A climate of inflexibility

Climate Change and Energy Minister Chris Bowen.

Labor’s bid to legislate its 43 per cent emissions reduction target leaves little room to alter course should circumstances change. By Nick Cater.

Full marks to Peter Dutton for not falling for Anthony Albanese’s false promise of an end to the climate wars. With hindsight, Labor’s back-of-the-envelope 43 per cent reduction target should have been subjected to rigorous scrutiny before the election. Coalition campaign strategists didn’t have the heart for it, however, seeing climate policy as a zero-sum game in which winning hearts and minds in the regions and outer suburbs would lose them support in their metropolitan heartland.

Labor’s uncontested thought bubble is about to be given the force of law in an early act of parliamentary grandstanding. Dutton resisted Albanese’s overtures to back the legislation, forcing the Prime Minister to make his first pact with the Greens to ensure the legislation passes in the Senate. The horse-trading will be interesting to watch.

Turning an ill-conceived aspirational target into a legislated straitjacket is less than sensible at a time when the rest of the industrialised world is looking for wriggle room. Barely six months ago, Germany was investing its hopes for energy security in the newly completed Nord Stream 2 pipeline from Russia via the Baltic. Two days before Vladimir Putin’s invasion of Ukraine, Chancellor Olaf Scholz declared all bets were off. Now a bill providing the legal basis to burn more coal for power generation is making its way through the German parliament and negotiations have begun to replace Russian coal with imports from countries such as the US, Colombia and South Africa.

The revival of the fortunes of coal in Germany is not expected to last for long. Its chief purpose will be to firm the abundant sources of weather-dependent renewable energy in which Western Europe has been investing for 20 years. In the medium to long term, this task will be accomplished more efficiently with gas, which is why Germany is belatedly seeking to invest in gas development in friendlier parts of the world than Russia and why plans are under way to build gas import facilities in German ports.

The same dynamic is driving the Australian energy market where the supply and cost of gas on the east coast is keeping energy planners awake at night. Yet the gas market received scant attention in the policy Labor took to the election, which is built on the delusion that the answer to intermittent renewables is to install more intermittent renewables. Build enough windmills, the thinking goes, and the wind will come.

Energy Minister Chris Bowen has been offered no shortage of opportunities to crab-walk Labor’s policy towards something more credible in the past five weeks. He might have decried the underinvestment in new gas generation over the past nine years, or the madness of the Victorian government in banning onshore exploration for gas, conventional or otherwise. He could have denounced the virtue-seeking green activists who have used every trick in the book to stall the development of gas at Narrabri in NSW, which even now is not expected to come on tap until 2025.

Instead, Bowen has chosen to ratchet up the renewables rhetoric, suggesting further investment in wind and solar with a smattering of batteries is the answer to stabilising the grid.

Yet a shortage of investment is hardly the problem. In 2021, investment in rooftop solar broke records for the fifth year running with 3GW of new capacity in nearly 390,000 systems, each one ready to inject energy into the grid in the heat of day when there is anything but a shortage. Fewer than 3 per cent of the new schemes were accompanied by batteries, which continue to defy predictions that they are about to become efficient and affordable.

Large-scale renewable investment increased for the third straight year. The effect has been to increase the glut of energy at the wrong time of day, pushing spot prices lower and making baseload generation less profitable, putting further stress on the business model of the gas- and coal-fired generators we rely on to provide the market with inertia and system strength. Rather than improving the reliability of supply, the record investment in renewables has had precisely the opposite effect. The transmission system has never been so susceptible to erratic frequency shifts and voltage instability, according to the Australian Energy Regulator’s most recent State of the Energy Market Review. An inertia shortage in South Australia is making it difficult to connect more renewable energy supplies to the grid. The lack of inertia, that was once provided synchronous energy from coal-driven turbines in SA, makes it harder to prevent sudden sags and surges in voltage.

These are the eminently foreseeable problems of transitioning to renewables too quickly. Locking Labor’s ambitious emissions reduction target into legislation will do nothing to solve those challenges but do plenty to make them worse. Like the conceptually flawed 20 per cent Renewable Energy Target introduced with such fanfare by the Rudd government, it will lead to capital misallocation on an industrial scale. It will incentivise further investment in weather-dependent renewables with no regard to the associated investment required to overcome the problems of unreliability.

Worse, it will lock Australia on a pathway to the middle of a century with no flexibility to alter course should circumstances change. At a time when much of the industrialised world is looking for a more flexible path towards energy reduction, Australia is about to do the very opposite.

All of which presents Dutton with the opportunity to demonstrate the difference between a Labor climate and energy policy and the pragmatic, more worldly approach that drives Liberal governments at their best. It is an approach tempered by an understanding that the world is a complex place, governments are neither omniscient nor omnipotent and every intervention will have unintended consequences.

If the intention is to make energy affordable and reliable as well as cleaner, we must accept that there must be trade-offs. Mandating cleaner energy under force of law will only come at the expense of available supply and our ability to pay for it.