fossil fuels – and particularly a new government-funded coal-fired power station – it was only partially successful.
The normally pro-coal resources minister Matt Canavan had hinted at a shift in the Nationals’ attitude, telling ABC TV’s Insiders: “Who cares what the fuel is? It’s the outcome that matters.”
But former prime minister Tony Abbott is not for turning.
“As long as we’re in, we’ll have good old Josh doing his best to square the circle,” Abbott told Sydney’s Radio 2GB. “Pretending that we can have reliable and affordable baseload power and continue with this mad expansion of unreliable power. We’ve just got to end this.”
By “this” Abbott means Australia’s participation in the global effort to reduce greenhouse gas emissions, as agreed by the parties to the United Nations Framework Convention on Climate Change at its summit in Paris in 2015.
Australia’s target – set under Abbott’s prime ministership – is an emissions reduction of 26 to 28 per cent based on 2005 levels, involving all relevant sectors of the economy.
In office, Abbott had to self-censor his real views about climate change – that it was “crap” – but no longer.
“The root of the madness is the emissions obsession and the only way to end the madness is to end the emissions obsession,” Abbott told 2GB. “The only way we are going to see the end of this folly … is to get out of Paris and to start running our power system to produce affordable, reliable power and to stop running the power system to reduce emissions.”
In response, Frydenberg says: “Reducing prices is our No. 1 priority and we can do so in a way that simultaneously produces cleaner and more reliable power.”
The minister’s most immediate task is to secure the unanimous support of the states and territories for his proposed new system, the national energy guarantee, or NEG, which emphasises affordability, reliability and responsibility – in that order.
“I think we’re moving in the right direction and the Commonwealth and the states recognise this is our best and final chance to land a durable policy that reduces prices and emissions and strengthens the reliability of the system,” Frydenberg says.
“If we miss this chance, there won’t be another any time soon. The public and the business community want us to effectively integrate energy and climate policy, which the national energy guarantee does, and end the hyper-partisanship which has been so damaging to consumers.”
The states and territories will be asked for their verdict at a meeting on August 10.
Like federal Labor, the Labor-led coal states of Victoria and Queensland have reservations and are still examining the NEG proposal, which itself may yet be tweaked, with an industry consultation process completed recently.
While some have suggested changes, industry broadly endorses the NEG as providing much-needed certainty.
The Labor–Green government in the Australian Capital Territory is the only jurisdiction to have publicly indicated it is considering voting against, although abstaining is also technically an option.
ACT Environment Minister Shane Rattenbury, of the Greens, remains concerned, especially about the low emissions reduction target built into the NEG and the risk of political side deals and offset concessions being added later.
“We’re still at the table because we know it’s important to try and work together to get an outcome,” Rattenbury says. “But we are hampered by the absolute intransigence of the federal government.”
That is a reference to the NEG’s emissions reduction target, which is a 26 per cent cut in electricity emissions from 2005 levels by 2030 – a figure the federal government won’t change.
Along with Greenpeace and other environmental organisations, GetUp!, The Australia Institute and federal Labor, Rattenbury believes that target will render the NEG ineffective as a mechanism to further the transition to renewables because it has almost been reached already under the existing renewable energy target (RET) subsidy scheme.
Under the government’s plan, the NEG would begin in 2020, replacing the existing RET that provides subsidies to shift away from fossil fuels.
The NEG contains no subsidies but uses the equivalent of a market mechanism to force electricity retailers and wholesalers to buy more of their power from low-emissions sources.
Rattenbury and other critics say the NEG only works as a transition mechanism if the target is high enough to require the ongoing purchase of low-emissions energy, which is falling in price but still needs improvements to storage technology to be fully dispatchable.
Once the target has been met, that incentive is removed.
They also believe a low target in the electricity sector could put more pressure on other sectors, including agriculture, to make dramatic cuts to help Australia meet its Paris commitment.
New modelling produced this week by RepuTex for Greenpeace suggests that if the existing RET was left in place, the 26 per cent target would be reached in 2024 – five years earlier than under the NEG.
It says the NEG’s current target would see 42 per cent of power used in Australia coming from renewable sources by 2030, whereas a more ambitious reduction target of 45 per cent would increase that share to half of all power.
The modelling also suggests the end of subsidies would see power prices rise under the NEG scenario but fall dramatically if the target was higher.
“There is much more momentum [on renewables] now than there was five years ago,” Greenpeace’s head of research Nikola Casule told The Saturday Paper. “It would be a mistake for those supporting action on climate change today to accept a do-nothing policy when we have such huge momentum behind action on climate change.”
Labor’s Mark Butler shares the concerns about the target, calling it “pitifully low”.
“Independent modelling confirms that this will fail to support a single renewable energy project being built across an entire decade – strangling jobs and investment in this critical industry,” Butler says. “And he’s trying to lock in that policy paralysis right up until 2030.”
Conservative critics of the NEG within the Coalition won’t even countenance the system, let alone a higher target. Turnbull and Frydenberg believe raising the target would sink the whole scheme.
Privately, within both the Coalition and Labor there is a view that a future government of either stripe could legislate to lift that 10-year cap and change the target.
That doesn’t satisfy all of the critics.
Greenpeace believes it’s too risky to just hope and trust the target will be improved in future.
The NGO has launched a television advertising campaign this week to pressure the Victorian, Queensland and ACT governments not to support the NEG.
It is particularly focused on the November state election in Victoria. The Labor Andrews government has legislated an emissions reduction target of 25 per cent reduction by 2020 and 40 per cent by 2025, and fears a low national electricity target under the NEG could leave the state carrying too much of the burden if Australia is to stay on track for its Paris commitments.
State Labor governments are consulting one another and federal Labor on the best way forward.
The federal minister, Josh Frydenberg, remains cautiously optimistic that none of the states or territories will veto his plan. “Based on the constructive discussions between the Commonwealth and the states to date and the extensive stakeholder consultation that’s taken place, I am confident that we can reach agreement,” he says.
But even assuming he’s right, the challenge will remain to get the legislation first through his own party room and then through federal parliament.
The Labor Opposition is still reserving its judgement and some of Frydenberg’s concerned colleagues are reserving their right to cross the floor.
That’s why, though not exactly declaring coal is good for humanity as Tony Abbott once did, the environment and energy minister is making sure those colleagues know he’s not objecting to sprinkling a little coal dust among the turbines, at least until the wind blows it away for good.
This article was first published in the print edition of The Saturday Paper on Jul 21, 2018 as "Emissions impossible fallout". Subscribe here.