In the coming days, the Gillard government will launch its new climate policy. With the Carbon Pollution Reduction Scheme (CPRS) shelved until at least 2013, it is expected that a core piece of the short-term strategy will be additional money for research, development and demonstration (RD&D). Given this, it is worth revisiting some history on recent climate-related RD&D programs.
The two pillars of the Howard government’s climate policy were the Greenhouse Gas Abatement Program (GGAP) and the Low Emissions Technology Demonstration Fund (LETDF). Both programs were simple in structure: polluters were offered government grants to adopt or trial alternative technologies that lowered emissions.
From a theoretical perspective, these types of programs are an inefficient and inequitable way of reducing emissions. Their popularity stems from the fact that they come at a low political cost — polluters seldom object to voluntary programs that involve the provision of subsidies.
At a practical level, where these programs come unstuck is that governments typically lack the expertise and information to effectively identify promising new technologies. The program funding also has a tendency not to materialise. Governments get kudos from announcing the spending then move onto other priorities. Environment groups and others fail to follow-up on the programs, so the government then re-announces the spending under another banner (and the cycle starts all over again).
Consistent with expectations, GGAP and LETDF suffered from chronic under-spending and under-performance. GGAP was supposed to provide $400 million over the financial years 2000/01-03/04 to support projects that would generate substantial emissions reductions or sink enhancements. In 2002, several years into the program, the Australian government estimated that it would cut emissions by 11 MtCO2-e/yr by 2010. By the time GGAP was shut down, estimated abatement had fallen to 1 MtCO2-e/yr by 2020.
The failure of GGAP was due to poor program design, substandard project selection and underspending. At the end of the 2003/04 financial year, only $59 million of the promised $400 million had been spent. Over the decade from 2000/01-09/10, total spending under GGAP in nominal terms was a mere $115 million.
The LETDF confronted similar problems. It initially comprised $523 million over 16 years to accelerate the demonstration and commercialisation of new technologies. $181 million of this funding was supposed to be spent in the program’s first five years, from 2004/05-08/09. At the end of 2008/09, total spending under the LETDF was $58 million, $123 million short of the program target.
The Rudd government’s RD&D programs have fared no better than those of the Howard government. Of the four main RD&D programs announced in the Rudd government’s first Budget in May 2008 — the Renewable Energy Fund, Energy Innovation Fund, National Clean Coal Fund and Green Car Innovation Fund — three were dismantled or rebadged within 12 months.
The Renewable Energy Fund and Energy Innovation Fund were terminated and rolled into the Clean Energy Initiative in 2009. Likewise, the National Clean Coal Fund was transformed into the National Low Emissions Coal Initiative. In the 2009/10 Budget, the government announced it was creating Renewables Australia “with an investment of $465 million … [to] bring renewable technologies to market at acceptable cost”. Within months, this had been renamed the Australian Centre for Renewable Energy, which would sit along side the Australian Solar Institute and Solar Flagships Program.
Continuing the trend from the Howard era, underspending has been a problem. $41 million was allocated to the Energy Innovation Fund in the 2008/09 financial year but total spending under the program was only $6 million. $144 million was allocated to the Solar Flagships Program in 2009/10 yet actual spending was $20 million. The Budget allocation for the Australian Solar Institute in 2009/10 was $50 million, the bulk of which was supposed to be distributed as grants to solar projects. However, the grants allocated by the organisation in 2009/10 totalled $10 million.
Generally, the coal RD&D programs have fared better than their renewable cousins. Other than the National Clean Coal Fund — where spending was almost 30% below budget in 2008/09 — expenditure under the main coal programs (Carbon Capture and Storage Flagships Program, Carbon Capture and Storage Institute and National Low Emissions Coal Initiative) has so far came in on or near budget.
The existence of the Renewable Energy Target means that most of the Rudd government’s renewable energy RD&D programs will not reduce emissions — they merely change what technologies are used to meet the target. However, the real object of most of the RD&D programs is not to reduce emissions in the short-to-medium-term; it is to promote innovation and reduce the cost of alternative low-emission energy sources.
On this front, it is too early to cast final judgement on the outcomes. Yet the patterns of expenditure and constant program changes raise doubts about their capacity to promote genuine innovation. Moreover, in many cases, the programs have placed undue emphasis on reasonably mature technologies, thereby running the risk of creating distortions in the energy market and drawing resources away from truly emerging technologies and base-level research where there is a greater need for government investment.
This is so true! What has been omitted in this discussion is the true cost of developing the submissions for these grants only to have them knocked back on the basis of technological “risk” because the government du jour wants to back a “certain winner”. With no alternative mechanisms in place for funding (appropriate pricing mechanisms), the drying up of “angel investment” and the thinning of the cleantech investment pool as a result of regulatory uncertainty, the market is thinning out dramatically…
Ho hum, its offshore we go.. Resulting in Australian “inventions” being commercialised in other parts of the world so that in 10 years time when the sh*t hits the fan here they can be sold back in to the Australian marketplace at 10 times the price….
Thanks for the summary. It is good to put hard numbers to what I suspected was the case all along. The fact that tyhe government is still funding R&D into CC&S is a scandal. Getting rid of this is one of the only things I’d back the opposition on
This is a very useful article.
The problem, of course, is broader than the failure of successive, very timid government policies to shift power generation towards renewables.
There are few signs that anything at all is changing in Labor’s basic infrastructure planning and expenditure. Not at any rate from a Far North Queensland vantage point.
Urban growth is planned for a designated area in southern Cairns – and the local ALP MP Jim Turnour just made a big fanfare out of the Federal and State Labor governments investment in new highways to service these communities.
A perfect opportunity to build rail from the outset into this new development has been overlooked.
See this article in a local blog – in which Turnour berates the Coalition for not matching Labor’s new highway commitments:
http://www.cairnsblog.net/2010/07/warren-entsch-and-abbott-will-not.html
In the long run, I expect, the ALP may stop trying to fake concern about the environment.
But as John Maynard Keynes said about the long run…
Liz, would you prefer no one submitted applications and the Government just gave everyone money? Sure, it takes work to write an application, but it’s the old risk/reward paradigm.
Unless of course you’re suggesting that there should be a price on carbon, in which case I’m with you every step of the way.
Very grim and confirming what any observer guessed. This government like Howard before has no real vested interest in any true R&D on renewable technologies, but mere cosmetics. Andrew Macintsoh has not given reasons for the gross underspend but presumably a lot of it is to do with cumbersome granting bureaucracy and timidity/conservativism of those bureaucracies.
On coal he wrote: “Generally, the coal RD&D programs have fared better than their renewable cousins. Other than the National Clean Coal Fund — where spending was almost 30% below budget in 2008/09 — expenditure under the main coal programs (Carbon Capture and Storage Flagships Program, Carbon Capture and Storage Institute and National Low Emissions Coal Initiative) has so far came in on or near budget.”
It would be informative to see where the money has gone. I mean what has the GCCSI actually done with its money (other than pay its own salaries)? I suspect the only reason this clean coal money has been spent more than the other programs is that a lot of it is faux, such as “CCS-ready” coal-fired power stations (Victoria and Qld) which of course does not exist. If recall there was a combined state and fed grant/subsidy of $150M to that proposed coal generator in Victoria which amounts to a simple subsidy to burn more of the dirtiest fuel known to man (ok, oil tar sands are worse).