Submissions to the Climate Change Authority’s Issues Paper for the renewable energy target (RET) review have thrown up a few surprises. The renewable energy target ensures that 20% of Australia’s electricity supply comes from renewable sources by 2020. It does this by requiring electricity retailers to purchase renewable energy certificates which are created when clean generators, such as wind and solar farms, produce power.
In its submission, the Business Council of Australia (BCA) reverses its long-held objection to the target, citing the need for investment certainty. The Australian Industry Group (AIG), whose members now include renewable energy providers and equipment makers, also reverses its position, held only three years ago, that the target should be scrapped. Several energy companies with significant investments in fossil-fuel based energy supply, such as Origin, TRUenergy and AGL, also continue to support the target.
This could be evidence that the RET is successfully working to break the path-dependence and carbon lock-in in our energy-supply sector.
Path dependence – the idea that current technologies and systems depend on historical circumstances and not necessarily efficient resource allocation – occurs in many industries with only some instances requiring action.
For example, if an alternative technology or system is no more efficient than the incumbent, this “weak-form path dependence” can be ignored. Similarly, if the existing system or technology is inefficient but not worth changing – with the benefits of change being less than the costs – this also constitutes a no-action situation (“semi strong-form path dependence”).
The electricity supply industry, however, may be characterised by “strong-form path dependence”. In this situation, a highly inefficient structure exists that society would like to change but cannot. One of the most important causes of this inertia is the power of incumbents to determine the current course of policy. The influential incumbents drown out the promoters of change who have little political power.
However, the path can be broken if the promoters of change gain traction through the formation of new coalitions or when new information arrives (such as global warming) which means that society welcomes change.
This seems to be what is happening with the RET which has created the traction needed. Those with interests in renewable energy have become more influential due simply to their growing market share, their membership in groups such as the BCA and AIG, and the changing mix of investments now held by other members of influential lobby groups.
The players in renewable energy now have a voice and these can almost be heard in the submissions discussed. With reluctance, groups such as BCA and AIG must now argue in favour of the RET to protect the interests of their members.
This is why the RET must be maintained and extended. These voices will quickly disappear at this early stage and the voices are, as yet, still small. An extension of the scheme, recommended by many in the other submissions, will further entrench these other voices in the landscape of public policy.
This can only be a good thing. Policy should reflect sound reasoning rather than the interests of any group, but it is never made in a vacuum where sound reasoning survives. Energy policy driven only by the interests of one group can never be efficient, effective or equitable.
Of course, many will argue that the high cost of renewable energy compared to fossil-fuel generation indicates that the current system is more efficient. In this case, while path dependence exists, it is only of the weak or semi-strong form.
However, this neglects the external environmental costs of the fossil-fuel driven system and the future reductions in renewable-energy supply costs which will result from increasing returns to scale and learning effects. Once these are factored in, a strong-form path dependence appears more likely.
Others will argue that the RET is not the efficient policy method, citing, for example, the benefits of a much higher carbon price instead. However, this is not going to happen with the carbon pricing scheme linked to the international price from 2015.
Moreover, the certainty created by the RET, with its long-range targets and clear goal of encouraging the “additional generation of electricity from renewable sources”, has seemingly been effective in creating the critical mass of dissenting voices to the views of the incumbents. Its maintenance and expansion to 2030 and beyond is needed to complete the process and shift Australia to a sustainable future.