A Victory for Turnbull?

A Victory for Turnbull?

The week-end’s Media assessment of Turnbull’s New Energy Guarantee (NEG) is generally favourable, but withTerry McCrann predicting an extremely unfavourable outcome for the Coalition (see McCrann on NEG’s effect on Election), viz

“Malcolm Turnbull and Josh Frydenberg have made a deliberate decision to lose the next election and to lose it badly. The rest of the joint party room voted to endorse the decision, an indeterminate number of Liberal and National members voting for an early retirement. This is the irresistible and even more the irredeemable political consequence of the Turnbull-Frydenberg decision to opt for a policy of (only trying) “to keep the lights on” over a policy of significantly and quickly cutting both electricity and gas prices. Far less, the third, but first-best, option — the option, begging to be embraced by a half-rational government that had the most minimalist understanding of political dynamics — of aggressively aiming to deliver both more and more reliable power and cheaper and sustainably cheaper power”.

McCrann makes the additional interesting point that, if One Nation refuses in the 2019  federal election to give its preferences to the Coalition as it is doing in the upcoming Queensland election, the Turnbull government will lose the election — utterly unavoidably and undeniably, even if it has managed to achieve some miraculous (and impossible to see) recovery from its terminally parlous polling position”. McCrann says that with One Nation having 20 per cent plus support in Queensland, it is remarkable that the Coalition has so far apparently judged it “inappropriate” to seek its preferences.

More cautiously, Chris Kenny reiterates that “according to all of the science and the data, the emissions reductions policies of this nation can have no impact on the global environment” and “governments who allow high power prices to reduce living ­standards or fail to keep the lights on will not have their mandates ­renewed”. Hence, “despite the neatness of the Turnbull-Frydenberg NEG plan, and the endorsements it has won from industry, it fails the test” (see Kenny on NEG). Kenny’s use of “neatness” is not consistent with an examination of the plan, which is complex and suggests a major increase in the Commonwealth government’s role in the electricity industry.

Dennis Shanahan has been critical of Turnbull (and remains so), but now says that “there is no rational reason to suggest that the Prime Minister can’t survive as Liberal leader through to the Christmas break and into a new year, with an opportunity to regain lost political ground. It is far too early to say a recovery or the foundation for a likely election victory is within his grasp, but the opposite view that he is doomed is more uncertain”. He seems to base this view on the fact that “there is no active destabilisation of his leadership. His strongest ideological opponents in cabinet are his staunchest supporters; there is no clear contender; everyone faces the same policy challenges; there is no competitive opposition leader; and there are economic green shoots”. Also that  “the ­Coalition has finally settled on a scheme with a priority on cutting prices, not emissions, which gives Turnbull the opportunity, finally, to exploit Labor’s extravagant emissions reduction target, which threatens to put electricity prices up even further”. Shanahan rightly draws attention to the absence of anyone willing to challenge Turnbull. But it is difficult to believe that NEG would attract votes in 2019 when it doesn’t seem to start having an effect before late 2019 and requires Commonwealth legislation. Also the scheme does give weight to reducing emissions (see Shanahan Explains Why Turnbull Could Survive).

Judith Sloan says that, while there are numerous problems with the NEG as announced (including whether “central planning” ever works), government intervention in operating electricity may be a “special case”. But I can remember that, when In Treasury,  “special cases” were often trotted up for government involvement. In Victoria too the SECV was for a while such a special case (read unions) that it employed many thousands more than it really needed. Leaving aside possible special cases, Sloan suggests that, to spur investment in reliable electricity, it may be feasible to operate a market in which the actual prices bid provide the basis of satisfying demand and there would then be “significant scope for wholesale prices to fall” (see Sloan on Neg).

Kerry Schott, the Chairman of the new Economic Security Board (ESB) whose establishment was recommended by the Chief Scientist, and which is supposed to play an important role in supervising the regulatory arrangements to apply under NEG, argues that prices should fall because “by providing certainty, it would encourage investment in new generating capacity and put the onus on retailers to “find the best mix of energy to meet their requirement at the lowest cost” (see Schott Says Markets Will Cause Price Falls). But one requirement under NEG would include the need to reduce emissions and hence coal-fired generators. This “certainty” would reduce investment in coal-fired generators (it already has) to a government prescribed level. Investors in renewable would also have to consider the different renewable targets set by each state and that new investors would, under new Commonwealth rules, face the cessation of new renewable after 2020. However, the fact that new renewable can still be started before 2020 with subsidies could lead to a rush in such investment before 2020.

Note that Schott says she was motivated to give up other board seats for the ESB job by a sense of national duty. “I thought the politics of this have been so bad for so long that for the good of the country it needed to be fixed” (by government!). The implication is that she and fellow board members accept the need for government action to reduce carbon emissions and that we have a  key advisory board that believes in the dangerous warming system.

Jacqueline Maley of The Age (with Nick O’Malley) portrays the handling of the discussion on NEG when it was first presented by Turnbull in the party room. According to her, “member after member rose to speak on the subject, and while there were some queries, no one was critical of the policy – no small feat considering the enormous heat and hot air that has engulfed the issue over the last decade. Then, towards the end of the three-hour meeting, Tony Abbott got to his feet. “He said, ‘We need a longer time to talk about it as a political issue’,” said one MP who was present. “He wanted to delay the decision, make it look like a more tortured process than it was. He wanted to have another meeting to have a political discussion.”

According to Maley, what happened next is viewed by many within the government as a hopeful turning point for Malcolm Turnbull in his dealings with Abbott, who has sought to undermine and destabilise the Prime Minister over the issue of climate policy, among others.”The PM slapped him down,” said the MP. “He said, ‘We are having a political discussion about it. We have a sensible policy’.” Says a minister present: “Tony is a normally a very persistent guy. He just got completely closed down. Turnbull is usually quite accommodating but he was firm with Abbott. The room was with him” (see Age Says Abbott under Attack).

It is evident that, in securing party room approval, Turnbull has used that to also claim a “victory” over Turnbull. Whether that victory remains extant must be doubted.

In The Age’s  Good Weekend magazine, Maley also writes a favourable interview with Frydenberg, who tells her first up that his aim is to be PM.

A rather different picture of the Party Room discussion is given by Peta Credlin in today’s Herald Sun, copies of which are not available digitally. Suffice to say here that, according to Credlin, after promising a Q&A and a political discussion, Turnbull did not allow the political discussion which Abbott sought and simply announced that the policy had been approved. This occurred after a Q&A which was held without any documentation having been circulated to members. This illustrates the very limited opportunity given more generally to assess what is clearly a complex proposal and which involves an increase in government intervention that is inconsistent with liberal values.

The NEG Scheme   

I have now obtained a copy of the advice provided by the ESB to Turnbull and Frydenberg on 13 October on a proposed scheme which was released publicly on 17 October (last Tuesday) and which appears to have been adopted with little or no change by the government. It is not clear whether or not it was approved by Cabinet.  It is impracticable now to draw attention here to the numerous potential problems. However, I set out below the main features of the scheme (the full text is linked above).

“The Board writes in response to your request for advice following AEMO’s recent report on the risks to reliability in the electricity market. Specifically you requested advice on the changes needed to the NEM and legislative framework to ensure that the system provides reliable, secure and affordable electricity, and in particular, ensure that:

  • The reliability of the system is maintained;
  • The emissions reduction required to meet Australia’s international commitments are achieved;
  • The above objectives are met at the lowest overall costs”.

PS I have attached comments made by Frydenberg on NEG this morning. These suggest that the Turnbull/Frydenberg axis feel the need to claim more and more benefits from a scheme which nobody knows will work.

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