While Penny Wong this morning reaffirmed 2010 as the Government’s intended emissions trading start date, you get the feeling it will be the softest of starts, especially given the Garnaut recommendation of an initial fixed price for permits through to 2012, and possibly beyond in the event there is no international agreement.

Garnaut’s approach was that the ETS is the only game in town and obviated the need any other carbon abatement policy prescriptions. This looks a bit like the silver bullet approach favoured by climate change recalcitrants who hope the problem can be dealt with via a simple technological solution without anyone having to really do anything. But it is based on the solid premise that price signals are the least inefficient way of changing behaviour.

Similarly, the Productivity Commission and an independent government adviser have criticised non-ETS carbon abatement measures.

However, the Government has continued to back its Mandatory Renewable Energy Target, which Garnaut explicitly recommended be dumped. It is also making considerable noise about funding the development of coal industry-friendly carbon capture technologies.

When it comes to Feed-in Tariffs for renewable energy, however, the Federal Government seems to have a mental block, despite committing to a national approach before the election. FiTs — say, for rooftop solar photovoltaic systems — pay households for electricity fed back into the power grid. They provide a continuing source of funding rather than the one-off rebate currently available from the Federal Government for households on middle and lower incomes. The ACT, Queensland, SA and Victoria all now have different types of FiTs, and COAG is meant to be developing a uniform approach. However, the COAG October meeting came and went without any action, and a paper promised by Penny Wong in June never appeared.

And the Federal Government’s real view of FiTs was perhaps tipped by the Department of Climate Change’s submission to a Senate inquiry into a Greens bill to establish a national FiT approach, due to report in November. The Department’s submission devotes one page to explaining what a FiT is, half a page to saying they’re hideously expensive, and another half page to describing all the money the Government is investing in things other than FiTs.

Senate inquiries are second-order priorities for public servants. Half the time they’re political anyway, and the preparation of submissions is a distraction from real policy work. But the DCC’s effort on FiTs is particularly derisory.

The key issues for FiTs are whether they’re regressive, whether they should be based on net or gross metering, and whether they’re the most efficient use of funding that could be directed to other carbon abatement measures.

FiTs are regressive in principle, because they amount to a transfer from households without solar power or other renewable energy sources, to households that have them — which in practice means from lower-income and renter households to higher-income and owner-occupier households. The question is how regressive they are, because if the overall cost per kilowatt-hour is small — the ACF estimates the cost at 1% of power bills — the regressive impact is correspondingly limited.

The net v gross metering issue takes us into arcane territory but is essentially about whether households producing power should collect money for their gross or net electricity production, meaning they’d notionally get far less if their own usage was factored in, although the South Australian Government has pointed out that because metering is done second-to-second rather than on a daily basis, the difference is much less than you’d expected.

Is it the most efficient means of encouraging carbon abatement measures? Garnaut doesn’t explicitly reject feed-in tariffs, and favours gross metering, but at a low rate that will minimise cross-subsidies.

But in the absence of a fully-effective ETS and its price signals, the case for supplementary measures like a FiT becomes much stronger. The Government is keen on politically-convenient supplementary measures like investing in and encouraging carbon capture, despite it being a wholly unknown quantity when it comes to the role it can play in reducing emissions. But it inexplicably appears to have no interest in a mechanism to encourage the stronger take-up of an off-the-shelf renewable energy source.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey