THE Orwellian name of the Gillard government’s carbon tax policy – Clean Energy Future – makes its aim of shifting electricity generation from the dirtiest power stations to the cleanest quite plain. Consumers are entitled to feel somewhat mystified that brown-coal generation – the highest carbon polluter – is largely unaffected by carbon emissions policy.
This week, the government abandoned its plan to use taxpayers’ funds to purchase and close some of the high-polluting generators. Now, as Graham Lloyd reports, we learn that brown-coal generation is maintaining its output while energy demand decreases. The reduction in output is coming from the less-carbon-intensive generators – black-coal power stations.
Unsurprisingly, the key factor is price, and the lower cost advantage of brown coal has not been eroded by the carbon tax or other measures. Given this is true when the carbon tax is $23 a tonne, we can only assume the dirty generators will become still more competitive and profitable when the carbon tax shifts to a floating market, with no floor price, in 2015. Experts estimate the carbon price could then fall by up to 50 per cent.
Little wonder the power companies turned down the government’s buyout offer; they clearly believe they can continue to make good money despite the carbon tax. This outcome is raising eyebrows in the industry, especially from the black-coal generators, because brown-coal generators have pocketed $1 billion in compensation and more than $4.5bn in carbon credits. Frontier Economics calculates the package has added up to $1bn in value to the brown-coal generators.
In July, Delta Electricity announced the closure of the Munmorah black-coal station in NSW, demonstrating how the lower-carbon-intensive generation in that state is being replaced, through interconnector transmissions, by the dirtier brown-coal power from Victoria. This is increasing the carbon intensity of Australia’s electricity generation; which is precisely the opposite to the intention of carbon emissions policy. This explains why Julia Gillard is getting everyone offside – from the Greens to the black-coal generators.
The Australian welcomes calls to refer the government’s renewable energy targets to the Productivity Commission because we have always seen these as expensive and inefficient market distortions – superfluous with a carbon price in place. The PC is ideally placed to assess the real impact of the targets, carbon price and other subsidies such as solar feed-in tariffs.
Dampened economic growth and delayed infrastructure development will restrain energy use and emissions growth in the medium term. But on current trends Australia’s carbon emissions and intensity could continue to grow while we simply funnel money overseas to purchase cheap abatement. Against this background the Greens might need to reconsider Tony Abbott’s direct action plan. We continue to be critical because it is a non-market solution that is likely to be more expensive for each tonne of carbon abated. Yet, given the current confusion, the direct correlation between money spent and carbon emissions reduced on our continent might prove attractive, even to some green activists.