MRC Report: Leap into the Dark
Leap into the Dark: The Cost of Australia’s Energy Transition Plan and the Risk of Failure.
A new report commissioned by the Menzies Research Centre
Author: Sabine Schnittger, Principal Economics
Introduction by Nick Cater
Download the report here
Background
The passing of the Climate Change Act in September 2022 locked Australia into an accelerated timetable for energy transition with scant evidence of its likely success.
Eighteen months later, the modelling underpinning the government’s policy is discredited.
The forecast that retail electricity prices would fall, saving an average household $275 a year by 2025 and $378 by 2030, was, at best, a wild shot in the dark.
So, too, was the forecast that the transition to a net-zero emissions economy could be achieved with just $76 billion in private-sector capital investment, encouraged by $20 billion in government seed funding.
The actual amount of capital required will be many times larger. Yet private capital investment in grid-scale renewable generation is declining, raising the prospect of a higher commitment from the public purse, either in direct investment or risk underwriting.
Australians deserve honesty from the government about the cost and the uncertainties of meeting this monumental challenge.
Yet, as recently as March 10, Energy Minister Chris Bowen said the cost of new generation, storage and transmission to achieve the 2050 target would be $121 billion.
This estimate is simply not credible, as a new report from the Menzies Research Centre shows.
The MRC commissioned a study that attempts to calculate the cost of transition to a net-zero emission economy by 2050 using published data from the Australian Energy Market Operator (AEMO).
We do not pretend that the $320 billion figure estimated by AEMO represents the final bill. We are confident the total cost will be considerably higher for reasons outlined in the report.
Yet the report's findings confirm that Australians were badly misled by the modelling that underpinned Labor’s policy of achieving a 43 per cent reduction in emissions by the end of the decade.
Based on the study's findings, we conclude that:
Capital formation on this scale will be a significant challenge
The opportunity cost of the allocation of capital to the cost of transition will be high
The retail price of energy will continue to rise in the short to medium term as capital costs are absorbed
In the absence of rapid technological developments, costs in other heavy emitting sectors, such as heavy manufacturing, agriculture and transport will increase
The flow-on costs in an intricately linked, dynamic economy (e.g. employment, taxation, GDP) will be substantial.
Considering the magnitude of the consequences, the lack of public discussion and the absence of any serious modelling or cost/benefit analysis is, at minimum, disturbing.
The absence of rigorous analysis of the likelihood of the strategy’s success is of equal concern. The Menzies Research Centre’s ongoing analysis of the energy system gives us little confidence that the current strategy will achieve its target of a 43 per cent reduction on 2005-level emissions by 2030.
Nor is there a feasible way of achieving a 100 per cent reduction below 2005-level emissions by the middle of the century using wind, water and solar alone.
The government has serious work to do if it wants the electorate to endorse its climate and energy policy at the next election.
It must demonstrate that reaching its targets with renewable energy alone is feasible in both economic and engineering terms.
Without that, it must drastically change its strategy to achieve the 2050 net-zero goal to which the country is legally committed.
The alternative must surely be nuclear.