Navigating energy policy. ETS. RET. WTF?

Climate change policy talk is hotting up and simultaneously getting more nebulous – if you’ve been listening to Shorten, Abbott and even Turnball lately. But with clear communications, even the complex energy world can be easily explained. Here are two much debated (maligned?) major energy policies of recent times, broken down into bite size chunks. Enjoy.

1. To Tax or Not to Tax. Is this the question? 

So the ‘Juliar’ incident of years past was partly the result of this. Yesterday, Shorten waded into very similar waters. Turnball rightly pointed out that it all depends on whether you define a cost as a tax. But let’s go back to the beginning.

So what is the difference between a Carbon Tax and an Emissions Trading Scheme (ETS)?

Effectively, not very much.

Both make you pay if you emit large amounts of carbon dioxide. So if you are a coal-fired power station, for example, you’ll be asked to pay for the privilege of releasing vast amounts of CO2 into our atmosphere. The logic here is that if there is a cost associated with a particular action, then people are more likely to invest in mechanisms that reduce that cost, and therefore also reduce our carbon emissions. The secondary benefit is that it raises the cost of producing dirty power (which in Victoria is obscenely cheap). This makes cleaner forms of power – primarily wind, but also solar – more cost competitive.

In these ways both a Carbon Tax and an ETS are the same.

The difference is that a tax forces you to pay on the basis of your emissions – it places a cost on carbon, a disincentive but not necessarily a limit. So long as you fork out the cash, you can go forth and release.

With an ETS, the government creates a fixed number of permits, in effect setting a cap on the total emissions the country can release en masse. These permits are then purchased by big emitters to cover their level of CO2 production. If they find ways to emit less, they can then sell these permits to others who need them. This is why it is sometimes called a cap and trade scheme. More on this here.

2. So what is a RET and why do we need it? 

A RET is a Renewable Energy Target – and Australia has one. It was introduced by the Howard Government in 2001. This is not what Abbott might call an airy fairy European target , but a real one that has obligations. Sellers of energy (energy retailers, who send us our bills and purchase power on our behalf from electricity generators) have to make sure that a percentage of the power they purchase each year meets this target – or they are fined. This means that although renewable energy was generally more expensive than coal, it was still in the financial interests of energy retailers to purchase renewables as part of the mix. It has attracted billions of dollars of investment in renewable energy by creating a stable market for its purchase and distribution to us, the consumers.

You would have heard a lot of argy-bargy about the RET earlier this year, following a Federal Government review. After very lengthy toing-and-froing, in June this year the Government legislated the target be reduced by about a quarter – from 41,000 GWh to 33,000 GWh. Read more about that here.

Why do we need it? I’ll let Walleed Aly answer that one.

Energy policy hopefully made digestible, even for the non-policy wonks among us.

Talk to us about communicating government policy simply and effectively.

Image credit: Erin M