New National Energy Guarantee Leaves WA Paying to Clean Up Eastern States Mess

Friday 27 Apr 2018

Federal Energy Minister Josh Frydenberg hosted a COAG meeting with his state counterparts last week to sell them on the National Energy Guarantee.

Mr Frydenberg says the NEG is an “opportunity that can’t be missed” to fix the National Electricity Market and provide more reliable power for the eastern states. He’s also been eager to claim the scheme is the first opportunity in more than a decade to integrate energy and climate policy properly.

"The guarantee is our chance to secure a lasting consensus and, in the words of the ESB [Energy Security Board] 'resolve 15 years of energy and climate policy instability'. In the process, it will get the market working again for consumers, drive electricity prices down, reliability up and help us meet our international emissions targets," said Mr Frydenberg earlier in the week.

The need for such a dramatic intervention to keep the lights on in the eastern states is indicative of just how bad things have become. Privatisation has seen profit-driven corporations fail to invest properly into state power systems, leaving them unable to provide a reliable supply and creating uncertainty for households, business, and industry.

WA and the Northern Territory sit outside of the National Energy Market. That’s largely a function of geography, but it’s allowed us to avoid many of the reliability issues we’ve seen in recent years, such as the 2016 blackout that plunged all of South Australia into darkness. By running our own system and keeping it in public hands, WA has benefitted from stable, reliable power.

Still, in many respects, this initiative is a positive step in the right direction. Seeing the Federal Government step in and attempt to resolve the myriad of issues facing our eastern counterparts is a long-overdue response to the failures of privatisation. After years of inaction on emissions targets, a coordinated approach between the various state and federal governments is also a welcome development.

But as always with any policy with national implications, the devil is in the details. And the big problem for WA is that there’s been very few details about how this will affect our state.

Both Energy Minister Ben Wyatt and Mines and Petroleum Minister Bill Johnston have immediately pointed out a key issue with the NEG’s emission policy. From the details that have been reported last week, the policy would ensure that Australia would meet its commitment to reduce emissions at least 26 per cent by 2030 compared with 2005 levels.

But the NEG proposes that the target for the electricity sector to deliver carbon emission cuts should also be 26 per cent, essentially ‘par’ or a pro rata contribution.

Electricity generation remains the largest source of emissions in Australia. It’s also a sector with a wide variety of options to reduce carbon emissions. Not every industry has those options.

Furthermore, data on renewables by Green Energy Markets indicates that the capacity of renewable projects already under construction already exceeds what is required to achieve the 26 per cent cut by 2030 – meaning the electricity sector’s target has already been exceeded before the policy has even been introduced.

Ben Wyatt has pointed out that means the federal government will look to other sectors ‘‘to do the heavy lifting’’ on emissions.

Attempting to cut emissions in many other sectors is significantly more costly and difficult to achieve with current technology. For example, it’s almost impossible to find an economically viable way to reduce agricultural emissions by 26 per cent.

If other sectors like agriculture and transport can’t make their pro rata contribution, and the electrical system is locked into providing a minimum contribution, that leaves the burden of making up the difference concentrated in a few industries. Namely, the mining and industrial sectors.

Which means that WA, Australia’s largest mining state, would be left footing the bill to provide the extra emissions reductions. Essentially, we’ll be paying the cost so that the privatised power systems of the eastern states can have a free ride.

With our economy still doing it tough post-mining boom and still no resolution to our woeful share of GST in sight, this would be a grossly unfair and unjustifiable gut-punch for WA. It’s going to take some fairly big policy moves to even start to fix the problems with the eastern states power system. But there’s no world where WA should be left paying the bill for a problem it had no part in creating.