News Article | May 21, 2017
A new report has warned the Turnbull government the national electricity market is at “crisis point”, with rising energy prices for consumers and increasing concerns the grid cannot meet demand. The report by the Grattan Institute says urgent action is required before summer to safeguard against the risks of blackouts, but it also cautions against political “fixes” – like Malcolm Turnbull’s Snowy Hydro 2.0 plan or the South Australian government’s plan to boost energy self sufficiency. “There is an acute danger of politicians panicking and rushing to decisions that push electricity prices higher and make the task of reducing Australia’s emissions harder,” said the Grattan Institute’s energy program director, Tony Wood. The much anticipated Finkel review into the national electricity grid is scheduled to be handed to political leaders at a Council of Australian Governments (Coag) meeting on 9 July. Industry stakeholders expect the Finkel review will continue to champion an emissions intensity trading scheme for the electricity sector – despite political opposition from the Coalition – as one policy response to promote orderly investment in infrastructure and emissions reductions consistent with Australia’s Paris commitments. On Sunday, ahead of the resumption of federal parliament, one key crossbencher also intensified pressure on the government to deal with Australia’s energy challenges. Nick Xenophon warned Australia was approaching “an Argentinian moment” and said the government needed to take concrete steps to reduce gas prices. “Years ago Australia and Argentina were the richest countries in the world, Argentina went down a path of bad strategic decisions and policies, and slid down a road into poverty and chaos,” Xenophon told the ABC. “If we don’t deal with the gas crisis, Australia will see its living standards decline substantially and it will plunge us into very high levels of unemployment and scar our manufacturing sector on a long-term basis. “We need to tackle this head on.” Xenophon said the government needed to adopt a “use it or lose it” policy in the gas market, and work cooperatively with the states to open up supply. The Grattan report says high prices are not the only problem in the gas market – there are also looming shortages. It says it intends to examine dynamics in the gas market in greater detail in a subsequent study. The report argues the way to fix current problems in Australia’s energy sector is not through one-off government interventions and investments but through comprehensive market reforms. It says a range of measures are required. The government needs to consider recalling mothballed power generators to ensure there are reserves of energy available in emergencies. It says customers should be given financial incentives to limit energy usage during peak demand periods, and generators should also be rewarded when they respond flexibility to surges in demand. The report says while consumers might take comfort in the idea that governments are intervening in episodes of central planning, that approach might prove to be “more expensive and may not improve reliability or achieve the emissions reductions required.” “A government-led program of investment, planning and coordination is likely to lock in exist ing technologies at the expense of better solutions that may emerge in future,” the report says. “Investment risks and costs would be transferred to consumers and would be heavily reliant on forecasts that are never quite right and often quite wrong. Overinvestment would lead to higher costs, while underinvestment would lead to supply shortfalls.” The report also argues the best way to restore confidence in the national electricity market is for the government to produce a credible emissions reduction policy. Wood said: “A decade of toxic political debates, mixed messages and policy backflips has prevented the emergence of credible climate change policy.” He warned that investment in electricity generation, including renewables, was “stalling” because the Turnbull government was yet to map out the way forward. A separate analysis by the respected energy market analysts, Reputex, to be released Monday, finds Australia can meet its Paris emissions reduction targets at “no net cost” to business. The report says emissions reduction at no net cost would be achieved by unlocking $12bn of savings attributed to “negative cost” abatement opportunities such as renewable energy and energy efficiency. It says Australia has a number of opportunities to reduce emissions at a “cost saving” to investors, with 40% of all emissions reduction activities identified as providing a positive return to investors, including the take up of distributed solar photovoltaics (PV), fuel efficiency and farm forestry.
News Article | April 27, 2017
The government “can’t guarantee” gas prices will fall as a result of its export restrictions, environment minister Josh Frydenberg has said, just one day after Malcolm Turnbull said wholesale prices should halve. In an interview on 3AW in Melbourne, Turnbull refused to promise an elderly caller that her gas bills would be cut, only that the policy would put “downward pressure on wholesale prices” which are a portion of her bill. On Thursday the government announced it would create a power to impose a limit on gas exports, acting on advice from the Australian Energy Market Operator and the competition regulator that a shortage existed. The plan was praised by Australian industrial gas users but panned by gas producers who said it represented an “almost unprecedented” sovereign risk that threatened investment in gas production. Speaking from the United States where he had met the US energy secretary, Rick Perry, Frydenberg defended the export restriction plan in an interview on ABC’s AM. He said that although he had previously labelled a gas reservation scheme an “investment killer”, the export restriction would allow Australia to meet predicted shortfalls without the “blunt mechanism” of reservation. Frydenberg said the gas market was in crisis because companies were being offered gas at $20 a kilajoule, three or four times previous prices, putting 60,000 jobs at risk. The environment minister pointed the finger at “jobs-destroying gas bans and moratoria” imposed by state governments, echoing the Australian Petroleum Production and Exploration Association’s call for more gas development. On Thursday Turnbull initially said gas prices “should be around half [$20 a gigajoule] or less” as a result of the new export restrictions. At a later media conference, Turnbull clarified that if the wholesale price for gas in Australia was based on the export price “it would be less than half $20”. “This is not saying that all gas prices will be halved as a result of these changes,” he said. “Wholesale gas, for example, if you’re a household, a family, the wholesale price of gas is between 15 and 20% of the cost on your gas bill because the gas company has to get the gas to you.” Frydenberg noted Turnbull had “never said prices will halve for all gas users” and suggested that the export restriction would put “downward pressure” on wholesale gas prices, which can make up 20-25% of the retail price. “Some businesses ... are being quoted $20 a gigajoule and that should come down dramatically. The price should be half of that over time.” Asked if he could guarantee price falls, Frydenberg said: “We can’t guarantee price in relation to any industry, what we can guarantee is that this mechanism will put more gas into the domestic market.” Asked if he stood by his claim of halving wholesale prices, Turnbull said Bill Shorten had misrepresented him and he had said only that “if the domestic market is adequately supplied, and that’s what the export measures ... are going to do, that’s their objective then the price should be around half [$20 a gigajoule] or less”. “That is confirmed by industry experts ... Tony Wood from the Grattan Institute in Melbourne confirms that.” He said $10 a gigajoule was the export price and Australian wholesale customers should not be paying a different price. Asked about his meeting with Perry, Frydenberg said they had discussed reducing greenhouse gas emissions, the importance of renewables, including wind, getting community support for unconventional gas, and carbon capture and storage. On Friday Energy Networks Australia added to calls for a price on carbon in a report that found clear policy settings could save Australian energy customers $100bn, and allow a smooth transition to large-scale use of renewable energy and the prospect of Australia’s electricity sector achieving zero net carbon emissions by 2050. Asked about the report, Frydenberg said the government “had made it very clear we won’t be taking up an emissions intensity scheme” and believed it could meet 2020 and 2030 greenhouse gas reduction targets with its current policies. “One of the problems with an EIS ... is that it is based on very cheap gas, which we know is not available at the moment. It’s also prefaced on the ... forced closure of more than half a dozen coal-fired power stations. “Coal, while it is a declining percentage of the overall energy mix, does remain a very important source of baseload power, providing the stability the system needs.”
News Article | April 12, 2016
The shift from petrol cars to electric vehicles appears to be more than a consumer-driven,Tesla-inspired phenomenon. The big utilities are also getting on board. Origin Energy, one of country’s big three utilities, says Australia could a market leader in solar-powered electric vehicles, given the right incentives and policies that could encourage the uptake of renewable energy and force the closure of the most polluting brown coal power stations. “With an already high penetration of residential solar PV systems in Queensland and South Australia and the emergence of home battery technologies, there is an exciting opportunity for Australia to be a market leader in electric vehicles powered by solar energy,” the company says in a submission to the Climate Change Authority. Nearly one quarter of Australian homes are equipped with rooftop solar, and Australia is seen as the likely first “mass-market” for battery storage – because of that high solar penetration and because of the country’s high electricity prices, courtesy of its high-cost grid. Anecdotal evidence suggests that many of the early adopters of electric vehicles are already charging their EVs with their own rooftop solar, and utilities are already switching controlled loads for electric hot water systems back to the day-time from overnight to take advantage of excess solar power. Utilities say EVs can fill the same function, and the uptake of battery storage could help shift that solar-charging into the evening. And by using rooftop solar, it addresses criticism that EVs don’t really reduce emissions in a coal-intensive grid. Origin says the potential for EVs is significant, but the take-up so far in Australia has been small, with less than 1,000 vehicles sold up to the end of 2014, although those numbers have since been boosted by the enthusiasm for the upmarket Tesla Model S, and more recently the huge interest in the yet-to-be delivered Model 3. Origin suggests a range of policies that would help increase demand, such as support for fleet purchases, infrastructure such as charge points, and reductions for stamp duty and registration, along with preferential parking and traffic lanes treatment. It also suggests electric vehicle sales can be coupled with GreenPower or similar products so that they are immediately powered by fully renewable electricity generation. Origin also points to the opportunities for Australian industry to become more involved in the manufacture and support of electric vehicle components and the charging infrastructure. The points made by Origin follow from similar proposals made by the Electricity Supply Council, and buy a consortium of utilities, network operators, advocacy and research groups, and city councils last week. Australia currently has no standards on its vehicle emissions, and while the Australian government is talking about introducing such policies, it is now being urged to be highly ambitious by a number of industry groups. Transport emissions account for around 17 per cent of Australia’s total emissions, and are growing rapidly. The report by the pro-EV consortium last week suggested that Victoria is the only state where the emissions would rise with widespread uptake of EVs, because of its brown coal generators. Across the National Electricity Market, EVs would actually reduce emissions, and particularly so in South Australia, Western Australia and Tasmania. Origin and others are now pushing the major parties to follow international examples and impose restrictions on brown coal generators. “Standards are currently being implemented in North America with the US basing theirs on emissions intensity and Canada on the age of its generators,” Origin said in its submission. “Either policy could be applied in Australia. In comparison to a carbon tax or emission trading scheme, standards are simple to communicate to the public and their results are more tangible.” Alternatively, Origin says a proposal to fund the exit of brown coal generators proposed by ANU academics is worth pursuing. Although it does not favour payments to generators, it would support funding for communities for structural adjustment. Another option is morphing the Coalition’s Direct Action scheme into something that is actually useful. This could be done by transforming the Safeguards Mechanism from something that protects the current level of emissions by large polluters into a mechanism that can force significant reductions. Origin says it is supportive of a shift to an “emissions intensive” safeguards mechanism that would effectively set a bar on emissions and require heavily polluting facilities such as brown coal generators to buy permits from cleaner generators. A policy brief released by the Grattan Institute released on Monday explores this further, saying that the safeguards mechanism could be a tool that could see the two major parties find agreement on climate policies – something that has not been achieved since John Howard supported emissions trading in the 2007 election. Grattan says the safeguard mechanism needs to be set – virtually immediately – at a level that corresponds with Australia’s medium and long term emissions reduction targets. It, too, talks of an “emissions intensive” category for individual power generators, rather than an “overall” baseline for the sector. But it wants the government to go further and reduce baselines to zero. “Businesses covered by the scheme will then have to hold permits for all their emissions. This final step, which should be taken within a decade, creates the structure to deliver tougher future targets at low cost.” Grattan argues that this represents a sensible compromise to the toxic politics that has dominated the climate change arena for the best part of a decade. “Our roadmap allows a Coalition Government to modify its Safeguard Mechanism so that it no longer merely prevents emissions from going up, but drives them down in line with agreed targets,” it says. “The roadmap enables the Coalition to do this via steps that are consistent with its political constraints.” It notes Labor remains committed to emissions trading as its centrepiece for a policy that will meet an ambitious, but yet undetermined target and also deliver 50 per cent renewable energy. “The roadmap shows how a future Labor government could take the Coalition’s policy framework and move to its preferred emissions trading model.” Drive an electric car? 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News Article | February 27, 2017
The government’s plan to cut company tax rates has been found by a new report from the Grattan Institute to be a major ongoing cost to the budget and will not improve national income for up to 20 years. In light of figures that show investment has now been falling for over four years, the government’s solution appears to be one that could be worse than the problem. The latest investment figures released last week by the Australian Bureau of Statistics were again disappointing. Private new capital expenditure fell 3.1% in the December quarter – the 17th quarter in a row: As has been the case throughout the past four years, the main culprit was mining investment – down 64% on the past four years: The drop matters, especially this week with the GDP figures released on Wednesday. The economy is essentially made up of four things: household spending, government spending, the amount of exports minus the amount imports, and investment. And historically, when investment is falling, the economy is either in a recession or near one. One reason we’re not in a recession now is because the ramp up in investment from 2004 to 2012 involved building mines that are now operational and are exporting absolute masses of iron ore: But investment is a key driver for the economy and for jobs, and is why the government has focused much of its economic policy around lifting investment. Its primary policy to achieve this is the plan to cut the company tax to 25% over 10 years. A report out this week by the Grattan Institute, “Stagnation nation? Australian investment in a low-growth world,” however, suggests that while lowering the tax would “probably attract more foreign investment” it would also “reduce national income for years”. And crucially – in light of the government’s desire to return the budget to surplus – the report estimates the tax cut will cost the budget $4.8bn a year over the long-term, because the increase in investment will never lead to enough of an increase in tax revenue to compensate for the cut in the tax rate. Pretty much the only impact from cutting the company tax rate is to attract foreign investment. As the governor of the Reserve Bank, Dr Philip Lowe, told the House Economics committee last week, “if you just think about domestic firms ... because we have dividend imputation, I do not think the tax rate really makes that much difference to their investment decisions.” But because other nations around the world have been cutting their company tax rates, all other things being equal, Australia has become less attractive to international investors. Of course all other things are never equal, and while the Grattan Institute suspects lowering the rate will likely attract more investment from overseas, they do note that the recent evidence on whether it will is “mixed”. The report’s author, Jim Minifie notes that foreign direct investment in Australia since 2010 has remained “relatively stable” even while our tax rate has risen relative to other nations. But as the report notes, attracting investment is not an end in itself – the key issue is whether a company tax cut will improve the living standards of Australians. And here the report suggests that the benefits are rather less tangible. It notes that Australia’s national income would drop by “about 0.25% ($4bn) immediately after the tax is cut” – because the benefits in the short term go to foreign investors. And while the report suggests increased international investment would mean in the long run the tax cut “will probably benefit Australians”, it notes “the long run” is a ways off. The report cites analysis used by Treasury which suggests that national income will “eventually rise above where it would have been without a tax cut”. But we’re talking in “about 20 years” – and that is only after the full cut to 25% has occurred in 2026-27. Due to the long wait for benefits, the uncertainty over the impact on investment, and the hit to the budget, the report concludes that “committing to a tax cut before the budget is on a clear path to recovery risks reducing future living standards”. The report is also pretty damming of cuts to the tax rate for small businesses. Of the policy that is favoured by the ALP, the Greens and the Liberal party, the report notes that it “is unlikely to lead to a substantial increase in investment”. The report suggests other measures, such as accelerated depreciation and immediate asset deductibility schemes, which “allows firms to write off new capital investments faster”. Yet it also notes this would be a substantial cost to the budget if, unlike the $20,000 accelerated depreciation for small businesses in the 2015-16 budget, it was applied to all businesses. One problem for encouraging investment is that the lending costs for businesses are already extremely low: As a result there is unlikely to be further cuts that might stimulate further investment. The report suggests that government could seek to invest in infrastructure in order to stimulate economic growth. However, it notes that the main problem with infrastructure spending is “finding quality projects that can be built quickly”. Infrastructure Australia currently has only seven projects currently designated as “high priority”. Given there is no real silver bullet for improving investment, the story might seem rather gloomy. But the report provides some nice context, pointing out that Australia has had a high level of investment compared to the USA and UK – even if we exclude mining: And while the latest capital expenditure figures were not good, they contained some pleasing signs for the year ahead. The latest figures contained the first estimate for investment in 2017-18. While the drop in mining investment is set to continue, there was a 7% increase in the estimate for investment in the non-mining sector: That is the best pick-up since 2008-09, and while that doesn’t always translate into actual investment, after four years of falling expectations from 2012-13 to 2015-16, it does appear things are improving. When parts of the economy turn bad, the tendency is for governments to seek a solution. But it is important to ensure the solution to that specific issue actually leads to a better outcome for the economy as whole. The Grattan Institute’s report suggests the government’s policy to cut company tax rate will probably lead to increased investment in the long-term, but less confident that it will lead to benefits for the economy. But the cost to both the economy and the budget in the short-term are very much certain.
News Article | December 7, 2016
Business and environment groups have expressed dismay at the federal government for scrapping consideration of an emissions intensity trading scheme in the electricity sector as part of its 2017 review of climate change policies, just a day after floating the possibility. On Wednesday a range of experts said the abrupt backflip by the environment and energy minister, Josh Frydenberg, on Tuesday night would create further regulatory uncertainty, which was a recipe for higher power prices down the track. But despite chalking up an internal victory by seeing off a carbon price for the electricity sector, conservatives within the Turnbull government are doubling down on efforts to limit future ambition in climate change policy. The South Australian Liberal Cory Bernardi declared Australia should pull out of the Paris international climate agreement, which require it to reduce emissions by between 26% and 28% on 2005 levels by 2030. The Paris agreement is the underlying architecture that locks Australia into pursuing emissions reductions, but Bernardi declared “we don’t need to be part of an international agreement that actually impedes us from making determinations in our own best interest – particularly an agreement that won’t include the world’s largest economy.” Bernardi said Donald Trump’s campaign promise to withdraw from the Paris climate accord “should be the catalyst for Australia to do the same.” The government’s decision to rule out emissions trading came a day after Australia’s electricity and gas transmission industry called on the government to implement a form of carbon trading in the national electricity market by 2022. The report, which was backed by the Csiro, said adopting an emissions intensity scheme for electricity would be the least costly way of reducing emissions and could actually save customers $200 a year by 2030. Matthew Warren, the chief executive of the Australian Energy Council – representing 21 electricity and gas businesses – was scathing about the government’s decision. “Doing nothing is not an option any more,” he said. “We are seeing in realistic terms the warning signs about the degrading state of the electricity grid and that says everything about why we have to have this review process to deliver substantial and meaningful outcomes, because if we don’t the system starts to disintegrate. “Old assets are reaching the end of their lives and there is nothing coming in to replace them. South Australia is already facing that now and it’ll happen across Australia if we don’t do something. “We’re seeing the effects of do-nothing for a long time. It doesn’t make sense to limit the scope before it has begun. We need to use this opportunity to reset.” A spokeswoman for AGL said an emissions intensity scheme would be a cost-effective way to achieve an energy transition, but it would not be enough on its own. “It is important that the Australian energy sector has clear policy settings that are agreed by Coag and consistently implemented across states,” she said. “The results of the AEMC and Finkel reviews and Coag processes will be important to help define future policy settings and AGL Energy encourages governments to move quickly to provide the certainty needed to give confidence to the industry to make significant investments which will improve outcomes for consumers.” The Climate Institute’s chief executive, John Connor, said the developments this week added to the “policy chaos of the last decade” on climate change mitigation. “Ruling out options before this review even begins is irresponsible,” he said. “It will heighten, not decrease, risks to energy security and electricity prices, because it adds further uncertainty to a sector which has already been described by the Australian Energy Council as ‘almost unbankable’ and ‘visibly deteriorating’.” The chief executive of the Business Council of Australia, Jennifer Westacott, stopped short of directly criticising the government but stated support for bespoke emissions reduction policies per sector. Tom Quinn, the executive director of the Future Business Council, described government’s updated position as a “big blow” to its members. “It throws certainly for the entire future business sector under the bus, especially the booming renewables sector and the entire low-emissions sector, so this is a real blow,” he said. “The future is low-carbon, the future is renewables, and the longer Australia delays the more we miss out on economic opportunities and the more we undermine business confidence. “Once again it means we are propping up the businesses of last century at the expense of this century’s growth stories.” Tony Wood, energy director of the Grattan Institute thinktank, said that ignoring the sector-specific scheme would result in higher costs for end users. “The worst of this is that the people who caused the minister to do this are going to get almost exactly the outcome they’re trying to prevent,” he said, citing less certainty in investment with knock-on effects for business confidence. Retailer Energy Australia said it supported a national approach to cleaner energy sources with consumers in mind but resisted the move to rule out policy solutions before the review. “We encourage everyone involved in energy policy to focus on understanding the problems we face in that transition,” it said. Australian Conservation Foundation’s Victoria McKenzie-McHarg said the new position from the government was a “startling” following a statement from the prime minister that heartened her organisation the previous day. “By knocking out policy options this early in the review, the government is just making their task much harder, and the confidence in that process is significantly reduced,” she said. Australian National University economist Frank Jotzo said an emissions intensity scheme for the power sector wouldn’t be perfect, but would be effective. “It is second-best to a standard emissions trading scheme,” he noted. “But limiting the impact on electricity prices is precisely why an emissions intensity scheme has been in the discussion.” The Minerals Council of Australia, which represent the interests of coalmining giants, was contacted by Guardian Australia but declined to comment, as did the Australian Bankers Association, which speaks for nation’s biggest banks.
News Article | November 20, 2016
The federal government could shrink its budget deficit by a billion dollars a year by cracking down on unduly generous tax breaks for over 65s, says the Grattan Institute. Its new report, Age of Entitlement: Age-based Tax Breaks, shows the proportion of over 65s who pay income tax in Australia has halved in the past 20 years. It says three age-based tax breaks for seniors have contributed to the large reduction in their income tax and ought to be wound back. The report says its proposed changes would have little effect on the 40% of seniors who receive a full age pension. They would most affect seniors who are wealthy enough to receive no pension or just a part-pension, it says. The three tax breaks are: the seniors and pensioners tax offset (Sapto), a higher Medicare levy income threshold, and higher private health insurance rebates available only to older Australians. Sapto is a tax offset that reduces the personal income tax paid by senior Australians. Its maximum value in 2016-17 is $2,230 for a single person or $1,602 for each member of a couple, the report says. It is available to people who have reached the current pension age of 65, whether or not they qualify for the age pension. The Grattan Institute says it should be wound back so that it is available only to pensioners. The institute also says the Medicare levy income threshold ought to be reduced for seniors so that only pensioners with income under $27,000 (for singles) or $42,000 (for couples) pay no Medicare levy. At the moment, seniors earning up to $33,738 (singles) or $46,966 (couples) pay no Medicare levy. The Grattan Institute says pensioners earning more than these thresholds should pay Medicare levy at the current rate of 10 cents for every additional $1 earned until equal to 2% of taxable income. These changes would reduce the maximum value of the higher Medicare levy threshold from $675 to $540 for singles and from$470 to $420 for each member of a couple. The Grattan Institute also says higher private health insurance rebate rates for seniors should be reduced to the same levels as apply to younger workers with similar incomes. It says winding back Sapto and the Medicare levy income threshold would save about $700m a year. Reducing the private health insurance rebate so that seniors got the same rebate as younger Australians would save about $250m a year. John Daley, the director of the Grattan Institute, said the three tax breaks were difficult to justify. “Some argue that the tax breaks are a fair reward for paying tax while under 65,” he said. “But in fact, large tax breaks for seniors are a relatively new invention not provided to previous generations. The current generation of seniors receives much more than its predecessors from government spending, particularly on health. “Age-based tax breaks are badly designed to achieve valid policy purposes, such as increasing workforce participation or preserving adequate retirement incomes for poorer Australians. “They might have been affordable when they were introduced over the past 20 years but the country can no longer afford the bill,” he said. The report shows how numerous policy changes over the last 20 years have led to a situation where older Australians are paying far less income tax than their predecessors. It says in 1995, before special tax offsets were introduced for senior Australians, roughly 27% of seniors paid income tax. After the introduction of the low-income aged persons rebate in 1996 and then the senior Australians tax offset (a precursor to Sapto) in 2000, only 15% of seniors paid income tax. In 2007, the abolition of taxes on superannuation withdrawals further reduced the proportion of seniors paying income tax. The effects of these changes were compounded by large general income tax cuts in the mid-2000s and by the global financial crisis. As a result, just 13% of seniors paid personal income tax in 2009-10, the report says. Then the proportion of seniors paying income tax rose slightly to 16% in 2013-14 as financial markets recovered, and bracket creep increased the number of people of all ages paying tax. “The increase of budgetary transfers – more benefits and lower taxes – to senior households might have been justified if those households had been facing increased financial pressures,” the report says. “But in fact, these transfers came just as older households were capturing an increased share of the nation’s resources. “Over the 10 years to 2013-14, average household wealth grew by 32%. Older households captured most of this growth while younger households’ wealth stagnated. “Despite the global financial crisis, households aged between 65 and 74 years today are $400,000 (or 47%) wealthier in real terms than households of that age 10 years ago. “By contrast, households aged 25 to 34 years are no more wealthy than the equivalent households a decade before.”
News Article | November 29, 2016
It seemed impossibly good news for the Queensland government in its push to transform Australia’s biggest carbon-polluting state into a renewable energy powerhouse in little more than a decade. An expert advisory panel steeped in what the energy minister, Mark Bailey, described as “hard-nosed economic experience and extensive modelling” last month concluded the state could effectively have its cake and eat it in its pursuit of a greener energy sector. Coal-fired Queensland, with just 7% of its power generation from renewables, could lift that to 50% by 2030 with little appreciable cost to electricity consumers. The government, which owns two-thirds of electricity generation, could bear the burden of subsidising renewables. Those costs would range from $50m if the feds ponied up on climate policy, including carbon pricing, to $900m if the state went hard early (and alone). The draft report by the panel, chaired by ex-Macquarie banker Colin Mugglestone, found the worst-case scenario for generators was the closure of a single coal-fired station. This was based on the observation that competition in the market from a new variety of power generators in solar and wind would put downward pressure on wholesale electricity prices. The caveat was that this pricing outcome was “not guaranteed” and could differ if more coal-fired power disappeared from the market. The panel’s conclusions have since been attacked by the Grattan Institute, which branded the claim of no price impact on customers as an “economic illusion”. The federal energy minister, Josh Frydenberg, has also sought to rain on Queensland’s parade by claiming the scheme would cost $27bn. But Bailey stands by the draft report, arguing the credibility of its authors and its detailed modelling put Frydenberg’s “desktop departmental review” in the shade. He says Frydenberg still hasn’t produced any details of where the $27bn figure came from – two months on – despite Bailey’s direct requests. “If he had those genuine concerns you think he’d be sending in a big pile all the documents relevant to it … but I still haven’t received anything in my inbox,” Bailey tells Guardian Australia. “So I think this is a stunt and it’s got no authority or is regarded with any seriousness by the energy industry.” Coal companies like Rio Tinto have called on Queensland to abandon its own renewables target to simply align with the commonwealth’s 2020 goal of 20%. But Bailey says it’s clear the state’s plan was “developed in the absence of federal policy” and with doubt that even the 2020 commonwealth target will be achieved. He says the failure of the prime minister, Malcolm Turnbull, to put policy daylight between him and his predecessor, Tony Abbott, shows conservative politics in Australia will be dragged kicking and screaming towards energy sector reform. Antipathy towards renewables and acting on climate change among the hard right of the Coalition stands in contrast to moves by “conservative parties in other parts of the world”, Bailey says. He cites Germany and California as advanced economies already boasting more than 30% renewable power. “You go to Europe, this is not an issue,” he says. “It seems to be a particular LNP [Liberal National party] Australian thing but they seem extraordinarily intransigent on it and, while we see more and more extreme weather events occur, they are stopping us from dealing with some of those big issues around climate change. “We have to get away from strong ideological positions both pro and anti [renewable energy] and drill down into what the evidence is. “And this report nailed a range of key facts that are relevant to this debate and certainly one of them is by producing and creating more generators and more competition in the marketplace, then there’ll be some gains in terms of bringing the wholesale price down.” The Grattan Institute in a submission to the Queensland renewable energy expert panel said the draft report seemed to have understated the “full costs of infrastructure to manage the intermittency of wind and solar”. Renewables still cost more than existing coal and gas power but the cost of shifting to renewable could be balanced in the short term by state generators cutting their profits. “[But] as the proportion of wind and solar increases, this balance will not be sustained and prices will rise in line with the underlying higher costs,” the Grattan Institute said. Bailey stands by the assumption that “by getting more suppliers in the market, more competition, you see the wholesale price come under pressure to come down”. “I’m not saying that, the independent panel full of energy specialists are saying that,” he says. “So you can have renewable energy and you can stabilise prices at the same time and that’s what’s happening to Queensland right now.” Bailey touts the model of “a very private sector-orientated panel” examining the climate-driven power sector shift as one for other states to follow. The power sector, with just under half of emissions, was the single largest source of carbon pollution in Queensland in 2014. The state as a whole made up 28% of national emissions with 146.7m tonnes. Bailey says governments cannot “be serious about acting on climate change without dealing with emissions from the energy sector, full stop”. “You’ve got Mr Frydenberg overseas saying nice things and signing Australia up to greenhouse targets, which is terrific, but then he comes back to Queensland and bags us for actually backing in that target and acting on climate change,” he says. “He speaks with forked tongue on this.” A 14-year transition for the energy sector means an “average of a couple of per cent a year” of additional renewables generation capacity, Bailey says. ‘That’s very responsible, highly manageable,” he says. “Given the impact of climate change on our economies and communities right now, the most irresponsible thing to do is not do anything about it. “People are not of the view that this move towards renewable energy shouldn’t happen, they support it, and they want to know governments are on the front foot and they’re managing it.” The panel, which is due to release its final report by the end of 2016, has mapped out three scenarios for reaching the 50% renewables goal. If the commonwealth prices carbon, the preference of energy companies such as Adani, that would drive Queensland to 41%, leaving the state to deliver an extra 1900 megawatts to hit its 50% target. If the state is forced to go it alone it must choose between a steady increase in renewable generation – which would lead to greater cumulative emissions cuts but cost $900m – and a “ramp up” scenario closer to 2030 to take advantage of cheaper technology which would cost $500m. One of the factors in Queensland’s favour is the fact four of its “super critical” coal-fired generators were built since 2000, meaning the dirtiest plants to be closed first are interstate. Bailey says the government will consider its tack once it has the final report. Asked if any long-range plans may be vulnerable to being scuttled by future state LNP governments, Bailey maintains that “any party that is positive and has a plan to manage the transition to renewable energy, I think, will be marked up by the electorate”. “Any political party that wants to stick their head in the 20th century sandpit and deny this issue and live in the past will get punished.” Bailey acknowledges the political sensitivity of electricity prices, which will likely be the Achilles heel for any state government unable to make out its case that renewables will be “cost-neutral”. Low-income households in particular are smarting after a 42% rise under the former state LNP government, Bailey says, adding this was a product of “network costs with very little progress on renewables”. “Those largely anti-renewable-energy figures who try and say it’s a choice between [less] renewables or increased prices are simply wrong.”
News Article | November 3, 2016
Can we be clear on this? The closure of Australia’s most polluting power station, Hazelwood, was inevitable and in terms of doing our modest bit to militate against climate change, desirable. That doesn’t for a moment minimise the impact on the 750 workers who will lose their jobs, nor on the thousands of people in the Latrobe valley, one of the most disadvantaged communities in the country. This ageing, groaning, hulk of a power station is serviced by a giant open-cut coal mine just a few hundred metres from the town of Morwell, east of Melbourne. That a mine with a perimeter of about 18km was dug so close to residential houses was itself a shocking decision symbolic of the sacrifice coal towns have made to keep industry and consumers’ energy needs satisfied. Over the years, Hazelwood has become a symbol of many things. It symbolised governments’ wavering commitment to seriously reducing our carbon emissions, and our own psychological dependence on cheap, reliable coal. Now, it’s a symbol of something else. This is a “red letter day”, as the Melbourne Energy Institute’s Roger Dargaville puts it, a tangible sign that a massive structural transformation is under way as the world shifts away from fossil fuels to deal with the dangers of climate change. Hazelwood’s French owners, Engie, are well aware that the future for coal is bleak, and have already shut or sold off power stations in countries such as India and Indonesia. The footage of the Hazelwood coalmine fire in 2014 that spewed ash over Morwell residents for 45 days didn’t help its image as a company committed to phasing out coal assets in favour of cleaner technologies. Shutting Hazelwood was a commercial decision, one influenced by the cost of maintaining the 50-year-old behemoth. It has also decided to sell its other brown coal power station in the Valley, Loy Yang B. All this has a global context – last year’s Paris agreement to commit to keeping the global temperature rise below 2c compared with preindustrial levels. To get anywhere near that goal, greenhouse gas emissions need to be net zero by the second half of this century, and that means urgent action, including leaving coal in the ground. The immediate impact of Hazelwood’s closure is likely to be modest – it is what it represents that is most crucial. It alone produces a quarter of Victoria’s base load electricity needs, and provides about 5% of the nation’s demands. But its closure won’t mean power shortages. Electricity demand has decreased in recent years, and there is a surplus of electricity generating capacity among our remaining power stations. But if another station closes soon, and another soon after that, we are likely to have a problem with reliability if we haven’t planned for it. For now, Victoria’s demands are likely to be supplied by ramping up supply from the New South Wales cleaner black coal-fired power stations – which will mean a welcome if modest reduction in our overall greenhouse emissions. Electricity prices are likely to rise a little because black coal generation is more expensive than brown coal. Victorian government modelling estimates that average residential power bills could rise by $44 a year, or 85 cents a week as a result of Hazelwood’s demise. As the Grattan Institute’s Tony Wood says, power bills will inevitably rise in this era, and it is “a great pity that political leaders have been loath to acknowledge this reality”. More importantly, the closure of Hazelwood means that we need a plan. As Dargaville argues, we can wait for old power stations to fall over one by one, as they will, but that will have a big impact on power reliability if companies decide to shut down several at once. “Just letting the market determines who exits is a bit of a random approach. We have no policy to assist with the orderly departure of coal-fired power stations.” It’s tricky – we want them to close but not until there is a reliable replacement for the energy they supply, and that requires planning. Wood argues that what is urgently needed is a credible national climate change policy consistent with the government’s 2030 emissions reduction targets. Those targets are too low to achieve the Paris goals but they can be scaled up to meet tougher targets in the future. Wood says that if we had such a policy the owners of coal and gas power stations could factor it into their planning with confidence. For now, there’s uncertainly all round. There is uncertainty in the Latrobe valley, too. The state and federal governments on Thursday announced big transition packages to help workers retrain and to encourage new investment in the valley. The workers themselves are in their mid-50s on average and their union, the CFMEU, has negotiated generous conditions and redundancy packages over the years. They are likely to receive more than $300,000 on average in redundancy. But unemployment is high in the valley, and skilled jobs rare. Wendy Farmer’s husband, Brett, has worked at Hazelwood for more than 20 years. Farmer is the spokeswoman for community group Voices of the Valley and asks simple pointed questions. Why, when state and federal governments knew that Hazelwood would close sooner rather than later, is there no transition plan already in place? Why is it just starting now when Hazelwood’s closure is a mere five months away? It’s a question the country could be asking, too. Hazelwood won’t be the last power station to shut, after all, and the people of the valley won’t be the last community to need help.
News Article | December 7, 2016
Malcolm Turnbull has said he will not impose a carbon tax or an emissions trading scheme. The prime minister said he would not do anything that increased electricity costs for consumers, especially when households were struggling to pay their bills. His comments came a day after Australia’s electricity and gas transmission industry called on the government to implement a form of carbon trading in the national electricity market by 2022. The report, which was backed by Csiro, said adopting an emissions intensity scheme was the least costly way of reducing emissions and could actually save customers $200 a year by 2030. But the government is reeling from an embarrassing policy backdown by the environment minister, Josh Frydenberg, who said on Monday that the looming review of the government’s Direct Action climate policy would consider the desirability of an emissions intensity trading scheme. He has now disavowed the comment – after Coalition backbenchers warned the government should expect hostility if it attempted to adopt carbon trading. On Wednesday morning Frydenberg told reporters: “I have a position which is very clear, that we will not be adopting an emissions intensity scheme. We won’t adopt an ETS. We won’t adopt a carbon tax. Whatever way you like to call it. “What I am focused on is getting this review to look at how we meet our 2030 targets and we have a range of mechanisms in place.” His media conference came less than 20 minutes after Turnbull said the minister had to explain himself. “I have just spoken to the prime minister and I saw that press conference,” Frydenberg said. “It was very clear what the government’s position is, and was, namely, that we wouldn’t be putting in place a carbon tax or an emissions trading scheme.” Tony Wood, the director of the Grattan Institute’s energy program, told ABC radio that Frydenberg’s backdown illustrated how the government had painted itself into a corner with its policy on climate change. There was no way the government could reach its emissions reduction target, set in place by Tony Abbott and pursued by Turnbull, without putting some kind of price on carbon, he said. An emissions intensity scheme, or a trading scheme of some kind, would help to reduce emissions cheaply. “An emissions intensity scheme is not a tax,” Wood said. “The basic idea is that you will reduce emissions, and in the case of an emissions intensity scheme, if people don’t produce emissions above their baseline, which is the way the scheme’s designed, they don’t have to pay for it. “So there’s no revenue there to be secured by the government if people don’t do what they have to do. So it’s not a revenue-raising scheme like a tax is. “It’s somewhat ironic that the outcome [of this policy backdown] could be that we end up with a third- or fourth-best policy, and we end up with exactly the opposite of what those who are opposing these schemes would like to achieve – which is we end up with more uncertainty and even higher prices. “I think what’s happened now is 2017 just became a lot harder for minister Frydenberg.”
News Article | September 30, 2016
The assault on climate policies and renewable energy initiatives has taken a new form: having obliterated almost all of the effective policies at federal level, the focus is now switching to state-based targets, using the old arguments of higher costs and little abatement as the basis for the attack. The new stance is being led by conservative institutions such as the Grattan Institute – with the enthusiastic support of the lobby groups that represent the coal and gas-fired generators, and the federal government, which shows no inclination to move on from Abbott-era policies. The Grattan Institute over the weekend released another major report analysing events in South Australia in recent months. Parts of it were immediately seized upon by those seeking to place renewables, and wind and solar in particular, in a poor light and promote the interests of the gas industry. The report is one of many that have highlighted the complexities of the situation in Australia, and the poor policy framework. But rather than focus on the rules that allow the market to be exploited by fossil fuel generators, the focus is instead put on state-based renewable energy policies. And the mainstream media needed little encouragement to take up the Grattan Institute’s invitation. “Unilateral action by states or territories is likely to distort the implementations of national policies and increase costs with no environmental benefit,” The Australian newspaper was delighted to quote from the Grattan report on its front page. Balderdash and poppycock. The ACT, which has led the way on state-based targets with its 100 per cent renewable energy target by 2020, has been remarkably successful in achieving its own emission reductions. The ACT’s system of reverse auctions kept the renewable energy industry from disappearing altogether during the Abbott years – in the same way that the Victorian government kept the industry going in the mid 2000s when the Howard government pulled the plug on renewables. And the fossil fuel industry is not happy. South Australia has also achieved a significant reduction in its emissions by targeting renewables. In effect, it merely sought a higher share of the national target, and economic investment in its own state, which wasn’t that hard because Coalition governments in other states were too focused on protecting the interests of coal-fired generators. Indeed, South Australia’s 50 per cent by 2025 target was not so much a policy as a piece of rhetoric; it was pretty much already achieved at the time of the announcement in 2014, and the only major projects to commence construction in that state since that date been the result of the ACT’s own renewables program. Similarly, the targets in Victoria, Queensland and (more recently) the Northern Territory, have yet to take shape. Queensland has still not outlined the mechanisms of its 50 per cent by 2030 target, but it did agree to write some power purchase agreements with some solar farms in the recent ARENA large scale solar tender. That allowed Queensland – like South Australia before it – to seize the lion’s share of a national policy. And like the ACT, which has also written 20-year contracts with large-scale renewable projects, Queensland will likely save money from doing so. Let’s put all these attacks on state-based policy initiatives into some context. The national renewable energy target is basically the last policy standing in Australia, the only tool we have to reduce emissions and/or increase the uptake of renewables. But even this policy is much diminished, because the Abbott government spent most of its first year in government trying to get rid of it all together. And it effectively expires in four years. That explains why the states have acted, just as they did a decade ago when Abbott’s Coalition predecessor and mentor, John Howard, took a similar course of action. In frustration, the states – as the dominoes toppled and one-term Coalition governments were shoved out the door and replaced by Labor – have adopted higher targets because the national government is sitting on its hands. It is a story repeated throughout the world, where the actions of sub-national governments – councils, cities and states – is often far superior to national policies. The pretext for this latest attack on state-based policies is the recent price spikes in South Australia, and the role played by wind and solar – or the lack of it, on certain occasions – in the jump in prices. The Grattan report goes through this in detail, and we republish a contribution it made to The Conversation here. But as you can see from this summary, there is little mention of the fact that such price spikes used to be common just five years ago, when South Australia relied only on coal and gas. It also downplays the impact of record high gas prices – they were four times the long-term average for parts of July and twice the long-term average for much of the month. And it virtually ignores the role of the few remaining gas generators in setting the high prices. Those gas generators have been cleared of any illegal activity, but the fact that they exploited their market dominance to maximise their profits is in no doubt. They were even congratulated for doing so by the Australian Competition and Consumer Commission, although some analysts have questioned whether this was entirely fair play. In the end, a unique set of circumstances exploited by the fossil fuel industry is now being used as a battering ram to soften other renewable energy initiatives, and the state-based policies are the prime target. Even more ironically, coal-fired power station are now being painted as victims, “forced” by the dastardly renewable energies with their near zero marginal cost of generation to pack up their smoke stacks and leave their coal in the ground. Mostly, we are talking about generators that have been running for decades and never called to account – either morally or financially – for the pollution and the impacts on climate and health. Here’s the reality. Most of Australia’s coal-fired power stations will reach the end of their natural life within the next two decades. Australia does need to plan ahead, but not by lowering its renewables targets and putting all its eggs into the gas basket – as institutions such as Grattan and others appear to want us to do. As David Leitch argues in his column here, the Abbott-era policies brought a stop to investment in renewable energy and there is now little extra capacity as 50 year-old power stations in South Australia and Victoria are closed or are about to close. The answer is not to put a further cap on investment in renewables, but to quicken it, and to accelerate the rule changes that could encourage battery storage and other technologies, and new business models, and replace an archaic system created by and for a fossil fuel system being made redundant by new technologies and environmental concerns. The Grattan Institute’s Tony Wood is right about one thing – the country needs a coherent policy on energy and climate change. It could start by inserting “environment” into the National Electricity Objective (NEO), upon which its rules are based. The lack of this focus has been crux used by regulatory and policy makers as an excuse to do nothing or delay initiatives that could hasten the inevitable transition. The lack of planning, as Leitch says, is a “complete disgrace”, but the answer now is not to aim for the lowest possible target, but to go for the most ambitious target and to accelerate and co-ordinate that energy transition. The states know that their economic and environmental futures depend on it. As Bruce Mountain writes, they also know that the costs of this transition are not going to be anywhere near as high as the doomsayers claim. They never are. This situation can’t be solved by reigning in the states, but by putting a rocket under the federal government and the other Coalition states dragging their heels because of their refusal to embrace the science. Buy a cool T-shirt or mug in the CleanTechnica store! 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