Australia isn’t the only country where coal-fired power stations are shutting down, investors are reluctant to build new ones and there are concerns about the stability of the power grid as renewables dramatically expand. The United States has a similar problem. Only, for the Americans, the shutdown of coal-fired power has been driven not by regulatory uncertainty about climate action but by the surge in shale gas production, the availability of gas-fired power plants and the failure of energy demand to resume its healthy pre-financial crisis growth.
But the current presence of a self-proclaimed saviour of coal in the Oval Office has done nothing to change the investment environment for coal-fired power. Total new projects for coal-fired power are a fraction of the capacity that’s been shut down in the last five years, and some of those projects are on hold. As one investment analyst told Scientific American, “environmental risk might not be a risk for four years, obviously referring to the presidential administration, or eight years. But when you’re building 30- to 50-year-type assets they’re certainly a high risk for carbon.”
Investors in Australian infrastructure plainly share that reservation about coal. Denialism and obstruction of climate action won’t hold sway forever. They might not even hold sway beyond late next year.
Perversely, however, that opens a window for a resolution of the climate wars. Following Labor’s shift to accept the second-rate solution of a Clean Energy Target (a carbon pricing scheme will deliver the most efficient carbon abatement, with least cost to consumers and taxpayers, but Malcolm Turnbull is too weak to deliver it), the main difference between the major parties now is whether a Clean Energy Target threshold is set at a level that excludes any coal-fired power, even much-hyped ultra-supercritical generators — say at 700 tonnes of carbon per megawatt hour — or higher, enough to allow new generation coal-fired power, say 800 tonnes.
The Finkel Review argued that the threshold be driven by Australia’s emissions abatement target — which currently is an unambitious 26-28% of 2005 levels by 2030. The political reality is that it will be driven by what Malcolm Turnbull can get through his restive partyroom. And a CET with a threshold at 800 or 830 tonnes, that notionally gave the hilariously misnamed “clean coal” technology a chance, would be much more likely to get through the partyroom even with denialists and Luddites like Abbott and Abetz raising hell.
Problem is, would Labor support it? Here’s a suggestion: Labor should back a higher target. Yes, the opposition has already compromised. No, it doesn’t owe Malcolm Turnbull anything. Yes, further compromise isn’t consistent with the bleak reality that we need to do a whole lot more than we’re doing to prevent catastrophic climate change.
But the trade-off would be no public funding for new coal-fired power. Coal would have to stand or fall on its merits. Coal spruikers insist that coal has a big role to play in our energy future. Well, let’s see if investors agree. Let the market decide if coal can play any role other than as a burdensome and toxic legacy.
It’s highly unlikely any investor will put their hand up. The maths simply won’t add up — partly because even under a high-threshold CET, coal-fired power isn’t very attractive, partly because it will take so long to build a new plant, which is likely to be beset by delays, cost blowouts and regulatory problems, and partly because investors know that a new plant may well be a stranded asset as soon as 2030, let alone by 2050.
It would be a win for Turnbull, which the opposition might want to resist, but Labor should reflect on the last time they played hardball with Turnbull on climate action, in 2009: it resulted in the removal of Turnbull, whose measure Kevin Rudd easily had, and his replacement by Tony Abbott, who proved anything but the easybeat Labor assumed he was. Labor thinks it has Turnbull’s measure again. Does it want to see him replaced by another figure — not Abbott, maybe not even Peter Dutton, but who might prove the kind of surprise Tony Abbott did?
Turnbull can tell the denialists and coal obsessives in his ranks that he’s paved the way for coal to play a role in our energy future. And he can do so knowing that few investors are likely to want to facilitate that role, but that they have a clear understanding of the rules of the energy game going forward, enabling them to invest with certainty — in renewables, in batteries, perhaps in gas if we can sort out that debacle.
It’s a compromise, but a rhetorical one only. Coal is dying.
Potential investors might look at the reversal of policy on diesel engines in Europe and decide that a 50 year asset that pollutes is not a good investment.
They can’t do it now, Bernard; you’ve published the logic behind it, and Tories do read your column. And if your readers include Cormann, he’ll explain the trap to them (in language even they can grasp).
But if you established that he isn’t one of your readers, then I withdraw my objection.
“they have a clear understanding of the rules of the energy game going forward” ….. What use would it be to them to have a clear understanding of the rules going backward?
Yes, let’s back the “Clean Energy Target”. It will put carbon pricing in place, once and for all. We can argue about the threshold progressively. Once we have suppressed coal with one threshold, we will have to surrender our love affair with gas and set the next threshold.
Can’t argue with the general thrust here BK, but:
“the second-rate solution of a Clean Energy Target (a carbon pricing scheme will deliver the most efficient carbon abatement, with least cost to consumers and taxpayers”
Your love of the market solution shows you still are in thrall to classical economic thinking. The least cost to consumers with a benefit to taxpayers is for a straight out carbon tax, like what we had. A carbon pricing scheme just gives way to a carbon ‘market’, as was originally considered a good solution but was always going to be played.
The abolition of the carbon tax saved me bugger all, or maybe a couple of cup of coffee if I believed the propaganda on the first couple of bills, but in the meantime the government pulled in hundreds of millions, better still none of it was creamed off by market jockeys, futures traders and the like.
It was the clean solution, to the dirty market obsessed ‘let their be a carbon market approach’.
I can’t understand your continuing love affair with market solutions when there are better and easier options available. Markets are notorious for not getting the public benefit that is the very reason behind their existence.
Love affair with market solutions or not, Dogs, Bernard’s got a good nose for the politics, and its clearly telling him three key things. First, after the Gillard fiasco, that the Australian public won’t cop a carbon tax any time soon. Second, that consequently Labor can’t take the political lead on carbon abatement. And thirdly, the best hope for progress therefore now rests – whether one likes it or not – with Turnbull. Hence Bernard’s explicit warning to Labor here in this piece: “Does it want to see him replaced by another figure — not Abbott, maybe not even Peter Dutton, but who might prove the kind of surprise Tony Abbott did?” Bernard’s telling Labor to quietly, strategically, get behind Turnbull for the sake of the national interest, even if it means they have to lose the next election to him. At least, that’s what I read Bernard as saying here.