In a world of post-fact politics, this is a doozy.
The government is armed with a raft of evidence – from government agencies, the energy industry, business groups – that the electricity sector is in chaos.
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Bernardi fumes over carbon trading scheme
Coalition MPs voice their displeasure on the government's climate review including an emissions intensity scheme for electricity generators. Vision courtesy ABC News 24
Ageing, failing coal plants are shutting down abruptly and haphazardly – nine in the past seven years, with the giant Hazelwood station in Victoria to join them in March. More will follow.
Wind farms are being built to meet a national renewable energy target that was only ever designed to be a policy add-on. The target has kept a growing industry alive – just, at times – but was never meant to drive the change to a modern electricity scheme.
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There is no other significant national policy. In this vacuum, the states are introducing their own renewable energy targets, a step the federal government says is expensive and puts supply at risk.
The electricity industry is up in arms, not because no more traditional coal plants will be built in Australia and that it has to cut emissions to meet climate targets, but because there is no bipartisan national policy to help tell it what to build as the existing fleet dies out.
There are plenty of ways you could do this – arguably better ways – but until Tuesday there was only one politically realistic solution on the table: a form of carbon pricing that covers just power stations, known as an emissions intensity system.
Without getting bogged down in detail, it would set a limit on how much a plant can emit for every unit of electricity it generates, penalise those that breach it, and reward those that emit less with free credits. The limit would be reduced in a planned way, allowing companies to schedule cleaner investments – initially gas-fired power, but also renewable technology.
The industry likes it. Business groups want it. Government agencies think it is a good idea. Environmental groups can stomach it. Labor backed it before the last election. And the government is sitting on advice that it would keep costs significantly lower than they otherwise would be.
Energy Minister Josh Frydenberg and other senior members of the government know this, which is why the minister said that it would be considered – nothing more than considered – as part of a wide-ranging climate policy review next year.
In truth, the direct action climate policy designed by Greg Hunt was always meant to end up at this point. A so-called "safeguard mechanism" – ostensibly to stop polluters just increasing emissions, but so full of loopholes to currently be meaningless – is supposed to evolve into an intensity scheme.
Despite this, by Tuesday it was all over – not to be discussed, or even acknowledged that it was going to be, because of an irrational backbench that isn't interested in understanding the problem, and a Prime Minister who couldn't argue for serious policy change.
The irony of the hysterical attack by some MPs, backed by a wingnut fringe within the media, is that by ensuring the scheme isn't on the table they are likely to further aggravate the problems they describe in doomsday language.
On electricity prices, uncertainty is already pushing them up. Wholesale contract prices for 2018 are now higher than they were in 2013, when the carbon price was in place.
And energy security issues being felt in South Australia will spread if more coal plants close abruptly without a policy to encourage the investment needed to replace them.
Meanwhile, national carbon dioxide emissions keep rising. An analysis by consultant Bloomberg New Energy Finance is just the latest to find Australia will not get near its 2030 target without a new policy. And – as Malcolm Turnbull and Frydenberg have observed – under the Paris deal that target will have to become more ambitious.
The rejected scheme wouldn't be the whole answer to turning this around, but without it – in terms of electricity – the government has few realistic choices. Theoretically, other options would be to close coal plants through regulation or ramp up renewable energy subsidies. The government is highly unlikely to spend the ridiculous sums – tens of billions of dollars, if not more – of taxpayers' money that would be needed to make the direct action emissions reduction fund effective.
No solution to this question will be palatable to the post-fact hardliners who live under the delusion that coal won't gradually wind down in the decades ahead regardless of what the government does. But the reality is that new power stations will have to be built, and it will be better for the country and consumers if it is done in an orderly way.
The climate review hasn't even started, but after this capitulation it is hard to see what role this government can play in driving that.
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