Issue 71, March 2011
Welcome to the third issue for 2011 at a time of turmoil politically and in the energy industry, with the federal government’s carbon plans triggering a community backlash nationally and in important States like New South Wales, where voters go to the polls on 26 March. Much of this issue deals with carbon price, including the voter reactions thrown up by opinion polling. Other issues canvassed include a massive response to the Senate inquiry in to the impact of wind farms on rural and regional communities and what the Coalition will do in the energy area when it wins the NSW election. The value of the NSW network businesses, if sold, is highlighted, too, as is the Greens’ “solution” to power price pain in the State.
Richard McIndoe, chief executive of TRUenergy, now being described as the third force in national electricity supply following its successes in the New South Wales power privatisation process, belled the carbon cat for Julia Gillard and Greg Combet early in March by saying at a Sydney energy forum of the Committee for the Economic Development of Australia that it will take a carbon price of $50 a tonne to start achieving the chief purpose of domestic climate change policy: driving existing coal-fired power stations out of the market.
McIndoe also pointed out to the 230-strong CEDA audience that estimates of the decarbonisation target for 2020 – the goal of reducing national emissions to five per cent below 2000 levels at the end of the decade, now said by the federal government to be 160 million tonnes annually – could only be an estimate. It’s impossible to make a call now on what carbon price will be needed to deliver a 2020 target, he added, and a carbon price alone “will not get us anywhere near” this goal.
In this situation, McIndoe said, new entrants to generation would be unlikely to raise finance for baseload plants until there was certainty about when existing coal-fired power stations would be decommissioned.
McIndoe told media that TRUenergy could spend $10 billion on new gas-fired generation and renewable generation by 2020, “but we need the right carbon policysettings, not just a carbon price.”
The NSW network businesses would be worth between $20 billion and $25 billion if sold to the private sector today, says David Leitch, executive director of utilities research at UBS Securities Australia.
Speaking at the CEDA energy forum, Leitch urged the sale of all government-owned energy operations – networks and generation – on the eve of the State election in which the Coalition, runaway favourite to win the poll, has sought to make itself a small target for ALP scare campaigns on privatisation.
Coalition leader Barry O’Farrell has pledged not to sell the four network businesses.
In answer to a question at the forum, Leitch acknowledged that the value of the network businesses, currently engaged in a $17 billion program to expand and replace their assets, could be expected to be higher by 2015, when the next State election is due.
The NSW Auditor-General, in a report to State parliament, has said that the four network businesses contributed $895 million to government in 2010 in tax equivalent payments and dividends. At this stage, the three distribution businesses – EnergyAustralia (now renamed AusGrid), Integral Energy (now Endeavour Energy) and Country Energy (now Essential Energy) – still included their retail arms, now sold to Origin Energy and TRUenergy.
With the Newspoll showing the Coalition leading the ALP by 63 per cent to 37 per cent in the two-party preferred vote a fortnight out from the 26 March NSW election, the energy industry’s attention is firmly on what an O’Farrell government will do in this sector.
So far, the Coalition has made six firm energy-related commitments: (1) the establishment of a judicial inquiry in to the “gen-trader” sales process within 30 days of being sworn into government; (2) the setting up of a new inquiry in to the State’s generation needs following the 2007 Owen Report; (3) the establishment of an expert panel to investigate restructuring the distribution network businesses (now AusGrid, Essential Energy and Endeavour Energy following the sale of their names in the retailer privatisation) and to look at including the former EnergyAustralia’s high voltage assets in TransGrid’s portfolio; (4) the setting up of a “solar summit” to examine the existing household solar scheme, to identify opportunities to limit its costs and to esatblish a “sustainable future” for solar power in NSW as part of a program to ensure that renewable energy is 20 per cent of State electricity consumption by 2020; (5) introduction of a new dividend policy for government-owned electricity businesses, which sent $866 million to government revenue in 2010; and (6) provision of a “family energy rebate” of up to $150 annually and a low-income household rebate of up to $235 a year to alleviate the burden of power price increases.
The Coalition claims that restructuring the three distribution businesses in to two will enable savings of $400 million of four years and fund its power price subsidies. The State government claims the mergers will create no more than $260 million in savings.
The Coalition has been brandishing estimates by the State’s independent prices regulator showing that a four-person household in Integral Energy’s franchise area with air-conditioning will pay $491 a year more under the Rudd administration’s ETS. Labor and the Greens have retorted that the Gillard/Bown carbon tax will not be as expensive as the ETS.
The new Victorian government has launched a preliminary review – looking at the legal implications and expense of a full audit – of the State’s $2 billion smart meter roll-out program.
The project has been under criticism since the ousted Labor government launched it in late 2009 as a fore-runner to a national program. Supporters argue that the financial benefits of the technology will provide consumer benefits that outweigh the costs.
When completed in 2013, the program will have installed 2.8 million meters in homes and businesses.
The Energy Network Association says that 500,000 smart meters have now been installed in Victoria and it claims the program has helped consumers identify and repair thousands of electricity defects as a “safety dividend.”.
Installers, says ENA, have found 3,500 homes with defects and more than a third have had to be disconnected immediately for safety reasons.
Energy consultants GoSwitch have offered three main reasons for the “dramatic” rise in electricity prices in the past year, warning “there is no doubt the price hikes will continue.”
GoSwitch says the key factors contributing to current and projected bill increases are: (1) the networks require significant improvement to meet the demands of increased consumption, a growing population and ageing infrastructure; (2) although electrical appliances are more efficient than ever, Australians are using more energy at home, with a rapid rise in purchases of air-conditioning and large TVs combined with the habit of using multiple appliances at once necoming more common; and (3) the impact of the renewable energy target, including not only wind farms but back-up plant and modified and extended networks.
Outback price surge
Thirteen South Australian Outback towns with 2,600 customers have had their power bills increased by the State government by around 18 per cent because of the growing costs of supplying electricity to remote areas and increases in network charges.
New South Wales and South Australia each recorded to new all-time maximum power demand levels last month, according to the Australian Energy Market Operator.
AEMO says stifling heat conditions saw NSW demand reach 14,744 MW on 1 February while the SA peak was 3,399 MW, each exceeding peaks recorded in summer 2009.
The 2009 heatwave, however, still holds the record for the whole east coast, but not by much. The 1 February demand this year peaked at 35,568 MW at 2.30pm compared with 35,679 MW two years ago.
One of the difficulties of the carbon tax debate is the general lack of understanding in the body politic, the media and the community at large of how demand is shaped and, therefore, where the costs will fall.
The Energy Supply Association has broken down consumption in to eight categories, using the 2008-09 data. This shows that the largest single demand sector is residential, requiring 27.7 per cent, followed by commercial (22.8), metals (18.3), aluminium smelting (11), mining (9.4), manufacturing (9.1), transport and storage (1) and agriculture (0.8 per cent).
Power generation emissions in 2009 were 202 million tonnes. At a carbon charge of $26 per tonne, this represents a cost of $5.2 billion a year to be shared among consumers, including $1.45 billion falling on the residential sector and $1.18 billion on the commercial sector, which includes schools, universities and hospitals.
The most recent polling undertaken by Essential Media reveals strong community attitudes on compensation policy under a carbon price regime.
The poll shows that 48 per cent of respondents oppose the carbon tax (versus 35 per cent supporting it and 18 per cent undecided) and 59 per cent believe Julia Gillard broke an election promise in introducing the measure.
This suggests antipathy to the tax has grown in 4-5 weeks since it was announced. A Nielsen poll taken on 12 February reported a narrow lead of carbon price supporters (46.1 per cent) over those opposed (43.6 per cent).
When it comes to compensation for increases in power bills flowing from the tax, the responses for the Essential Report are substantially in favour of low income households (84 per cent) and farmers (74 per cent) as well as small business owners (70 per cent).
Seventy per cent of those polled also think that all households should receive compensation but they are significantly opposed to assistance for trade-exposed industries (44 per cent), manufacturing (51 per cent), the aluminium industry (56 per cent) and power companies (68 per cent).
The earlier Nielsen poll found that, even at a time when support for the carbon tax was narrowly in the ascendancy, the percentage of respondents who did not want to pay anything extra in power prices to “solve climate change” had risen from 21 per cent in 2008 to 33 per cent in February. The number of people willing to pay more than an extra $21 per month had remained static on 19 per cent – and the number prepared to pay between a dollar and $20 more had declined from 52 per cent in 2008 to 40 per cent now.
Meanwhile a survey of 2,500 people undertaken for the air-conditioning industry by Colmar Brunton has found that 50 per cent of respondents feel stressed when opening their power bills and that worry about the accounts is a significant issue in NSW and Victoria, where stress levels were the highest.
Climate Change Minister Greg Combet has promised “fair compensation” for low-income households and pensioners under a carbon price regime, but cannot say how much it will be because the measure’s details have not been decided.
Combet’s attempt at re-assurance suggests that between one and two million out of Australia’s eight million households will receive full compensation for the tax.
The government continues to struggle with community concerns as the media harp on the fact that the NSW Independent Pricing & Regulatory Tribunal calculated last year that the Rudd emissions scheme would add $20 a week to the costs of State residential customers and $120 a week for small business.
Both Combet and Greens Senator Christine Milne are attempting to allay community fears by arguing “only the big polluters will pay,” a line that manifestly fails to convince householders, who understand that the imposts on fossil-fuelled generators will flow through to their power bills and who are being told by the food industry that the costs will flow through to supermarket shelves.
A survey of 500 food and grocery retailers undertaken by the United Retail Federation indicates that 83 per cent of its members will increase prices when the carbon measure is introduced.
John Cummings, president of the National Association of Retail Grocers of Australia, says that independent supermarket operators estimate that a $26 carbon price will add between $500 and $1,000 a week to their electricity bills. “These extra charges will be passed through to consumers because this industry operates on low margins and has no capacity to absorb higher costs. We are already fighting higher input costs and we are in a period of deflation of grocery prices.”
NARGA represents 4,500 independent grocers across Australia.
The cumulative effect of the $26 tax on their operators costs would be between $234 million and $468 million annually.
Three years ago, in its submission to the CPRS green paper process, the association said refrigeration represents between 50 and 80 per cent of its members’ electricity costs and power bills represented about one per cent of product price. An increase of 40 per cent in electricity prices would have an impact of up to 0.4 per cent on grocery costs.
Unlike the GST, which “washed through” the supply chain with the input cost reclaimable at each stage, NARGA argued then, the cost of carbon is additive at each stage of the supply chain.
Meanwhile the Energy Users Association, representing about 100 of the biggest industrial power consumers, claims that the government announcement on a carbon price is already having an impact on electricity futures contracts. EUAA says futures prices for the second half of 2012 have risen by up to $5 per megawatt hour and by an average of around $2.
Australia’s six alumina smelters are being targeted by the environmental movement in the new outbreak of the carbon wars.
Five of the smelters on the the mainland are fuelled by coal-burning generators. The sixth, at Bell Bay in Tasmania, uses hydro-electric power.
Australia is the world’s second-largest producer of alumina and the plants emit about 14.4 million tonnes of greenhouse gases annually, mainly from the direct consumption of energy for heat as well as 1.3 million tonnes a year from the electricity they consume. The industry claims to have reduced its emissions intensity by 25.5 per cent between 1990 and today.
The Grattan Institute has called for them to receive no carbon tax compensation. Media writers sympathetic to the green cause have bad-mouthed them as “run by foreign multinational companies” and “propped up by subsidies,” referring to the contract links between global prices and local power costs.
Miles Prosser, executive director of the Australian Aluminium Council, responds that calls to see the smelters denied compensation and closed here will see new ones opened in China. “I would be surprised,” he has told media, “if the (Gillard) government is happy to see industry move offshore and jobs move offshore to a country that doesn’t have a carbon cost.”
The smelters employ about 5,000 people directly. They were to receive $8 billion in free permits under the Rudd administration'’ emissions trading scheme.
Governments have begun the move to implement nationally-consistent legal protection for consumers who can’t pay their energy bills.
The South Australian parliament, the lead legislator for electricity laws, has now passed the national energy customer framework. Other States and the Territories are committed to bringing in the law by July next year. Its key component is a mandatory requirement for energy retailers to develop hardship policies that will assist residential customers with payment difficulties.
Federal Resources and Energy Minister Martin Ferguson says the law will reduce costs for retailers by standardising the regulatory framework and providing model terms and conditions for inclusion in contracts.
Ferguson says the federal government is “very conscious” of the cost of living pressures being experienced by many Australians and that rising electricity prices are contributing to this.
Energy retailers have argued that dealing with energy bill hardship should not only fall to them. “This is a joint responsibility between retailers, governments, consumer welfare organisations and customers,” says the Energy Retailers Association.
A paper in the AGL Energy series of economic commentaries has suggested that, in Queensland and NSW alone, given the projected doubling of power prices, there could be more than 310,000 residential customers experiencing “fuel proverty” by 2015.
Martin Ferguson has authorised an independent review of electricity generation investment by management consultants Deloitte and convened a panel chaired by his departmental secretary to consider the report.
“The objective of this study is to examine whether an ongoing delay or uncertainty around the introduction of a carbon price is causing delay or economically sub-optimal outcomes investment in electricity generation plant needed to meet anticipated demand,” says the Department of Resources, Energy and Tourism announcement.
Deloitte will examine historical trends in electricity investment, the influence of mandatory government energy policies and investment scenarios under a range of options related to carbon pricing.
“Maintaining energy security and reliability is critical as we transition our electricity generation sector to reduce greenhouse gas emissions,” Ferguson told media.
The oversight panel, under chairmanship of Drew Clarke, is made up of Richard Bolt, secretary of the Victorian Department of Primary Industries, Shirley In’t Veld, managing director of WA Government-owned Verve Energy, Campbell Lobb, managing director and head of equity capital markets, Credit Suisse Australia, Richard McIndoe, managing director, TRUenergy, John Pierce, chairman of the Australian Energy Market Commission, Andrew Reeves, chairman of the Australian Energy Regulator, Ross Ralfe, managing director of Alinta Energy and a former senior Queensland bureaucrat, Rick Sankey, head of utilities, energy and renewable solutions, Commonwealth Bank, and Matt Zema, managing director of the Australian Energy Market Operator.
The review was announced just days after Fitch Ratings produced its 2011 Australian power review in which it said up to $25 billion could be spent on commissioning new generation on the east coast by 2016, but this could be $7 billion lower in the absence of industry certainty about carbon pricing. The Fitch estimate includes $10.5 billion being outlayed on building wind farms to meet the government’s renewable energy target.
Fitch said that, with a carbon price in place, expenditure on baseload, gas-fired generation could be $11.4 billion over the next five years in eastern Australia.
Meanwhile Ferguson has told reporters at a media conference in Queensland that, if they think the debate about a price on carbon is tough, there is an even tougher one coming in the next five to 10 years is there isn’t adequate investment in power generation.
At present, he said, there are coal-fired generators who cannot enter in to contracts to sell electricity in three, five or eight years’ time because they and buyers don’t know what the price will be.
The Energy Alliance’s 2011 Energy State of the Nation conference will be held in Sydney on 31 March. Now in its fourth year, the event will include keynote talks by Drew Clarke, secretary of the Department of Resources,Energy & Tourism and Tim Stone, a partner with KPMG in Britain who is an adviser to the British government. John Pierce, chairman of the Australian Energy Market Commission, will also be a speaker.
Setting the scane for the conference, Energy Alliance executive director Robert Pritchard argues that an energy crisis and an investment crisis are likely to affect Australia well before any climate crisis.
Pritchard says the situation points to the most important priority for governments here and overseas being to provide investors with “more conducive, durable policy settings with the aim of reducing the investment gap.”
Details of the conference can be found on the Alliance’s website at www.energyalliance.com.au along with EA’s March newsletter in which Pritchard explains more about his concerns.
A new government report looking at energy security will be published in the middle of the year.
Appearing at the Senate Estimates hearings, Drew Clarke, secretary of the Department of Resources, Energy and Tourism, said preparation of a second national energy security assessment is under way, looking at the current state of oil, gas and electricity supply and the future outlook.
The assessment will be available for public comment as part of the energy white paper process.
Greens Senator Scott Ludlam has urged the government to publish an interim white paper this year, the original policy project now being about two years behind schedule.
The federal government has not updated its economic modelling of the impact of a carbon price on the economy since 2008 despite launching a new attempt to introduce the measure in February.
This was revealed at Senate Etsimates hearings by Treasury officials, who acknowledged that the initial modelling had included assumptions that the United States under the Obama administration would have a carbon price scheme. The modelling, they said, did not include a scenario where Australia took carbon action and other countries did not.
The Treasury has been updating its decarbonisation policies modelling capabilities over the past 12 months, senators were told.
Defending the government against Coalition accusations that it is “flying blind” without fresh modelling, Finance Minister Penny Wong argued that “a range of decisions have not yet been made, which would include such design sisues as starting price, assistance arrangements for households, communities and industry, support for low-emissions technology and innovation, phase coverage of sectors, including coverage of the electricity sector.”
Liberal Senator Mathias Cormann shot back: “What you have reported as a two-stage plan is esentially a government announcement of another tax without (you) coming clean with the Australian people as to how much tax you are going to charge them. You do not have the courage to tell them how much it is you are going to charge them.”
Under questioning, Treasury agreed that the previous modelling, which started with a fixed price of $10 per tonne in 2011-12 and assumed a price of $26 in 2012-13, would lead to a rise in the wholesale price of electricity by 48 per cent by 2015 and 86 per cent by 2020.
As an example of the impact of lack of carbon pricing certainty, senators were told that investors could opt to build open-cycle gas generation to make money in peak demand periods and, in an environment with carbon prices, they become efficient relative to coal – but closed-cycle gas turbines are more efficient at producing electricity. “The uncertainty is leading potentially to people making decisions that will raise electricity prices even without a carbon charge.”
Having slashed $100 million from the Solar Flagships program as part of its cost-cutting measures, the Gillard government has put it back again in a deal with the Greens to get the proposed flood levy through parliament. The cut to the carbon capture and storage program has not been reversed.
A Senate committee finds itself itself at the centre of a wide-ranging stoush between the wind power industry, the environmental movement and members of communities with concerns about living close to wind farms.
By the second week of March, the Senate Community Affairs References Committee had received 773 submissions to its inquiry in to the social and economic impact of rural wind farms.
The scale of input is starting to make the inquiry one of the largest in the world in to the impact of wind farming, dwarfing the work of a similar inquiry undertaken by the NSW Legislative Council two years ago.
Many of the submissions are from community groups epitomised by the dozen protesters who greeted South Australian Premier Mike Rann with posters proclaiming “We can’t sleep” when he traveled to the State’s mid-north region to open a new wind farm.
In response, the wind industry has cranked up its lobby groups, individual companies, service providers and supportive scientists to demonstrate the value of projects in aiding greenhouse gas abatement, their boosts to rural and regional economies, including job creation, and the fallility of claims about the impact of wind turbines on health, local peace and quiet and property values.
The attention of the wind industry will be especially focused on a submission from Matthew Guy, Minister for Planning in the new Baillieu government in Victoria. Guy tells senators that the government supports the development of wind power, but the industry “must take in to account broader social and environmental needs to ensure communities and sensitive landscapes are not unreasonably impacted.”
Victoria now has eight wind farms, commissioned at a cost of $1.2 billion, with a total capacity of 428 MW. Guys says a further 28 projects, with a combined capacity of 3,192 MW, have been approved. If they all go ahead, the capital outlay will be $5 billion.
Guy recites the commitments the Baillieu government made in the recent State election, including a requirement that turbines must be sited at least two kilometres from the nearest home unless developers and residents have reached an agreement.
The wind industry and its supporters have made much in their submissions to the Senate of a National Health & Medical Research Council finding that there is no published scientific evidence positively linking wind turbines with adverse human health effects – but Guy points out that there have been no medical studies targeted on Australian conditions, while there are anecdotal reports from medical professionals suggesting a pattern of health impacts where a common factor may be proximity to wind farms. He cites a 2010 European Environmental Agency report which notes that wind farm noise causes much greater disturbance to communities than such other sources as road, rail or industry developments.
He adds that the impact of rural wind farms on property values is unclear as only limited studies have been undertaken. An emerging issue, he says, is the cost impact of wind farms on crop spraying and other aerial farm activity.
Guy says the Victorian government is committed to empowering local governments to take a lead role in deciding the location of future wind farms.
The Clean Energy Council attacked the Coalition approach during last November’s State election, claiming renewable energy was supported by 90 per cent of Victorians and that the Baillieu approach would put between 50 and 70 per cent of the proposed developments at risk.
Guy now tells senators that his government considers it essential that people in rural communities and farming areas are adequately provided for in the long-term planning for areas with high wind resources.
The Senate committee plans to hold public hearings in Canberra, Ballarat, Melbourne and Perth towards the end of March.
The world’s largest wind turbine manufacturer, Danish-based Vestas, has come out swinging against critics of developments in its Senate submission.
The company says it has supplied more than half of the wind turbines installed in Australia to date.
It says that the federal government’s renewable energy target will deliver at least 10,000 MW of new projects and around $25 billion in total investment by 2020, the highest estimate to date of the RET impact.
(The $25 billion forecast is also supported by Pacific Hydro in its submission – the company claims that, assuming 4,000 turbines are constructed as a result of the RET and they operate for 20 years, regional economies will obtain a direct economic benefit of $5.9 billion in today’s money values.)
“We are pleased,” Vestas says in its submission, “that the Senate will be able to focus upon and examine many of the false, defamatory and misleading claims of anti-wind energy groups who have gone to great lengths to divide rural communities and create fear among local residents in recent years.”
It accuses one leading campaigner against wind of visiting towns to whip up hysteria against the sector, then meeting with people afterwards to record their claims of how sick they feel and how they feel that turbines are the cause.
Despite the ferocity of such campaigning, it says, public support for wind farms remains at a very high level.
Describing the local benefits of wind developments, it claims that “many towns that were dying have been revitalised” by the contribution to the local economy of wind development.
Australia, Vestas adds, already has some of the toughest noise limits for wind farms anywhere in the world.
It warns that the new regulations for wind development current being considered by the national Environment Protection & Heritage Council “will not improve the planning system for any stakeholders and will add costs to projects across Australia.”
The Clean Energy Council is using a study by ROAM Consulting to rebut persistent political and media accusations that renewable energy is a major cause of current sharp increases in power prices. According to the ROAM report, renewable schemes account for between four and seven per cent of electricity bills.
ROAM modelling claims that the large renewable energy target is adding $35 to annual residential power prices in 2011 and that this will rise to between $48 and $68 by 2020, using today’s money values.
ROAM also says that network charges could, under some scenarios, account for 55 per cent of household prices by 2020, up from 40 to 50 per cent today, depending on location.
The ROAM Consulting modelling of retail power prices says that, under the current 2020 abatement target (cutting emissions to five per cent below 2000 levels), Queensland residential customers will encounter the largest cost impact, with wholesale power prices rising from $32 per megawatt hour today to $77.30 (in today’s money values) in 2020, an increase of $45.30 per MWh.
The next largest rise will be in New South Wales, where wholesale prices are forecast to rise by $34.4 per MWh – from $43.30 now to $79 at the decade’s end. The increase for Victoria would be $23.10 – increasing from $44.50 per MWh today to $67.60.
The three eastern States account for by far the largest number of household customers in eastern Australia – adding up to 6.8 million at the mosr recent industry published account out of 7.7 million in the national energy market (which excludes Western Australia and the Northern territory).
The NSW Greens have the answer to power price pain in the State.
Seeking to win two seats in the Legislative Assembly and a bigger presence in the Legislative Council, they have called on Barry O’Farrell, when he wins the election on 26 March, “ to cancel $7.5 billion of the current $17.9 billion expenditure on new wires, poles and sub-stations and instead invest in household energy management.”
The fact that the State government does not authorise the capital outlays and fix the pass-through cost to end-users – it is handled by the Australian Energy Regulator – seems to have escaped the Greens.
The present AER determination runs from July 2009 to June 2014. The expenditure is needed to augment the networks to accommodate the growth in maximum demand for energy, replace ageing assets and improve system security and reliability.
“The future of household power bills is in the hands of the State government,” the Greens are declaiming, overlooking that the AER determines the 45 per cent of the final bill represented by network charges and the federal government mandates the expenditure on renewable energy and its cost flow-though to end-users while wholesale power prices (another 45 per cent of the bill) are dictated by a competitive east coast marked overseen by the Australian Energy Market Operator.
AGL Energy will build a $45 million cogeneration plant of 21 MW capacity for Qenos, the Australian producer of poly-ethylene, at the company’s Altona operation in Melbourne. The unit, said to be the largest cogeneration development for industry in a decade, will cut Qenos’s greenhouse gas emissions by 100,000 tonnes a year. Construction will start in September and be completed late next year. Qenos says the development will provide long-term energy security and improve the economics of poly-ethylene production.
The new Ernst & Young global survey of renewable energy says new outlays on zero-emissions generation reached a record $US243 billion last year, driven to a considerable extent by China’s investment in wind power, rising at three times the rate of wind development in the US. The report says Australian wind investment fell back to 221 MW of new capacity last year, well down from 993 MW in 2009.
The Obama administration’s push to introduce a cap-and trade emissions abatement scheme in the US has seemingly collapsed with the president making no reference to it in his State of the Union address to Congress.
The development follows sweeping Republican gains in the US House of Representatives and some success in the Senate in last November’s mid-term elections as well as the faltering UN efforts to reach global policy agreement at Copenhagen and Cancun.
Observers comment that the failure of the attempt to introduce emissions trading in the US is as big a blow to the European Union scheme as it is to the hopes of American proponents of the measure because the real impact of the EU concept relied on it giving birth to transatlantic trading.
The Obama agenda has also suffered another setback: the hard-driving head of the White House Office of Energy and Climate Change Policy, Carol Browner, the administration’s voice in promoting the cap-and-trade scheme and the architect of Obama’s “Plan B” (the use of Environmental Protection Agency legislation to impose carbon caps on power generators ), has quit and the unit has been closed down.
Browner’s deputy, Heather Zichal, Obama’s lead campaign adviser on the issue in his successful “yes we can” run for president, has been given the job of advising him on climate and energy policy while continuing her other role as an aide on domestic policy.
Washington DC observers say that President Obama has opted to rebrand his approach, shifting from imposing what was increasingly seen as a penalty on Americans for their use of energy to a promotion of clean energy technologies, which, in the US, includes renewed development of nuclear power.
They point out that many Republican members of Congress like the idea of their states and constituencies getting federal incentives for investment in solar and wind power and biofuels.
Federal Resources and Energy Minister Martin Ferguson has summed up policymakers’ frustration in a comment to journalists at a media conference in response to a question as to whether he thinks community support for action on decarbonisation has dwindled: “Look, I understand the community wants the government to take action, but it’s like everything else. Everyone wants renewable energy but, as soon as you start talking about a wind farm in their backyard, they don’t want renewable energy. Everyone wants us to resolve a price on carbon but, when they starting think geez this might increase the cost of electricity, they don’t want it.”
Wayne Swan, standing in as Prime Minister while Julia Gillard visited America, claimed on television this month that a carbon charge “will not act like a traditional tax, is not deducted from your pay packet, it comes from the big polluters.”
It is this kind of amateurish sophistry by senior politicians that is tee-ing off a large segment of the voting population over decarbonisation policy and delivering the negative judgements Labor is now encountering in the opinion polls at federal and State levels (see above).
Of course, Swan is correct that the carbon price will not be deducted by employers from remuneration and paid to the Taxation Office, but this in no way amounts to a non-deduction from household budgets.
The goods and services tax doesn’t involve PAYE deductions either, but no-one would argue it isn’t a tax – in fact, Labor were hysterical about it as a new tax for years during the Howard regime.
Howard, unlike Gillard, took the GST to the electorate in 1998 and won a substantial majority, even if well-reduced from the landslide that threw out the Keating government in 1996. Gillard and Swan, on the other hand, misled the electorate on this issue last year in a poll that resulted in a hung parliament.
Despite Swan’s current spin, understanding the impact of the carbon price on householders does not require one to resort to rocket science.
Residential electricity users in Australia, in round terms, are responsible for about 56 million tonnes a year of carbon dioxide emissions through their consumption of electricity fuelled by coal and natural gas (see the breakdown of customer segments above).
Assuming an introductory carbon price of $26 per tonne, rising through the decade to $35 per tonne, and it cannot be less than this range to have the beginnings of a meaningful impact on emissions, the aggregate impost on householders will be about $1.45 billion per year initially, rising to about $2.3 billion a year by 2020, allowing for a rise in consumer demand, driven in part by a bigger population and continuing use of energy-intensive appliances such as air-conditioning..
This assumes that the carbon price does not have to be much higher to drive abatement towards even its present 2020 goal. Richard McIndoe’s perspective (see above) is that a $50 price is needed to begin to push existing coal-fired power out of the east coast market. Others are claiming that $60 per tonne will be needed.
Manifestly, some members of the Gillard government do not fully appreciate what levels of price will be required to achieve the target – as witness Climate Change Minister Greg Combet talking about a “modest” measure enabling technological change in coal-burning generation.
Will the government’s policy also encompass petrol prices – where the carbon charge will translate, given average passenger vehicle fuel efficiency and travel patterns, to about an extra $200 or so a year in its initial phases? This is what the Greens want.
Or are the rumours in Canberra true that the end-product of the present arm-wrestling with the Greens and the independents will see a carbon price imposed just on electricity generation?
The vicious circle for Labor is that the level of impost on power station emissions needed to close down the older, relatively inefficient plants in South Australia, Victoria, New South Wales and Queensland in order to deliver on the abatement target will be much higher than anything ministers are touting in public at present – but high levels of compensation will sustain demand by the residential and commercial sectors, thus pushing up the need to build more power plants and to continue to expand the network system, maintaining both upward pressure on end-user bills and the voter backlash.
Of course, in the present environment, following the polling reaction to Swan and Gillard breaking their now notorious pre-2010 election promise that “there will be no carbon tax” under a government they lead, who among voters will believe that the Treasurer and his successors in office this decade will sustain the compensation the government is promising?
Keating’s double-dealing on L-A-W tax cuts may be history for many in the community, but it is not forgotten as a pointer to how far you can trust politicians – and Gillard’s post-election turn-around has served to re-ignite these memories.
Of course, given that the government has not had the Treasury model the carbon price impacts since 2008 (see above), how can anyone, including Gillard, Combet and Swan, talk with confidence about what is needed to deliver the government’s existing promise to cut emissions by 160 million tonnes a year by 2020? Let alone, the higher abatement targets being pushed by the Greens, who seem to have Gillard in thrall?
Why does Swan himself believe that what he is saying will lessen the heat of voter unhappiness created by the inexorable shift in their power bills towards double what they were in 2008, driven by higher network charges, the cost of the renewable energy target and such other imposts as support for rooftop solar feed-in tariff schemes?
And this is before foreshadowed higher prices for coal and gas later this decade push up the wholesale price of electricity, a 45 per cent segment of the end-user bill. And before, “smart meters” enable distribution network service providers to win agreement to introduce “time-of-use” tariff regimes?
The hits on household budgets are indirect as well as direct. As the independent grocery stores are trying to explain (see above), these higher costs must flow through to the products on their shelves.
Lost to view in all this, by the way, is the fact that there are a million small businessfolk working from home who are going to have to wear the carbon charge and power price rise burdens, too. No compensation for them is on offer.
What a tangled web this is becoming.
13 March 2011
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