Rank opportunism spells danger for Australian energy policy
by Richard Denniss
[Originally published on The Guardian Australia, 15 May 2019]
It’s now 12 years (and seven prime ministers) since John Howard promised to introduce a price on carbon and – despite emissions having increased to a new high and a number of big coal fired power stations having shut down – Australia still doesn’t have anything approaching a coherent climate and energy policy.
Since Tony Abbott scrapped the carbon price in 2014, wholesale electricity prices have doubled while sequential Coalition prime ministers have proposed emission intensity schemes (EIS), clean energy targets (CET), national energy guarantees (Neg) and then settled on renaming Abbott’s direct action scheme to the climate solution fund (CFS).
The last new coal fired power station to connect to the national energy grid was Queensland’s Kogan Creek in 2007, and in Western Australia they built their last steamer in 2010. Since that time, Australia’s population has grown by over 3 million and our GDP has grown by over $400bn. Renewable energy generation on the other hand has more than doubled, and significant increases in energy efficiency (along with uptake of rooftop solar) have resulted in falling energy consumption.
Renewable energy is key to Australia’s economic growth. The massive rollout of solar panels and wind turbines is so significant that now, in states like South Australia, the wholesale electricity price is sometimes negative. While our regulators and transmission grid still have some catching up to do, there is no doubt that an abundance of low cost energy is good news for Australian households and industry – if our politicians can cope with the change.
The Liberal party was once the party of optimistic science and economic rationalism, but in the past 15 years they have transformed themselves into a curmudgeonly group of technophobes, determined to lengthen the life of coal via the subsidies they once raged against. Their recent rants about electric cars must have sent shockwaves through the Australian business community. Not only was a major political party declaring war on the kind of technological innovation that keeps consumers spending, the Liberals were declaring war on their own policy position simply to differentiate themselves from Labor. As a quick internet search reveals, the treasurer, Josh Frydenberg, went from electric car enthusiast to denialist faster than a Tesla can get from zero to 100 km/h. Such rank opportunism spells danger for Australian energy policy.
Labor’s current climate policy is hardly radical and it is hardly new. In fact, Labor’s climate policy is based on the Coalition’s own national energy guarantee – a policy which Malcolm Turnbull recently reminded us had the support of “all of the economic Ministers, including myself, Scott Morrison, Josh Frydenberg”. Turnbull added that the current prime minister and treasurer had spent months “arguing for the NEG on the basis that it would reduce electricity prices and enable us to lower our emissions.”
But, as with their faith in electric cars, Morrison and Frydenberg now talk as if they have lost faith in the Neg they once promoted. Which presumably means that, whoever forms government this weekend, we can expect the Coalition to keep playing silly buggers with climate and energy policy.
Even if Labor wins the election on the weekend, there is no chance that they will hold a majority of seats in the senate. This means that the Liberals will, yet again, be in a position to play a constructive or destructive role. But no matter what their polling or “principles” tell them, the longer it takes to create some investment certainty in the energy industry, the longer retail electricity prices will keep rising.
In 2014 Abbott was determined to remove the only federal policy designed to drive investment in electricity generation over the last decade, Labor’s 20% renewable energy target. So keen was Abbott on the destruction of the RET that he went to fellow climate sceptic Dick Warburton for modelling. Unfortunately for all concerned, the modelling commissioned by the inquiry found that not only did the RET push electricity prices down, but that a bigger RET would push them down even further.
Of course economic modelling has a bad name these days for the simple reason that the customer is always right, and most of the people who can afford to buy $300,000 worth of modelling have a fair bit invested in a particular answer. But even modelling commissioned by Warburton, acting on behalf of Abbott, couldn’t help but conclude that renewables push prices down.
Which brings me to Brian Fisher’s recent revelation that Labor’s modest climate policy could cost the Australian economy more than the second world war did. Most people have heard the old adage about modelling: “garbage in, garbage out”. But few people have any comprehension of just how silly the assumptions that underpin Fisher’s model really are, and while there has been some scrutiny of his highly pessimistic assumptions on the cost of renewables, it’s safe to say that most people have no idea that his model also assumes that:
The Australian economy has only one household that owns all the companies in Australia and pays dividends to itself.
There is only one company operating in each industry but that one company acts as if it faces stiff competition.
The long run unemployment rate is chosen by Fisher and that unemployment rate will be the same whether we reduce emissions or not.
There is no money, no inflation, no interest rates and no Reserve Bank of Australia to help manage the economy.
No matter how expensive it is, coal fired electricity will always be generated.
The use of such simplistic models to stifle debate about something as important as energy policy is no accident. The models are yet another delay technique.
Modelling that shows Labor’s climate policy could cost billions is ridiculousDespite the fact that the overwhelming majority of Australian voters, scientists, economists and business leaders want the climate wars to end and the new investment in renewables and storage to begin, the Liberals seem to be setting themselves – and the country – up for another three years of inaction. Whether they win office or not, their determination to lengthen the energy wars will cost Australia dearly.
In the 12 years since Howard committed the Liberals to carbon pricing, countless industries have been transformed. It’s been 12 years since the iPhone hit the market. Newspapers, television, photo development labs, street directories, taxis, hotel bookings, even food delivery, have all changed radically as a result of technological change. Yet Liberal and National MPs sneer at the thought that smart grids and smart cars might transform our electricity and transport sectors.
It is time for the Liberals to put power prices ahead of power politics. Regardless of the result, this weekend offers the opportunity for a reset. Let’s hope they take it.
Richard Denniss is chief economist at the Australia Institute.