NEG: ‘The Government is Kidding Us’

It takes character to do what’s right and it takes courage to disagree with your peers. On this score, Bob Carter was a good and brave man whose memory we should honour and whose example we should strive to emulate. As Professor Carter found, and later his James Cook University colleague, Peter Ridd also, this is an age that enthusiastically promotes social diversity but often demands intellectual conformity. Both never let the desire for status impede the search for truth.

As Bob told MPs in 2015, “science does not operate by consensus….it is often best progressed by mavericks”. And as he pointed out in his book, Climate: The Counter Consensus, sometimes, we need to “trust authority less and our own brains more”. What could be a more fitting occasion for scepticism about green religion and its policy ramifications than an address in Professor Carter’s honour?

In Roman times, grapes were grown in northern England. In the middle ages, crops were grown in Greenland. And in the 17^th century, ice fairs were held in London on the frozen River Thames. So climate change is real alright. For me, the issue has always been: what role does man play, is carbon dioxide the key climate factor, and what might best be done to deal with it?

In government, I thought that we should be prepared to pay up to a billion dollars a year to cut emissions, through the taxpayer-funded emissions reduction fund. I never thought that we should have to pay the $10 billion or so that Labor collected through the carbon tax. That’s why my government abolished it and in so doing delivered an immediate cut in electricity bills of 10 per cent. My government set a 2030 emissions reduction target on the basis that this was more-or-less what could be achieved without new government programmes and without new costs on the economy.

There was no advice then to the effect that it would take a Clean Energy Target or a National Energy Guarantee to get there. Our intention, then, was to monitor developments; and, in the meantime, to rely on market forces to make energy use efficient, and on the emissions reduction fund to keep overall emissions heading down at the lowest possible cost.

My government never put emissions reduction ahead of the wellbeing of families and the prosperity of industries. As I’ve said all along, you don’t improve the environment by damaging the economy.

I have never thought that reducing emissions should be a fundamental goal of policy, just something that’s worth doing if the cost is modest.

I have never thought that climate change was, to quote Kevin Rudd, the “great moral challenge of our generation”.

It was an issue, that’s all, and – at least on the actual changes we’ve so far seen – not a very significant one compared to man’s inhumanity to man; maintaining and improving living standards; and even to many other environmental issues such as degraded bush and waterways, particulate pollution, water quality in the Third World, deforestation, and urban overcrowding.

After all, the increase in atmospheric carbon dioxide, from roughly 300 to 400 parts per million over the last century, has not had dramatic consequences. Storms are not more severe; droughts are not more prolonged; floods are not greater; and fires are not more intense than a century ago – despite hyperventilating reportage and over-the-top claims from Green politicians. Sea levels have hardly risen and temperatures are still below those of the medieval warm period. Over time, temperature change seems to correlate rather more with sun spot activity than with carbon dioxide levels.

And even if carbon dioxide, a naturally occurring trace gas that’s necessary for life, really is the main climate change villain, Australia’s contribution to mankind’s emissions is scarcely more than one per cent.

Of course, we should treat the planet with respect, as it’s the only one we’ve got. But it would the height of folly to suppress living standards, to shrink industries and to drive jobs (and their emissions) offshore…for what was merely a moral gesture.

Yes, egged on by media scare stories and attention-seeking academics, the public are inclined to believe that something is happening to climate…and that something needs to be done – but our children won’t thank us when their power bills keep soaring and their jobs keep going offshore in a futile bid to make the world imperceptibly cooler for our grandchildren.

There have been four big developments since my time as PM.

• Post the carbon tax repeal, power prices have quickly resumed their inexorable rise, and have now doubled in a decade.
• Gas prices have increased almost as much and – with too much of our gas under export contract and green bans on new exploration and extraction – that’s made the power squeeze worse.
• Selective blackouts have become relatively common, with most of South Australia going dark for 24 hours because the wind blew too hard and the interconnector went down.

This bitter experience of expensive-and-unreliable power driving out of the system cheap-and-reliable power, and making it dangerously unstable, had it occurred earlier, would have made the Renewable Energy Target much more renegotiable – perhaps to the point of abolishing all subsidies for new wind farms.

• And fourth, the biggest change, America has withdrawn from the Paris agreement.

When the world’s leading country withdraws, it can hardly be business as usual. Our 2015 target, after all, was set on the basis that the agreement would be “applicable to all…parties”.

Absent America, my government would not have signed up to the Paris treaty, certainly not with the current target.

What wasn’t widely grasped, even then, is the impact of emissions policy on economic outcomes. Reducing emissions may or may not change the climate ever-so-slightly decades hence, but it sure has consequences for the way we live now. Sure, we can substantially reduce emissions, but if we do, we can’t expect power prices not to rise and we can’t expect energy intensive industries not to close. Sure, we can favour renewable energy – but don’t expect energy that’s cheap while it’s there not to drive out energy that’s there all the time…unless a strong reliability requirement is placed on it.

As the business leaders in Canberra last week to discuss energy policy made crystal clear, we cannot go on as we are.

A few weeks back, high demand on cold days, next-to-no renewable energy, and planned and unplanned outages in ageing NSW power plants meant that the wholesale power price spiked to $14,000 a megawatt-hour and the Tomago aluminium smelter was forced to stop three times in a week.

As the Tomago head said, you can’t run a smelter on weather dependent power, and you can’t run one on base-load gas either because it’s too expensive.

But this is our future – under the National Energy Guarantee – because the emissions reduction requirement means more wind and less coal; and the reliability requirement means more gas and more “demand management”.

This is the predicament we’re in because successive governments have claimed to help the planet by subsidising renewable energy and by imposing emissions reduction targets.

So now we want even more renewable energy – up from 23 per cent to perhaps 36; as well as even higher emissions reduction targets.

Isn’t one of the definitions of insanity doing the same thing and expecting a different result?

One of the most important laws of politics is: beware the unintended consequences of what seems-like-a-good-idea-at-the-time.

I’m not sure that the Howard government fully anticipated where the renewable energy target would lead when it first made the decision to impose one.

I certainly didn’t anticipate, as prime minister, how the aspirational targets we agreed to at Paris would, in different hands, become binding commitments.

I didn’t anticipate how agreeing to emissions that were 26 per cent lower in 2030 than in 2005 would subsequently become a linear progression of roughly equal cuts every year over the next decade.

But now that we are more alive to all the consequences of combining energy policy with emissions policy – and now that we do understand that this will define our economy for decades to come – there is no excuse for getting it wrong again.

If we surrender our main comparative economic advantage, cheap power, in what turns out to be a mere gesture because total emissions keep increasing and other countries have either made no commitments to cuts or don’t keep them – future generations will judge this one very harshly indeed.

If the country with the world’s largest readily available reserves of coal, gas and uranium continues to inflict on itself some of the world’s highest power prices, future generations will surely shake their heads in perplexity at such deliberate self-harm.

Now, I can understand why the government would like to crack the so-called trilemma of keeping the lights on, getting power prices down and reducing emissions in line with our Paris targets – it’s just that there’s no plausible evidence all three can be done at the same time. If you read the National Energy Guarantee documentation, there’s a few lines about lower prices, a few pages about maintaining supply, and page after impenetrable page about reducing emissions.

The government is kidding us when it says that it’s all about reducing price when there’s an emissions reduction target plus a reliability target but no price target.

It’s a telling indicator of priorities that the official design document recommends a $10 million maximum fine for failing to maintain reliability requirements but a $100 million maximum fine for failing to maintain emissions reduction requirements.

To the designers of this policy, over-emitting – that no one will even notice – is apparently ten times more serious than causing blackouts that could plunge a whole state into darkness!

All the National Energy Guarantee claims to do to reduce prices is “provide investment certainty” – because this, supposedly, will mean more investment, more competition and lower prices. But each year, generators will have to lower their emissions, and not increase their emissions intensity – and that favours all forms of power generation except the cheapest, namely coal. The reliability requirement might keep coal in for a time – but the emissions reduction requirement will mean that coal keeps shrinking while wind and gas keep expanding.

On my reading, the only certainty that the National Energy Guarantee-as-it-stands would provide is the certainty of emissions reduction.

Each year, providers will be required to reduce emissions by a set amount and to meet reliability standards through a complex web of contracts between providers and big consumers monitored by the Australian Energy Regulator, the Australian Energy Market Operator and the Energy Security Board.

There is a “Procurer of Last Resort” who’s supposed to access “Reliability and Emergency Reserve Traders”, but it’s far from clear who, exactly, will ultimately be responsible for providing the power for this market to operate – as opposed to forecasting, measuring, monitoring and policing the power that this heavily corrupted “market” is supposed to allocate.

The National Energy Guarantee is not a carbon tax, its proponent say, but it is a system of compulsory carbon constraint with heavy penalties for non-compliance – and the emissions accounting, reporting and compliance procedures bear an uncanny resemblance to the tax regime, complete with infringement notices that the Australian Energy Regulator can issue to people who have “the option of paying a penalty in full without there being an admission of breach”.

The government says that it’s technology-agnostic – but clearly investing $12 billion in Snowy 2.0 pumped hydro, plus billions more into sundry renewable grants and loans is bias against coal.

The government says that it wants the electricity market to work – but plainly it didn’t trust the market to deliver pumped hydro and has spent massively to make it part of the system.

The government says that it wants to deliver certainty but the only certainty is that any National Energy Guarantee that’s approved by the state Labor premiers at COAG will be massively ramped up to deliver even more emissions reduction under the next Labor government.

After the Prime Minister and ministers spent months quite rightly attacking the Labor Party for plunging South Australia into darkness with a 50 per cent renewable energy target, it’s remarkable that the government now wants an energy policy that’s acceptable to the state Labor premiers — and is so keen for a deal that the party room will be expected to endorse whatever emerges from COAG.

The National Energy Guarantee can be improved: if it had a price target as well as an emissions reduction target; if the emission reduction trajectory was back-loaded – as MPs were told it would be; and if the guarantee of keeping the lights on didn’t involve making people switch them off.

It is bordering on bizarre that a country which is a source of energy security to others is now envisaging power rationing – not as a rare and unfortunate aberration – but as an accepted part of what’s supposed to be an energy guarantee.

So, really, the only way to make the proposed new system affordable and reliable is to supplement it with guaranteed baseload power.

As the thousand-plus new coal-fired plants opening in Asia and in Germany testify, coal remains the cheapest form of reliable power, but the capital cost of a new plant means that no business will touch one because of political risk. This is not market failure but regulatory failure – and because government is the only entity that faces no political risk and little market risk, the government shouldn’t palm off to the market fixing the problem that governments have created.

A good start to real change would be to threaten compulsory acquisition of the Liddell coal-fired power station so that it can be kept running until new high-efficiency, low emissions plants are brought on line. The now-federal-government-owned Snowy already runs gas-fired power plants as well as hydro ones, so there’s no reason why it couldn’t add to its thermal capacity by building some coal-fired plants to guarantee supply and to drive down price. An alternative might be to go the market seeking the best bids for the provision of 2000 megawatts of 24/7 baseload power for the next 30 years, with the government bearing any carbon price risk.

But, one way or another, it will be up to the government – this federal government – to make sure that old coal fired power stays in the system and that new baseload power comes in to replace it.

A government that can build Snowy 2.0, to provide high-cost firming capacity, but can’t or won’t build Hazelwood 2.0 to provide low-cost baseload power for the next half century – and keep the market honest – has a consistency deficit. To be consistent with the government’s 2013 mandate, the National Energy Guarantee would need recasting to prioritise affordability and reliability ahead of emissions reduction and supplementing by government-guaranteed provision of baseload power.

These are strange times in Canberra when there’s a hullaballoo over modest tax cuts that only take effect fully in six or seven years’ time; while mandatory emissions cuts that start sooner, that mean more for the economy, and whose ramifications will be virtually impossible to reverse are expected more or less to be waved through.

Liddell’s closure in scarcely three years’ time will leave an 850 megawatt reliability gap in the system yet it’s more or less taken for granted that there can be no new coal-fired power stations built now. We’re not just sleep walking towards deindustrialising our economy. We’re jogging towards disaster because no one wants to be the first to say that the emperor has no clothes. As long as we remain in the Paris Agreement – which is about reducing emissions, not building prosperity – all policy touching on emissions will be about their reduction, not our well-being.

It’s the emissions obsession that’s at the heart of our power crisis and it’s this that has to end for our problems to ease.

I know that ignoring international agreements as soon as it’s inconvenient to keep them is not the Australian Way. To our credit, we try to say what we mean, and to do what we say. We’re not like Canada, Germany and the other EU countries which make virtue-signalling climate commitments that they then don’t keep.

When they visited Parliament House the other day, business leaders described Labor’s 45% emissions reduction target as “economy-wrecking”. Even meeting the government’s 26%, they said, would be “challenging”. They all said that they supported the National Energy Guarantee, but what they expect of it is 24/7 availability of despatchable baseload power and internationally competitive prices – while still trying to achieve the Paris targets. Their concern was the economic dislocation already caused by our current climate policy – and, to the extent that they supported the new one, it was as the least bad way to deliver even more emissions reduction while minimising the impact on jobs and growth.

Yet nothing that Australia does to reduce emissions will make the slightest difference to climate, as the Chief Scientist admitted last year.

Of global emissions, China is responsible for 28%, America 15%, Europe 11%, India 7% – and Australia a puny 1.3%.

A 26% cut, to 1.3%, is a statistical blip, so why not scale back our cut to 20%, or to 15%, or to zero; or to whatever would actually be achieved in 2030 through normal business cost cutting and efficiencies plus whatever is delivered through the emissions reduction fund?

Of the four biggest emitters, China and India have made no Paris commitment to reduce their total emissions and America has now pulled out – so when three of the four biggest emitters have no Paris reduction target at all, why should we – especially now that we can start to count the cost…in more expensive cars and in culled herds as well as through more expensive and less reliable power?

Knowing what we know now, we would not have made the Paris agreement. But if we wouldn’t have done it, had we known; we shouldn’t be in it, now that we do.

As things stand, the government has guaranteed – not just promised, guaranteed – that prices will come down, and that the lights will stay on while emissions reductions are achieved. If another government is in office and electricity prices rise or the power fails, most assuredly, it will be this government’s fault because its National Energy Guarantee was supposed to fix everything.

Withdrawing from the Paris agreement that is driving the National Energy Guarantee would be the best way to keep prices down and employment up; and to save our party from a political legacy that could haunt us for the next decade at least. Far from “wrecking the government”, MPs worried about energy policy are trying to save it, with a policy that would be different from Labor’s and would give voters the affordable and reliable power they want.

This the text, slightly edited for online presentation, of Tony Abbott’s Bob Carter Commemorative Address, delivered in Melbourne on the evening of July 3, 2018.