Article by Jennifer Hewett, courtesy of Financial Review
04.08.2025
For an agency that usually likes to talk a lot about dollars spent, saved or wasted, the Productivity Commission’s new report on the energy transition is curiously lacking in any cost estimates.
That caution may be warranted given the repeated failure of all those agencies and regulators and industry experts and expensive consultants to predict anything like accurate prices and timelines for renewable energy projects, including the major transmission lines required. Think Snowy 2.0, which somehow went from $2 billion to $12 billion and counting.
But the Productivity Commission does reach a different target. It gives the federal government plenty of room – and the most flexible of guardrails – in developing its energy policies and emissions reductions targets over the next decade.
The ambiguity is helped by the commission coming up with a new national concept – and yet another off-putting, confusing energy acronym – of “target-consistent carbon values”.
“TCCVs provide a foundation for, and would support, the achievement of Australia’s agreed targets at the lowest possible cost,” the report states firmly, arguing all policies should be assessed against these values as a common benchmark.
The commission no doubt considers this option inferior to its long-held preference for imposing an economy-wide carbon tax. But that’s a no-go politically. And in contrast to suggesting a new tax, the reference to values sounds so much more reassuring.
So its report, Investing in cheaper, cleaner energy and the net zero transformation, doesn’t need to recommend precise tax percentages or price increases as applied to values.
That’s because TCCVs (sorry) or common benchmarks will be “estimates of the implied carbon prices needed to meet emissions targets”.
According to the commission, they should be determined using information about potential opportunities to reduce emissions in the economy.
“The values are calculated by modelling the prices per tonne of CO₂-e needed to reach particular targets in particular periods, assuming that the prices are paid by all emitters.”
And who better to calculate all of this, it says, than “an agency with relevant expertise” – like (surprise) the Productivity Commission or perhaps the Climate Change Authority?
The report at least acknowledges that calculating these values involves “uncertainty”.
“Estimating them requires assumptions about the costs of reducing emissions many years into the future. Even so, they are much better than no guide. Sensitivity analyses should be conducted to account for the uncertainty around future costs.”
But the vagueness of values terminology makes the report far less of an instant political target than the commission’s first report, Creating a more dynamic and resilient economy, last week. This suggested Australia’s 500 biggest companies should pay more rather than less tax via a complicated additional 5 per cent cash flow tax. While businesses with revenue of less than $1 billion would get reductions in their tax rates to compensate, big business would still be stuck on the corporate 30 per cent rate.
Cue immediate hyperventilation from most business groups about how this could possibly constitute tax reform or encourage greater business investment.
Increasingly alarmed
Little wonder the business community is increasingly alarmed that Jim Chalmers’ economic reform roundtable this month will be even more of a comprehensive business stitch-up than the Albanese government’s Jobs and Skills Summit three years ago.
The treasurer still has the policy cover of having asked the Productivity Commission to come up with a series of interim reports and recommendations to guide discussions. No hands visible, thank you.
Yet for all the commission’s emphasis on the need for “transparency” in assessing the most efficient path to net zero, there will be plenty of unknown costs – even if the government were to follow its recommendations.
These extend well beyond the uncertainty of pricing “target-consistent carbon values”.
The report focuses on three themes: reducing the cost of meeting emissions targets; speeding up approvals for new energy infrastructure; and addressing barriers to private investment in adaptation, particularly for housing.
It favours, for example, broadening the current Safeguard Mechanism that requires most industrial facilities emitting more than 100,000 tonnes of carbon emissions a year to reduce their emissions by 4.9 per cent annually. The commission wants the review of the scheme due next year to decrease the threshold to 25,000 tonnes by 2030 in the absence of “major countervailing considerations”.
But except for a few other practical recommendations like phasing out the exemption of electric vehicles from the fringe benefits tax and encouraging the use of renewable diesel for heavy vehicles, it offers few specifics beyond principles.
Instead, there are a lot of words about technology-neutral “incentives” for lowest-cost clean energy – but minus awkward direct references to the need for more government subsidies or indeed taxes. There will be plenty more of both in store from Canberra, no matter the commission’s framework of “enduring broad-based market settings”.
The commission also makes predictable recommendations about the need to speed up regulatory and environmental approvals processes. But it’s mostly state government regulations as well as fervent opposition from many local communities stymieing new transmission projects, for example.
Layers of bureaucracy
Will Canberra really give itself new powers to override such resistance or delays? Will the establishment of a departmental “strike team” or “Clean Energy Co-ordinator General” do more than add further layers of bureaucracy on priority projects? Will amending environmental laws to require the minister to consider the needs of the energy transition restrict environmental activism?
But it’s the commission’s views on increasing housing resilience and private climate action that reveal the woolliest, most excessively bureaucratic recommendations.
The Albanese government knows how sensitive the issue of housing remains for voters and yet how difficult it is to change the dynamics of supply and prices. Is this more about showing Canberra cares?
The report suggests, for example, that the Australian government lead development of a “publicly accessible database of all climate hazards, and an outcomes-based resilience rating system for housing and guidance on how to act”.
How about state and local governments not allowing housing in flood plains or extreme fire danger zones? How about encouraging residents to follow the many local recommendations on how best to prepare and defend their properties? How about the Productivity Commission recognising the limitations of the federal government as well as its responsibilities?