Download Read submission - Your Say Infrastructure Victoria

Submission from Tony Wood, Grattan Institute
As discussed, the following comments constitute my submission to the Draft Infrastructure Plan. Please note,
that I have addressed only Need 18 and Need 19 as they are within my specific area of expertise and interest:
Need 18: Transition to lower carbon energy supply and use
The Plan very appropriately recognises that Climate Change Policy is inherently one for nation states. It is
therefore the role of state governments to advocate and support national policy on climate change and
energy, to complement with state-based policies and regulations and to identify and address barriers to the
effective and/or efficient implementation of national policies that may exist due to policies or regulations
within the responsibility of the state.
    Recommendation 18.1.1.
o
This recommendation is consistent with the position of the COAG Energy Council, the AEMC and the AER.
It is unfortunate that the position adopted by the Victorian Government to allow cost-reflective tariffs only on
an opt-in basis is an effective barrier to this reform. The reform will deliver fairer electricity tariffs and lower
costs for all Victorians through reducing investment in network assets where pricing could reduce peak
demand. This argument is strongly made and supported in our report, http://grattan.edu.au/wpcontent/uploads/2014/07/813-fair-pricing-for-power.pdf. The Plan should more strongly advocate that the
government change its current position, accompanied by mechanisms to support low-income households who
might be adversely impacted.
    Recommendation 18.1.3
o
This recommendation sounds simple and attractive. However, it is unclear how a broader emissions
reduction target could be used to influence the energy efficiency of buildings. It is the nature of building
designs and asset life that standards should be adopted. A possible approach could be to use a rising carbon
price, consistent with the international commitment to less than two degrees. There is adequate information
to inform assumptions about future carbon pricing, including that used by the Climate Change Authority to
provide a surrogate from which standards might be derived. The application of a broader emissions reduction
target effectively bypasses the national approach to efficient emissions reduction in that it assumes a link
between the relative cost of emissions reduction in the building sector and the national economy. The
apparent precision of such an approach is likely to be an illusion.
    Recommendation 18.2.1
o
One of the major problems with climate change policies, both in Australia and elsewhere, is the failure to
adopt a singular mechanism to internalise the environmental cost of climate change and then apply other
policies only to address market failures and barriers. The result has been very messy and inefficient outcomes.
For Australia, there are several central policy options that could emerge in 2017 to reduce emissions in line
with the target to which Australia has committed and will almost certainly increase. In that context, additional
policy to lead to the exit of brown coal is unnecessary and could potentially lead to additional cost and
uncertainty, despite its rationale to do the opposite. It is difficult to identify any policy rationale to justify such
an intervention. The recently announced decision to close the Hazelwood power station is evidence that exit
can occur without additional intervention but also that credible, climate change policy is urgently needed.
o
Recent evidence from events in South Australia illustrate that adoption of high levels of intermittent
electricity supply has bene the outcome of the national renewable energy target and would also be the result
of announced state-based targets. Victoria occupies a central position in the east coast electricity market,
being connected to three neighbouring states. The consequences for a state without adequate mechanisms to
provide flexible supply alternatives to complement high levels of intermittent supply are very significant and it
would be appropriate for the state government to be more explicitly engaged in this transition. It is not
evident that adoption of the recently announced state targets for renewable energy has been accompanied by
explicit consideration of these consequences. This issue of ensuring that emissions reduction is achieved
without adverse impact on reliability, security or affordability should be directly addressed in the Plan. It
should also be recognised that price rises are inevitable and need to be minimised.
    Recommendation 18.2.2
o
The emergence of distributed generation and storage technologies creates an opportunity to support
growth in energy demand without excessive network augmentation investment. The recommendation
correctly identifies this issue although it is unclear as to how this will be specifically achieved. There are
potential perverse incentives that will need to be overcome and this has been identified by the AEMC and AER.
    The Plan identifies reasons that it does not include recommendations in support of nuclear power,
although it silent on the adoption of carbon capture and storage technologies, despite the potential that could
be delivered to extend the life of the state’s existing generation assets and underpin ongoing reliability and
security of supply as other alternatives develop, or more critically if other alternatives prove more challenging
than currently envisaged. The state should consider working with the Commonwealth so that such alternatives
are not excluded as they are currently from the support of organisations such as ARENA and the CEFC.
Need 19: Improve the resilience of critical infrastructure
Victoria is at risk to the consequences of climate change. There are two specific initiatives that the Plan could
consider:
    Incorporate an overarching climate change resilience test for all major infrastructure investment
decisions. This could be based on a rising carbon price or potential disruptive weather events.
    While not jumping to expensive or ill-considered actions, consider whether major infrastructure such as
power transmission lines should be underground. They are currently risk to both bush fires and extreme storm
events.