As the smoke clears after Tuesday’s budget and Thursday night’s reply, how does the landscape look?

Firstly it’s vital not to lose sight of the bigger picture. The Budget funds moves towards an Emissions Trading Scheme (ETS) in 2010 and to implant the target of having 20% of our energy from renewable energy by 2020. These, and a strong target to reduce our greenhouse emissions at the end of 2008, are vital moves as we seek to unlock the opportunities of a clean energy future and to help secure a global deal so important to Australia’s national interest.

In many ways this Budget is a pregnant pause before the midwife arrives. It won’t be credible to mask next year’s budget from the revenue and investment implications of the ETS. Revenue from the ETS may be generated as early as the 2009/10 financial year and significant revenues in the following years — in the order of hundreds of millions of dollars or more. Next year’s Budget will be a once in a generation opportunity and challenge. A strong emissions reduction target will generate a strong emission dividend to facilitate the reforms, assistance and technology development needed to shift Australia to a clean energy future.

We described the Budget as “mild but promising” and this remains true but there were clearly some fumbles along the way.

The most important in our view was the failure to allocate any funding to the Renewable Energy Fund in the coming financial year, particularly as a number of drilling projects important to the development of the geothermal clean energy option were relying on funding this year. This has sent share prices tumbling and the Government scrambling to assure this industry they’ll be supported through the other “green energy fund”, the Energy Innovation Fund, or assurances for the following financial year. The only explanation for this blooper is that the efforts to hoover up as big a surplus as possible led to this hoovering of credibility.

That the main public heat has surrounded the means testing for the solar rebate demonstrates both the public backing for solar initiatives, and the precarious nature of rebates (and subsidies) as policy solutions. The visiting German Environment Minister observed that if you want to encourage solar PV rollout, a better policy instrument for unlocking longer term opportunities is guaranteed feed-in tariffs for electricity generation post installation. It’s clear that the rebate system has fed a boom. It is also clear that restricting the rebate to $100,000 pa households is causing something of a bust, especially for those businesses relying solely on the rebate program for their income. There are separate and relatively substantial pots of money for solar cities and solar schools initiatives that may allow a softer landing for the existing industry but the real spotlight should be on developing a consistent national feed-in tariff strategy for solar and other low emission sources that will not be captured by the Renewable Energy Target to make sure Australia has a diverse portfolio of clean energy options in 2020.

There was a disappointing failure to tackle perverse subsidies for fossil fuel use such as the fringe benefits tax for corporate gas guzzlers, but next year’s Budget will allow another chance — there are a number of opportunities like this which shouldn’t be deferred just because of the taxation review due to finally report in late 2009.

Against this backdrop came the extraordinary suggestion from Brendan Nelson, in the complete absence of any other climate or energy reform initiatives, to slash 5c a litre off the petrol tax excise. This, and the equally odd suggestion from some in Government to drop the GST off the excise, would be backwards policy. Backwards, because it would provide more cash benefits to the rich who consume more petrol. Backwards, because it disincentivises a shift to cleaner or more efficient energy uses. And backwards because it does nothing for real energy efficiency and affordability — if there is cash to spare, put it in to public transport, energy efficiency and direct and targeted support measures. It’s been heartening to see trucking and automotive industry voices calling for a more sophisticated approach. As we noted, there has been a more mature approach on climate change from the Coalition post election and if we are going to avoid dangerous and runaway climate change we need this to return.

After last week both major parties should be aware of the need to do better in integrating and communicating climate change policies and measures in their budget strategies. While some of these errors can be fixed as the budget bills go though the Parliament, attention is already turning to the decisions — later this year — that will unlock the potential of a clean energy future for Australia and determine whether we play a leadership role in helping achieve an effective global agreement in Copenhagen at the end of 2009. Will we get climate and energy policies that ensure we have real emission reductions by 2012? That make sure all new load electricity comes from clean energy? That ensure we hit 2020 with a diverse portfolio of commercial scale clean energy options?

It was a big week but it’s going to be an even bigger year.