Australian renewable energy target needs some fine-tuning  

Paddy Manning has a column in the SMH looking at carbon emissions policy in Australia Renewable energy target needs some fine-tuning .

To defend against accusations of a tax grab, carbon revenue goes three ways: to compensate households and big polluters who are trade-exposed, and to fund low-emissions technologies.

With household compensation set in stone, big polluters are exerting maximum pressure for compensation in the form of free permits, and every dollar they get comes straight out of funds available for cleaner technologies. In an all-out brawl for public money, it is hard to see how renewables will win this time around, as the climate change adviser Ross Garnaut had hoped.

A carbon price fixed at the mooted level of $20-$25 a tonne will probably trigger a wave of investment in new gas-fired power generation, not renewables. Most analysts say the carbon price has to move north of $70 a tonne before renewables become competitive, based on current costs.

But gas is a transitional fuel at best: there is growing debate whether gas is very much cleaner than coal-fired power at all. Liquefaction of natural gas is already one of our biggest polluters and is set to grow rapidly with the added problem of rising fugitive emissions of methane (a far more potent greenhouse gas than carbon dioxide) from coal seam gas extraction.

McLennan Magasanik Associates and the CSIRO have estimated Australia will need to get between 50 and 75 per cent of its electricity from renewable sources to achieve our 60 per cent emissions reduction target by 2050 - and that is assuming carbon capture and storage comes good. If it doesn't (and it is not looking promising), that proportion will need to be even higher.

If a low and gradually rising carbon price promotes gas, not renewables, we are in trouble. We're reliant on the RET, but that only promotes the adoption of lowest cost renewable energy. At current prices, that means wind, which is unlikely to supply the vast quantities of power available from higher-cost sources like solar or geothermal.

Greg Buckman, a PhD student at the Australian National University (and former adviser to the deputy Greens leader, Christine Milne) reviewed our renewable energy policy in a paper for the Journal of Australian Political Economy - coinciding nicely with last month's 10th anniversary of the introduction of the first mandatory renewable energy target in 2001.

''If we just look at least-cost renewables, which we're doing at the moment,'' Buckman says, ''we're going to get a shitload of wind. If we just want a modest level of renewables, we should look at wind. But if we want a high proportion of energy to come from renewables, we have to go beyond wind.''

Buckman says economists such as Sims and Garnaut take a narrow view, that the renewable energy target and feed-in tariffs represent government ''picking winners''.

That ignores real-world experience: the Organisation for Economic Co-operation and Development countries with a high penetration of renewables either have robust national feed-in tariffs or so-called renewable portfolio standards, like our renewable energy target.

The federal Energy Minister, Martin Ferguson, has already indicated he sees the RET and a national feed-in tariff as mutually exclusive - it's one or the other. That's debatable, but accepting that a national feed-in tariff is unlikely, Buckman argues our RET needs reform.

Successful schemes overseas, he argues, have banding or carve-outs that ensure support for all types of renewable technologies - stipulating a certain proportion come from solar, wind, wave and so on. A wide range of renewable energy sources distributed geographically, linked by a smart grid with a capacity for energy storage, is the best way to tackle the problem of intermittency, and keep costs down.

''There can be several advantages in having [such an RET] operating alongside an emissions trading scheme,'' Buckman writes. ''One is that an [RET] can lower the carbon price needed to achieve abatement outside of the electricity sector. Another is that an RET can bring forward renewable energy technology cost reductions, lowering the carbon cost needed to bridge the gap between fossil fuels and renewables.''

That's the main thing - and the real threat to our incumbent generators - not the relative cost of renewables now, but what it will be in five years or a decade. Alan Pears, an energy expert at RMIT University in Melbourne, concedes the recent spate of stop-start, feed-in tariff schemes may be ''too generous if viewed in narrow terms or if continued too long, but they have transformed the industry''.

Hundreds of megawatts' worth of rooftop solar panels have been installed nationwide, quick-time. That is saving emissions and helping to defer investment in new baseload generation.

At the household level, Pears says, ''what's exciting is that, at present prices, even without subsidies, PV is getting close to a 10-year simple payback in sunny climates. That is zero net cost abatement.''

In a review of 300 emissions reduction programs published by the Grattan Institute this month, the RET came out pretty well: by 2020 it will be delivering the most abatement of any scheme analysed - 30 million tonnes of greenhouse gas a year - at an abatement cost of $30-$70 a tonne - and with plenty of capacity to scale up. Only energy efficiency schemes come out better.

OK, if we get a carbon price let's review subsidies for small-scale renewables. But let's not throw the baby out with the bathwater, or take a short-term view of lowest cost abatement, which cruels development of our own renewables industry.