The hounds are at it again. The country’s biggest business groups, vested interests, the opposition and mainstream business commentators are all calling for complementary green schemes to be dumped. Rescind the renewable energy target, can the Clean Energy Finance Corporation, and — while you’re at it — dump the carbon price too, or at least cut it to $10 where it’s small enough to be inoffensive.
As usual, these arguments are only ever justified if you either don’t believe in climate change, or, like Bill Gates, you believe that the only way to solve the problem will be through some sort of geoengineering — like sticking giant vacuum cleaners in the sky or deploying massive sun shields above the Earth.
The push for a low carbon price is counter-productive — and short-termism at its worst. It will almost certainly lead to greater costs in coming years. As numerous economists — from Stern to Garnaut and the IEA’s Fatih Birol, and now the RBA’s Jillian Broadbent point out — the greater the effort now, the cheaper the task of abatement will be in the long term. But that message is a hard sell in the world of the political sound-bites and tabloid headlines.
Europe, the world’s carbon pricing guinea pig, is now finding this out at its own cost. The plunge in its carbon price to near record lows is discouraging investment in lower carbon technologies, and locking in more new capital in higher-emitting investments. Ultimately, that will make it costlier to unravel and meet more ambitious reduction targets that will be inevitable.
Deutsche Bank’s European energy and carbon analyst Mark Lewis noted that this week that the biggest beneficiary of Europe’s failure to adopt the necessary policy and regulatory measures to boost their flailing carbon price (which is near record lows because of the EU’s economic decline and because its abatement targets will be easily met) is the gas industry. This was because the lack of long-term price certainty meant that the enormous capital outlays required for the transition to a low-carbon future were not being met.
“The most likely default outcome will be an EU-wide dash for gas over the second half of this decade,” he wrote. He said this had implications for the EU’s long- term emissions trajectory, its security of supply, and the efficiency of EU power markets. “In other words, there will likely be an over-reliance on gas for new generation capacity, and a need for costly complementary measures in any member state wanting to incentivise low-carbon generation.” He pointed to the UK’s Carbon Price Support Rate, which was introduced by the UK government to provide a carbon price floor in the energy sector to try to ween the industry away from fossil fuels.
Australian industry groups should read that note carefully. It’s all very well to argue that a carbon price means complementary measures are not needed, but as Garnaut and others have pointed out, that is only valid when the carbon price is robust and reflects the science and the long-term policy objectives. And the Australian carbon price is a long way short of that.
Lewis says that without substantial reform, the EU carbon price will remain essentially meaningless as a signal for new low-carbon investments. His view was supported by analysts from Bloomberg New Energy Finance, who said in a separate note this week that having low carbon prices now will most likely increase the future cost of abatement.
“The cheap cost of carbon is not only locking in emissions from increased short-term coal-burn, but also threatening a long-term technology lock-in, whereby the market invests in more carbon-intensive technologies than they would if the carbon price had been higher,” it said.
“If the cap continues to decline at its current rate to 2050, then the EU will require a much cleaner technology mix and the asset investments that appear rational with today’s low carbon prices may look badly mistaken in the future.”
This applies similarly to Australia, unless you believe that the climate change issue and abatement policies will magically disappear. Stunningly, this seems to be the case with the fundamental base of the opposition, the Business Council of Australia, the Australian Chamber of Commerce and Industry, the Australian Greenhouse Network. And others are happy to play along — the Australian government’s penchant for buying out redundant capacity and offering huge compensation measures for high emitting infrastructure — is simply too irresistible.
*This first appeared on RenewEconomy.
“As usual, these arguments are only ever justified if you either don’t believe in climate change…”
Rubbish. Carbon taxes, MRETs etc are guaranteed to fail, both on political and economic grounds. German emissions rise in spite of $75 billion spent on domestic solar, and more on useless wind.
Parkinson’s Disease is a malady of over-indulgence: not just the complete absence of critical analysis on Crikey, but the indulgence of the rich. These punitive yet impotent schemes can only exist at scale in wealthy countries. The Eurozone debt crisis has exposed the harm and technological uselessness of this approach. Europe has no choice but to cut this avalanche of subsidy ( which delivers puny amounts of very expensive power).
The ultimate stupidity is expressed thus by Parkinson: “the Australian carbon price is a long way short of that”, i.e., even $23 is far too low. If the Australian voter realises just what advanced Parkinson’s Disease really means- the Right will indeed rule here for the next decade.
This article totally ignores the role of emissions trading. That role is to reduce emissions. Investment in clean alternatives is just a by product of that role.
A floating price signifies an equilibrium of supply and demand. Supply is set by the Government initially (and set by excess capacity of emitters in secondary markets) to ensure emissions are being reduced. Demand is set by the carbon emitters who need the permits to perform their business.
A low carbon emission price is not necessarily a bad thing. It just means that emitters don’t need extra permits to perform their business (due to efficiencies or lack of demand). Emissions are still reducing however due to the reduction in number of permits issued from year to year, not the price (so the ETS is still working effectively). Who cares if a low price now means the price of carbon is higher in the future? Business has had to work within these parameters with every finite commodity (from Oil, Iron ore and even labour).
Arguably the end game of emissions trading is to have a small amount of permits issued with a permit price extremely low (as no one is having problems meeting the cap on emissions so the Government and emitters are throwing permits away).
This idea that price floors and ceilings are required (I’m sure the Greens were behind this idea when applied to the Australian Carbon Tax) goes against everything we know about economics and just creates deadweight losses that benefit no one (except traders who may be able to arbitrage between the ICE and our carbon exchange)
If it wasn’t evident when the Howard Government released the original 2007 Report on Emissions Trading, surely it is evident by now that carbon-pricing and emissions-trading are just proxies for business as usual.
The longer the green movement takes this as a key battlefront, the longer it suits the theory of indefinite human expansion on a planet with infinite resources.
Time to get back to the basics of Population, Habitat, Biodiversity and Species. The very things that emissions trading couldn’t give a stuff about.
“The longer the green movement takes this as a key battlefront, the longer it suits the theory of indefinite human expansion on a planet with infinite resources.
Time to get back to the basics of Population, Habitat, Biodiversity and Species. The very things that emissions trading couldn’t give a stuff about.”
Well FMD, it’s taken three years for a fellow Green to say what I’ve been banging on about…that hyperconsumption is ignored ( along with environmental basics) in favour of a ferocious, futile struggle to “price carbon”.
And “business as usual” is an understatement: there’s a global boom in fossil fuels. Emissions will increase regardless, not least because current “renewable” energy alternatives are too expensive and/or useless.
Agreed Frank and Stephen. “hyper consumerism” and over production – profit for profits sake – don’t even rate a mention.
Time to get back to the basics of Population, Habitat, Biodiversity and Species. The very things that emissions trading couldn’t give a stuff about.
Too true.