Money Finance News Why the NEG will fail to address carbon emissions
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Why the NEG will fail to address carbon emissions

The NEG will only account for 5 per cent of the reduction in energy emissions needed.
The NEG will only account for 5 per cent of the reduction in emissions needed. Photo: Getty
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The Turnbull government’s National Energy Guarantee will do almost nothing to ensure Australia meets its commitments to the Paris climate agreement, experts have warned.

Analysis of government modelling by IBISWorld and ACIL Consulting suggests the NEG will only contribute just 5 per cent to the overall reductions required by the agreement between 2020 and 2030.

IBISWorld senior analyst Jason Aravanis told The New Daily that the Turnbull government has proposed no other concrete measures to ensure Australia meets its emissions reduction targets.

This means Australia is on track to miss its commitments under the Paris agreement, regardless of whether or not the states agree to sign up to the NEG.

On Tuesday Malcolm Turnbull’s much-discussed NEG got the Coalition party room’s approval, despite the high-profile scepticism of Tony Abbott and Barnaby Joyce.

The major sticking point, both with the likes of Mr Abbott and with Labor state governments – above all Victoria – had been how the NEG would reduce carbon emissions, and by how much.

Mr Abbott said it aimed too high, while the Andrews government in Victoria said it aimed too low.

Although the federal Coalition party room has approved the policy, state opposition could still derail it.

How the NEG will address carbon emissions

Under the NEG, it will fall on energy retailers – the companies that send you your energy bill – rather than energy generators to reduce carbon emissions.

The government has been pretty vague on exactly how this will work, but a reading of the various reports seems to suggest that the federal government will tell retailers that a certain portion of their energy must come from renewable energy resources.

This is how the Energy Security Board – part of the COAG Energy Council – defined the emissions element of the NEG.

“The emissions guarantee would place a requirement on retailers and large loads that purchase electricity from the wholesale market to meet a defined emissions level for that electricity. The guarantee will only take effect once new investment under the Renewable Energy Target scheme finishes in 2020.”

It goes on: “To meet their defined emissions level, retailers will enter into contracts with existing generators or by investing directly in new generation capacity. Contracts will specify an amount of energy over a particular time (the same way that they do now), and also specify an emissions level for the electricity that will be delivered.”

Last week the federal government released a bit more information about this, in which it confirmed the goal would be to reduce emissions by 26 per cent of 2005 levels.

It did not reveal exactly how it would force retailers to meet their emissions quotas, or exactly how it would penalise them if they didn’t.

Why this will fail

The NEG applies to electricity supplied through the National Energy Market (NEM). That includes South Australia, Queensland, the ACT, Tasmania, Victoria and New South Wales, but not Western Australia or the Northern Territory.

According to IBISWorld, the power generators that supply the NEM are responsible for 31 per cent of Australia’s carbon emissions. The remaining 69 per cent come from areas such as agriculture, mining, and manufacturing, as well as electricity generation in WA and NT.

Between 2020 and 2030, the Department of Environment and Energy estimates Australia must reduce its carbon emissions by 868 megatonnes if it is to meet the 26 per cent reduction in the Paris Agreement.

But modelling by the Energy Security Board, quoted by ACIL Allen and IBISWorld, projects the NEG will result in a reduction of just 44 megatonnes of carbon dioxide.

That is just over 5 per cent of the total emissions reduction needed.

“It is surprising … that the NEG’s own modelling states that it will only reduce emissions by 44 million tonnes, or 5 per cent of the economy-wide requirement,” Mr Aravanis said.

“As electricity emissions account for 31 per cent of total emissions from the economy, the Turnbull government’s policies implicitly assume that other sectors will cut emissions at a far greater rate than previously required.

“Cutting emissions from other sectors, such as agriculture, mining or manufacturing, is far more expensive and is likely to be both politically and practically difficult,” he said.

The NEG requires state and federal legislation to become law. Last week Environment and Energy Minister Josh Frydenberg signalled he would aim to secure agreement from the states by October.

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