Political hot air clouds the bigger energy picture

Political posturing over energy and carbon abatement is distracting policymakers from achieving a balance between job creation, prices and investment. But vested interests are making it difficult.

Was it Paul Keating who said that if you want to know who is really trying, look to vested interests every time?

Nowhere is this better illustrated than in the RET-go-round. It is perhaps notable that Environment Minister Greg Hunt emerged in the past week to remind us the panel chaired by Dick Warburton is challenged in its renewable energy target review to “find a balance between jobs and investment and removing pressure on electricity prices”, not a balance between the 490 submissions it has received.

Which is just as well because, if this was a boxing ring, it would have about 10 sides. Assertions range from “just junk it” to “retain it to save the planet”.

One view Warburton won’t have received but I think is worth tossing in to the mix was delivered in Brisbane at the gas export outlook conference I co-chaired. A senior Japanese official pointed out that the heart of his country’s strategy is “to establish a resilient, realistic and multi-layered energy supply structure where each source can exert its advantage and complement the drawbacks of the others”.

In somewhat the same vein, in one of the submissions Warburton has received, Gas Energy Australia (representing domestic sellers of LPG, LNG and compressed natural gas) argues that “arbitrarily mandating the use of certain technologies and forcing customers to subsidise their cost results in prices being higher than if all technologies are allowed to compete objectively on the basis of abatement performance and cost”.

One could have an interesting debate about how far we could have driven the gas-sourced fuel cell business here by now -- a technology invented locally -- if this principle had been pursued instead of buried by the Gillard government as a sop to its Greens Cerberus and its mania for solar power.

This is a debating point that cuts several ways, of course, as ABB Australia -- the local arm of one of the world’s leading power and automation technology companies -- has been pointing out to Warburton.

ABB says the perception that renewable energy sources are more expensive per se than conventional technologies errs in not making allowance for the cost of externalities related to fossil fuel generation where there is no carbon pricing mechanism.

ABB adds that you shouldn’t make face value comparisons between new renewables investment, which has to recover the cost of equity and debt finance, depreciating it over 10-15 years, and older generation, where the majority of the asset value is fully depreciated and remediation costs have to be met when such a plant is closed.

For your average power consumer, this is just too many angels dancing on too many pins. However, it underscores the fact that politicians get themselves into deep water when they disport themselves here in search chiefly of gains with voters.

The many from the green side decrying the perceived bias of Abbott’s chosen RET review team – and the more than a few from the conservative wing banking on it living up to this perception – are overlooking the fact that Brian Fisher, Shirley In’t Veld and Matt Zema have a wealth of experience. This will equip them to deliver a cut-through judgement that provides a serious guide to both mainstream political groups on how to deal with this issue in terms of the Japanese strategic thought.

What can happen when politicians meddle is well demonstrated by the German experience.

The poster child of our local Greens has created a subsidy situation where the bill costs $37.6 billion, German household power prices are now 80 per cent higher than in 2000, some seven million residential account holders are officially struggling to cope, security of supply is potentially strained and an increasing number of industrialists are walking away.

What is really delivering energy-related carbon emissions cuts is the reduction in consumer demand, which is mainly a reaction to soaring prices from householders and manufacturers (who have lots of other weight in their saddle bags). But in the longer run, only adoption of new technologies will deliver enduring abatement.

How we lay the ground efficiently for this task is the real issue, and the RET is but part of the equation.

Today’s political posturing in Canberra and elsewhere over energy and carbon abatement is a dangerous distraction. It is not the main game.

What the Abbott cabinet – and specifically the Prime Minister, Joe Hockey, Greg Hunt and Ian Macfarlane – do with the advice they get is one thing. What the panel chooses to say as good guidance on the broader front could be another.

At least some of the submissions to Warburton’s panel have had the good sense to address what Keating used to call the ‘big picture’. With luck, the panel may actually see fit to tell us what we really ought to hear.

Keith Orchison, director of consultancy Coolibah Pty Ltd and editor of OnPower, 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.

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