A carbon debate dilemma

Sorting the news from the fluff from politicians on carbon policy and power prices is quite a challenge. Bottom line however, power prices are likely not coming down anytime soon and if they do, your wallets will take a hit elsewhere.

Many of the large number of media mentions Climate Change Minister Greg Combet gained for his CarbonExpo speech in Melbourne were for his dismissal of all Opposition Leader Tony Abbott’s carbon tax claims as “complete bullshit.”

The actual news in his speech was the announcement the federal government is ready to join a second commitment period of the Kyoto Protocol – part of what critics of the state of international abatement efforts denounce as “an illusion of progress” when set against the actual need for the world economy to decarbonise at a rate of 5 per cent a year over the next four decades to achieve the desired curb on perceived global warming.

It is a government commitment that is heavily qualified, including a requirement that an agreement by 2015, as foreshadowed at the Durban UN meeting on climate issues, needs to encompass “all major emissions sources” – this means countries.

Politicians, of course, gild lilies and stretch points – it is the nature of the business they are in.

They would do it a lot less if the media did more as fact checkers, but that doesn’t suit the info-tainment role so many see as their main business.

Of course, Tony Abbott’s strident claims about the immediate impact of a carbon tax in Australia have laid him wide open to the federal government’s counter-attacks even as they have obviously struck home with many voters.

However, an argument that the carbon tax plus the renewable energy target plus state green schemes plus much higher power network charges all combine to impose pain on many households, all small businesses as well as miners and manufacturers in various degrees – while also hurting taxpayer-owned coal generators in the two largest sub-regions of the east coast electricity market – is no more than a statement of fact.

An argument that many Australians feel misled – see the opinion polls – by a prime minister and a treasurer who said one thing about a carbon tax before the 2010 election and did something different in order to win Greens and independent support in forming a minority government is also no more than a statement of fact.

An argument that says a number of energy-intensive industries, users of a third of electricity consumed in Australia, notwithstanding various compensatory schemes, are at risk of shrinking or closing because of a combination of the high dollar, the global economic situation and the pressure of local input costs (including labour and energy costs) is a statement of fact, too.

The time over which their dimunition or disappearance may take place is open to debate but it is not a scare tactic to say that the risk is there.

Combet’s strident claim last week that Abbott’s oath to repeal the carbon price is “arrogant, aggressive bravado” that can’t be believed because it cannot be delivered should probably also be filed under “B” in the political debate drawer.

It may take the next election and then a double-dissolution election to be achieved, but “can’t” is simply not true.

Whether abolition should be pursued is a different issue.

To be filed perhaps under “T” – for tendentious – is Combet’s assertion in this speech that there is a link between the introduction of the carbon price on 1 July and a fall in the carbon intensity of electricity generation by 8 per cent compared to 2011-12.

What the Australian Energy Market Operator (whom he was quoting) actually says is that, in the period July 1 to October 18, hydro-electric generation increased its east coast market share from 8.4 per cent to 10.2 per cent while black coal generation slid back from 53 per cent to to 51.1 per cent and brown coal generation from 24.1 per cent to 23.3 per cent.

Why?

The main factors are the impact of the Yallourn power station flood in the Latrobe Valley, technical hassles impeding generation at Eraring power station in New South Wales and a 50 per cent jump in hydro-electric output to fill most of the gap after some recent decent rains enabled Hydro Tasmania to hold on to its water until July 1 when it knew the tax would spike the price.

What the carbon tax did do is help push the average “NEM” spot price from just under $37 per MWh to just over $58, a nice bonus for the hydro business.

Rainfall will decide how far hydro generation can continue to play this game, not the carbon tax, but Hydro Tasmania is saying that it is in a position to take advantage of higher than normal storage “for the next few years.”

The drop in demand for electricity in the “NEM” is also playing its part in lowering emissions. This is a feature of the past two years, not the past three months, with the equivalent of about 400 MW of capacity unneeded in NSW and about 600 MW across the “NEM.”

This demand decline is a product of much higher prices, economic circumstances messing with manufacturing and the over-generous solar PV subsidies, not the carbon tax.

Lots of consumers are paying more for Labor’s populist pursuit of solar power even as Combet boasts of the take-up.

Combet’s own constituency is in the Hunter Valley and it will be interesting to see how far his carbon policy (which has treated black coal-fired power stations badly compared with those using brown coal) will militate against the values the O’Farrell government (and state taxpayers) will get for the region’s generators that they are currently trying to sell.

If the carbon regime plus the demand environment helps to knock, say, $2 billion off the asset values, will Combet stand up and cheer for this, too?

Combet also threw into his speech the fact that there is more than 13,000 MW of wind capacity being considered for development in the “NEM.”

This, of course, has nothing to do with the carbon price and everything to do with the RET – which his political opponents embrace as much as he does, or so they say.

Should one describe a politician who pushes the first part of this point without even referring to the second in the same “colourful” (to quote the ABC) language Combet used about Abbott?

As well, Combet’s claim in the Melbourne speech that the government’s policies will deliver “almost 1.3 billion tonnes of domestic emissions between now and 2030,” when dissected, amounts to national abatement averaging 72 million tonnes a year over almost two decades.

The abatement required to deliver the promised 5 per cent cut in national emissions by 2020 is now around 150 Mt a year of which the renewable energy target, if maintained in its current set-up, will deliver about 30 Mt.

The media take on the current state of the political debate is perhaps encapsulated by Fairfax Media commentator Lenore Taylor, who wrote at the weekend: “Ever so slowly, Julia Gillard is making up ground in the great fight over electricity prices – the defining battle of this Parliament.”

It seems to me that the critical consumer question here is “when will our prices go down?” and the honest answer, absent abolition of the carbon price, is that they won’t – the size of increases, if the present reworking of network regulation succeeds, will slow, perhaps quite a lot, but prices will not go down.

At some future point, if the states embrace smart meters and time-of-use charges – the roll-out will add to household bills – and if this leads to more efficient patterns of electricity use, many residential bills should be reduced but those for income-constrained homes may very well go up and require compensation.

One way of doing this is to give all pensioners a higher paypacket to compensate for the ToU impact they can’t avoid – but you don’t hear Julia Gillard, her treasurer or her climate change minister rushing to pick up this card do you?

How many consumers/voters will have recourse to the B-word and other epithets when power price reality finally dawns on them?

Here, Abbott, while wriggling to get off the hook he fashioned for himself with his carbon price claims, is on safer ground.

As he told a television interviewer last Friday, the most practical way to cut power prices right now is to drop the carbon tax. True. His problem is that, at the same time, he has to abandon the giveaways Gillard, Swan and Combet have provided in compensation to a majority of householders.

No matter how you look at this situation, it is a cow of a problem, is it not? And people in paddocks should be careful about what they throw.

Keith Orchison, director of consultancy Coolibah Pty Ltd and editor of Powering Australia yearbook, was chief executive of two national energy associations from 1980 to 2003. He was made a Member of the Order of Australia for services to the energy industry in 2004.