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Strong backing for energy plan but Labor is not convinced

Strong backing for energy plan but Labor is not convinced

Malcolm Turnbull has won the backing of his MPs, business and industry for a new energy plan but faces an uphill battle to deliver it with the federal opposition unconvinced and the Labor states, whose support is critical, hostile.

And while the plan was endorsed by the overwhelming majority of the Coalition party room as well as Chief Scientist Alan Finkel, whose own idea of a Clean Energy Target was junked, Tony Abbott indicated he would continue to make trouble.

The former prime minister argued there should be no emissions reduction component and that the policy did not sufficiently differentiate the government from Labor.

The new National Energy Guarantee, devised and backed by the nation's leading energy experts, will mandate both reliability standards and emissions reductions targets for energy retailers from 2020 onwards with penalties for breaches ranging from fines to deregistration.

Under the emissions target, which needs to be legislated by federal Parliament, the electricity sector must reduce emissions by at least 26 per cent by 2030 but Mr Turnbull said the target could be back-ended towards the end of the decade by when renewable energy was expected to be cheaper and more reliable.

Retailers would decide themselves what mix of energy to use. To help comply with the target, they could offset emissions by purchasing international carbon permits or trade among themselves.

Compliance will be monitored by the Australian Energy Regulator or AER.

At the same time, the retailers will also be bound by reliability standards under which they must be able to provide a set percentage of reliable, or dispatchable power. This standard will favour gas, coal and renewable energy which has backup or battery storage.

The AER estimated that by 2030, renewable energy would make up 28 per cent to 36 per cent of Australia's energy mix. This is less than 42 per cent under Dr Finkel's CET.

But the Clean Energy Council's Kane Thornton said these numbers were based on rubbery modelling and overall, the new plan had merits.

"There's a lot of complexity to work through but it has potential to deliver the new clean energy investment we need," he told The Australian Financial Review.

Dr Finkel, who was not consulted on the plan, described it as a credible mechanism to transition the energy sector.

The policy was recommended by the Energy Security Board, a body chaired by independent businesswoman Kerry Schott and comprising the head of the Australia Energy Regulator, the Australian Energy Market Operator, and the Australian Energy Markets Commission.

Dr Schott said it was important to link reliability to emissions reduction and this policy did that better than the CET.

"If you don't have those two things linked together, you have a danger of an increase in intermittent renewables without having a reliable and dispatchable power to go with it," she said.

She said the scheme would lower prices because "it brings certainty to this industry which has not been here for a long time and investment has pretty much stalled".

The board estimated household bills would fall by as much as $115 a year but admitted it had done no modelling.

Mr Turnbull and Energy Minister Josh Frydenberg heralded the new policy as "a significant breakthrough" which should "end the climate wars of the past" but they still need the support of the eastern states as well as federal Labor as legislation is required at both levels.

Last night, the federal opposition was briefed by Dr Schott's board but was sceptical going in. After initially describing the policy as caving in to Mr Abbott, shadow energy minister Mark Butler did not rule out supporting it.

But Labor wanted to see modelling on the impacts on price as well as the economy more broadly, and there would have to be detailed discussions with industry and the states.

'Tony Abbott's energy plan'

The NSW government was open to the plan but South Australian Premier Jay Weatherill slammed it as a coal subsidy and said he would not support it.

Victorian Labor Premier Daniel Andrews called it "Tony Abbott's energy plan" while Queensland's Labor Energy Minister Mark Bailey said the plan would hamper his state's transition towards renewable energy.

Mr Turnbull spoke to the premiers by phone on Tuesday and the energy ministers are due to meet next month. Mr Turnbull said that gathering may yet become a special COAG meeting involving himself and the premiers.

The 26 per cent reduction target for the energy sector requires federal legislation and is necessary for Australia meets its economy-wide commitment made in Paris – when Mr Abbott was prime minister – to reduce emissions by 26 per cent to 28 per cent on 2005 levels by 2030.

The Australia Institute's Ben Oquist argued the electricity sector must reduce emissions by between 40 per cent and 55 below 2005 levels in 2030 to meet the Paris commitments.

There will be no change to the Renewable Energy Target which peaks at 23 per cent in 2020 and runs until 2030.

Industry backs 'important step'

The energy sector and industry more broadly was receptive to the new policy.

AGL Energy's Andy Vesey tweeted it was "an important step".

"Keen to work together to make it work. With bipartisan support, it will provide investment certainty," he said.

Origin CEO Frank Calabria said it could end the investment strike, enabling energy security and emissions reduction.

"Based on initial information we believe it is a solution that has potential, and we look forward to working with governments and energy market bodies to progress it."

The Australian Industry Group's Innes Willox called it "a plausible new direction for energy policy with a welcome focus on energy security".

Business Council of Australia Chief Executive Jennifer Westacott was cautiously optimistic.

"We urge everyone involved in this debate to pause, examine the detail, and then engage in good faith about how we can make this scheme work in practice."

The Australian Chamber of Commerce and Industry's James Pearson was similarly disposed.

In the party room meeting, Mr Abbott was backed by Queensland LNP MPs George Christensen and Matt Canavan who said emissions reductions would add costs to power.

However some dissidents, such as NSW Liberal MP Craig Kelly, were happy with the new policy. Mr Kelly said he was convinced the policy was right whe he saw Greens leader Richard Di Natale "frothing at the mouth".

Australian Financial Review

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