Australian states exasperated by federal government inaction on the key Finkel review recommendation of a clean energy target have indicated they might band together and go it alone if the federal Coalition does not provide the required leadership.
Before Friday’s meeting of energy ministers, for which the federal government refused to put a CET on the agenda, Labor-led Victoria and South Australia called for consideration of a linked-up state-based scheme, and urged Coalition-led NSW to join up. Given recent comments by the NSW energy minister, Don Harwin, who indicated support for the CET, such a move seems plausible.
If it were to happen, the result would be much messier than having a federal scheme. It could fall apart with a change of a state government, and it might hit some hiccups given clauses in the existing renewable energy target. But it should be technically feasible. And there are already schemes in place that it could closely mirror.
CET legislation in each state
The key to making a state-led national target would be for each state and territory to pass its own legislation – either all eight or the six in the national electricity market (WA and the Northern Territory are not part of the market).
That legislation would need to describe how clean energy certificates are created, and impose on retailers in each state the condition that they buy a certain number each year. It would then need to include a linking mechanism – some way for the certificates to be traded between states.
Legislation like that exists
It would undoubtedly be easier for the federal government to create one piece of legislation that would impose conditions on retailers in all states. That’s how the renewable energy target works, and a clean energy target would mostly replicate the RET, just changing the nature of the certificates.
But if states did decide to go it alone, they would not be starting from scratch.
In NSW, the energy savings scheme has been in place since 2009, and works very similarly to how a state-based CET might work. It forces retailers to buy energy savings certificates from an open market. Those certificates are created by homes and businesses that implement energy-efficiency measures.
Each certificate represents one megawatt hour of electricity that was saved. At the moment they can be traded only within NSW, but the minister has the power to approve certificates created in another state to satisfy the conditions of the NSW scheme. As soon as that happens – as could happen with the ACT scheme soon – the beginnings of a national scheme will emerge.
Each state could implement similar legislation, but where the certificates represent a megawatt hour of clean energy.
The most obvious pitfall of a national scheme led by state-based legislation is that it could fall apart, or at least be severely diminished, if a state pulled out.
But any legislation would also need to make sure it did not run foul of a clause in the federal renewable energy target legislation.
To avoid a double-up between any state-based RETs and the federal RET, the federal RET Act includes a clause that provides businesses immunity from any state-based law that “substantially corresponds” to the RET, neutering any state laws that try to double-up on the RET.
However, a CET is unlikely to be considered to “substantially correspond” to the RET, given the nature of the certificates and the timeframe in which it would be imposed.
It remains to be seen how serious states are about implementing such a system. As Victoria’s energy minister, Lily D’Ambrosio, indicated, the next step would be asking the Australian Energy Market Commission to examine the details of implementing a CET via state laws.