Australia's carbon price agreement: what’s in it for renewables?

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The plan is a gain for the grass roots campaign for renewable energy, but we must be clear about its limitations

by Ben Courtice
Blind Carbon Copy, July 15, 2011

After a few days to consider the ins and outs of the carbon price, this is an attempt to summarise the meaning of the agreement for renewable energy campaigners. We welcome comments and feedback here from those that have a different perspective! For an overall critique of the carbon price agreement, Friends of the Earth have labeled it “the greatest corporate windfall of our time.”

Climate campaigners have been most understandably happy about the funding bodies for renewable energy contained in the carbon price package. It seems that these measures are largely in place because of strong campaigning by the grassroots climate movement and the Greens MPs in negotiations.

The carbon price agreement will create a Clean Energy Finance Corporation (CEFC), an independent body that will have $10 billion funds to allocate as loans or equity investments. These are not grants, but will help renewable energy projects to get off the ground where they are unable to find finance.

Half the $10 billion will be for strictly renewable energy, while the other half will be available to renewables or “clean” gas/renewable hybrids, but not for “clean coal” carbon capture technology.

The other significant move is to create the Australian Renewable Energy Agency (ARENA), which will administer existing $3.2 billion of existing renewable energy projects.

The renewable energy industry has welcomed these new arrangements, as have renewable energy and climate campaigners. To understand why they represent a real step forward, it is important to understand the limitations faced by renewable energy in recent years.

In the electricity market, renewables have to compete against established fossil fuel generators. Coal power stations that have paid off initial loans only have to pay for fuel and maintenance: they provide very cheap electricity and it’s hard for new technologies to compete.

Government schemes to enable renewable energy to compete in this environment, primarily the Renewable Energy Target, have been stalled time after time by poor design and low targets. This resulted in the wind industry, the only large-scale renewable energy currently being built, stalling after 2007. Then the global financial crisis also made it hard even for approved wind farm projects to secure capital for construction to go ahead, and the industry has barely resumed growth now.

Essentially, even though the CEFC will only provide loans and investment not outright grants, it can assist projects that were unable to get loans otherwise. We can be confident that this will deliver a significant boost to the construction of renewables.

Recognising these positives, we must also be clear what the limitations of the framework are.

The fact that the CEFC and ARENA are both independent bodies protects the schemes from interference on the whims of ministers, maybe giving some protection against a future Abbott government. But it should be undestood that independence from the minister does not mean they will push the climate movement’s agenda either, and actually removes the agencies from the nominal public accountability of elected government.

The Labor government has not had a change of heart, to replace fossil fuels with clean renewable energy. Their stated aim for the carbon price is that it will drive a shift from coal to gas and “clean coal” power generation. Renewable energy support is a minor add-on, a concession to the Greens and grassroots.

Existing government support for the gas/solar hybrid power plant at Chinchilla, QLD highlights the risks in the half of the CEFC funds that are for “clean energy”. This can be used to greenwash the gas industry, including notoriously dirty coal seam gas extraction.

We can’t assume that the CEFC will strategically fund the most useful renewable energy, such as solar thermal plants with heat storage for night-time operation. That option is one that renewable energy campaigners will still have to campaign for: large-scale solar photovoltaic plants that only operate during the day, but are currently cheaper, may well be supported instead.

Renewable energy capacity will still be built largely in accordance with the laws of the market by private owners, on the basis of what makes a profit. This will not be enough to replace fossil fuel capacity with renewables in the short time frame that climate change demands. The only serious program to do that – Zero Carbon Australia – demands around $37 billion per year in funding and a clear strategic direction not provided by the market alone.

Solar thermal power with storage is a key step towards 100% renewable energy, as it dispels the myth that renewables are unreliable. It is unlikely to be introduced without significant government support, or outright government ownership, and it’s not clear that the CEFC will be enough.

Given that almost all existing power generation capacity in Australia were built by the government on non-commercial principles – the coal plants that are out-competing renewables in our privatised electricity market – the climate movement should not shy away from demanding the government do the same job for renewable energy.

Crikey’s Bernard Keane writes in criticism of the renewables funding that “buying abatement from the electricity sector is the kind of policy garbage we’re used to from the Opposition?—?clear government winner-picking. It’s an implicit acknowledgement that a low carbon price and heavy compensation won’t drive a rapid transition to less emissions-intensive electricity generation.”

Keane’s support for free-market dogma appears to blind him to the real risk: that this policy isn’t clearly or strategically picking what we know ought to be the real winner – 100% renewable energy.