Finkel’s Blueprint Not Acceptable Policy

Finkel Report on “Blueprint for the Future: Independent Review into the Future Security of the National Electricity Market”

This report was presented to the Prime Minister Turnbull and State Premiers at the COAG meeting on 9 June and the head of the reporting panel, Chief Scientist Finkel, outlined the main features to COAG. The panel of 5, incidentally, all seem to be science oriented with little or no  economic back ground. And Finkel himself has no background in climate change analysis but accepts the dangerous warming thesis.

The COAG Communiqué contained the following reference to the Blueprint: viz

“COAG acknowledged the fundamental transition underway in Australia’s energy markets as the share of distributed and intermittent renewable energy grows, and as consumers play an increasing role in shaping the market. COAG reaffirmed its commitment to ensuring governments’ maintain energy security and affordability. Dr Alan Finkel AO, Australia’s Chief Scientist, outlined the findings of his independent review to develop a blueprint to maintain energy security, reliability and affordability in the National Electricity Market and set out how Australia’s policy and regulatory settings can evolve to keep pace with the transitions underway. Leaders welcomed Dr Finkel’s report and asked the COAG Energy Council to provide urgent advice out of session, and no later than August 2017, on which of the findings can be implemented and a timeline for doing so. Governments agreed the importance to Australian households and businesses of secure gas supplies available at affordable prices, and noted the actions being taken by jurisdictions to increase supply for the domestic market. COAG agreed that supply can only be secure when it is affordable, and asked responsible Ministers to continue to expedite work to ensure an ongoing and affordable gas supply. Governments noted that industry and governments have a crucial role in building community acceptance and support for gas operations”.

Reports in the media, however, go much further than this. They suggest that COAG (and journalists) were told much more and in particular that adoption of the so-called “Blueprint”would lower the cost of electricity to consumers . This is obviously the key selling point to the electorate viz in essence, the government will achieve the targeted reduction in emissions from CO2 by markedly reducing the use of fossil fuels (coal) and replacing with renewable (wind), with  the cost of electricity to consumers falling. Remarkably, this message (sic) appears to have been accepted with little or no  questioning by many journalists.

According to The Australian’s political editor, David Crowe (see Crowe on Finkel, “the federal government is holding out the prospect of big savings on power bills in a bid to build support for the sweeping energy reform”, with an “informal estim­ate … that household bills would be $90 lower on average every year under the clean energy target”. He reports that Finkel claimed that “the clean energy target was a ‘market-based mechanism’ that sent a price signal.  “It’s not a carbon tax — it’s an incentive to encourage investors to fill the void when ­existing large generators exit the market. If we’re bringing in new generation, we want to encourage low-emissions generation.” The clean energy target would allow a coal-fired power station to be built, Dr Finkel said: “It is conceivable. There are no prohibitions against coal.”

But there are Finkel sceptics. Terry McCrann wrote yesterday that “there is no way that wind and solar is cheaper than coal-fired power… wind and solar are not 21^st century disruptive technologies but a back to a 19^th century future ones. The only way they are able to be competitive with coal is by massive direct subsidies and  their mandatory use the RET –the renewable energy target” (see McCrann on Costs of Wind & Solar). Judith Sloan sends  “a very important warning: beware modellers who tell you that, in the best-case scenario, electricity prices could actually fall” and points out that under the Blueprint the use of renewable would increase from 16% now to 42% by 2030. She notes that “Given that wind has a utilisation rate generally of between 25 and 30 per cent of its maximum capacity, and factoring in the cost of the battery back-up, this requirement could triple the cost of wind power, at least in the short term” (see Sloan on Finkel).

However, my reading of Blueprint, albeit limited to date, suggests that the “informal estimate” of $90 lower electricity prices can only be based on increasing subsidies to cover the additional cost of wind/solar. But the word “subsidies” does not seem to be used. Instead we find that those planning to produce renewable will receive “incentives”. Under the heading “Clean Energy Target”, Blueprint says such a target“will encourage new low emissions generation into the market in a technology neutral fashion. Under this mechanism, new low emissions generators such as wind, gas, or the combination of coal with carbon capture and storage, will receive incentives to enter the market.Australia’s existing Renewable Energy Target (RET) will continue to its scheduled 2020 end for new participants but should not be extended. In addition to incentivising reliable generation into the market, a goal of the Clean Energy Target is tolower long-term emissions. For example, a mix of wind, solar and coal generation would be equally acceptable as a mix of wind, solar and gas generation as long as the emissions reduction trajectory is achieved”(bolding added).

This statement requires more than one comment. First, no indication is given of the estimated cost of incentives and Treasury is not amongst those listed as having been consulted. Second, it is obviously wrong to suggest that “”new low emissions” will be achieved in a “technology neutral fashion”when the only coal use would be through carbon capture, which would in fact be very costly. Thirdly, the idea that any mix would be acceptable “as long as the emissions reduction trajectory is achieved”raises the question as to why Blueprint simply accepts as an appropriate the target of a 26-28 reduction in emissions by 2030. As McCrann points out, “why are we doing this anyway? With the US leaving Paris and China and India (that’s more than 50 per cent of global emissions) building more and more of the cheapest form of generation, coal-fired power stations”. At a minimum any Blueprint should indicate that Australia’s target should be adjustable: there should be no target that makes Australia an above average reducer of emissions.

Beyond that, it is simply astonishing that Blueprint makes no reference to the now large scepticism about the “science” of dangerous warming and the fact that there has been little or no increase in temperatures since 1997 despite the very large increase in carbon emissions. While Fink is an “alarmist”, his report emphasises the need for providing certainty of policy to businesses who need power to operate competitively. He should have at least acknowledged that certainty is not available in a world where science is not completely certain. Incidentally, I understand that Bill Kininmonth will discuss the failure of Finkel to deal with science in an article in tomorrow’s Australian.

Reports suggest that Turnbull has said that the Blueprint has “merit” but that he has not endorsed it because he knows that there are so-called sceptics within the Coalition. He surely needs to raise serious questions and stop listening to the head of Prime Minister and Cabinet. In my view, the Blueprint has so many deficiencies, including some not mentioned here, that it warrants a reaction from sceptics in the Coalition that it is not acceptable as a basis for Australia’s climate policy. Such a reaction would offer the leadership that has been missing to date.