Investors ‘despair’ as Australia’s PM ditches emissions reduction target

The government could also support new coal-fired power stations as PM Malcom Turnbull gives in to pressure from MPs within his own party.

Australian prime minister Malcolm Turnbull has dropped the carbon emissions component from his proposed National Energy Guarantee, in a move that creates further uncertainty over the future direction of Australia’s energy policy.

Turnbull announced today that the NEG bill would not include legislation on an emissions target as it would “not be able to pass the House of Representatives”. His position as prime minister has looked shaky over the weekend as several MPs in his own party threatened to cross the floor and vote against the NEG over concerns about the emissions target and a belief that it could harm fossil-fuel power generation.

Speaking to Infrastructure Investor, one director at a major Australian fund manager said they felt “despair” at the government’s inability to settle on a clear energy policy.

“As an investor, it’s still pretty hard for me to go in front of my investment committee and say: ‘Here’s the framework we’ll be working with for the next 15 years’,” the director said. “This move today just continues the uncertainty.”

The director argued, though, that the removal of legislation for an emission reduction target may end up being a positive move, as concerns had been raised that the proposed target of 26 percent was too low and could be difficult for future governments to increase if it was locked in via legislation.

“The question now is how these changes to the NEG could constrain a future government when it comes to making changes,” the director said. “If it’s tied to the Australian Competition and Consumer Commission, say, that could be a problem.”

Despite this potential silver lining, though, the investor agreed that further uncertainty over energy policy and regulation was bad for investment.

In the changes to the NEG announced today, Turnbull also revealed that the federal government would underwrite new power generation in a move that could theoretically see publicly funded guarantees for new coal-fired power stations.

“They’re only offering to do this because they know the private sector won’t touch coal, and to appease people within their own party who like coal,” one investment director told Infrastructure Investor.

“My concern is that, like with Snowy 2.0 [the proposed pumped hydro project], the idea of new coal will hang over the market and deter someone else from developing new generation capacity as they’d worry that the government will build new, uneconomical generators.”

Garry Bowditch, executive director of the Better Infrastructure Initiative at the University of Sydney’s John Grill Centre for Public Leadership, commented that today’s developments meant that the possibility of the NEG reshaping the structure of Australia’s energy market had “slipped a few notches back”.

“It looks like this is all code for keeping coal-fired entities going for as long as they can, if not looking for new investment in coal,” Bowditch said.

“It has a perverse effect of causing more uncertainty over the future energy mix and it’s hard to see how that will sustain a price decline for consumers. I think we’ll actually see a highly regulated energy market in future – and I wouldn’t even take renationalisation [of generation assets] off the table as the government seeks price certainty.”

The National Energy Guarantee is the Turnbull government’s flagship energy policy, designed to lower prices and guarantee the reliability of supply, while lowering carbon emissions to meet Australia’s obligations under the Paris climate agreement.

With the carbon emissions element of the policy now dropped, questions remain over what the final policy will look like when it appears as a bill in front of Parliament in the coming weeks.

The policy has also come under heavy fire from the state governments of Queensland and Victoria, and the government of the Australian Capital Territory, which did not want a low-carbon target locked in by legislation, among other demands. The federal legislation will have to be enacted by each state legislation if it is to be successfully implemented.