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An Industry Perspective from HIA

Finkel Report Warrants More than a Superficial Response

June 15, 2017

The 212 page Finkel Report into the Future of the National Electricity Market by Australia’s Chief Scientist Dr Alan Finkel was released last Friday and already tonnes of carbon have been exhausted on scrutinising the report’s analysis, assumptions and 50 recommendations.  The Finkel Report, however, is not one for superficial or knee-jerk responses.

The Turnbull Government’s stated intention on energy policy is the availability of an adequate, reliable and affordable energy supply to meet the nation’s future energy consumption needs and to underpin strong economic growth.

The Finkel report goes one step further.  It focuses its attention on four key outcomes for the National Electricity Market (NEM) - increasing security; future reliability; rewarding customers; and lower emissions.

While it is difficult to argue against this objective, the question is whether the report’s recommendations can achieve this outcome - whether they will stand the test of time and vagaries of the political cycles.

Importantly, a number of politically sensitive policy settings have, and will no doubt continue to influence how the current and future governments will manage the transition away from existing coal based power sources and promote investment in Australia’s future NEM energy supply.  Much of the commentary around the report to date has focused on its recommendation to introduce a clean energy target (CET), yet this recommendation is merely one short dot point in one of the 50 recommendations.  It has nonetheless received the greatest media scrutiny to date, already caused a divide in the Government’s ranks and will most likely set the scene for a confrontation with the Opposition over coming weeks and months.  Opportunities and offers of bi-partisan support are already evaporating.

While many of the report’s recommendations are functional necessities, such as the development of a NEM-wide integrated grid plan; mechanisms to address data analysis, cyber threats and weather forecasting; projections on the consequences of adverse weather conditions; and promoting (safe) gas exploration and access for NEM production, its efforts to encourage “new low emission’s generation in a technology neutral fashion” will inevitably re-engage the protagonists on both sides of the climate change agenda.

Firstly, how does Finkel reconcile against Australia’s commitment to the Paris agreement (effective from November last year)? Does it matter when at least two key carbon emitting nations (and crucial manufacturing competitors - China and India) have accumulative trajectories that overwhelmingly eclipse any savings that Australia can achieve even with a zero emission’s outcome, and the US (the second largest emitter) has declared its intention to drop its Paris commitment?

Secondly, is continued expansion of renewable energy infrastructure possible without substantial ongoing government support?  Will renewables be able to meet both base load and peak load demands reliably - at all times, regardless of weather conditions?

Other questions remain outstanding, most particularly for Australian manufacturers.

Can investor confidence be assured, sufficient to attract hundreds of billions of dollars to fund energy infrastructure – while government policy shifts both within and across election cycles?

What is the difference between a RET (renewable energy target) and Finkel’s CET (clean energy target)?  There will be winners and losers in either scheme, and significant cost implications for high energy users.

Are Certificates under a CET scheme just another form of taxation – who ultimately pays for them?

Can Finkel’s recommendation navigate shifting policy priorities, political cycles and competition for capital investment in electricity generation and transmission, and at the same time provide certainty in delivering an adequate, reliable and affordable gas supply?

Is there a better alternative?

Finkel’s report makes the following statement:

“Governments have made commitments to a lower emissions future, but the pathway is blocked by uncertainty about how to get there. If we don’t take immediate action, or even if we continue as we have been, Australia risks being left behind.”

However, the report doesn’t explain what “being left behind” means.  Manufacturing in Australia is already at a disadvantage and will remain so whilst ever domestic energy costs are greater than our overseas competitors.