Driving innovation key to good climate change policy

CLIMATE change is real, it is here, human activity is causing it, and the longer we wait to start reducing carbon emissions the more difficult and costly those reductions will become, according to the federal government’s Climate Commission.

In ‘The Critical Decade’ report released this week, the Climate Commission, which is headed up by Tim Flannery, outlines that “unless effective action is taken, the global climate may be so irreversibly altered we will struggle to maintain our present way of life.”

It is a view that is yet to be fully adopted across Australian political parties, however.

Climate change and its mitigation through carbon taxes and emissions trading schemes are topics that continue to fuel fierce debate around private dining rooms, parliament sittings and boardroom tables.

The Liberal Party is yet to sign up.

While opposition leader Tony Abbott acknowledges the world’s climate is changing, and that human activity plays some part in this, he is sceptical of the threat posed by anthropogenic global warming.

Policy change

Former prime minister John Howard may have flagged the development of a carbon trading scheme and the goal of reduced emissions in 2006, but he was swept from office by Kevin Rudd before he got the chance to put any policy into effect.

He did develop the Mandated Renewable Energy (Electricity) Target in 2001, which set an initial target for electricity retailers and wholesalers to source 9,500 gigawatts of electricity from renewable sources by 2010.

That figure was extended by Mr Rudd’s Labor government in 2009, which renamed the scheme the Renewable Energy Target and increased it to 45,000GW by 2020.

In government, Labor has arguably been the more proactive party in developing policy to mitigate climate change.

Mr Rudd couldn’t ratify the Kyoto Protocol fast enough and attempted to get a carbon pollution reduction scheme through parliament three times, with the opposition using its numbers in the Senate to block the proposed legislation.

Prime Minister Julia Gillard this year announced plans to introduce a carbon tax, details of which are expected in July.

Stunting growth

Sustainable Energy Association of Australia chief executive Ray Wills believes politicians’ lack of acknowledgment that climate change exists makes it difficult to develop policies that reduce carbon emissions, increase renewable energy sources and help to develop cost-competitive renewable technologies.

“The nature of politicians is they are far more uncertain about this than the rest of us. That then fails to drive a willingness within the bureaucracy to create change,” Mr Wills said.

He said climate change policy, reform and proposed legislation hit a brick wall in Treasury.

An example of this was the changing of fuel excise policies by the Howard government in 2004, when the government imposed fuel excises on biofuels, which had previously been exempt.

“We were at that stage building, with federal National Party support, a biofuels industry. Treasury wrote a paper that said it was more economically rational to import fuels at a lower price than it was to pay and support the production of biofuels within Australia,” Mr Wills said.

“Those decisions were taken in 2004, when the price of oil was at $25 and $30 a barrel. As a consequence of that, when the spike started in about 2007 we weren’t in any position to be an industry that could have, in that three-year period, grown up and met some of the challenges of increased fuel prices.

“Treasury made an economic rationalist decision, not an ‘in the best interests of the community’ decision that considered where biofuels might grow, how much employment that might generate and what that might mean for a community.”

Such decisions are thwarting

the development of renewable

technologies in Australia, according to Mr Wills.

Horizon Power operates 40 independent systems that generate and supply electricty in regional WA, currently with a 10 per cent renewable component, and acting managing director Frank Tudor said foresight and certainty in federal government policy was a primary concern.

‘‘Having certainty in legislation at a federal level going forward I think is important,’’ he said.

‘‘Many of the investment decisions that are made span 20-plus years when we are talking about power generation. As those investments are made it is important to ensure the policy is clear, it has got a clear path for price trajectory and if we need to account for transitional assistance for sectors of the industry that is provided for.

“The balancing act is to make sure that we don’t create a massive exodus of power generators through the implementation of such policies.’’

He refers to federal government support for the development of renewable technologies as “reasonably modest”.

While the state government is providing marginal support for technological advancement by companies such as Carnegie Wave Energy and with projects including the $750 million Collgar wind farm in Merredin, Mr Wills said more could be done.

“We are talking 20, 30 and 40 million [dollars] in a state government budget worth $20 billion; anything less than $100 million really is small change,” he said.

“If you seriously want to see policy change, if you seriously want to see a change in the way we generate energy, then you should be spending a serious amount of money to do it.”

Carnegie Wave Energy chief executive Michael Ottaviano said state and federal governments needed to be convinced that investment in renewable technology was worthwhile.

He said moving the headquarters of Carnegie offshore to a base where the government was more supportive of the development of cost-competitive renewable energy was possible.

“How long we can mount the case to stay in Australia depends on the support,” Mr Ottaviano said.

Back to business

Amid all the political posturing over climate change and the carbon tax, business remains in limbo.

Sustainability consultancy and technology service provider Greensense’s managing director, Derek Gerrard, said this led to tension within businesses.

“For business and government there is a lot of uncertainty in terms of the cost impact to business; whether that is direct cost of paying a carbon tax or eventually trading carbon permits, or whether there is a downstream supply chain issue because of pricing increases,” he said.

But according to Mr Gerrard, questions about the existence or otherwise of global warming shouldn’t affect the drive for change.

“Regardless of how that legislation plays out, one of the core issues is about needing to live in a world where there is cleaner energy and we need to find ways to develop cleaner energy sources and more efficient ways of doing what we do,” Mr Gerrard said.

“Outside of the climate change debate, it is the right thing to do, whether you believe in that science or not. Better that we make the changes and find we got the science wrong than not make the changes and find the science was right.”

Costly change?

With most climate change reporting suggesting energy generation is a major factor in climate change, many politicians and sustainability spokespeople are pushing for the development of cost-competitive renewable energy sources.

Mr Gerrard said while changes could be made to use resources more efficiently, investment in the development of those sources was crucial.

“The investment is significant; innovation required is significant as well. It is not going to all be solved by solar, there is going to be a mix of other renewables. The dollars are high and investment of businesses is high,” he said.

According to Mr Wills, policies that push market-led technology development are crucial to renewable sources becoming cost competitive – which will drive the uptake of renewables.

“The challenge is how you create a more competitive and innovative market that allows renewable energy to come in and compete for that energy provision,” Mr Wills said.

“Prescriptive solutions lock the innovation out of a market. Market tools are better than direct action. Government grants are direct action. Government procurement is truly market based. That provides a constituent price back to the project proponent. That is a market mechanism.’’