The Green Gulf Between Fact and Fancy

It has long been the standard fare of green evangelists to prosecute their cause with persuasion by emotion, rather than sticking to the facts at hand. Labor’s recent decision, made without the benefit of any economic modelling, to opt for a 50% renewable energy target by 2030 is a case in point.

The arguments in favour of renewable energy are well rehearsed and morally compelling: Renewable energy is not just necessary to abate dangerous carbon emissions that threaten the planet with extinction. Australia would be crazy not to reap the benefits of what is presented by advocates as one of the world’s major growth industries. As appealing as all this may sound, a cursory glance at the economic implications of a government-imposed renewable energy minimum should be enough to dampen the enthusiasm of even the most zealous green-eyed apostles.

Thankfully, a few boffins outside the Labor/Greens hive mind have crunched the numbers. Building enough solar and wind power to meet Labor’s new target would cost the country $80 billion to $100 billion dollars. To give this figure some context, it equates to any one of the following: three National Broadband Networks, four National Disability Insurance Schemes or forty-eight years worth of Gonski education funding. It is little wonder numbers are seldom mentioned in sermons about the virtues of wind power. Once they are, a government-mandated renewable energy revolution starts to look more like a fiscal suicide note.

Given that wind energy is currently more than twice as costly as coal (and solar more than four), this news should not be all that surprising. So who will pay the price of making Labor’s green-energy utopia a reality?

Because of increased energy supply brought on by new wind turbines and large-scale solar, the cost will initially be reflected in government expenditure, rather than the electricity bills of consumers. In other words, people will pay through higher taxes, cuts to other government services or a growing debt burden. As Australia’s renewable energy capacity grows, however, the 50% target will see the crowding out of cheaper sources. This is because reaching Labor’s lofty target alongside Australia’s existing energy capacity is certain to exceed Australia’s demand for electricity. In the long run, excess supply coupled with a compulsory cap on non-renewables will lead to the closure of coal fire and gas power stations.

While this outcome would undoubtedly leave our green apostles misty eyed and morally content, this will also  see electricity prices reflecting the higher costs of generating renewable energy. Inevitably, consumers and industry will not only foot the bill for Australia’s renewable energy utopia through their taxes, they will keep on paying every time they receive their power bill. The eventual correction in excess supply also means electricity prices would start to reflect the higher costs of generating renewable energy. Consumers and industry will not only foot the hefty cost for creating Australia’s renewable energy capacity, they will continue to pay every time they receive their power bill.

But isn’t it possible that, as Australia pours ever larger swathes of public funds into renewable energy, innovation and improvements will see the more than two-fold gap in cost between renewables and other energy sources narrow? As long as twenty years ago, solar energy was touted as on the verge of being competitive with coal. More than $20 billion in government financed investment in renewables later, the gap remains vast. The story worldwide is no different. Last year alone, government’s around the world spent $270 billion on renewable energy.

It is fashionable to claim that investing in wind makes economic sense, based on the seemingly self-evident logic that renewables are the future of energy production. If that is so, why are private investors not lining to purchase their stake in Australia’s wind power revolution? Last year US billionaire and investor Warren Buffett let the cat out of the bag when he noted that government subsidies are the “only reason” to build wind farms. Without tax credits, he said, the investment simply “didn’t make sense.” Perhaps Greenpeace has some special insight into world energy markets that has eluded the world’s most successful investor. In June this year, the United Kingdom’s sole wind provider – Renewable UK – confirmed the Buffett analysis. Thousands of jobs would be lost, it warned, as a result of the government’s decision to cut subsidies. Unsurprisingly, the venture capitalists and financiers eager to make up that shortfall were nowhere to be found.

Even assuming that wind power does become cheaper, hidden costs abound. Because wind turbines rely on the goodwill and compliance of Mother Nature to generate electricity, supplying a greater share of a country’s base load power with wind requires increasing backup capacity from reliable sources (in other words, coal). This is demonstrated by Germany, a nation often held out as an exemplar of renewable energy. Last year, it wasted 555 gigawatt hours of renewable energy — pumping straight down the earth wire and into the ground — because the grid was overloaded. The cost of that gross, green-inspired waste was borne by consumers.

The second overlooked cost is that generating this excess capacity inevitably involves producing carbon emissions. Generating this backup capacity is not so burdensome where wind makes up a tokenistic share of a country’s energy needs. However, the financial and environmental cost of maintaining the backup capacity needed to support the wind turbines that would be required to meet a 50% renewable energy target underscores the dishonesty of wind power utopianism. As reliance on wind grows, so do the emissions and cost of preventing a nationwide blackout. In truth, the prophecy of a “zero carbon”, wind-powered economy belongs between the covers of a third-rate science fiction fantasy, the sort where the author never lets reality intrude.

Of course, arguments pertaining to cost are sure to hold little sway with green evangelists who believe the climate apocalypse is fast approaching. Yet even in carbon-abatement terms, the 50% renewable energy target is crudely inefficient. Wind subsidies are currently between two and five times more expensive as a means of abating carbon emissions than Labor’s carbon price of $23 a tonne. At $78 per tonne, the cost of solar energy subsidies is equally wasteful.

Yet, whereas the carbon tax was deeply unpopular, recent polls indicate that the majority of Australians support Labor’s target. One might attribute this to the fact that the carbon tax was successfully and accurately characterised as an impost on household electricity bills, while the phrase ‘renewable energy’, stated as an abstraction, sounds wholly inoffensive. Superficialities aside, a “price on carbon”, along with government-funded renewable energy, imposes a cost that must be borne by consumers’ hip pockets. And while the former may have failed politically, that is no reason why consumers should be forced to underwrite the blatant profligacy of the latter.

The favoured tactic of green evangelicals preaching their renewable-energy revolution has been to proselytize with words, rather than numbers. But no amount of rhetoric about the alleged dangers of climate change should see renewable energy targets — no matter how big or small — quarantined from a frank analysis of the costs and benefits.

With $100 billion at stake, Australia simply can’t afford to wait for a deathbed return to common sense.