Malcolm Turnbull shelves emissions reduction target as leadership speculation mounts


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The government has shelved any move to implement the 26% reduction in emissions because it cannot get the numbers to pass legislation in the House of Representatives.
AAP/Mick Tsikas

Michelle Grattan, University of Canberra

Malcolm Turnbull has announced the government will shelve any move to implement the 26% reduction in emissions because it cannot get the numbers to pass legislation in the House of Representatives.

The desperate attempt to quell the rebellion in his ranks comes as Turnbull’s leadership is under mounting pressure, with speculation about a leadership bid sooner or later from Home Affairs Minister Peter Dutton.




Read more:
View from The Hill – It’s time for Turnbull to put his authority on the line


But Turnbull told a news conference that Dutton had been at Monday morning’s leadership meeting and “has given me his absolute support”.

“I enjoy the confidence of cabinet and of my party,” he declared.

In a package of changes to the National Energy Guarantee, Turnbull announced the government would move for extraordinarily strong measures to be available against companies that do not give consumers a fair deal, including ultimate divestment.

The government has retreated from Turnbull’s Friday compromise move of implementing the 26% reduction target by regulation. That idea, aimed at denying critics the opportunity to cross the floor, sparked a fresh backlash from Coalition MPs who thought it would make it easier for a Labor government to increase the target.

“Our policy remains to have the emissions intensity standard in the legislation,” Turnbull said at a news conference.

But “as John Howard said, politics is governed by the iron laws of arithmetic and in a House of Representatives with a one seat majority, even with strong support in the party room, if a small number of people are not prepared to vote with the government on a measure then it won’t get passed. So that’s the reality.”

He said the government would bring the target legislation forward “where and when we believe there would be sufficient support in the House of Representatives and obviously in our party room to progress this component of the scheme”.

Turnbull has been frantically seeking any means to pacify his critics, as Tony Abbott and other hardliners are determined to use the energy issue to try to bring him down.

However, it is unlikely his latest move will satisfy his most trenchant opponents. Critics such as Eric Abetz are broadening their attacks on Turnbull to call for government policy changes in other areas, including immigration.

Turnbull admitted he had not personally spoken to Labor to determine whether it would support the emissions legislation, which would give it the numbers in the House.

The shelving of the emissions legislation could cause the Labor states – yet to sign off on the National Energy Guarantee – to walk away from the broad NEG scheme.

Under the initiatives to try to drive down electricity prices announced by Turnbull, a “default market offer” would be set, from which all discounts would be calculated.

“Consumers will be able easily to compare offers from different companies and recognise when they’re being ripped off or when they’re getting a fair deal,” Turnbull said.

He said the Australian Competition and Consumer Commission estimated that for average customers on an inflated standing offer, the savings on moving to a new default market offer could range between $183 and $416 a year. For the average small to medium business the move could save between $561 and $1457.

Turnbuil said the ACCC would be given new powers to “step in where there has been abuse or misuse of market power.

“In the most egregious cases of abuse, additional powers will be conferred on government to issue directions on operations, functional separation and even, as a last resort, divestiture of parts of the big power companies,” Turnbull said.

At his news conference, where he was flanked by Treasurer Scott Morrison and Energy Minister Josh Frydenberg, Turnbull rejected a reporter’s suggestion that he had just delivered Tony Abbott’s policy. Abbott has wanted the emission target dropped and Australia to walk away from the Paris climate agreement.

“Our energy policy remains the same, but we are not going to present a bill into the House of Representatives until we believe it will be carried,” Turnbull said.

“We obviously need the support of sufficient of our colleagues to get it passed and that means, you know, substantially all of them.”

On Paris, he said: “We are parties to the Paris Agreement and the government has committed to that”.

The president of the Queensland Liberal National Party, Gary Spence, is urging MPs from Queensland – a vital state at the election – to replace Turnbull with Dutton.

Meanwhile, Western Australian Liberal senator Linda Reynolds strongly backed Turnbull, telling Sky she “absolutely” believed he would be prime minister at the election.

Former deputy prime minister Barnaby Joyce welcomed the government’s crackdown on power companies saying it was a good outcome. He was particularly pleased with the divesture power, which meant “if you play up, we can break you up”. Turnbull had shown his “capacity to listen”.

Throwing his weight behind the revised package, Joyce said “it’s a great move today.” Asked on Sky about the leadership, he said “I don’t think changing prime ministers looks good.” He also dismmissed Spence’s call for a move to Dutton saying the parliamentary wing should not be confused with the branch members.

Monday 2:33pm

UPDATE: Nationals enthusiastic about revisions but energy industry is critical

The Nationals have swung in strongly behind the revised package.

Deputy Prime Minister Michael McCormack and his senior ministerial colleagues held a joint news conference to back the enhanced measures to attack high prices.

Nationals who previously had been dissidents, including former prime minister Barnaby Joyce, made separate supportive comments.

The fact the backbench Nationals have been brought back into the tent is important for Turnbull, because it leaves the Liberal hardliners more isolated.

The Nationals are particularly enthusiastic about the commitment to embrace the ACCC recommendation for the government to underwrite investment in projects for new dispatchable power undertaken by new players.

Although the recommendation is technology-neutral, the Nationals see this as a pathway for new coal projects. Nationals deputy leader Bridget McKenzie said: “I’m not afraid to say the C-word: coal, coal, coal is going to be one of the areas we invest in.”

Queensland Nationals backbencher George Christensen, said: “We have a new energy policy thanks to a band of ‘Liberal National rebels’ who stood firm and fought for common sense.”

Christensen said: “What has been announced this morning puts price reductions first and foremost, so pensioners struggling to pay their power bills come before the ‘feel good’ Paris Agreement.”

Another Nationals backbencher, Andrew Gee, welcomed “plans to abandon the National Energy Guarantee”. “It shows that if you stand up and be counted you can actually make a difference, but it’s disappointing that it took this long”.

Opposition leader Bill Shorten labelled Turnbull “truly a white flag prime minister”. “Every day it is a new policy
from the government, a new policy not designed to lower energy prices but just for Mr Turnbull to keep his job from his enemies,”

“Mr Turnbull has demonstrated that he is not the leader this nation needs. Real leadership is about fighting
for the principles you believe in. Real leadership is about not always giving in to your enemies every time they disagree with you,” Shorten said.

Labor states and the ACT were scathing.

Victorian Energy Minister Lily D’Ambrosio said: “I’m not sure Malcolm Turnbull knows what the NEG is anymore – or if it still exists.”

“We’ll carefully consider whatever energy policy emerges out of the infighting going on up in Canberra.”

Queensland premier Annastacia Palaszczuk said “what we are seeing today is energy policy in free fall”.

The ACT minister for Climate Change, Shane Rattenbury said the federal government had now completely capitulated on emissions and climate change, and abandoned the Paris Climate Change commitments.

“The NEG is dead. It was hailed as a policy to address the ‘trilemma’ of prices, reliability and emissions reduction. Instead, Federal energy policy is being determined by the worst, climate change denying elements of the Liberal Party,” Rattenbury said.

The Australian Energy Council’s chief executive, Sarah McNamara, criticised the government’s announcement, saying it “has left the most critical policy, the National Energy Guarantee, in limbo.

“Re-regulation of electricity prices and aggressive market interventions are not the long-term answer to high energy prices,” she said.

“The NEG and policy stability remain the long-term solution to bringing down prices.”

McNamara said that “replacement investment demands bipartisan policy and the lack of it remains the biggest drag on the energy market.”

“This is policy with no consultation,” she said.
“Re-regulation has the very real potential to damage competition and confidence.”

McNamara said increasing the ACCC’s powers to allow divestment of private assets was not supported by the ACCC’s own report.

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The Council represents 21 major electricity and downstream natural gas businesses operating in competitive wholesale and retail energy markets. They collectively generate the overwhelming majority of electricity in Australia.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

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View from The Hill – It’s time for Turnbull to put his authority on the line


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Malcolm Turnbull is faced with a highly volatile situation. But he may need to manage it by taking a risk.
AAP/Lukas Coch

Michelle Grattan, University of Canberra

As Prime Minister Malcolm Turnbull struggles with the National Energy Guarantee, the Liberals are in an existential moment – no less dramatic because in recent history, they’ve made a habit of such moments.

Are they going to allow a toxic combination of revenge politics, anti-climate change ideology, panic over the Longman result, and sheer muddle-headedness kill the chance of giving certainty to energy investment and tear down or mortally wound their prime minister?

One pro-Turnbull backbencher describes it as a “hostage situation”, with a small number “holding the nation to ransom”. By and large, the backbench is happy with the NEG, this backbencher affirms.

Turnbull now should put his authority on the line over his energy policy, which he’s augmented by concessions and extra price measures.

This doesn’t mean asking for a vote on his leadership, but perhaps it should mean breaking the normal practice of operating by consensus and instead taking a formal vote on the policy at Tuesday’s Coalition parties’ meeting.

Yes, it would be a big risk. Some sources do say there is leadership stirring going on in Liberal ranks. (Certainly, News Corp appears to be helping fuel the situation – it’s a nice irony that a lot of trouble is coming from the government’s favourite media organisation, not the one it so dislikes, the ABC.)

It would be better for Turnbull to take on his enemies than allow his position to be eroded progressively on their timetable, which reportedly is to wait until September, after another bad Newspoll.

If he can’t hold the situation at this point, his grip is only going to get weaker quite quickly.

Turnbull, Treasurer Scott Morrison and Energy Minister Josh Frydenberg have spent the past few days cobbling together initiatives in an attempt to appease mutinous backbenchers. This comes less than a week after the NEG had majority support in the Coalition party room.

Turnbull looks weak and desperate, but had little choice because he could not afford a number of MPs crossing the floor.

The proposed changes include regulating rather than legislating the 26% target for emissions reduction in the electricity sector.

To counter his earlier warnings about a Shorten government easily increasing the target if it were set in regulation, Turnbull said in a Sunday social media video: “we will introduce a new law that ensures that before any new emissions target is set, or changed, the energy regulators and the [Australian Competition and Consumer Commission] must advise what that means for your electricity prices.

“This will ensure that any government who wants to change this, has to tell you up front what the cost will be.”

The revamped package also includes provision for a “price expectation”, with companies that don’t meet it facing penalties, plus a range of other market interventions on power companies.

“We will set a price expectation which should be the most anyone pays,” Turnbull said.

“And if the prices remain too high, we’ll implement the toughest penalties, until you’re getting value for money.

“We will not hesitate to use a big stick, as we did with gas, to make sure the big companies do the right thing by you, their customers.”

These measures will satisfy some critics within the Coalition. They don’t satisfy Abbott – and an unknown number of others.

The dissidents last week included some Nationals but the pragmatists in that party, which had its federal council in Canberra on Friday and Saturday, are anxious for a settlement (that includes a gesture to coal). Nationals cabinet ministers have been embarrassed, however, by being out of the loop as Turnbull crafted his concessions.

All that’s happened vindicates, incidentally, the Labor states and ACT declining to sign on to the NEG until after the party room finalised its position. Those jurisdictions, and federal Labor, have had one of their demands – having the target set by regulation – met, thanks to the dissidents.

After the reports of the change, Abbott was quickly on 2GB on Saturday to stir trouble.

“On Tuesday, in the party room, we were told it is absolutely essential to legislate the Paris target, because if we don’t legislate it Labor can just increase it willy-nilly, and last night it seems we’ve dumped the idea of legislation, for god knows what reason,” he said. “It’s no way to run a government, making absolute commitments on Tuesday and breaking them on Friday”.

While once again declaring he was about switching policy rather than leader, he also posed the question: “Can you change the policy without changing the leader?” Asked if there was going to be “a leadership attempt”, he said: “I don’t know”.

And that takes us straight to Peter Dutton, whose performance last week was highly provocative.

On Thursday Dutton played footsie on 2GB about his possible route out of cabinet. On Friday the Daily Telegraph said he was being asked to challenge Turnbull. On Saturday that paper’s headline was “Dutton Ready to Roll – Minister considers Turnbull challenge …”.

Dutton stayed silent all Friday. Only on Saturday morning did he tweet: “In relation to media stories today, just to make very clear, the Prime Minister has my support and I support the policies of the Government. My position hasn’t changed from my comments last Thursday.”

As they say, too little, too late. Dutton’s long silence had encouraged the speculation. His colleagues will judge (some will know) whether this was political misjudgement or disloyalty.

Turnbull is faced with a highly volatile situation. But how to handle it?

Firstly, Turnbull and his ministers need to get a package out on Monday that can be delivered (do some of the extra measures require state legislation?), is free of glitches, and provides insurgents with minimum opportunities for floor crossing. Cabinet ministers were discussing this over dinner on Sunday night.

Secondly, Senate leader Mathias Cormann, Dutton’s very good friend, should tell his mate, as they take their 5.30 am constitutional in Canberra’s cold, that allowing others to trail his coat is not appropriate behaviour for a cabinet minister.

Cormann might usefully make a couple of other points. Leaders who come to power by the sword often end badly. And if there were a leadership contest, who would know what surprise result might eventuate (who, in 2009. thought it would be Abbott who’d defeat Turnbull)?

Thirdly, Turnbull needs to get strong, articulate backbench supporters of the NEG out there countering the substance of the dissidents’ policy arguments.

And finally, he should press the party room into a decisive stand.

Chancing his arm might at worst backfire, leading quickly to his losing his head. But if so, he would have lost it before too long anyway.

Update:

Malcolm Turnbull’s situation has been worsened by the latest Fairfax Fairfax Media/Ipsos poll, published Monday, which has the Coalition trailing Labor 45-55% – a dramatic drop from a month ago when the gap was 49-51%.

This poll, which tends to be volatile, varies significantly from Newspoll earlier this month, which had the Coalition behind 49-51%.

Turnbull still has a strong lead over Bill Shorten as preferred prime minister in the Fairfax poll – 48-36%. But the gap has narrowed greatly compared with a month ago, when Turnbull led 57-30%.

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The poll showed that a majority – 54% – back the National Energy Guarantee, with only 22% against. Among Coalition voters 64% back the NEG, with support among Labor voters at 59%.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Turnbull dumps emissions legislation to stop rebels crossing the floor


Michelle Grattan, University of Canberra

Prime Minister Malcolm Turnbull has done a backflip on his proposal to put the emission reduction target into legislation, in the face of rebel backbenchers threatening to cross the floor.

The new plan is for the energy target – a 26% reduction to carbon dioxide emissions for the electricity sector – to be set by an executive order of the minister. Such an order cannot be disallowed.

The stunning retreat emerged as the energy issue threatened to turn into a crisis for Turnbull’s leadership, and the government worked on measures to reduce power prices to meet the demands of Coalition dissidents.

Cabinet Minister Peter Dutton remained conspicuously silent on Friday in face of a report that conservatives in the Liberal party were urging him to challenge Malcolm Turnbull within weeks.




Read more:
VIDEO: Michelle Grattan on the NEG showdown and a ray of parliamentary unity after Fraser Anning’s racist speech


A report in Sydney’s Daily Telegraph injected leadership speculation into the centre of Turnbull’s already highly difficult battle to curb a backbench rebellion over the government’s National Energy Guarantee (NEG).

The government has consistently refused a demand from the Victorian Labor government that the target should be set by regulation not legislation.




Read more:
Infographic: the National Energy Guarantee at a glance


The executive order would be accompanied by an Australian Competition and Consumer Commission report to parliament on the price impact of the target.

If Turnbull had gone ahead with legislation, and enough backbenchers had crossed the floor to defeat the bill, it would have amounted to an effective vote of no confidence in his leadership.

While some of the backbench rebels will be satisfied with the price package, it is not clear whether this will include Tony Abbott and his hardcore supporters, who want to bring Turnbull down and have smelled political blood.

Tuesday’s Coalition parties meeting will discuss the new proposals.

On another front, Nationals leader and Deputy Prime Minister Michael McCormack is facing mounting criticism of his performance, as the Nationals federal council meets in Canberra at the weekend. The energy issue is likely to be front and centre there.

Despite his public silence, it is understood that Dutton on Friday privately told Turnbull that he was comfortable with the government’s energy policy.

The backbench critics have had two major areas of concern. They did not think the NEG plan did enough to reduce electricity prices. And they were unhappy with the 26% target for reducing emissions in the electricity sector being legislated.

But the retreat from the target being enshrined in legislation will not be enough to satisfy those who want Australia to walk away from the target altogether and pull out of the Paris climate agreement.

Up to 10 backbenchers had threatened to cross the floor on the emissions reduction legislation.

The report about Dutton followed his interview with Ray Hadley on 2GB on Thursday in which Hadley challenged him over whether he was “blindly loyal” to Turnbull.

Dutton said he gave his views privately as a cabinet member and wasn’t going to bag out his colleagues or the Prime Minister publicly.

“If my position changes – that is, it gets to a point where I can’t accept what the government’s proposing or I don’t agree – then the Westminster system is very clear: you resign your commission,” he told Hadley.

The Telegraph report said Dutton was being urged to challenge Turnbull “on a policy platform of lower immigration levels and a new energy policy focusing on cheaper bills rather than lowering emissions.” Conservative MPs had told the Telegraph “a ‘torn’ Mr Dutton was considering his options,” the report said.

Asked on Nine whether Dutton was going to have a crack at the leadership, Defence Industry Minister Christopher Pyne said “absolutely not.”

Pyne also rejected the suggestion the government was on the ropes. In an obvious reference to Abbott and his supporters, Pyne said: “The polls are about 50-50 and there’s a lot of hyperventilating going on, and there’s a few people I think who are trying to put the band back together from the late 2000s, noughties.”




Read more:
Grattan on Friday: Malcolm Turnbull’s NEG remains in snake-infested territory


Finance minister Mathias Cormann said he had not heard any talk of some conservatives urging Dutton to challenge.

Cormann, a fellow conservative who is close to Dutton and said they had had four walks this week at 5.30 am, told Sky,: “We are both very committed to the success of the Turnbull Government and to winning the next election.

“We strongly support the Turnbull leadership of course and we want to see the Coalition government successfully re-elected early next year when the election is due.”




Read more:
The National Energy Guarantee is a flagship policy. So why hasn’t the modelling been made public?


The prices package would be based on recommendations made in the recent report of the Australian Competition and Consumer Commission.

The government has been briefing that Turnbull is willing to take a “big stick” to companies to ensure consumers get better deals.

The government is looking at cracking down on how companies bid into the wholesale electricity market and secret contracts between different players.

There would be closer scrutiny of energy companies buying and selling electricity internally between their own generation and retail companies at inflated prices.

This would put the contracts of “gentailers” under attention to ensure transfer prices did not disadvantage consumers. The ACCC said high transfer prices “raise concerns about the potential for substantial profit to be allocated to the wholesale businesses.”

The ACCC has also urged more transparency on direct contracts between retailers and individual generators, proposing these be put on a public register.

Among other changes being discusssed are:

  • providing the Australian Energy Regulator (AER) with powers to deal with manipulation of the wholesale market.

  • requiring the reporting and disclosing of over-the-counter trades (in a de-identified format) to make available important market information.

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    expanding the AER wholesale market monitoring functions to include monitoring, analysing and reporting on the contract market.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Grattan on Friday: Malcolm Turnbull’s NEG remains in snake-infested territory


Michelle Grattan, University of Canberra

Malcolm Turnbull had a party-room victory but a god-awful week, and it wasn’t because his approval plunged in Monday’s Newspoll. His energy policy is back in the mire, and Tony Abbott is being – as one colleague neatly describes it – the agent of chaos.

It’s nearly unimaginable how the Coalition chooses to replay that old self-destructive record. In Bill Shorten’s office they’ve been digging out the 2009 headlines, such as “Battered Turnbull faces mutiny” and “Abbott leaves leader in crisis”.

Well, Turnbull is not “in crisis” but things are quite a serious mess, as those who hate him, plus others who don’t, sharpen their attack in another round of the climate wars.

In Tuesday’s Coalition parties meeting, where Turnbull won strong support for his energy policy, several reserved their right to cross the floor on the emissions reduction legislation, and later more said they might do so. There was talk of up to ten.




Read more:
Turnbull beats Abbott over NEG, now Frydenberg has to win Victoria


Assistant minister Keith Pitt, from the Nationals, let rumours run that he might stand down from the frontbench to oppose the legislation (a cynical Nationals source said: “he’s made hollow threats before”).

Resources Minister Matt Canavan (also a National), asked in the Senate whether he’d attempted to persuade Pitt on the National Energy Guarantee, said he’d “tried to persuade all I’ve spoken to about the common sense of adopting” the NEG.

The Nationals’ federal council meets this weekend in Canberra, where there will be a lot of chatter about the NEG. Deputy Prime Minister Michael McCormack in his council address will emphasise the vital importance of lowering power prices – very safe ground – but given his divided ranks, he isn’t expected to come out with a passionate advocacy of the technology-neutral NEG. A motion on the council’s agenda calls on the government “to support the building of high-energy, low-emissions, coal-fired power stations”.

It’s one thing for backbenchers to talk about crossing the floor, quite another to do it. Turnbull is working hard on the rebels – though obviously not on Abbott – to try to bring them around.

They have wish lists, and Turnbull, the ultimate transactional politician, is seeking doable ways to mollify them. The government has already indicated it will accept the Australian Competition and Consumer Commission’s recommendation to underwrite new dispatchable power projects.

On Thursday night a senior source said Turnbull was considering “heavy-handed intervention” to bring down prices. “The prime minister is not afraid to pull out the big stick on electricity companies if that’s what it takes,” the source said.

The stakes are clear. If everything went pear-shaped and there were enough floor-crossers in the House of Representatives to sink the package’s emissions reduction legislation, that would effectively (though not literally) amount to a vote of no confidence in the prime minister.

Hard to imagine, and probably only Abbott is thinking that far ahead. When other dissidents contemplate what could happen, some can be expected to fold on that ground alone.

Meantime, things fray as pressure mounts.

Take Peter Dutton’s Thursday interview with 2GB’s Ray Hadley. Hadley challenged Dutton over the energy policy, demanding to know, “Are you blindly loyal [to Turnbull]?” Instead of mounting a full-throttle defence of the policy, Dutton said he gave frank advice in private as a member of the cabinet and didn’t bag out colleagues or the prime minister publicly. This just left a question mark over what Dutton actually thinks about the policy.

Turnbull is up against multiple obstacles, apart from the insurgents.

He needs to get the states and the ACT onboard for the NEG, but the Victorian Labor government has a particular interest in procrastinating, and may do so until it goes into caretaker mode in October. It is judging what’s best for itself electorally, especially given its battle with the Greens in Melbourne’s inner metropolitan electorates.

Impatient as the federal government is to get finality on the NEG, it could be risky for it to press the Victorians too hard before the November state election. That might just increase the chances of a firm “no”. As one federal source says, Victoria needs to be accorded some space.

After the state election, things would be easier. If the government changed in Victoria, the new administration would sign up. If Labor was returned – and had left open its position on the NEG during the campaign – it might be more readily persuaded to fall into line.

Then there is federal Labor. It is generally thought the government will need ALP support to pass the emissions reduction legislation in the Senate, and defections could mean Labor was needed in the lower house too.

The argument has gone: Labor would try to amend the emissions reduction target in the legislation but, assuming that failed, it could then pass the legislation in order to take the climate/energy issue off the 2019 election agenda. That would leave a Shorten government able to increase the target later.

If Labor sees Turnbull being wounded by the internal battle, however, it would have every incentive to hold out on the emissions legislation, leaving the prime minister unable to deliver it.

Another set of players in Turnbull’s energy problems comprise the media shouters: Alan Jones, Hadley, Peta Credlin, Andrew Bolt.

They direct their megaphones to the so-called Coalition “base” and their messages resonate particularly with the Liberal National Party’s grass roots in Queensland. This makes some backbenchers nervous, inclining them (in one description) to “virtue signal” to the base.

Coalition backbenchers generally, increasingly frightened for their seats, are caught in a swirl of pressures and emotions. Some are angry at Abbott. Some look for an unrealistic nirvana, where prices suddenly plunge in time for the election.

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Some just want the NEG out of the way, a policy in the kit bag, whatever they think of it. NSW Liberal senator Jim Molan, who describes the NEG as “sub-optimal” told Sky he supported the package on the basis that “we’ve got to focus on getting re-elected”, noting: “I’ve spent all my life making rubbish policy work.” An endorsement of sorts.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

The renewable energy train is unstoppable. The NEG needs to get on board


Ken Baldwin, Australian National University

On the face of it, the National Energy Guarantee (NEG), adopted as Coalition policy at a party room meeting yesterday, appears to promise the certainty that industry, consumers and experts have desperately sought for the past decade. But beware: there is a renewable energy train coming down the track that is unstoppable.

The NEG cannot stop the train, but it could act as a guide rail to steer it – or even safely accelerate it – by reducing investment risk and lowering the cost of finance for renewable energy projects.




Read more:
Turnbull beats Abbott over NEG, now Frydenberg has to win Victoria


The latest figures indicate that the renewable energy train will smash Australia’s 2020 Renewable Energy Target. Assuming that the current pace of renewable energy investment continues (and there is good reason to expect that it will, given the unarguable economics of plummeting renewable energy prices worldwide), then the electricity sector would be on track to hit the government’s 26% emissions reduction target by 2030 with virtually no policy help at all.

The unstoppable renewable energy train may even end up contributing the lion’s share of the reductions needed to achieve Australia’s economy-wide target of cutting emissions by 26-28% relative to 2005 levels by 2030.

This would particularly be the case if we ramped up the electrification of other sectors such as transport and industry, and encouraged householders to replace gas with electricity for heating and cooking.

The big issue then would be whether the rest of the electricity system can adapt quickly enough as renewable energy reaches 50% and above. This would call for significant grid upgrades and storage systems, so as to provide efficient and reliable supply.

Missing the train?

With the NEG projected to deliver no more than 36% renewable energy by 2030, one could argue that this policy is simply waving from the platform as the renewables train goes whooshing by. But this argument ignores the impetus that the NEG would provide to advancing climate policy as a whole.

The NEG is widely regarded by energy analysts as the fourth-best solution – after a carbon pricing system, an emissions intensity scheme, or a clean energy target. But while many commentators have taken issue with both its ambition and its effectiveness, legislating the NEG would undeniably break the policy paralysis that has stopped Australia from moving forward for so many years.

There is no reason why a future government could not introduce other measures – such as an economy-wide price on carbon, regarded by most economists as the most efficient way to combat climate change. Such a scheme could be laid right over the top of the NEG and would drive further transformation not just of the electricity market, but every other sector of the economy. This would be complementary to the NEG and could help decarbonise the electricity sector even more rapidly.

Yet much of the opposition to the policy has come from government backbenchers concerned that it already puts too much emphasis on cutting emissions. How, then, can the NEG thread the political needle without being compromised as an effective tool for decarbonisation?

Making the NEG better

First, the mechanism itself needs to be decoupled from the ambition. That is, the politically charged emissions reduction target needs to be set not in legislation but by regulation, so that it can easily be used as a dial to tune the level of ambition.

Any future government could then ramp up the electricity sector’s emissions target beyond 26%. This could be done either to cover the inevitable shortfall in other sectors (where emissions reductions are harder to achieve), or to help deliver a steeper emissions-reduction trajectory if required by the world’s post-Paris progress. Bear in mind that signatories to the Paris Agreement have agreed to periodically review and tighten their emissions goals, meaning that Australia’s current target will probably be revised upwards.

Critics of this approach might argue that it provides less certainty to industry, rather than more. But the certainty would be established by the mechanism of emissions reductions rather than the rate. If that sounds hard to envisage, consider how financial institutions plan and prepare for changes to interest rates, within a broad economic regulatory framework.

A timetable for reviewing and adjusting emissions targets could be set in much the same way as the Reserve Bank of Australia handles interest rates, although this should perhaps be done on timeframes measured in years rather than months.

Second, the states need to be able to set their own renewable energy targets, independently of those states that currently have no target, such as New South Wales. One way to implement this would be for all states to agree to each comply with the minimum 26% target so there would be no free-riding on the back of those states that decide to be more ambitious than the national baseline.




Read more:
Emissions policy is under attack from all sides. We’ve been here before, and it rarely ends well


Whatever happens, the renewable energy train is building momentum, and the debates within COAG and with intransigent elements in the federal Coalition party room may end up being irrelevant in the long run.

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But for the sake of our future, the resolution of climate and energy policy via the NEG will be an important baby step that helps to underpin the cost of decarbonising our entire economy. To do that, we must first pick the lowest-hanging fruit: the electricity sector.

Ken Baldwin, Director, Energy Change Institute, Australian National University

This article was originally published on The Conversation. Read the original article.

Turnbull beats Abbott over NEG, now Frydenberg has to win Victoria


Michelle Grattan, University of Canberra

Malcolm Turnbull has secured a decisive party room victory over Tony Abbott, taking the government’s signature National Energy Guarantee policy another step towards implementation.

Tuesday’s Coalition party room, in a 155-minute debate, gave strong support to the plan. But sources variously said four or five MPs – Abbott, Andrew Hastie, senator Eric Abetz, Tony Pasin and George Christensen – had reserved their right to cross the floor when the federal legislation for the emissions target comes to parliament, and others expressed doubts and criticisms.

In a statement after the meeting, Abbott said at least a dozen had expressed “serious concerns about the NEG or about turning the non-binding Paris targets into law”.

During the debate, Abbott pointedly referred to “merchant bankers’ gobbledigook”.

Tuesday’s party room mood reflected that most Coalition MPs accept that to save marginal seats and give the government, embattled in the polls, its best chance of survival, they need to unite behind Turnbull and the government’s policies.

During the meeting, several MPs told the dissidents they should reconsider their position and show cohesion.

The fate of the NEG scheme now depends crucially on the Labor states – notably Victoria – giving consent to it, and on the parliamentary numbers for the federal emissions reduction legislation.

The government is likely to need Labor support to get the emission legislation through. The legislation will be introduced this parliamentary fortnight.

Labor’s position is that it does not want this legislation debated until the states have made their decision on the NEG. When it is debated, the opposition will seek to amend it for a higher target. It has not said what it would do if, as expected, its amendment failed.

The Victorian Energy Minister, Lily D’Ambrosio, said after the Coalition party meeting: “We’ll study the Commonwealth NEG legislation thoroughly to see what concessions Malcolm Turnbull has given the climate sceptics in his party room.”

“We have said all along – we won’t let Malcolm Turnbull put our renewable energy industry and Victorian jobs at risk. We’ll continue to work through the COAG energy council to address our concerns.”

Energy minister Josh Frydenberg has a phone hook up with state ministers late Tuesday. They are set to release draft state legislation for the NEG mechanism.

But the states are not due to consider their support for the scheme again for some weeks, after failing to sign up last Friday. It is a race against time for the federal government, because Victoria goes into caretaker mode in October for the November election.




Read more:
Labor states keep the National Energy Guarantee in play but withhold agreement


With Victoria the main obstacle, Frydenberg said: “It’s time Daniel Andrews stopped walking both sides of the street and put the interests of Victorians first and the businesses of Victorians first. And he would do that by signing up to the National Energy Guarantee before he goes into caretaker mode.”

The pro-coal MPs were reassured in the party room by the government’s acceptance of the Australian Competition and Consumer Commission recommendation for the federal government to underwrite new despatchable power projects.

After the meeting, Abbott released an angry statement in response to the “rampant hostile briefing of journalists while the meeting was underway.”

“Yes, as the Prime Minister said at its close, there was party room support for the minister’s position. Much of it though, was of the ‘yes … but’ variety: congratulating him for the work he’d done in difficult circumstances and saying that the NEG was the best way through a bad situation.

“But most then added that what really mattered was actually getting prices down – not just talking about modelling – and actually getting more despatchable power into the system via ACCC recommendation 4 [on underwriting].

“Unfortunately, most explanations of how the NEG (as it stands without price targets) might theoretically get prices down sound like merchant bankers’ gobbledigook.

“It was a real pity that the meeting broke up before the chairman of the backbench committee, Craig Kelly, was able to finish his contribution.

“Yes, there were lots of pleas for unity but as one MP said, we’ve got to be loyal to our electorates and to party members too, and not show the ‘unity of lemmings’”.

“Yes, there was lots of regard for the ‘experts’ and for ‘business leaders’ but as one MP said ‘I’m not here for the technocrats’.

“I heard at least four lower house MPs formally reserve their position on the legislation and at least a dozen express serious concerns about the NEG or about turning the non-binding Paris targets into law with massive penalties attached.

“This is the big question that the party room didn’t really grapple with: when the big emitters are not meeting Paris, why should we? Especially, as even the Chief Scientist said, the difference meeting our target would make is ‘virtually nothing’”, Abbott’s statement said.

The Business Council of Australia called on “state and territory leaders to now get on with the job of implementing the National Energy Guarantee by releasing the draft legislation.

“It’s up to Victoria and Queensland, along with the other states and territories, to stop playing political games with people’s power bills.

“COAG Energy Council must stop dithering and finally act to end the decade of dysfunction that has plagued our energy sector.”

UPDATE

The ConversationIn a phone hook-up on Tuesday night the COAG energy council agreed to release an exposure draft of the National Electricity Law amendments needed to establish the mechanism for the NEG.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Labor states keep the National Energy Guarantee in play but withhold agreement


Michelle Grattan, University of Canberra

The Labor states have kept the National Energy Guarantee (NEG) alive but withheld the in-principle support the federal government had originally hoped to extract from Friday’s meeting of the COAG Energy Council.

The next stage in the NEG battle is the Coalition parties’ crucial meeting on Tuesday, when Prime Minister Malcolm Turnbull and federal energy minister Josh Frydenberg will be confronted by Tony Abbott and other critics who want, in effect, the plan to be made less green.

The Labor jurisdictions are anxious both to ensure that the NEG plan won’t be derailed by the Coalition party room, and to extract concessions from the federal government.

Victoria’s energy minister Lily D’Ambrosio said that her state had withheld its support until conditions that it put earlier this week were met.

D’Ambrosio emphasised that Victoria was “not walking away from the table” but added that Turnbull and Frydenberg needed to “stare down the crazies in their party room”.

Friday’s meeting had at an earlier stage been billed as deadline day for the NEG, but D’Ambrosio said it was “far too soon” to sign off on the policy.




Read more:
What’s your state’s position at the crucial National Energy Guarantee meeting?


Queensland’s acting energy minister Cameron Dick said his state was pleased that Frydenberg “has accepted Queensland’s position that we need the Commonwealth legislation to go through the federal Coalition party room first”.

“The Coalition party room is the biggest risk to energy and price stability, and has been for 10 years, so we need that party room certainty,” he said.

Ministers from the non-Labor states of South Australia and New South Wales said they would have preferred to have moved forward more quickly.

Frydenberg put a positive spin on the meeting, saying that ministers had moved a step closer to implementing the NEG. They had agreed to release an exposure draft of the needed state legislative amendments to implement it. This would be done after a teleconference on Tuesday and the passage of federal legislation through the party room, he said.

“In the words of Energy Security Board Chair Dr Kerry Schott, today’s agreement is a ‘great step forward’,” he said.

But Frydenberg remained intransigent in the face of demands, which have been strongly pushed by Victoria, that the Commonwealth emissions reduction legislation should allow targets to be increased by regulation, rather than requiring more legislation.

Frydenberg said the federal government would not negotiate on that issue, and pointed out that Victoria’s own renewable energy target is enshrined in legislation.




Read more:
Emissions policy is under attack from all sides. We’ve been here before, and it rarely ends well


The Australian Industry Group said that continuing development of the NEG was a positive step. But its chief executive Innes Willox warned: “The COAG Energy Council will soon have to make a real decision or risk condemning Australian industry to years more of damaging uncertainty.”

The Business Council of Australia also welcomed the step forward.

In a round of interviews before the meeting, Frydenberg said he was confident that the governments “will agree to move forward” with the NEG.

“We had a very constructive dinner last night and there was a broad appreciation … of the importance of the National Energy Guarantee, of our responsibilities to deliver lower power prices and to increase the reliability of the system, and the importance of integrating energy and climate policy,” he said.

“So while some of the states maintain some of their concerns with the design, there is broad understanding of the importance of the guarantee.”

The ConversationGreens climate and energy spokesperson Adam Bandt said that the states were “hopefully realising the NEG is a dud”.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Could the NEG bring down power prices? It’s hard to be confident that it will


Salim Mazouz, Australian National University; Frank Jotzo, Crawford School of Public Policy, Australian National University, and Hugh Saddler, Australian National University

The final design document for the National Energy Guarantee (NEG), released this week, contains a range of claims about the policy’s ability to drive down both greenhouse emissions and electricity prices. But still there is precious little detail on how exactly these assertions are backed up.

Specifically, two claims in the new document released by the Energy Security Board (ESB) are difficult to reconcile with other reputable modelling results.

First is the claim that greenhouse emissions will fall further under the NEG than they would in the policy’s absence. But a fine-grained analysis published a week earlier by the Australian Energy Market Operator (AEMO) suggests that the target of cutting emissions by 26% will be met regardless of whether the NEG is implemented or not.

The ESB predicts that emissions will fall further under the NEG (purple line) than without it (orange line). But according to the AEMO’s forecast (blue line), emissions will drop by more than this, even without the NEG. NEG modelling data are approximate, derived from measuring graphics provided in the ESB report.
Hugh Saddler, Author provided

If the AEMO analysis is right, the NEG in its currently proposed form will do nothing to cut emissions.




Read more:
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The second claim is that wholesale electricity prices will fall by a further 20% under the NEG. But it is hard to see how this will happen, given that the policy is not expected to trigger large changes to the energy landscape. The ESB’s document provides no raw data on this, but if we squint hard at the graphs provided in its modelling summary, we get the following:

Forecast changes to electricity generation capacity under the NEG. Modelling data are approximate, derived from measuring graphics provided in the ESB report.
Hugh Saddler, Author provided

This is not just a technical quibble. Much of the political justification for the NEG rests on the hope that it will deliver cheaper electricity. But how?

Taking the assumptions provided in the ESB’s document, we can attempt to deduce what will be the main drivers of price changes, in rough order of importance:

Contract coverage

The modelling assumes that contract coverage – electricity retailers and generators currently use electricity contracts to manage their exposure to fluctuating prices in the spot market – will increase by 5% under the NEG.

This is based on the notion that the NEG’s reliability requirement – which would require electricity retailers to hold an appropriate portfolio of electricity contracts in dispatchable sources of generation – would incentivise retailers to buy more electricity contracts.

Whether this would indeed drive an additional 5% of contract coverage is rather difficult to ascertain given the information provided. On the face of it, 5% seems a lot given that the reliability requirement is not expected to be triggered, noting that no reliability issues have been identified in the AEMC’s recent reliability standard and settings review and that even the base cases in AEMO’s Integrated System Plan do not trigger reliability problems.

Even if contracting does increase by 5%, how does that push down prices? This is a crucial point and yet it is not backed up by adequate analysis or evidence in the ESB report.

The ESB’s chain of reasoning appears to be: the NEG will result in a greater share of electricity output being sold under contract in anticipation of the reliability requirements kicking in; this will lead to lower spot market prices; this in turn will also pull down prices in the contract markets, reducing average wholesale prices overall.

So it all hinges on retailers changing their wholesale purchasing habits so as to ensure they meet the reliability requirement – even though, as discussed above, the reliability requirement is unlikely to be triggered Moreover, it is hard to believe that contract prices would fall as a result; it seems just as likely that the generating companies that sell those contracts (and which wield significant market power) would raise their prices, not lower them.

More renewables

The ESB assumes that the NEG will deliver an extra 1,000 megawatts of renewable capacity.

But this is an assumption, rather than a modelled outcome. The only justification offered is the ESB’s assertion that “recent renewable investment trends have been in part supported by the likelihood of an agreement to implement the guarantee”.

This is surprising, given that the NEG’s emissions target is so weak as to be ineffective, and ESB’s assumption that the policy will drive down power prices (and therefore profits for renewables generators). Any direct incentive for investment in renewables is highly unlikely to be coming from the NEG; the only plausible reasons would be greater confidence and lower financing costs.

Demand response

Demand response – in which consumers alter their power consumption so as to reduce peaks in electricity demand in exchange for payment – can potentially make a big difference to power prices by reducing the incidence of high-price events.

The use of this strategy is already growing strongly among electricity market participants. But once again, the ESB has given us little evidence to back up its assumption that the no policy case will have lower demand response than under the NEG. It all again hinges on the effect of the reliability requirement on contract coverage and on the extent to which emerging demand response products can take advantage of this. Very little analysis and no evidence to back up the choice of assumptions is contained in the ESB’s policy document.




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Here’s a glossary of the energy debate



Financing cost

The ESB assumes that the NEG will reduce the uncertainty premium – an additional amount required to finance projects in the face of policy uncertainty – by 3 percentage points. It is clear that a policy uncertainty premium currently exists, although it is unclear how high it might be. The Finkel Review assumed it is 3%. So does that mean investment uncertainty would completely disappear once the NEG is legislated?

Certainly not. Given the highly publicised political disagreements (even within the government’s own ranks) about the NEG’s emissions target, it seems likely that substantial policy uncertainty will still linger.

Regardless, this scarcely matters for the price outcomes modelled by the ESB, given that the model is predicting very little new electricity investment and the small amount of additional investment in the model attributed to the NEG is entirely assumption-driven, rather than a modelling outcome.




Read more:
The National Energy Guarantee is a flagship policy. So why hasn’t the modelling been made public?


Overall, the latest policy details don’t inspire confidence that the NEG will actually drive down power prices relative to what will happen anyway. We need a credible analysis of these assumptions, and modelling to tease out the effect of varying them.

It is helpful that the final report by the ESB does include at least a summary of the modelling. From here, it would be useful for the ESB, and the modellers it hired, to provide an investigation of the issues we have outlined here, or to undertake one if this has not yet been done.

The ConversationAs per this week’s open letter from energy analysts calling for the release of the modelling, independent researchers have offered to provide peer review. Let’s hope the ESB takes us up on it.

Salim Mazouz, Research Manager, Centre for Climate Economics and Policy, Australian National University; Frank Jotzo, Director, Centre for Climate Economics and Policy, Crawford School of Public Policy, Australian National University, and Hugh Saddler, Honorary Associate Professor, Centre for Climate Economics and Policy, Australian National University

This article was originally published on The Conversation. Read the original article.

Higher energy prices are here to stay – here’s what we can do about it



File 20180702 116129 vahewl.jpg?ixlib=rb 1.1
Australia’s energy prices have doubled since 2015.
Photo by José Alejandro Cuffia/ Unsplash, CC BY-SA

Lucy Percival, Grattan Institute

The good news is that after two years of big rises, wholesale electricity prices have fallen somewhat since mid-2017. The bad news is that prices are still much higher than they have been for most of the past 20 years. And the worse news is that we had better get used to these high prices.

A new Grattan Institute report, Mostly working: Australia’s wholesale electricity market, shows wholesale prices jumped from less than A$50 per megawatt hour (MWh) in 2015 to around A$100 per MWh in 2017. But it finds that most of this increase is the market working as it should. And it urges politicians to tell consumers a harsh truth: high electricity prices, well above A$50 per MWh, are here to stay.

The best thing our political leaders can do to keep a lid on electricity prices is to help create stable, bipartisan energy and climate-change policy. This will encourage new investment so Australian households can get low-cost, high-reliability, and low-emissions electricity.




Read more:
A high price for policy failure: the ten-year story of spiralling electricity bills


Why prices went up

For most of the past 10 years, Australia’s National Electricity Market (NEM) was oversupplied and powered by low-cost fuels in old power stations. Then things suddenly changed. Big, coal-fired power stations were closed – Northern in South Australia in 2016, followed by Hazelwood in Victoria in 2017. So supply was reduced, pushing prices up. At the same time, gas and coal prices rose rapidly, increasing running costs for electricity generators, which pushed up prices even further.

Our report shows about 60% of the wholesale price rises were caused by the
fundamental changes in supply. The NEM now needs new investment, particularly because more old generation assets, such as the Liddell power station, will be turned off in coming years as they reach the end of their working life. But the electricity produced by new generators of any type, including coal, is expected to cost more than the electricity produced by the old legacy assets.

Up to 40% of the wholesale prices rises of recent years were caused by the higher
input costs for generators. Coal and gas are two of the main inputs to electricity produced in the NEM (which covers Queensland, NSW and the ACT, Victoria, South Australia and Tasmania). Coal prices nearly doubled between 2015 and 2017; gas prices more than doubled. As a result, wholesale electricity prices increased so generators in the NEM could cover their costs of generating electricity. The direct cost of higher fuels to generators is up to A$4 billion a year.

Higher fuel costs for one generator can increase revenue for all generators, because all generators get paid the same spot price. If the generator that is setting the price at a given time needs a higher price to cover their costs, all other generators that produced electricity at that time also get a higher price, even if their costs have not risen. This encourages new investment in cheaper generation and is the market working as it should.

But a small amount – about 2% – of the wholesale price rises of recent years was caused by generators “gaming” the system. And that is certainly not the market working for consumers.

Big generators can game the system by using their market power to create artificial supply scarcity, which forces short-term price spikes. It is not illegal. Currently it is within the market rules for generators to bid up the price of their electricity until just 67 seconds before it is needed. By then it is often way too late for other generators to respond with lower prices. It’s a bit like Uber surge pricing but with no warning. Ultimately, the consumer cops the bill.

So what can be done?

Our report has three main suggestions.

First, politicians should be honest with the electorate, and explain why prices are unlikely to fall to the levels seen in 2015. Historic oversupply in the NEM is disappearing, gas prices are unlikely to fall back to where they were in the past, and new-build generation, including coal, is expected to need revenue well above A$50 per MWh to be viable.

Second, governments should finally provide Australia with stable energy and climate-change policy to make the transition to new generation technologies as smooth as possible. This would also reduce risk for new investment, which lowers financing costs and electricity prices.




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The ConversationThird, the Australian Electricity Market Commission should change the rules to eliminate, or at least limit, “gaming” by electricity generators.

Lucy Percival, Associate, Grattan Institute

This article was originally published on The Conversation. Read the original article.

Federal government sets sights on August approval for National Energy Guarantee



File 20180420 163995 ieadn4.jpg?ixlib=rb 1.1
Josh Frydenberg met with state energy ministers in Melbourne the latest round of discussions over the National Energy Guarantee.
AAP Image/Luis Ascui

Michael Hopkin, The Conversation

Federal energy minister Josh Frydenberg says he is confident of securing state governments’ support for the National Energy Guarantee, with a final decision now timetabled for August.

At a meeting today, state energy ministers agreed to progress towards a final version of the policy, which aims to ensure a reliable electricity supply while also cutting the sector’s greenhouse emissions by 26% by 2030.

Details of the policy were first unveiled in October 2017, after the federal government opted against Chief Scientist Alan Finkel’s recommended Clean Energy Target. It features two components: a “reliability guarantee” and an “emissions guarantee”.



The Conversation, CC BY-ND

Under the latest iteration of the policy, developed by the Energy Security Board, electricity retailers would be required to ensure they do not exceed a certain level of greenhouse emissions per unit of electricity sold. They would also be expected to invest in extra generation capacity in advance of any forecast shortfall, so as to ensure reliability.

Grattan Institute energy analyst David Blowers wrote this week that although the 26% emissions target is far too modest, the policy could deliver much-needed bipartisan political support. It would create investment certainty and then could be ramped up later.

But RMIT’s Alan Pears previously wrote that the government’s slow and modest policy ambition has been overtaken by the breakneck pace of change in renewables and energy efficiency.

Economic analysts have voiced fears that the policy’s “technology-neutral” approach is a stalking-horse for coal and may put the brakes on renewable energy investment in Australia.

Frydenberg today confirmed that the policy will not prevent states from pursuing their own more ambitious renewable energy targets. But he said the overall emissions reduction target for the electricity sector will not be increased beyond 26% by 2030.

“States can knock their socks off with their own renewable energy schemes, as long as they meet their reliability obligations under the National Energy Guarantee,” he said.

The ConversationAsked about the views of the Monash Forum, a grouping of Coalition MPs that has agitated for new government-funded coal-fired power stations, Frydenberg said he did not expect any new coal stations to be built. But he said it was likely that Australia’s 20 existing coal power stations would continue to attract private investment.

Michael Hopkin, Section Editor: Energy + Environment, The Conversation

This article was originally published on The Conversation. Read the original article.