Swamped with artless energy policies

Australian governments of various types have implemented 230 schemes to reduce greenhouse gas emissions. Yet the energy equation is still hopelessly wrong.

The rule of thumb for eyeing energy policy proposals is that, if one is a wholly political concept, it’s by definition mad, bad or dangerous, and often all three.

Whether executives in suits will say it or not, this is what is behind the emerging corporate anxiety about the Coalition’s ‘Direct Action’ replacement for the Rudd/Gillard governments’ carbon policies.

Origin Energy’s Grant King put his finger precisely on the underlying point when he spoke to the Committee for the Economic Development of Australia in Sydney last week.

Much of what King had to say to CEDA was about the chances of supply volatility and unreliability, and therefore greater cost one way or another, in the east coast’s ‘national’ electricity market, mainly because of the renewable energy target – hence the jumping up and down by some pro-green commentators.

But the still more important point, for my money, is his focus on the inability of policymakers to get right the true costs of their ideas.

This should surely ring a bell with most Australians – just how many examples of madcap schemes of all kinds imposed on us by federal and state Labor governments over the past five to eight years does one have to cite to underline this message?

Even when the concept is directionally right, governments have shown a distressing trend to muck up the management.

Exhibit A: The Bracks and then Brumby governments in Victoria with the pioneering rollout of smart meters. Witness One: the state’s auditor-general, who could hardly have been more scathing.

Exhibit B: The Rees and then Keneally governments in New South Wales with their ‘solar bonus’ scheme. Witness One: the state’s auditor-general in another scathing report.

Exhibit C: The Rudd and Gillard governments with their small-scale renewables program, a populist kick-along for solar photovoltaics, that, apart from ripping the legs out from under wind farmers, eschewed help for the Australian-designed fuel cell concept (a better abatement tool) that Ceramic Fuel Cells Limited is now successfully introducing to Germany as a forerunner to attracting interest from the Japanese and others.

King reminded attendees at the CEDA forum that various governments in Australia have come up with 230 schemes so far to help reduce greenhouse gas emissions in this country.

The biggest and most controversial of these, of course, is the present carbon price and its related bells and whistles.

The irony of the scheme, commented King, is that everyone knows that the $23 per tonne price is far too low to actually change the merit order of power station dispatch in the ‘NEM’.

“It isn’t causing different decisions to be made, either in terms of capital investment or in terms of dispatch of generation,” he said.

For the first six months of the carbon scheme, he argued, notwithstanding that the flooded Yallourn plant was out of the market, the proportional share for coal power in the NEM went up.

King said changes in the generation mix that did occur related to a reduction in the demand for electricity, higher retail prices, the Yallourn outage, an increase in the availability of hydro power and the renewable energy target.

Most alarming for the Gillard government, King says it is unlikely that its forecast of 15 million tonnes of annual abatement from electricity supply flowing from the carbon price is achievable.

King’s central thrust is that the debate should be about the cost of abatement, not the cost of carbon. He and Origin believe the real cost of abatement is “a very high number”.

He questions, when you take the whole green schemes shebang in to account, “whether we’ve got the right selection of policies and whether we are truly telling the community and energy customers what the cost of these policies really is and how it’s affecting their energy bills”.

Against this background, bits and pieces of news are seeping out about meetings between energy businesses and senior federal Coalition figures as the industry tries to get a handle on where carbon policy may be going after the September 14 election.

One business figure is quoted as telling The Australian Financial Review that there is a great deal of uncertainty among power companies and their financiers about what rough beast is now slouching towards being borne in Canberra.

King told journalists after his CEDA speech that Origin Energy is among the companies that have talked to the Coalition but it did not yet have specific details about ‘Direct Action’.

In the broader business community, notably the Australian Industry Group, which has 60,000 firms in its membership, there is a view that a sensible way forward would be to junk the carbon price, as Tony Abbott has pledged to do, and to link Australia to the international carbon trading market.

When I talked to someone senior in the business community about this recently, he said “Look, that’s a bet on a known horse, not some mongrel animal conjured up by the pollies and whoever is advising them – too many of whom have demonstrated too often they don’t know shit from clay”.

The urbane King would never be so coarse, but if you read between the lines of his CEDA speech, his message is not that different.

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.