The phrase ‘picking winners’ is often seen as the worst possible description for a government program. Typically it’s used to denigrate renewable energy support policies such as renewable energy targets. But what does this really mean?

Is ‘picking winners’ a program whereby projects are selected by a government appointed panel of business executives on the basis of what they think a technology will deliver in 10 to 20 years on the basis of a tender proposal?

Or is it a program that is open to a broad range of fuel and technology combinations based on a single, transparent qualification hurdle? And one where selection is determined in an open market of private companies who only care about what is actually delivered, rather than what might be delivered, in 10 to 20 years time?

Renewables are not the only technologies that can cut greenhouse emissions in this country. Other technologies and changes in patterns of production can also provide greenhouse abatement – often at lower cost than renewable energy. That’s why the BCSE has always been a strong advocate of emissions trading as the fundamental driver of greenhouse abatement in Australia.

But it is simply impossible to achieve the deep cuts in emissions required to avoid dangerous climate change without zero-emission power generation. Energy efficiency can deliver us huge improvements, as can the switch from coal to natural gas and reforestation. But considering the growth requirements of the highly populous poorer nations, electricity supply must achieve average emission intensity levels by 2050 well below those of even the most efficient natural gas power plants. Renewable technologies have the capacity to deliver these power needs. But to bring their costs down and improve their performance will require further development and experience before emissions trading can be expected to drive their deployment at large scale.

Thankfully, there now appears to be a general consensus amongst policy makers that while emissions trading is essential, it will not be the ideal tool to drive technological development of zero-emission power generation technologies. The Stern Review provides a comprehensive synthesis of the logic and evidence supporting this approach. The Prime Ministerial Task Group on Emissions Trading report echoed Stern, stating: “Emissions trading is not a panacea”.

It acknowledged a role for government in supporting technological development of low-emission technologies as part of a sound complement to emissions trading. The report recommended that revenue from the auctioning of permits should be “used in the first instance to support emergence of low-emissions technologies and energy efficiency initiatives”. Provided a reasonable proportion of permits are auctioned (at least 10 - 20 per cent and increasing over time), this should provide an appropriate level of funding to support technological development and energy efficiency.

Unfortunately the Task Group was rather narrow in its interpretation of what was worthy of support and chose to define ‘picking winners’ in a rather odd and inconsistent manner. The Task Group recommended that technology support should be confined to research, development and demonstration (RD&D) but not deployment. They concluded that renewable energy target schemes should be scrapped, implying that they were a ‘picking winners’ scheme.

This is missing an unarguable reality: renewables are the only technologies that can deliver zero greenhouse emissions power in this country. Some might like to talk about nuclear but we must be practical - it’s illegal in Australia and about 20 years away, even if the community was willing to accept it. If nuclear were available and ready then maybe we could have a discussion about picking winners – but it’s not. A scheme aimed at supporting renewables is a program that is supporting the technologies that we know can deliver zero-emission power. Renewable energy targets are not an exercise in picking winners that aims to supplant emissions trading – they are aimed at supporting the development of technologies that are essential to the long-term, national greenhouse abatement task.

In its place the Task Group recommends a program that aims support at what they term “strategic” technologies (see page 132 of the report). It is hard to understand how this is not picking winners, while market-based measures such as MRET, VRET and NRET that avoid such subjective judgements apparently are.

The recommendation to confine support only to RD&D, while avoiding deployment, is not clear cut and will lead to squandering of resources or effort. When is a technology at the point of demonstration, and when is it at deployment? Does this mean the scheme will choose to demonstrate multiple variations of the same technology, even if one has been shown to work successfully? Nuclear power is already well beyond the demonstration stage but there are several variations on the core technology such as pebble-bed modular reactors, which do not even have a pilot plant operating. Would such variations qualify for support?

Under the Low Emission Technology Demonstration Fund, technologies that have already been successfully demonstrated (often several times), such as coal drying and the sinking of CO2 into oil and gas fields, have qualified for support. One can see a situation where we repeat the mistakes of the past, in which a number of national governments sank billions of research dollars into developing their very own “strategic” variation on nuclear power when successful designs were already well developed.

Confining support to ‘demonstration’ fails to appreciate the importance of learning-by -doing for electricity generation technologies. The Stern Review explains:

“For energy technologies, R&D is only the beginning of the story. There is continual feedback between learning from experience in the market, and further R&D activity. There is a dependence on tacit knowledge and a series of incremental innovations in which spillovers play an important role and reduce the potential benefits of intellectual property rights. This is in strong contrast here with pharmaceuticals. For a new drug, the major expense is R&D. Once a drug has been invented and proven, comparatively little further research is required and limited economies of scale and learning effects can be expected.”

The International Energy Agency has advised against the very approach the Task Group is recommending, stating:

“It is important to emphasise that while public sector R&D is important, it cannot directly bring about the cost reductions that will make the new technology competitive in the marketplace…if government is supporting research, it should also be supporting deployment.”

To think that we can make major technological progress without deploying technologies in the energy marketplace is like expecting to become a concert pianist by having piano lessons once a week and not doing any practice in between.

The Prime Ministerial Task Group on Emissions Trading can be viewed online at http://www.pmc.gov.au/publications/emissions/index.cfm