The Turnbull government is set to make a key change to the design of the National Energy Guarantee, as it scrambles over coming days to salvage the policy and stave off a leadership crisis.
Amid rising internal chatter about a challenge by Home Affairs Minister Peter Dutton and warnings by MPs that the next 48-to-72-hours was critical, Prime Minister Malcolm Turnbull and his senior minsters agreed to dump plans to legislate the emissions reduction target associated with the NEG.
This addresses the principal demand of those threatening to cross the floor – that any commitment to Australia’s Paris climate change targets should not be locked in by legislation.
AFR Weekend understands that as part of a raft of changes and new measures to be presented to the Coalition party room on Tuesday, the requirement under the NEG that the electricity sector reduces its emissions by 26 per cent on 2005 levels by 2030 will instead be set by regulation, which is a stroke of the pen by a minister.
Ironically, the Labor states have been demanding the target be set by regulation so a future federal government can more easily increase the NEG’s emissions reduction target.
Until now, the federal government has refused to budge, saying the target needed to be locked in by legislation to make it harder to adjust and ensure investor certainty.
To try to guard against ad hoc changes using regulation, the modified NEG will include a mechanism requiring a future government to demonstrate the impact on power prices as a condition of regulating a higher target.
A party strategist said the solution should satisfy rogue Liberals who have made a legislated Paris target their tipping point for crossing the floor. There were early signs it had worked.
Prospect of a spill was ‘bullshit’
One prominent MP who had been threatening to cross the floor on this very point, and who was involved in internal discussions Friday, told AFR Weekend last night that the prospect of a leadership spill was “bullshit”.
He said Mr Turnbull “was listening and we have made good progress today”. He said the issue was getting the policy right, not changing leader.
The backdown on the NEG is just one of several measures being packaged together in a bid to address every legitimate concern about the NEG by both the Coalition and Labor.
The strategist said there was no hope of reasoning with Tony Abbott, whose motive was toppling Mr Turnbull, and rogue Nationals frontbencher Keith Pitt was also considered a lost cause.
Otherwise it was hoped everyone else would be satisfied by the new measures and changes that could be announced as early as Monday.
As revealed on Friday, the government will also directly address the concerns of MPs that the NEG does not do enough to directly lower prices by vowing to hit power companies with regulation to stop them gouging consumers.
It will also adopt several recommendations from last month’s Australian Consumer and Commission Retail Electricity Pricing Inquiry which will have a direct impact on price.
These include forcing retailers to offer customers the option of low-cost, default price contracts and effectively underwriting the construction of a new generator of “firm” electricity by agreeing to be a buyer of last resort of its power.
Dissent broader, more serious
Up to eight MPs in the lower house and at least two Senators have threatening to cross the floor in the House of Representatives but the disenchantment with the policy is deeper.
The dissent in the party is also broader and more serious than that propagated by Mr Abbott and his followers. People feel the power issue has been mishandled because it took too long to address the price concerns of MPs.
This has built on fears and frustrations that grew in the wake of the party’s July Longman byelection defeat and its ability to hold crucial seats in Queensland.
Mr Dutton, the lead candidate for a leadership change and a Queenslander with a marginal seat, is being urged by some of the disgruntled to make a run but he is playing a passive role.
The conservatives are far from united and most are still trying to make the NEG and Mr Turnbull’s leadership – work.
In Victoria, the Right is holding behind Mr Turnbull and Energy Minister Josh Frydenberg, a local towards whom there is significant goodwill among conservatives.
Sources said Victorian Liberal powerbroker Michael Kroger, whose influence these days is diminished, is nonetheless working behind the scenes and has personally urged Victorian MP and key Abbott ally Kevin Andrews not to cross the floor on the NEG.
‘The next 48 hours will determine it’
Mr Andrews was one of 10 MPs and Senators who reserved their right to do so at Tuesday’s party room meeting.
One Liberal who backs Mr Turnbull, said the leadership situation was the most serious it had been since Mr Turnbull rolled Mr Abbott in September 2015.
“It’s up there, it’s up for grabs, the next 48 hours will determine it,” he said.
“Whether they can pacify people or whether it’s too late, who knows?”
He said the briefing from Tuesday’s party room meeting when the NEG was adopted by a ratio of three MPs to one, was too optimistic.
“It gave a false impression about how enthusiastic the support was,” he said.
He said while 10 did speak against the policy, “everyone else who spoke was heavily qualified.”
He also warned the government not to go too far with regulation, pointing out the Liberal Party was supposed to be about the free market.
“Some of us are worried about over regulation. It won’t send a good investment signal,” the MP said.
One conservative said of the leadership: “The colleagues are definitely talking but nothing is imminent.”
“People are pissed off big time over the NEG even if they haven’t spoken up in the party room.
“There are much broader issues too.”