A Dangerous Obsession with Least Cost? Climate Change, Renewable Energy Law and Emissions Trading

Abstract

A common thread runs through current Australian debates over laws for emissions trading and renewable energy. It is a preoccupation with “least cost” abatement, the notion that only policies with the lowest short-run economy wide cost should be implemented, regardless of other considerations. The orthodoxy in Australian climate law and policy places great emphasis on asserting the superiority of market mechanisms. Both extended price support for renewable energy sources and direct regulation of emissions are viewed with suspicion.

Such discussion prompts us to ask whether there may be a strengthening rationale for more direct and “regulatory” approaches to carbon pollution, justified by reference to an alternative evaluation criterion – that of dependability. Perhaps our attention has strayed too far from the environmental effectiveness and timeliness of laws and policies, by emphasizing their cost. On the basis of this and other considerations, this Chapter asks whether the Australian faith in market mechanisms, and the promise to deliver solutions “at least cost”, conceals dangers inherent in oversimplifying the complexities of converting an entire economy away from reliance upon fossil fuels.

This Chapter reviews the arguments concerning the retention of renewable energy support laws alongside an ETS. It then proceeds to ask which type of renewable energy law is likely to prove superior, and why. In Australian debates over renewable energy law and policy, the same emphasis on “least cost” has led to a federal law based on tradeable green energy certificates (Renewable Energy (Electricity) Act 2000 (Cth)). Elements that such quantity-based renewables law has in common with carbon emissions trading are noted. This Chapter then considers the alternative of a price-based renewable energy support mechanism, very widely adopted in Europe, known as “feed-in laws”. Along the way it explores evidence and arguments that might lead us to question assumptions and beliefs about the superiority of tradeable permits and tradeable renewable energy certificates.

Although the Chapter touches upon the interactions between ETS’ and renewable energy laws, its core intention is to explore and investigate the implications of placing primacy on the objective of least cost abatement. Arising from that discussion some suggestions are made about the reasons for opposition to the alternative model of feed-in laws.

Keywords: Renewable energy law, mandatory renewable energy target (MRET), renewable portfolio standard laws (RPS), feed-in tariffs (FIT), emissions trading, carbon ‘lock in’, investment certainty, innovation