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The leak that saved the RET, good for jobs and energy prices

Reneging on the RET wouldn’t just cost jobs, it would actually increase electricity prices as well, writes executive director of The Australia Institute Richard Denniss.

In a clear vote of no confidence in the Australian economy, Australia’s largest ever investment in solar energy was scrapped last week. The problem for the government is that while there is a big difference between media strategy and economic strategy, this government doesn’t appear to be doing a good job of either.

Whoever leaked the rumour that the Prime Minster was keen to kill off the Renewable Energy Target (RET) is no doubt pleased with the front-page splash he or she achieved in The Australian Financial Review. No doubt slashing “green tape” cheers up the conservative base that are still angry over the decision to backflip on 18C.

But the leak, or announcement, led directly to a major investment in regional Australia being cancelled. Most of the workers and voters of the Mildura region, regardless of their interest in the RET, now know that planned jobs and investment are no longer going ahead thanks to a possible policy backflip by the government.

Scrapping “green” initiatives no doubt polls well among older male voters and generates good coverage in the more conservative media, but the problem for the government is that renewable energy is both highly popular among female voters and, ironically, employs a growing proportion of older blokes as well. In reality the RET isn’t a “green” scheme, it’s a driver of jobs and investment, with more people employed installing solar panels than work in coal-fired power stations.

Tony Abbott won government on the promise that he would lower electricity prices and increase business confidence. He also promised that he would preserve the RET. But like his promises not to cut the ABC, health, or the age pension, the Prime Minister has come under pressure from the far right of his party to renege on his commitment to renewable energy as well.

The problem for the government is that reneging on its commitment to protect the RET will not only create more distrust among voters and less confidence among investors, but it will actually result in higher electricity prices as well. Even the economic modelling commissioned by climate sceptic Dick Warburton’s review says so. Whoops.

So how did energy policy go so wrong for the government?

Like most of the government’s problems, the pain that the RET is now causing it began back in opposition. Electricity prices more than doubled between 2007 and 2013, and the electorate did not like it.

The major cause of the rapid increase in electricity prices was the massive investment in “poles and wires” that was taking place. This investment was based on forecasts for growth in electricity demand that were spectacularly wrong. Indeed, while billions was being wasted on new distribution infrastructure to cope with an imaginary surge in demand, the amount of electricity we were purchasing was actually falling. And the forecasts weren’t just wrong for one year, they were wrong for five very expensive years in a row.

Between 2008 and 2014, poles and wires accounted for more than 50% of electricity price increases while the carbon price accounted for 16%. But not once did Abbott or the Coalition pledge, in blood or any other substance, to wind back the cost of poles and wires.

Of course, opposition isn’t about facts, it’s about perception. Even though the carbon price wasn’t introduced until 2013, and even though most people received more in compensation than they spent on the carbon tax, Abbott did an amazing job of making people blame climate policies for their “cost of living” woes.

But now that he is Prime Minister, the problem for Abbott is that people expect him to solve the problems he highlighted from opposition. While the climate sceptics in the party, many of whom represent the rural electorates that have the most to gain from renewables (and the most to lose from climate change) continue to push to scrap or reduce the RET, his economic advisers and his pollsters are telling him it’s a crazy idea.

Selling their budget initiatives to the public is going to be a big job for the government, and negotiating them through the Senate looks nigh on impossible. To have any chance of success they are going to have to focus both on their real priorities and on building as many bridges with the crossbench as they can. Scrapping the RET would not just deliver another broken promise, reduced investment and higher electricity prices, it would mean picking another fight with the Greens and Palmer parties, which are committed to retaining it.

Last week’s leak about scrapping the RET has probably saved it. The industry is now up in arms, as are the local communities who want the investment. The government can’t really afford to fight on so many fronts, especially when its fight to scrap the RET is causing the investor uncertainty and higher electricity prices that they promised to fix. All it needs to do to get investment and job creation rolling is to announce that it will honour its  election promise and make no moves to abolish or reduce the RET.

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  • 1
    graybul
    Posted Thursday, 28 August 2014 at 2:22 pm | Permalink

    Dead right Richard . . Should Australia lose RET and eviscerate future Renewable Energy Industry (following on from Turnbull’s NBN debacle), Abbott’s Idealogues WILL serve as a one term Government. They will also stand revealed as the most duplicitious Government since Federation.
    One million five hundred households, and counting, will not forget at the next Federal Election.

  • 2
    Dogs breakfast
    Posted Thursday, 28 August 2014 at 3:48 pm | Permalink

    Somewhat older white male here, and couldn’t be a greater supporter of the RET.

    It’s simple, straightforward, doesn’t pick winners, just outcomes, and puts such a dent in the old electricity market business model that it is working brilliantly to bring down wholesale prices, and peak demand issues.

    It’s also high tech, looks to the future, isn’t about propping up dying industries, and could lead us to both meet our Treaty targets and perhaps even become world leaders.

    Dem conservatives are hating ………..

    No wonder!

  • 3
    graybul
    Posted Thursday, 28 August 2014 at 4:06 pm | Permalink

    Dog’s breakfast . . Also ‘OLDER MALE’ who talks with numbers of same generation. All embrace Solar and are very unhappy with Govt’s handling of energy issue. . . So where does this ‘older male voters’ hating ‘green initiatives’ fallacy come from??

  • 4
    wbddrss
    Posted Thursday, 28 August 2014 at 8:12 pm | Permalink

    1) grid not maintained correctly could cause bush fires. Hence some justification, legally for maintenance of a high std capacity grid
    2) solar has been highly disruptive as compared to wind as wind needs grid but solar ie PV on roof does not need grid. Hence most profitable period of grid is denied to owners of grid for profit generation. This means subsidies to PV on roof means subsidies latter on to prop up unprofitable grid to transport energy from wind farm to consumer.
    All over world utilities are doing it hard time.

    3) As cu wire ages the resistance goes up, which means potentially higher maintenance charges somewhere on grid in case fires or other things go wrong.
    4) lots of grid has been privatized hence potential for conspiracies & collusion for rising profits manipulated to get benefits from shareholders to directors in form of free options set at appropriate strike price as SP rises etc. Just speculating as another motivation to increase price of energy.

    These are just four complications for “poles & wires” hypothesis(not denying it could be true)which may account for desire for higher prices by owners of grid.
    This may be poorly articulated but the thrust I hope is transparent.

  • 5
    MJPC
    Posted Friday, 29 August 2014 at 12:42 pm | Permalink

    I have my hands up as an older white mail; I love green initiatives and all power to renewables and less power to the flat earthers running this country. History will not be kind to their legacy in this area (or any areas it appears).
    Cap’n Abbott and his fellow travellers just just can’t see the revolution in renewables happening overseas.

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