The politics of market mechanisms suck

OPINION: Australia must bring electricity prices under control and reduce carbon emissions. With the NEG in tatters, Labor needs to design a new pathway to deliver these aims. One thing that should overwhelmingly guide these deliberations is that the politics of market mechanisms to reduce emissions in the electricity sector suck. And not just a bit, lots.


The National Energy Guarantee was the latest in a line of proposed market mechanisms to reduce emissions in the electricity system: the CPRS, the ETS, the CET, the NEG. The NEG’s pathway to oblivion played out some well-established tropes in Australian energy politics, which should help Labor set is path going forward.

Lesson one, market mechanisms lose the public. I was one of those during the Rudd-Gillard years who was desperately worried about climate change and its impacts on my kids, but as a civilian in the climate wars, I got lost before the CPRS was birthed and strangled, and again with the ETS’ journey down the same path.

These days I follow the insiders’ journey through the dark corridors of mechanism design but I watched my partner lose the thread and with it his trust in the whole thing. The squabble over details feeds the electorate's natural suspicion about business and politics and their tendency towards self serving. This is fuelled by their increasing distrust of markets as a pathway to solve problems in the public interest.  After all, we punters know it’s about building some renewable power and making sure we have back up for when the wind doesn’t blow and the sun doesn’t shine. How hard can that be?

As happened during the Rudd-Gillard years, there is no better way to squander public support than a complex market mechanism.

Lesson two is a mirror of one and sits in Tony Abbott’s attempt to destroy the Renewable Energy Target (RET). The community were unfussed about the destruction of the carbon price, but we knew the Renewable Energy Target was a good thing. Abbott managed to down-grade but not destroy the RET because of this.  It was the electorate’s defence of the RET that was essential to Labor Environment Action Network’s campaign to have Labor re-commit to robust climate policy. As Labor reeled from the 2013 loss, climate policy was vulnerable but the RET debate revealed that while the public were ambivalent about market mumbo jumbo, they actively supported building renewable energy.

Lesson three is that the complexity of market mechanisms not only loses the public it allows the far “left” and the far right to destroy centrist attempts at solutions. This time the far right of the Coalition parties took out the NEG, but the Greens, abetted by naive environment groups were also circling, crying death to the imperfect. It provided a bad case of déjà vu to what occurred to the ETS in 2009.

The “left” didn’t matter this time, but they will when Labor next has a go at moving on climate. The complexity of market mechanisms, allows the politics to get muddy and for progress to be made impossible.

Finally, we are told that market mechanisms are good for us because they are “economically efficient”. But by any reckoning the failure of market mechanism policy to even get established, let alone deliver anything in over a decade suggests their efficiency credentials are in dispute. The economic inefficiency of a lack of settlement on energy policy far outstrips any argument about whether we accurately account for whether it is cheaper to filter your smoke stack or build a new solar farm.

The political class’ slavish commitment to markets as the way to solve all ills is impressive in its stubborn reiteration, against a decade of contradictory feedback. This is at a time when electorates across the west are letting them know that we’re not convinced by the market as a way to organise very much at all.

To bring down prices we need to increase supply.  To bring down emissions we need to increase clean supply. And we all agree it needs to be reliable.

Are we not at the point where policy could simply regulate the delivery of more clean, reliable supply, rather than spending too much more time in the acronym labyrinth of NEGs, CETs and EISes and their impossible politics?

We could strip the subsidy out of a model like the RET, a mandated renewable energy supply obligation. We could add in an obligation for storage as well.

Or we could go further and begin to address the broader and fundamental failure of trying to deliver an essential public good through profit maximisation in the private sector. We could avoid all the difficulty of the constant quest to get the incentives big enough and the regulation tight enough and just build a truck load of renewable energy and storage.

And possibly concurrently return solid engineering and national planning to the centre of electricity policy, rather than investment metrics.  

We have a climate emergency and have to act. Government’s didn’t respond to WWII by arguing with the maddies of the left and right on the fourth, fifth and sixth best ways to get the private sector to respond to the problem. It might be time for our governments to do the same and regulate delivery of supply and while we’re at it, adopt the lesson of nation building - through public renewable energy construction - of the Snowy Mountains scheme and get on with building renewable energy and storage at scale by the public, for the public.

Climate change is registering across the country as a major concern to voters. It’s heading up the issues rankings as fires rage in winter and hurricanes thrash the Philippines. Australian politics is faced with the need to respond to a genuine, society-threatening existential threat combined with an old fashioned bread and butter cost of living issue. It is explosive stuff. Labor is committed to the task. However it might be time to break from the failed policy orthodoxy and canvass some imaginative solutions.

Felicity Wade, September 2018

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