The potential implications of the Federal Election for clean energy

But of course, these are headline figures and it’s wise to also think about such commitments are credible.

Are they actually capable of implementing these targets?

Can we believe they’ll actually follow through on their commitments if given the opportunity or can they even create such an opportunity?

And if they do manage to follow through on their commitments, can we rely on them to remain in place over an extended period and not be unwound or undermined at a later period, perhaps when someone else wins government?

Asking such questions tends to mark everyone down.

The Greens Party’s main problem is that they are unable to persuade a large enough proportion of the electorate to elect them in numbers that they can form Government. Xenophon has exactly the same problem. They can have all the ambition in the world, but for their goals to become a reality they have to persuade either Labor or the Liberal-National party (LNP) to implement them.  Realistically it seems unlikely the Greens could get either side close to agreeing to 90% renewables or a 60% to 80% reductions.  The issue then becomes whether the Greens or Xenophon can at least use their numbers in the Senate (and possibly the House of Representatives in the event of neither Labor or the LNP holding a majority) to at the very least ensure the main parties honour their own commitments or upgrade them somewhat. 

But there’s also a risk that the Greens or Xenophon are too obstinate and in demanding a better deal for clean energy they reject policies that could have at least been an improvement on what is currently in place. 

It is difficult at this stage to know how this might pan out.

The Greens

Nonetheless, it seems hard to believe that the Greens would reject say a Labor commitment to increase renewable energy to 50% share because they think 90% is required.  But it is conceivable that the Greens might hold up another Labor initiative until Labor also followed through on implementing policies to deliver 50% renewables. This means the Greens could be handy as an insurance policy in at least ensuring they keep Labor honest on its commitments. 

But they may find it more difficult to compromise with a Liberal-National Government in order to achieve incremental gains for clean energy.  Even if the Liberal National party is offering improvements on the status quo, the Greens have been wary of co-operating on measures that might be seen as “locking-in failure” as they put it. This was the case when the Greens rejected the original Rudd Government legislation for an Emissions Trading Scheme (ETS).

The Nick Xenophon Team

Nick Xenophon is a quite different proposition. Xenophon has a range of other priorities outside of clean energy that he is passionate about and likely to favour in negotiations over other legislation. These include restrictions on gambling, reducing upstream water use in the Murray-Darling basin and support for South Australian manufacturing. 

Xenophon has also illustrated a willingness to consider assisting the Liberal-National party in undermining some emission reduction initiatives where he felt this would be popular. For example, he supported the Coalition’s repeal of the carbon price without replacing it with something remotely equivalent in effectiveness (although was absent from the actual Senate vote). In addition, he has been keen to talk about co-operating with the Coalition on changes to the Renewable Energy Target aimed at disadvantaging wind power, which create risks for reducing the effectiveness of the scheme as a whole.  Furthermore, the major lack of underlying policy detail about how the Xenophon Team would wish to deliver on renewable energy and emission reduction targets is suggestive of a party that isn’t all that strongly committed to these targets.

Where Xenophon could be helpful is negotiating with a Coalition Government to deliver incremental gains for clean energy, which the Greens and Labor refuse to consider.  Xenophon’s decision to pass the Emission Reduction Fund (ERF) legislation in return for introduction of regulations that form the framework for a future pseudo ETS (the safeguard mechanism) is an example of him playing such a role.  While Xenophon supported the repeal of the carbon price and the introduction of the Emission Reduction Fund, he has also made it clear that he believes the budget-funded ERF is an inadequate response to reducing emissions. He has said he thinks it ultimately needs to be replaced by an emissions trading scheme known as ‘baseline and credit’ which would involve tightening the emission caps applied under the government’s Safeguard Mechanism. This has the potential if designed appropriately, to push out coal and replace it with renewable energy.

Labor

In terms of Labor their policy platform is actually incredibly ambitious relative to where we find ourselves at present.

Achieving 50% renewable energy by 2030 would lead to a large and sustained increase in the level of renewable energy installation activity.  The 40% emission reduction target likewise is very ambitious relative to what Australia has achieved to date.  But it’s ultimate benefit to Australian clean energy businesses is hard to judge because Labor has said they would allow the use of international carbon credits in seeking to achieve such a target.  There is a very large and very cheap pool of these credits available.  Given their low price they would act to deter significant emission reductions activity occurring domestically for several years if their use was unconstrained.  Although supplementing this emission reduction target is also a commitment to double Australia’s energy productivity which requires a substantial uplift in energy efficiency activity.

Overall Labor’s platform, if followed through would provide a dramatic stimulus to the clean energy sector. Yet there is a lack of detail about how Labor would seek to drive the doubling in energy productivity. Labor has also been vague about how it would underpin 50% renewable energy stating that this would not necessarily entail an expansion of the targets within the existing Renewable Energy Target (RET) scheme. Also, some Labor MPs have suggested the target is “aspirational” – not a good sign at all. These two aspects of their platform raise red flags. Without policy mechanisms locked down, there is room for delays and lobbying by opponents that can lead to policies that politicians can claim to honour election commitment but are ultimately unable to deliver on targets.

Liberal-National Coalition

The Liberal National coalition are characterised by a similar problem as Labor, although with significantly weaker targets.  While they have no renewable energy target and their emission reduction target is far less ambitious than the other parties it should still require some significant changes in our use and supply of energy.  To achieve the 19-21% emission reduction one would expect both a major substitution of coal with renewables beyond the existing 2020 RET scheme target, and also a significant uplift in energy efficiency policy efforts.

However, the problem at this stage is the Coalition have so far refused to detail a credible policy pathway for achieving the 2030 target. 

Most of the funding for their Emission Reduction Fund has now been committed and the additional funding that was announced when the 2030 target was unveiled at $100m per annum would not make meaningful inroads into Australia’s expected emissions given the track record of past ERF auctions.

The regulations surrounding the safeguard mechanism - which places a cap on large emitter’s emissions – are set at levels too weak to drive noticeable reductions in emissions and also contain a series of glaring loopholes.

Lastly, their Energy Productivity Plan will make little difference to Australia’s emissions unless the government removes one of its so called anti-red tape measures which has frozen efforts to introduce more advanced regulatory standards on the energy efficiency of appliances and equipment.  In addition, the Energy Productivity Plan does not involve any initiative to expand the existing NSW and Victorian energy efficiency target schemes to a national level.

To have faith that the Liberal-National Party will deliver on their targets requires one to believe they will make a substantial change in policy direction compared to what we have so far seen. This to a large extent depends on the degree to which you believe Malcolm Turnbull will take his Government in a different direction to that led by Tony Abbott. 

The extra complicated approach – Thinking beyond this election and onto the next

If you were to assume that the only thing that matters is what happens in the next 3 years term of government then Labor being elected to government, with the Greens holding the balance of power in the Senate, would appear to hold the best prospects for the Clean Energy Sector. Even if Labor were to go a little weak in the knees about following through on their commitments, the Greens would presumably wield their numbers in the Senate to ensure Labor followed through.

However it’s also worth thinking about how a Labor victory might affect the Liberal-National Coalition, because it’s not just what happens in the next 3 years but also what happens beyond it. 

A loss by the Liberal-National Party after just one term of government could conceivably take them in two very different directions. One way could be incredibly favourable to clean energy and another that would be incredibly damaging, effectively undermining any policy progress delivered by a Labor government.

Under one scenario an election loss for the Coalition might be taken as a lesson that under Tony Abbott they lurched too far to the right of the political spectrum and need to adopt a more moderate approach, closer to that of Labor.  While they may have lost the election, the odds are it would be only very narrow, and a vast improvement over where polling suggested they’d be while Abbott was leader. In essence, the loss is seen not as a failure of Turnbull, but instead a case of making a change in direction from Abbott that was too little, too late.  This could herald a more supportive attitude towards renewable energy and a greater acceptance of regulatory measures to reduce emissions. This would, of course, be great news for the clean energy sector, restoring a degree of bipartisanship to the area, reducing regulatory uncertainty and enhancing investment confidence.

But it is also conceivable that things could move in the opposite direction.  While Turnbull may have achieved a remarkable turnaround in the polls, conservative sections in the party may see the election loss as affirmation that a switch to Turnbull was the wrong decision. History also suggests that if Turnbull were to lose this election then he would lose the leadership of the party.  This would likely mean a new leader closer in outlook to the conservative segment of the Liberal National Party. 

Given Abbott’s negative scare campaign on the carbon price, while in opposition was incredibly effective, the new leadership may be very tempted to recycle this approach in opposing Labor’s emission reduction policies as an “electricity tax”.  This could land the clean energy sector back where it was in 2012.  While there might be a range of supportive policies legislated, the extent to which they could support clean energy investment would be undermined because they might be repealed in the next term of government.

The potential for this horror scenario to play out after a Labor victory, and the fact that Malcolm Turnbull is known to be incredibly passionate about addressing climate change, means that assessing the implications of this election are not straightforward.  Indeed one needs to also consider the possibility that the Greens’ and Xenophon’s hold on the balance of power in the Senate could empower Turnbull to overcome resistance within his own party.  Turnbull and his allies will undoubtedly face resistance from conservative elements within his own party to enacting more meaningful emission reduction policies.  But if they are clever they may be able to use Xenophon and the Greens as an excuse to enact these policies in order to get assistance passing other non-climate related legislation.  Over time this might move the Liberal-National Party more towards the centre as they find themselves defending emission reduction policies they previously would have opposed in opposition. This then makes it easier for Labor to maintain their own reasonably ambitious targets and solidifies the long-term investment environment for clean energy.

So there you go, it’s about as clear as mud. The election could go either way and be potentially wonderful or horrible for the clean energy sector.  Still compared to where we were in the 2013 election the prospects for clean energy on balance look vastly better than 3 years earlier. That is surely a good thing.

Tristan Edis

Director – Analysis & Advisory, Green Energy Markets

www.greenmarkets.com.au

www.greenenergytrading.com.au

@greenenergytrad