Laggards on Emission Cuts; Leaders on Power Price Rises

The impact of a carbon price on electricity bills will be relatively small compared with other factors which have forced up power costs since 2006, Australia’s climate change adviser Ross Garnaut says in his latest and final review. Meanwhile, as other parts of the world move ahead to cut emissions and invest in renewables, Australia stands out not only as the biggest emitter per capita in the world, it is regarded as a policy laggard.

Herald Sun & AAP (29 March 2011):

THE impact of a carbon price on electricity bills will be relatively small compared with other factors which have forced up power costs since 2006, Australia’s climate change adviser Ross Garnaut says in his latest and final review.

 What’s more, the increase could be offset by reducing the cost of distributing power from generators to homes.

In the final update to his landmark 2008 climate change review, Prof Garnaut argues electricity generators shouldn’t receive any compensation.

Instead, he wants the commonwealth to offer loan guarantees to secure supply.

Treasury modelling in 2008 suggested a $23 a tonne carbon price would increase household electricity bills by around 20 per cent.

Prof Garnaut is now flagging a starting price closer to $25, but he argues the percentage increase would actually be lower due to the inflation in prices over the past few years.

From 2007 to 2010 household electricity prices rose across the country by 32 per cent. It’s a similar story for business.

“That is bigger than the initial impact of the carbon price,” Prof Garnaut told reporters.

The “exceptional” price rises followed the introduction of a new regulatory regime governing electricity networks.

Prof Garnaut says it encourages overinvestment in the poles and wires that distribute electricity from power plants to homes as well as price gouging.

Investment over the current five-year regulatory period is estimated at $39 billion.

The update calls for an independent review. If it leads to a strengthening of regulation it “may yield large benefits in lower rates of increase in electricity prices”.

Other factors pushing up power bills include rising coal and gas prices and higher construction costs due to the resources boom.

“It’s quite likely that electricity prices would continue to rise in the period ahead with or without a carbon price,” Prof Garnaut said.

Labor’s doomed 2009 carbon pollution reduction scheme would have given generators $7.3 billion worth of assistance over 10 years.

But Prof Garnaut says they shouldn’t get anything.

He does, however, suggest two measures to ensure Australia’s power supplies aren’t threatened by the introduction of a carbon price.

First, he wants a new energy security council to oversee the sector, much like the banking regulator, APRA.

Second, he argues the commonwealth should guarantee loans to generators which could be at risk of failing.

Prof Garnaut said the council would act as a belt to keep the nation’s pants up as it transitions to a clean energy future.

The loan guarantee would be back-up braces “just in case the belt breaks”.

But he doubts the braces will be needed. That’s because if one brown coal-fired generator closes, it will increase electricity prices and improve cash flow for the others.

“That makes it less likely that there’ll be a second,” Prof Garnaut said.

Prof Garnaut suggests brown coal-fired generators could survive longer, but possibly operate only when demand and prices are high during summer.

His update, the last before a final report is delivered to the government in late May, also suggests a “five pillars” energy policy.

It would ensure the big players, including Origin, TRUenergy and AGL, couldn’t merge.

The economist further recommends at least two publicly owned entities, such as Snowy Hydro and Hydro Tasmania, be allowed to act as private companies.

Prof Garnaut wants to increase competition by creating a true national grid and boosting inter-connectivity between the five eastern states and the ACT.

With a carbon price in place driving abatement, current mitigation policies such as the renewable energy target and support for household solar schemes “should be phased out”.

Source: www.heraldsun.com.au

National Times & The Age (29 March 2011):

GEOGRAPHY has always isolated Australia. Rarely, though, is the effect so obvious as it is in the debate on climate change. Globally, the need to cut greenhouse gas emissions is widely accepted. Visitors to Australia are surprised to find that not only is the effect of emissions in dispute, but even scientific records of climate trends.

In the past week, The Age has examined at length the premises of the local debate. These reports have shone a light on fallacies about scientific opinion and uncertainty, economic impacts and global action on emissions.

A key problem in drawing on complex science is that scientists are versed in assessing degrees of uncertainty. The public is not; any unresolved issue is taken as suggesting serious doubt about even a broadly accepted scientific conclusion. And if laypeople are prepared to dismiss the weight of scientific opinion what is left of informed debate?

The existence of dissenting voices is a mark of democracy, but this does not mean that balance in reporting scientific and policy debates is achieved by giving opposing sides equal weight when that ”balance” does not remotely resemble the weight of scientific support for human-caused climate change.

A carbon tax was first imposed overseas almost two decades ago. Like Australia, Norway has a developed economy built on cheap fossil fuels. Today it has cut emissions per person to half those of Australia. As to the ”cost” of this, Norway’s economic worth per person is up with the best in the world. The European Union has run an emissions trading scheme for years. By 2009, Europe had managed to cut emissions by 16 per cent since 1990, while its economy grew by 40 per cent. Several major European nations have direct carbon taxes as well.

As a bloc, the European Union is the world’s largest economy, but produces only about 14 per cent of global emissions, compared with China’s 22 per cent and the United States’s 20 per cent. Even then it is not accurate to argue that a lack of action by China and the US makes anything Australia does irrelevant. In the past four years, China’s emissions have been cut to almost 20 per cent below business-as-usual projections. China is committed to a carbon market and an increase in energy from renewable sources from 8 per cent to 11.4 per cent by 2015 (Australia’s renewable input is barely 5 per cent). In the US, 10 states already participate in an emissions scheme, while California, which ranks in the world’s top 10 economies, is set to start pricing carbon next year.

Amid these developments, Australia stands out as the biggest emitter per person in the world. This country is regarded as a policy laggard. The impact of climate change depends largely on decisions taken by 20 or so leading nations, as countries outside this group and the European Union produce less than a fifth of global emissions. Of the 14 countries that emit more than Australia, very few are doing less to cut emissions. If a rich, developed nation with so much room for improvement does so little, the signal this sends to the world’s most populous developing nations hinders global action.

Many argue a case of pure self-interest: Australia’s contribution to global emissions is minor, so why lead the way? This assumes any damage to Australia is only to its reputation. Australia is missing out on a boom in the growth industries of the 21st century. Early adopters of new energy technology have prospered. Germany’s renewable energy sector rivals its famed vehicle industry. Globally, renewable energy has attracted more investment than fossil fuels three years in a row.

Climate change is, however, much more than an economic challenge. If only the debate in Australia reflected that.

Source: www.theage.com.au