Australia's Renewable Energy Target is currently the subject of an inordinate attack. However, when you look at the facts it’s clear that this is completely unwarranted.
Someone asked me this question: “Can you suggest how we in small business can best educate the decision makers about the benefits of the RET? It all seems a bit remote from the man in the street, but the decision will affect us all.”
This statement is right on the money; if you have solar, if you work in solar or if you want solar, any change to the RET will affect you. If we add up how many Australians live in homes with solar, work in solar and the general (positive) attitude to solar, it means this decision affects millions of Australians. I don’t know that our decision makers quite understand this fact. Yet.
Before I get to what to do lets start by understanding what is driving the focus on the RET, and consider it in the broader context of Australia’s most important and current issues.
The Big Issues
To get a sense of the big issues that underlie consumer behaviour and thus political focus, I took a look at Roy Morgan’s latest consumer polls, a recent interview with Commsec’s Chief Economist and interviews with a diverse group of politicians by Fairfax. Together, they form a pretty reasonable snapshot of where consumers and politicians heads are currently at. As is so often the case, the things that we all talk about at BBQ’s and intuitively have a sense of, are also the issues that are top of mind in these samples and its interesting to consider how they all interrelate with each other.
The global and local economy was sluggish last year and consumer index polls prove this year has started strongly, but the US/AUD exchange rate looks likely to remain volatile. This has pros and cons depending on what your perspective is, but a common view is that with 2014′s crippling election behind us we’ll all get back to spending. Protecting our relatively healthy employment rate and improving underlying productivity is on the front page every day and converting this into new growth and export potential is in people’s minds, too. The resource investment boom has arguably peaked and although exports of these commodities are hugely important for the economy some are already asking whats next?.
The risk of overzealous budget cuts and conservative fiscal management, which is amplified at the beginning of any political cycle is obvious too. It’s all too predictable that a highly conservative and ideologically driven Prime Minister will be brutal while ever he has time before the next election to make good. And right in the middle of the mix is electricity and carbon. On the one hand, the economy needs reliable and affordable energy whether you are doing the washing or smelting aluminium. Deregulation and electricity industry reform come up and impact on many of the other issues. On the other hand, the vast majority of Australians are very concerned about climate change and just a little under half would be ok with the carbon tax remaining in place according to polls.
Fairfax’s interviewer also asked politicians what the “sleeper” issues were likely to be this year. Most cited the same issues in slightly different contexts; the need for industrial relations reform balanced against employment, balancing the size, capacity and trust in Government against tightening budgets as some examples. Underneath these issues, we also heard concerns about underlying social issues such as the enormous damage that gambling and mental health care cuts are having.
So, how do these relate to the current focus on the RET?
Here’s how the recipe goes in my humble opinion:
Logically (any) unpopular cuts will be made early in a political cycle so that’s a key driver politically. Keeping employment, growth and productivity rolling requires low input costs so focusing on energy costs are a logical leap. Now, add a dash of high electricity prices, the enormous size and corporate importance of the electricity industry and a healthy splash of Government ownership. Be careful here not to turn the gas oven up too high because those high price could burn you, although of course the energy sector will tell you its clean, linking back to the carbon issue. Considering the wider social issues, the promise of lower energy costs will be good across the board and could potentially free up consumer and Government on other areas that need attention.
So what’s a prime minister to do?
Easy. Keep your single largest promise and try to earn trust by cutting the carbon price, irrespective of whether it really makes sense. Then, pick the next softest target you can, that will sell well and look like it might also reduce electricity prices – the RET; again irrespective of whether cutting it is effective or not. The good news is that electricity prices are so complex, no-one will really understand anyway. And the Prime Minister has a golden egg that was handed to him on a platter, which he will no doubt leverage too. The simple fact of the matter is that electricity investment goes through cycles and we have (mostly) peaked in that cycle for now, so price rises were set to ease without him doing a single bloody thing.
Importantly, the Government cannot change the RET substantially without changing legislation and that means its going to take time. Nothing is inevitable and you can make a difference to the outcome. We need to enter the battle now in this war that will take up to twelve months.