TiP

Not all the debate about the carbon price regime involves the big stage and the top name players.

One of the more interesting sideshows over this year has been the hearings of the Senate select committee scrutinising the proposed carbon tax, chaired by West Australian Liberal Mathias Cormann (who is also the Coalition’s Assistant Treasurer spokesman).

The Hansard reports of the committee are all to be found on the Senate website, the latest being a hearing on 1 September.

Little of this material finds its way in to the daily (or weekly) media so all sorts of information goes through to the keeper.

Looking at the Hansard for the hearing in Geelong this month, I think the following is of some interest.

First, Andrew Richards of Pacific Hydro, which is owned by Industry Funds Management (which in turn has 5 million Australian superannuants as shareholders), told senators that there is a strongly held view that the renewable energy target will not be required beyond 2025, depending on what happens with carbon pricing.

He agreed with Cormann that “if the carbon price is high enough and pushes energy prices high enough, then there is no need for an additional requirement to have a minimum target for renewable energy.”

I am not sure that too many others in the renewables camp will put up their hands for closure of the RET once the ETS is in full swing; some indeed are arguing that, because of the slow progress of the past two years, it may be better to increase the target to 25 per cent by 2025 rather than 20 per cent by 2020.

In another response to the committee, Richards estimated that the new entrant price for brown coal development in Victoria today is around $45 per megawatt hour versus $60 for gas and $90 to $110 for wind.

Then there was the evidence of Danny Price, managing director of Frontier Economics, who focused on the “surprising” use by the Treasury in its base case modelling of the assumption that the rest of the world will have a carbon charge in place.

“The base case is meant to reflect plausible reality,” said Price, “and I do not think that anybody would imagine the rest of the world is going to put a carbon price in place. To me, this is more an attempt to manipulate the outcomes of the model than to try to openly and transparently understand the effects of a carbon tax. The way the base case has been formulated is a pure artifact of a very key assumption – not many people really appreciate this.”

He added: “We (that is, Treasury) have not done what should have been done – look at a world where the rest do not have a carbon tax in place.”

One of the highly unpopular (with the government) things that Frontier Economics found in its modelling, using the Treasury approach, is that the Hunter Valley and the Illawarra in New South Wales plus some Queensland areas suffer an absolute decline in growth under the Gillard/Brown carbon regime.

Price also drew attention to “gross misleading” use of the Treasury model results.

“The Minister for Climate Change regularly promotes the fact that the model shows there will be strong jobs growth, even with a carbon tax,” he said. “But this is a model assumption not a model outcome.”

In the Hunter Valley, under the regime now proposed, there is a prospect of 36,000 jobs being lost.

Price commented that Frontier Economics had been criticised for scare-mongering in raising bad sub-regional outcomes.

Treasury and the government, on the other hand, had sought to disguise regional impacts “by taking a sort of national average.”

Treasury, he pointed out, also modelled a carbon tax less than the one the Gillard government announced.

Price’s colleague Matt Harris chimed in that the Treasury attempts to pre-empt criticism of its global carbon price assumption by arguing that, if fewer countries take action, the worldwide cost will be lower.

This, he said, is not necessarily the case. If the US does not take action, there will be lower net demands for permits and the price might be lower, but if the stand-outs are countries like China and India, there might be fewer permits and upward pressure on the carbon price.

Cross-examined by Labor’s Senator Doug Cameron, a former unionist who has adopted the role of the government’s pit bull at these hearings, Price rejected a suggestion that he was saying there would not be jobs for today’s kids in a carbon regime future.

“No,” he retorted,”that is not what I said. I said jobs growth would continue but there would be fewer jobs than there otherwise would be and at lower wages than they would have been otherwise.

“There is jobs growth and there is income growth but they both grow at lower rates and in some regions jobs go backwards.”

As he observed, this is not something the Treasury and the government readily reports.

Answering a question from South Australia’s Senator Nick Xenophon, Price said it was concerning that significant, long-term investments in new generation across Australia were not being planned.

What investors are doing, he said, is “hedging their bets by building small increments of mostly gas-fired generation which will result in very big increases in prices.”

No-one in their right mind, said Price, would lay down the billions of dollars needed for new baseload generation in an environment delivering a transitional carbon tax moving towards an emissions trading scheme with unknown outcomes.

He observed caustically that, contrary to assertions that the government is delivering certainty for business, “a scheme that is transitional moving to a scheme that is ill-defined is not going to create certainty.”

Price told the committee: “These (generation investors) are my clients. I have been doing work (with them) for 25 years. None of them is talking to us about investment in new baseload generation.

“They are all investing in small peaking plant that they can potentially convert later on and that will mean that electricity price will continue to rise because they are quite expensive to run.

“I am the first port of call for potential investors in new power generation or in acquisition of generation,” he boasted. “They do not go to bankers and lawyers first. They come to us because we are the ones who look at the risks of opportunities.

“I am telling you that the level of interest in new baseload generation has fallen off dramatically over the past four or five years.”

In this context, if you visit the committee Hansard on the Senate website, it is worth flipping back to the 10th hearing in Canberra last month for a dissection by economist Henry Ergas of the government’s proposals. In particular, his response to the argument that we need the government’s scheme to give generators certainty.

“I agree,” said Ergas, “that they face uncertainties including those associated with the future international framework for climate change.

“Unfortunately, these uncertainties cannot be wished away.

“They are a fact of the current global situation. Imposing a scheme such as the one proposed to reduce the cost of capital to electricity generators only shifts the risk on to the community, who may not be the party best placed to bear it.”

Over the next two months, the media focus no doubt will be on the government backed by the Greens rushing the carbon legsilation through the parliament. The Senate committee’s Hansard provides some solid counterpoint to the essentially banal coverage we will have to endure.

In the longer term, we may come to realise evidence to the committee carried a great deal more weight.

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