HURRAH, the Rudd government and Turnbull opposition have agreed to pass the Renewable Energy Target, an initiative unjustified in economic terms that makes emission reduction costs three times more expensive than the price of permits under cap and trade and resurrects government planning that Australia spent half a century trying to escape.
This is an initiative driven totally by politics. In a new world of climate change tokenism it means Kevin Rudd and Malcolm Turnbull are heroes. Government support to create new renewable industries otherwise untenable has become the test of being "serious" about climate change.
Perhaps it is time to be grateful for small mercies since in the scale of climate change policy atrocities this is modest. But it illuminates a greater truth: a fundamental change in policy values produced by global warming and a new hypocrisy about solutions running from renewables to nuclear power.
The Productivity Commission knows the RET is a bad idea. In its submission to the Garnaut report, Australia's leading economic research body said RET schemes would "not achieve any additional abatement but impose additional costs". They would "most likely lead to higher electricity prices". And they would encourage a new corrosion of politics by signalling "that lobbying for government support for certain technologies and industries over others could be successful". Of course, the descent into a new era of rent-seeking lobbying is now entrenched.
In its July 2009 submission to the Senate economics committee, the Business Council of Australia, a supporter of the cap and trade concept, said: "The introduction of the RET will bring with it additional costs for those industries using electricity as a means of production." The BCA said the "key challenge" for Australia was to "achieve emission reduction in the most cost-effective way" to avoid weakening the nation's economic competitiveness.
Referring to Council of Australian Government principles on climate change action, the BCA says: "An assessment of the RET in light of these principles would suggest the RET policy should not be proceeded with." It quoted the October 2008 Treasury modelling showing the cost of emission reductions via the RET will be up to three times higher than the cost of permits under the Carbon Pollution Reduction Scheme over 2010-20.
The BCA argues: "Such an analysis points to a fundamental conflict between the stated aim of the CPRS to facilitate least-cost emissions reduction and the introduction of an expanded RET which leads to additional costs to achieve emission reduction." It reminds that climate change action is driven mainly by politics, not first-best policy. Once this would have been recognised as a danger for Australia but those days are gone.
The Australian Industry Group in its submission to the Senate committee said: "If the proposed CPRS is passed with appropriate amendments to assist affected industries during the transition there will be no need for the RET at all."
The joke about the RET is that it is supposed to terminate at 2030. This is Rudd government policy. So winner picking is justified for 20 years but not forever. Nobody has a clue what will happen in 2030 but phasing out special deals for clean industry is likely to be as unpopular in 2030 as opposing such special deals is in 2009.
In his submission to the Senate committee, Ross Garnaut said: "If you were comfortable with all of the parameters of an emissions trading scheme and you thought that the targets were right and other dimensions of the scheme were right, I do not think you could make a case for the RET. It would be redundant."
Greenpeace put the issue directly saying: "There is not a single wind turbine anywhere in Europe that was built as a result of their ETS. Not one." They were built solely as a result of RET and other special deals.
There are two conclusions from this analysis. First, the Rudd government's CPRS scheme is not pure enough to do the job by pricing carbon enough to get the investment switch to renewables. Second, renewables are the holy grail of climate change action around the world. It doesn't matter how good your cap and trade scheme, underwriting renewables has become the non-negotiable symbolism demanded by the new politics regardless of cost.
So how much difference will Australia's RET make? Treasury's estimate is that it will double the use of renewables from an otherwise 10 per cent of total electricity sources to the targeted 20 per cent by 2020. The Department of Climate Change explains the scam: according to modelling the RET will direct $19 billion into renewables by 2020 when this investment would not otherwise arrive until 2035 while retail electricity prices will rise only 3 per cent compared with business-as-usual. So be grateful and start cheering. But don't fall for the nonsense that renewable energy is Australia's chief answer to global warming.
Australia needs to double its electricity supply by 2030 to cope with growing demand. Australian Workers Union national secretary Paul Howes said last night in his Sydney Institute speech that natural gas, renewable energy, coal generation based on carbon capture and storage and nuclear power are the energy basket for Australia's future.
Howes said: "The present government prohibits on these shores a nuclear power industry. It says we do not need nuclear power as a part of the mix because we have fossil fuel and renewables to spare. I think the time has come to rethink this view."
Nuclear power is not financially viable for Australia at present, but this is not the reason for opposition to nuclear power in Australia. The reason is ideological: nuclear power is rejected on political grounds by the Labor Party. It is one of the few remaining items of Labor belief. Meanwhile, whether Australia can achieve its emission reduction targets over the next century remains an open question.
Acccording to Howes there are 436 nuclear power reactors in operation across the world; 49 are under construction and 413 are planned. China, Sweden, Finland and Poland are moving ahead with nuclear power. Australia has 38 per cent of global uranium resources and market forces will drive our expanded role as supplier to the overseas nuclear industry.
For Howes, it is absurd for Australia to deny itself on ideological grounds the industry its exports will fuel across the world. "Capital costs are the greatest factor in establishing a nuclear facility and the biggest barrier to entry followed by co-ordinated infrastructure to link generators to the electricity grid," he says. "This will require a long-term development program of the order of 10 to 15 years." He argues sheer uncertainty of other technologies such as carbon capture and storage makes a nuclear energy option a prudent decision.
The truth is that Australia is banking on clean coal and gas, the two present baseload technologies. It is making a commitment to test whether carbon capture and storage can be proved at scale and on commercial terms. Coal and gas reflect our comparative advantage.
Establishing a nuclear industry from the ground up would be an enormous and improbable task for Australia. The point, however, is that it should be assessed, now and in future, on economic grounds not on political prejudices from another era.
Article from: The Australian Paul Kelly, Editor-at-large