Is everything fine with the Emission Reduction Fund?

We just started a new year and most of us were in a summer holiday slumber when the news about the publication of the Review of Australian Carbon Credit Units (ACCUs) came. The Review was conducted by an eminent, independent panel, and found that by-and-large the ACCUs generated under the Emissions Reduction Fund (ERF) are credible, and have in fact resulted with reduction of emissions. In some ways this is a good outcome, as one can only imagine the disgrace and the international shame and ridicule Australia would have copped had the conclusions of the Review been something else.

Nevertheless, not everything is fine with the ERF, and this is evident in the report of the Review itself. In particular, Recommendation 9 of the Review states that ‘No new project registrations be allowed under the current avoided deforestation method’ and cites difficulties with establishing real intent to clear land, which then puts in question the additionality of the generated credits. The lack of additionality was long suspected, as discussed on this blog some time ago, and Recommendation 9 of the review just cements that suspicion. This was picked by some news reports. But, what was not picked up is the extent of the problem with credits generated under avoided deforestation method that have been granted so far. ACCUs granted under the label ‘vegetation’ (read ‘avoided deforestation’) make 75% of all ACCUs granted in NSW, 58% of all ACCUs granted in QLD, 41% of all ACCUs granted in WA, and 55% of all ACCUs granted nationally. So, there are lots of credits, in fact a majority of credits nationally and an absolute majority in some states, that are potentially, neigh likely, problematic when it comes to the additionality test as found by the Review itself.

While other parts of the ERF might have been sound, we now officially know that the ‘avoided deforestation’ method has not been fine. Unfortunately, a lot of credits were generated using this method in the past. It is good that the Review has called this out, and that no new projects under this method will be allowed in the future. But this doesn’t change the fact that a lot of taxpayers’ money have gone into the pockets of wealthy landowners without commensurate reduction in emissions. This is something that the Review could’ve and should’ve raised more prominently!

Natural Capital Investment Bonds

Possibility to invest in Natural Capital is getting a lot of traction among academia, business, and policy. There are a number of research and policy initiatives currently implemented in Australia, many of which were presented at a recent Symposium in Sydney organised by the AARES NSW Branch. Due in part to these initiatives, investment community is expressing great interest in the possibility to invest in Natural Capital (NC) at scale, but there is currently no clear and established mechanism of how the value proposition (or revenue stream) will materialise from this investment. Put it differently, while there is willingness to invest in NC, there are no financial instruments that will enable investors to obtain return on their investment.

A lot of research, discussions, and practical action about investing in NC has been related to agriculture. While dealing with investment in NC in agriculture is challenging, there is the attenuating point that the investment in NC will bring long-term returns to the landowners that invest. In that sense, investment in NC in agriculture can demonstrate the value proposition required for investment. However, investing in NC in agriculture is considered small scale in the financial world. The discussions there are in terms of many billions of dollars of investments that will need to be invested at much larger scales than just in agriculture.  

Attending the Symposium got me thinking about the type of financial instruments that could be suitable for NC investment, which reminded me of a workshop that I attended this June in Rimini, Italy on Green Bonds and Environmental Finance . I also did a bit of digging around and found this very nice article on the economics of Green Bonds.

This then led me thinking about the possibility of using Natural Capital Investment Bonds (NCIBs) as a financial instrument that can bridge the gap between the willingness to invest and the real-life opportunities to invest in NC, which currently exists in the finance world. Here, I give a brief and very coarse sketch of the possible mechanism of the NCIBs, and discuss the necessary institutional infrastructure that is needed to effectively facilitate their implementation.  

So how could NCIBs work? One straightforward approach is for governments (e.g. Commonwealth and State governments) to start issuing NCIBs in much the same way as they issue sovereign debt bonds.  A key distinguishing feature of NCIBs is that they will be very long-term, 30 or even up to 50 years, simply because any dividends from investment in NC will take relatively long time to materialise. Another feature is that NCIBs should make no coupon payments, i.e. no annual payments to holders. This implies that they will be purchased by investors at a sizable discount to their nominal or face value. The amount of the discount will be dependent on the perceived riskiness of the issuer, and on the integrity of the actual investment in NC that can be demonstrated by the issuer. This last point leads to the crucial element: all proceeds from the sale of the NCIBs should go to a central agency, perhaps called Natural Capital Investment Commission, which in case of Australia should be a commonwealth government agency. The role of the Commission will be to channel investment in natural capital improvement projects based on the principle of greatest long-term productivity gains for the Australian economy to be realised from these projects. So, the more convinced investors are that the projects in which the Commission invests will bring increased overall productivity of the economy over the long term due to improved NC, the lower the discount from the face value of the bonds they will require. In a way, investing in credible NC projects will ensure better returns on other investments over the long-term.  

Of course, there are many, many details to be worked out, but it seems that harnessing the knowledge and experience we have with Green Bonds and applying them to the investment in Natural Capital is a good avenue to be explored. The mechanism of NCIBs discussed here is fundamentally a type of purpose-based intergenerational borrowing that will payoff over long term by ensuring that the productivity of the largest capital asset base on this planet – the Natural Capital – is maintained and enhanced. Investing now to ensure the viability of getting good returns on all investments in the future makes good sense!

Putting energy transition in a perspective

Last week was all about energy economics for me. On Tuesday I gave a brief talk and was a member of a panel on a IAEE webinar (info and hopefully a recording soon available here). One of the key questions that came out of the webinar was whether it is a good idea to require those investing in renewable utility scale capacity to also invest in long duration electricity storage.

Later that day I attended a talk by my former Honours student Julia Manchester at AARES 2022 presenting our work on the effect of renewable generation on the revenues of coal-fired power plants. The main point of this work is that revenues of coal-fired power plants will continue to drop as there is more renewables in the system, which will force coal plants to retire sooner then planned. This could not be better exemplified than by the announcement made this week by Origin Energy that Eraring coal-fired power plant they operate will close down in 2025, seven years earlier than planned.

This news was quickly followed by an announcement of the NSW Government that it will build a large-scale battery to buffer the exit of Eraring from the system. To an extent, this justifies the point made at the IAEE webinar that storage (whether battery, pumped hydro, or green hydrogen) will be needed as coal-fired stations rapidly exit the system. The question is whether the taxpayer should pay for this storage (as proposed by the NSW Government) or whether it should be the generators, including renewable generators, that operate in the NEM. This is an area where more research and better understanding are needed.

Also on Tuesday, I attended a talk on Gas Games with Electricity, which investigated the strategic behaviour of energy companies that operate in both electricity and natural gas markets in Australia, given the important role natural gas generation is playing in setting the electricity price, and vice versa.

On Thursday, I first attended a talk on Investment, Emissions, and Reliability in Electricity Markets. This is a rare paper on the WA electricity market, as the attention in Oz has been almost exclusively on the NEM. The paper investigates how certain policies (carbon taxes, capacity payments, and a combination of both) will affect the speed of coal-fired power station retirements in WA.

And also on Thursday, I was an invited discussant at a keynote by Paul Burke at AARES 2022 where the prospects and potential of Australia producing and supplying renewable energy to SE Asia were discussed. Key message there was that Australia has excellent opportunities to develop large scale renewable energy generation and to export that energy directly or indirectly, whether through undersea cable connectors, green hydrogen, or simply by developing energy intensive industries for export.

Australia is currently undergoing a dramatic and irreversible change in the way it produces and uses energy. Those changes are tumultuous, and there are many problems that we will have to solve as we go. Coal is clearly going out the door, and there is no way back in. We will need energy storage to withstand its rapid exit, as we already have plenty of renewable capacity and much more is coming. What type of storage is optimal, and the optimal institutional setting for building that storage are questions of imminent research interest. Alternative approaches that have been initiated by the government, such as building closed cycle gas-fired plants to only operate in emergency situations seem like overly expensive and environmentally irresponsible insurance policy.

But the current problems that we face seem modest when we take the perspective of a long-term energy future. As rich in renewable resources as it is in fossil fuels, Australia is again ‘a lucky country’, at least when it comes to opportunities. What we make of those opportunities is going to determine how well we travel in the second half of this century. Energy future is bright if we make the right choices at the right time!

Who will pay for our Net-Zero: Are we, yet again, being unfair to our children and grandchildren?

Australians have been voicing that they want meaningful action on climate change, and are willing to pay for it.
This is because we are already suffering from the effects of changing climate, like more frequent and more severe bushfires, droughts, floods and coastal storms. Over the best part of the last decade the government has been hesitant on policies to reduce emissions, and Australia is seen both domestically and internationally as a laggard on action to combat climate change.
Under pressure from public opinion at home and from international partners Scott Morison has finally made a commitment for Australia to achieve net-zero emissions by 2050. In doing so, he stressed that the plan is to meet net-zero by “technology, not taxes”. A lot has already been said about the pathway towards net-zero, and a lot of questions have been raised, especially since the government has not yet shown the modelling on which the plan is based. There was a mention of some $120 billion of government funding for programs and technologies to take us to net-zero by 2050. The big question is how are we paying for this? And who is paying?
By steadfastly sticking to the “technology, not taxes” mantra, the Morison government is effectively passing on the burden of paying for current emission reduction to the future generations. In order to fund the ‘technology’ part of the mantra, the government will inevitably have to plunge in further debt. This is because the federal budget is already in deep deficit, which has worsened over the last couple of years due to massive COVID-19 spending. Given this deficit, there is no other conceivable way to raise the funds needed for the programs and technologies towards net-zero (the $120 billion) but to resort to further government debt. Incurring government debt is by definition borrowing from the future. This effectively means that government’s approach to net-zero will be burdening future generations to pay for the present action on climate change. Future generations are already likely to be burdened with greater social costs due to the even more pronounced effects from climate change they will experience irrespective of the current commitments to net-zero. Scientific modelling is unambiguous that there will be damaging effects from climate change even if we achieved net-zero today. So, our children, grandchildren and grand-grandchildren will be terribly strained to repay our debts and to face the high costs of living with climate change. This outcome does not align with the universally accepted definition of sustainable development set by the Bruntland Commission Report way back in 1987: “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” We have already burdened future generations with the costs of changing climate. It is a big burden. Burdening them further with the cost of having to repay the debts that we incur to pay for the efforts to mitigate some of those large costs that we impose on them is downright unfair.
The key reason for the government adopting this intergenerationally unfair approach to net-zero is to avoid ‘taxing’ or even ‘pricing’ carbon emissions by the current generation. This is purely due to self-centered political motives. Rather than plunging into further debt and burdening the future generations to pay for it, it is much fairer to impose a ‘price’ on carbon and to require current emitters to pay that price and use the proceeds to fund low emission technologies. There are various possibilities to design and implement a carbon price that are economically sound, equitable, and politically palatable. They include emissions trading schemes, emission fees, combinations/hybrids of those two, as well as carbon fees with revenue recycling, such as the concept of carbon dividend. Indeed, carbon pricing of some form is used widely throughout the world, from the EU to Canada, New Zealand, parts of the US, and now China. There is no reason why some of those would not work for Australia. Yes, Australia is unique in so many ways, like being the home of koalas, and of the Great Barrier Reef, but there is not really a ‘uniquely Australian way’ that should prevent us from using carbon pricing when the whole world around us uses it. It is both ethically fairer and economically sounder to make current emitters and current generations carry the burden of paying for reducing emissions, rather than passing the buck to the future!

The beginning of the end of the Carbon Emissions Reduction Fund

A new report by the Australian Conservation Foundation and the Australia Institute shows that some $310 million of taxpayers money were paid under the Carbon Emissions Reduction Fund to landowners for retaining vegetation that was never going to be cleared. This finding is clear evidence of the lack of additionality in emission reduction under this policy. It means that we are paying to avoid emissions that were not going to be generated anyway and are therefore not reducing actual emissions. It shows the failings of the mainstay government emission policy, the Carbon Emission Reduction Fund, which is effectively a subsidy to wealthy landowners.  It highlights the perverse nature of this policy, which was introduced supposedly as superior to carbon pricing.

Back in 2014-2015 the then Abbott Government proposed this policy as an antithesis of the Carbon Pricing Mechanism (CPM). In effect, it meant that a mechanism based on sound economic instruments (emission taxes and tradable permit scheme) was substituted by a much less effective instrument, a subsidy! And somehow this was accepted by the public!  

We now have empirical evidence for the long-held suspicions about the Carbon Emission Reduction Fund. The whole program is not sound, it costs more than it should, and most importantly doesn’t deliver actual reduction of emissions.

This new evidence of the failure of existing policy puts pressure on the current government to rethink its stance on climate change. Australians want net-zero by 2050, but it is now clear that our government’s current policy cannot deliver it. The net-zero by 2050 is also becoming a global goal to which key Australian international partners subscribe.

However, these calls seem to be falling on government’s def ear, as it is preoccupied with its own disputes within the Coalition. The PM has even recently cast doubts over his participation in the upcoming CoP 26 in Glasgow. 

All this signals unwillingness to seriously deal with notable emissions reduction. But, if Morrison’s government continues to ignore the issue, it risks serious disconnect with the voting constituency in the lead-up to elections. And this can be very dangerous! Australians, like most of the world want their government to act on climate change. Pretence polices, like the clearly broken Carbon Emissions Reduction Fund will not deceive anyone anymore! 

Forsaking a carbon price: what good could it bring!

After a very long time, here is a new blog entry! I hope I can keep up writing at least once a month.

The imminent motivation for this blog article is the release of the first part of IPCC’s Sixth Assessment report: The Physical Science Basis, and the official response of the Australian Government to it. In it, Scott Morrison effectively forsakes the use of carbon pricing as a tool to reduce emissions. This is clearly playing into the public sentiment, with recent reports that Australians are keen for us to reach net zero by 2050, but majority opposes a carbon tax.
But, I find this completely ill posited and unfortunate. Why should we deprive ourselves from having a very valuable tool (some would argue the most valuable) in the toolbox needed to reduce carbon emissions? There is absolutely no rationale or justification for it!

It is well established in economics that having a price on carbon (either through a tax or a tradable permit system, there is really no other way) is one of the most cost-effective ways to achieve GHG emission reduction. Indeed, even physical scientists recommend a global carbon pricing mechanism as an essential condition for notable emissions reduction and limiting the increase in global average temperature.

It seems that the only reason for permanently forsaking ‘carbon pricing’ in Australia is because the gross politization of the ‘carbon tax’ in the period 2008-2013. Because some politicians at the time found it politically profitable to attack their rivals on the point of the ‘carbon tax’, and were successful in doing so, the public has been and remains so negatively sensitised against it that we are still prepared to accept reduction of emissions at higher than necessary cost to society, just to avoid the ‘carbon tax’. And without having a ‘carbon price’ – either through a tax or tradable permit scheme – at a disposal as a policy we are inevitably going to incur higher cost of reducing emissions compared to a scenario where we do have ‘carbon price’ as a policy option.

So, forsaking a ‘carbon price’ is completely irrational and can’t bring any good. It reminds me of the situation that we put ourselves in regarding COVID vaccines. Somehow we managed to talk ourselves out of using the Astra-Zeneca vaccine in the first seven months of 2021, despite it being used widely around the world! As we all witness now, this came to bite us hard. I wouldn’t be surprised if we have a similar outcome with combating climate change, given how we are talking ourselves out of using a ‘carbon price’ even though it is used throughout the world, and now even in China!

I think that it is time for the narrative in Australia to get away from the negativity about the ‘carbon tax’ and becoming more positive about a ‘carbon price’. We should acknowledge that a tax is just a tool (a rather useful one) to bring about that ‘carbon price’, and that a tax can and should be used in combination with other mechanisms, such as tradable permit scheme, to achieve improved outcomes.

Our recent paper suggests that a ‘first tax and then trade’ approach to pricing carbon, rather than going straight with a tradable permit scheme, is the most economically efficient. An initial, short-lived tax provides a signal to emitters about the adequacy of their investment in abatement technology. This creates greater overall efficiency and lower permit prices. It is also more politically palatable than a tax-only scheme.

At these times of lockdowns and general anxiety, the public does not want to hear much about taxes! That’s understandable. However, as many have already pointed out: COVID is a small challenge compared to climate change! If we are going to try to address this grand challenge to avoid even bigger future crises, we need all the tools that we can muster. Depriving ourselves of using a ‘carbon price’ won’t do us any favours!

How to manage Sydney dams for water quality in times of drought?

Drought seems to be fully on, and if you are in Sydney you start noticing it when newspaper articles start reporting on possible water restrictions. Water stored in the dams, and most notably in Warragamba Dam, is dwindling. This is critical for Sydney’s drinking water supply. Warragamba Dam sits at only 55% full, a number that has been rapidly going down over the last several months. It is now very likely that the level will fall below 50%, and this is critical not only in terms of water supply to the City, but also in terms of water quality.
Our research based on long term data has shown that episodes of eutrophication (a state of poor water quality often paralleled by algal blooms) in the Warragamba Dam are much more likely to occur when the reservoir is less than 50% full. More importantly, the likelihood of these poor water quality events increases dramatically when the nearly empty dam starts filling rapidly when the drought finally breaks. The runoff from the surrounding catchment areas that occurs as a result of drought breaking rains carries significant sediment that is rich in nutrients, and specifically phosphorus. This adds to the already high concentration of nutrients of the water in the dam that has been increasing as a result of the lowering of the water level during the drought. Consequently, it is very likely that eutrophication event might eventuate, dramatically worsening water quality, and adding significant cost to drinking water treatment. This was the case during the drought breaking events in 2007, and earlier in 1998.
What can be done to try to prevent eutrophication in situations like this? Typically, all the attention when the dam is empty is towards water quantity, and water quality seems to be put on a side. In contrast to this practice, our research has shown that activities to prevent load of runoff rich in nutrients into the dam should be stepped up at times when the dam is nearly empty, and when it could be expected that sooner or later drought breaking rains will come. This means that investment in nutrient abatement practices (such as raising and maintaining buffer strips, or fencing off cattle to prevent their access to catchment areas) should increase at these times. Rather than investing in abatement at a constant rate over time, it is optimal to step up investment at times of drought, and ease off when the dam is full of water.
Drinking water supply is critical for functioning of a large city like Sydney. Managing dams and other sources to provide sufficient water quantity is of course of key importance. Nevertheless, managing for water quality is as important. At challenging times like this, when the drought threatens Sydney dams, managers should not forget to guard against water pollutants. The relief in terms of drought breaking rains will come, but if preparations are not undertaken those rains will also bring pollutants in the dams, and while there will be water it will be of poor quality. We can and should avoid that!

Tradable property / use rights for natural resources and the environment

Welcome to 2019! Two seemingly very different news stories caught my attention over the last few days. One was the big story about massive fish die outs in the Menindee Lakes and elsewhere in Western NSW.
The other was an obscure story about implementation of a tradable permit scheme to encourage production of electric vehicles in China.
A lot has been written and said about the Menindee Lakes incident, so I am just going to add few things. Firstly, while obviously linked to the wider Murray-Darling problem , the immediate cause of the Menindee incident was not so much about water quantity problems, but rather water quality issues. There seem to have been an algal bloom event, triggered by high temperatures and by high nutrient concentration in the water. These nutrients typically come from agriculture, as residues from phosphate and nitrogen fertilisers that runoff or leach. As nutrients build up in the water, algae start developing, and as algae die out they deplete the dissolved oxygen, which in turn causes suffocation of the fish, and hence the fish die. Now, the problem of nutrient water pollution is exacerbated by the lowering water volumes. The occurrence of algal blooms is more likely and more severe when it happens in a water body diminished in size, compared to a water body that is full. We researched this very issue in the case of the Warragamba Dam near Sydney, and we showed that how full or empty a water body is matters enormously for nutrient pollution and for the optimality of the efforts for its abatement. The paper was presented at last year’s World Congress of Environmental and Resource Economics in Gothenburg, Sweden (; search for ‘Ancev’) and is currently in preparation for submission to a journal.
Secondly, the Menindee incident was rightly linked to the overall Murray-Darling Basin situation, and specifically, to the MDB plan. Two points about this: one, a brand new paper by Quentin Grafton that provides detailed policy analysis of the MDB has just appeared in AJARE (also available on Researchgate). It is a comprehensive review, and pinpoints the key problems in the MDB that need to be rectified.
My second point, which kind of links to the Chinese electric vehicles story, is that the water reform in the MDB has been fundamentally based on the establishment of strong and tradable water use rights. Having well defined and tradable property/use right on natural resources is a necessary prerequisite for efficient management of those resources, but as the Menindee incident teaches us, it is not a sufficient condition for good management.
Little is known about the new Chinese rules around the support of electric vehicles, but it seems that there will be no new approvals for internal combustion engine only automobile factories, and that carmakers will face a quota on minimum number of electric vehicles that they have to produce. This quota will be managed through tradable credits, so that a non-complying carmaker could purchase credits from another that has surplus credits. It’s an excellent example of how tradable permit rights (TPR) (in this case, it is effectively a TPR on emissions from automobiles with internal combustion engine) could be used to attain certain environmental and energy policy goals in an efficient way.
The principles of tradable permit rights are the same in the case of water rights in the MDB and in the case of the new Chinese electric car scheme: tradable permits create incentives for most efficient users to use the resources, or to provide most pollution abatement. This makes TPR powerful economic instruments for natural resource/environmental policy. However, it needs to be kept in mind that simply implementing a TPR is not going to solve the problem in its own right, but that other institutional and policy factors need to be present for a successful outcome. Unfortunately, we were shockingly reminded of that in a most stark way at Menindee last week!

Wind vs. Solar: What is the future of renewables?

I was in Hong Kong last week, attending a workshop on renewable energy at the Chinese University of Hong Kong. The focus of the workshop was to explore factors that drive deployment of individual sources of renewable electricity generation, specifically wind and solar, to understand why there have been diverging trends of those two in different countries, and to investigate the effects of the changing balance between wind and solar on the electricity supply.
The workshop was organized under a Worldwide Universities Network project, and featured speakers from mainland China, Hong Kong, Japan, India, Germany, Switzerland, France, Russia, UK, US, and Australia. The talks showcased the multidisciplinarity of this topic, with individual presentations coming from a range of areas such as policy, business analysis, governance, law, economics, and urban/rural studies. All talks did have firm foundation within social sciences, so the multidisciplinary nature of the workshop had a nice focus on the social science aspects of renewable energy phenomena.
At the end of the workshop, participants were able to sketch out an overarching way of thinking around the dynamics of individual energy sources, the effects of those dynamics, and the policies that are needed to manage energy transitions. Specifically, one can start by thinking about drivers behind individual energy source accelerated or decelerated penetration (e.g. in many countries solar has seen accelerated, and wind decelerated penetration over the last 5 years), such as costs, higher level policies and programs, technical characteristics and technological progress, and public perceptions. Then, the process of deployment of individual energy sources is examined, often in parallel with specific support polices. This stage is highly uncertain, as there may be variety of factors that influence penetration of an individual energy source apart from the supporting policy, and the outcomes from this implementation stage are hard to predict. The last stage in the framework is an evaluation stage, where we can investigate the ex post effects from the implementation stage, in terms of the effects on electricity prices, reliability of electricity supply, and wider social outcomes. In order to manage the uncertainty in the implementability stage, feedback policy rules that flow from the evaluation to the implementability stage are needed. These feedback rules should be used to alter the parameters of the supporting policies or other management levers in the implementability stage in order to improve the outcomes. This is called Adaptive Dynamic Energy Transitions Management.
The need for this type of overarching framework was evident at the workshop, where examples of energy transitions from a large number of individual countries were presented. This evidence suggests that we currently have no clear understanding of how to adequately manage energy transitions, as the same high-level programs and specific policy levers seem to lead to different outcomes in different jurisdictions. The participants in the workshop agreed to continue to work together to tackle this gap in knowledge, hopefully resulting in improved ability of human society to achieve cleaner, more efficient, affordable and reliable energy systems in the future.

The National Energy Guarantee: What is really guaranteed?

Federal Government’s proposal on a National Energy Guarantee (NEG) has been among the top news items in Oz for some time now. The government is touting the NEG as a centrepiece of its policy reform in the electricity sector, which will ensure stable, reliable and affordable electricity supply to households and businesses beyond 2020.
There are critics left, right and centre. In fact, critics from the left and right may come together in opposition to the NEG, and attempt to block it in the Parliament.
On 1st August, the Energy Security Board released the Final Detailed Design of the National Energy Guarantee. This is really the document that should be evaluated in order to have a rational debate on the proposed reform of the electricity supply chain and markets. An impression that I get from reading this document is that it is highly-professionally prepared, with obviously a lot of thought and effort put in from engineers and economists who understand the details of how our electricity system works. Overall, I think that it is a good document, and that the design of the NEG indeed addresses many of the shortcomings of the current electricity system, perhaps most notably the shortcomings on the National Electricity Market, where speculative and manipulative behaviour has been bordering legality, and has undermined the effectiveness of the system.
However, when it comes to the ‘reliability guarantee’ it seems that it effectively amounts to guaranteeing a role for the fossil fuel power generation in the future electricity system, by requiring the retailers to contract with at least some fossil fuel generators. Supposedly this is going to be offset by the ‘emissions guarantee’, which in a way secures a role that renewables will play in the proposed new system. But, the trade-offs between the guarantees are not well described in the document, and indeed, are hard to justify. Guaranteeing the place of fossil fuels in the electricity generation mix is going to prevent closures of coal-fired plans and perhaps (but not likely) encourage building new ones. In other words, it is going to slow down our transition to less/no fossil fuel electricity system. This hardly seems like a good energy policy goal for the 21st Century.
At the end, I can understand why the designers of the NEG wanted to have something for everybody in the proposal. They must have been trying to strike the balance between the proponents of the ‘old’ fossil-fuel based electricity system, and those of the ‘new’ renewable-based system. That’s precisely why the proposal is drawing the wrath of the extreme views on both sides of the political spectrum. It is hard to say whether striking the balance was the right strategy, or perhaps the designers should have gone bolder towards embracing the future, which certainly doesn’t lie in energy from fossil fuels. But, guaranteeing the place of fossil fuels in electricity generation might prove to be necessary for even getting a green light on the NEG from Government’s own ranks. Another example of politics as the ‘art of the possible’. We’ve seen too much of that from this Government!