Finkel's Clean Energy Target better than nothing: economists


A poll conducted jointly by Monash Business School and the Economic Society of Australia shows influential economists believe a Clean Energy Target (CET) should be adopted, despite concerns it is not the best economic design compared to a tax or cap and trade scheme.

The Review into Australia’s electricity market, chaired by Chief Scientist Professor Alan Finkel, was released on 9 June 2017. One of the major recommendations was that a CET be adopted to provide incentives for new low emissions forms of energy generation to enter the market.

Under a CET, low emissions generators, such as renewable energy producers, would be allowed to sell certificates to electricity retailers, which would be obligated to buy them.

The ESA Monash Forum is a joint initiative between Monash Business School at Monash University and the Economic Society of Australia (ESA). It conducts a monthly poll of 53 eminent industry and academic economists who take part in the ESA's National Economic Panel.

For the August poll, released today, the ESA panellists were asked to respond and leave comments to this statement:

The Finkel Review has recommended a mandatory certificate scheme that obliges electricity retailers to purchase a certain proportion of the electricity they sell from sources of electricity whose emission intensity is below a defined level. This is preferable to conventional approaches to the pricing of externalities, such as an emission tax or cap and trade scheme."

The poll received 25 responses from the 53-member panel: 16 members (52 per cent) disagreed; four members (16 per cent) agreed and five members (20 per cent) were uncertain.

Comments from panellists:

Professor Stephen King, Monash Business School:

“…is the CET scheme preferable to the alternatives? Yes, if the objective is to actually get a working and reasonably efficient emissions reduction scheme working for electricity generation in the NEM. It is not the best scheme that economists could design, but it is the one most likely to be implemented.”

Professor Alison Booth, ANU:

“Where the goal is to limit or reduce carbon emissions, the mandatory certificate scheme is a second-best alternative to an emissions tax or a cap and trade scheme, both of which are far superior solutions to the problems of how to reduce carbon emissions. However, the politics of the situation in Australia are unfortunately currently unfavourable to either the emissions tax or the cap and trade scheme. In this situation, it may well be desirable to have the mandatory certificate scheme rather than the short-sighted situation of no scheme.”

Professor John Quiggin, University of Queensland:

"All of these schemes are roughly equivalent.  The LET has the limitation that it is specific to electricity, but it is a price-based policy.  The only thing that matters is finding a proposal that the current government is willing to accept. The Finkel proposal seemed like the most promising option in this respect, but it was rejected by the climate science denialists who dominate the government, just like everything else. Nevertheless, it may play a role in the future, as a basis for consensus after the current government is replaced."

In a guest opinion piece for the ESA Monash Forum, Dr Bruce Mountain, an economist with the CME energy consultancy firm said:

“In emission reduction policy the mainstream advice from Australia’s economists has not been persuasive. But this is hardly unique, as the pervasiveness of regulatory approaches in other countries shows.  Perhaps an unavoidably mediocre policy that is nonetheless well executed may be better than a brilliant policy that is poorly executed. Even if they could not have been more persuasive in design, Australia’s economists should still have much that is useful to contribute in execution. Hopefully more can be drawn into it.”

Read the ESA Monash Forum Poll results here.