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January 05th 2018 print

Alan Moran

Frydenberg: Saviour or Suicidal?

The Member for Kooyong, mooted as a prime minister-to-be, earnestly believes he is cushioning the cost impositions of the disastrous renewables program. His timidity, and an apparent wish to cruel rival Tony Abbott's return, may damage his prospects while definitely harming the nation

burning turbineIn the slow news period that is the first few days of the year, The Australian broke a story about dissension in the Coalition ranks regarding the “in principle” decision, announced by Energy Minister Josh Frydenberg, to allow Australian firms to acquit their carbon dioxide emission obligations by buying overseas credits. 

Mr Frydenberg was at pains to say this merely advanced a decision to “consider” these measures taken when Tony Abbott was at the helm.  And when Mr Abbott and others denounced the option of overseas emissions purchases, which will, of course, be either totally bogus or downright fraudulent, Minister Frydenberg made a smart-alec comment: “It is worth noting that Mr Abbott’s position on international permits is closer to the Greens than that of Australia’s big employers.”

That disingenuous remark was made in spite of the minister being fully aware that Abbott’s position now – and then – was diametrically opposite to that of the Greens.  And, to the degree that business leaders favour the policy, this reflects their interests in reducing the costs of the carbon impost that the present Prime Minister and the opposition leader require.

Perhaps Minister Frydenberg also was simply trying to claim a continuity of support for what he saw as the least-worst option available to him, but bagging his former leader made him appear to be undermining a rival to his likely and widely mooted ambition of becoming the next leader of the Liberal Party.

Acting Opposition Leader Tanya Plibersek was quick off the mark in accurately describing the brouhaha as early evidence of Coalition internecine in-fighting.

Faced by the reverence of Mr Turnbull, and his departmental head, Martin Parkinson, for wind and solar energy, the Frydenberg strategy has been to ensure the costs of the policy are fully understood, including requiring the inherent unreliability of “renewable” plant is recognised by forcing those contracting to buy it also to buy a “firming” contract as insurance for when it is unavailable.  This feeds into the National Energy Guarantee, which will allegedly — emphasis on “allegedly” — provide us reliable energy at $110-115 per MWh (a little over twice the price that would be available under the coal-based system now being deliberately destroyed).  It will also provide a pathway to meeting Australia’s targets under the Paris Climate Change Agreement which specify emission reductions of 26%-28% (50-52 per cent per capita) on 2005 levels by 2030.

The progress on that path — how each year’s target will be set and what disciplines will enforce it — are all left unexplained.

These matters take on an ethereal nature when set against the reality of international developments.  Now that Trump has taken the US out of the Paris Agreement, countries having agreed to abatement measures (chiefly the EU Japan, Korea, Canada as well as Australia) account for only one quarter of global emissions.  Even their one-quarter share of emissions overstates their importance since any carbon taxing actions they take will ensure their energy-intensive industries shift to developed countries with no carbon taxes.  Australia is already seeing this with the departure of aluminium smelters, previously the nations’ paramount manufacturing sector (Kurri Kurri in NSW and Point Henry in Victoria have already closed).

Compounding this is the actions of President Trump in making the US more business friendly.  Not only has the president rejected the Paris Agreement, reversing the Obama Era restraints on coal and gas, but his taxation reforms and deregulatory agendas are proving extremely attractive.  The Pratt organisation, the Visy group of companies, has committed to a $2 billion expansion of its US pulp and paper business. Australia is too uncompetitive for the Pratts to make such an investment at home.

Trump’s policies fan the flames that were ignited by the exclusion of the developing world, accounting for two-thirds of emissions, from any meaningful abatement obligations.  The severity of the adverse impact of self-harm policies, like carbon taxes, is much diminished when the policies are coordinated.  The lost income is much greater when major nations refuse to play the game and attract resources from those locations where punitive measures are in place.

The US is already seeing an economic upsurge, with growth in factory output reinforced by strong investment activity.  If this persists it will force the unwinding of the harmful policies that are preventing Australia and other countries sharing the benefits of the sort of policies Trump is implementing.

Meanwhile, for Australia, not only have abatement-driven energy policies brought a doubling of wholesale prices, but every hot day tests the electricity system’s reliability. Such has been the induced depowering of the Australian economy by renewable subsidies that the market manager has to hunt out firms willing to power-down in hot spells, plus the absurdity of embracing carbon-belching diesel generators to keep the system operating.

But the search for palliatives is unabated.  The Prime Minister’s favoured Snowy 2 pumped-hydro plan was initially costed at $2 billion.  But the (mainly redacted) feasibility study puts this at $4 billion, with one observer estimating an outcome price at over $8 billion for a largely worthless investment.

Australia seems a long distance from adopting the novel Trump solution of allowing the market to operate freely and without subsidies, a system that at the turn of the present century gave us the cheapest electricity on earth.  Hopefully we will be startled into a return to common sense rather than a continuous pursuit of costly gestures to shore up the increasingly unreliable and costly system created by regulations.

Meanwhile, for Australia, not only have abatement-driven energy policies brought a doubling of wholesale prices but every hot day tests the electricity system’s reliability.  Such has been the renewable subsidy-induced depowering of the Australian economy that the market manager has to hunt out firms that are willing to power-down in hot spells and recruit the use of diesel generators to keep the system operating.

But the search for palliatives is unabated.  The Prime Minister’s favoured Snowy 2 pumped-hydro plan was initially costed at $2 billion.  But the (mainly redacted) feasibility study puts this at $4 billion, with one observer estimating an outcome price at over $8 billion for a largely worthless investment.

Australia seems a long distance from adopting the novel Trump solution of allowing the market to operate freely and without subsidies, a system that at the turn of the present century gave us the cheapest electricity on earth. Hopefully we will be startled into a return to common sense, rather than a continuous pursuit of costly gestures to shore up the increasingly unreliable and costly system created by regulations.

Alan Moran is the author of Climate Change: Policies and Treaties in the Trump Era

Comments [18]

  1. What is happening here is just so dumb, so stupid, so bone-headed, that I’m having trouble believing that it is real. Not only has the science been totally corrupted, but the political response is inept. Hey guys, climate change is what happens between ice ages! Time for the conservatives to abandon the Liberal Party. Maybe it is better that Shorten becomes the next PM. At least that would ensure a one-term government — better than death by a thousand cuts.

  2. ianl says:

    The technical feasibility report for Snowy 2.0 has been released (with the costs censored out, of course):

    http://www.snowyhydro.com.au/our-scheme/snowy20/snowy-2-0-feasibility-study/

    For those who are interested (unhappily, almost no-one, I suspect), the various Geology sections make interesting reading. The comments therein are not unexpected, of course.

    At this point, we have desktop studies of much earlier reports from Snowy 1.0 plus some very limited, minor field mapping. Any hard, detailed, comprehensive exploration work is a long way off. Alpine regions are characterised by cross-cutting tectonic structures to great depth, a variety of lithologies to depth with their associated weathering profiles, breccia zones by the bucket and groundwater flows in detailed chaos. The geology sections faithfully record all this but delicately forbear to note the enormous cost imposition from it to engineering reliability.

    This is why Snowy 2.0 is a dog.

    At least $12bn and a time over-run of about a decade. And not one person cares.

    [This is my comment, already published elsewhere. It adds to the initial prediction of geological conditions at 1000m depth causing massive cost impositions]

    • Geoffrey Luck says:

      I endorse the comment about the difficult geology. I worked for a time on the Snowy scheme in 1951, with a spell with a diamond driling team testing the geology for the construction of the T2 underground power station. The drill got stuck, and we spent a week hammering, night and day to free it, before abandoning the hole and having to start again. Those mountains are about as far from nice tunnelling in Sydney sandstone as you can get.

      • Geoffrey Luck says:

        And when will the public notice that the feasibility report envisages (on the basis of the NEM requirements) that this expensive piece of engineering will be required to run at full capacity for less than 87 hours per year up to 2040? And all to enable 4000MW of wind and solar energy to enter the market!

      • ianl says:

        Thanks Geoffrey. Most of the population will ignore this information because they do not understand its’ import and see no reason that they should understand it. So the leftoids splather ever on, smug in the knowledge that accountability is not for them.

    • whitelaughter says:

      Alas, one of the many who won’t read the report – happy memories of reading about the original Snowy scheme, not prepared to break my heart reading about another govt cock up.

  3. oldsailor says:

    “It is worth noting that Mr Abbott’s position on international permits is closer to the Greens than that of Australia’s big employers.”
    The last three words will be meaningless soon.

  4. Keith Kennelly says:

    Concur but as the businesses close demand for power will reduce, so brownouts and blackouts will only occur when the wind don’t blow and the sun don’t shine, but prices will escalate quicker, as coal is phased out.

    The word employer will soon be irrelevant.

    Frydenberg = Continuation of Tunbull.

  5. Turtle of WA says:

    Good on you Alan. Jo Nova and your good self are the best sources on this topic.

    I spoke to an environmental lawyer from Shell the other day, who lives in London. He told me with a straight face that wind was not subsidised in Australia because renewables are cheaper. We are dealing with what Bolt calls “invincible ignorance” when these supposed experts come into question. They actually believe their own lies.

  6. mags of Queensland says:

    Any chance that Josh Frydenberg would become thee next or future Liberal leader has taken a solid beating over the past two years. He comes across as a little boy trying to please his daddy.It’s not working, Josh.

    • ianl says:

      Bluntly, it doesn’t matter. With compulsory preferential voting, “invincible ignorance” will win all the time now. It really doesn’t matter whose name is put to it.

      Alan Moran, peace be upon him, has been at this for years now. He hasn’t made the slightest bit of difference – being mostly right (for an economist, that is) most of the time is simply irrelevant.

  7. CynicAtQuadrant says:

    So, lemme get this straight.
    An Australian company burns some coal to make something. They sell this something to us Aussie customers, and give some of the profits to an overseas company, because the overseas company grows trees, or says they grow trees. (No one actually checks to see if they do grow trees. After all, the Nigerians wouldn’t try a scam, would they?)
    Now, said company finds that there is little profit left after paying the overseas company to pretend they grow trees, so they have to ask for more money for their product. This is known as “jacking the price up” So, in short, the Aussie customers – sorry – we Aussie customers give money indirectly to someone overseas to pretend to grow trees.
    Can’t quite put my finger on it, but it seems, at first glance, to be a bit sus.
    Fearful that this scam – sorry – initiative, might indeed to be seen as bit sus, Turnbull Dolts and Company Pty Ltd, double down, and decide to offer me 200 bucks if I buy a new washing machine that has f0ur stars, instead of the three stars on my present groaner.
    Not really knowing what three or four stars actually means in real money, I take a punt and say four stars is a quarter better than three stars, in roundish sorta figures. I doubt it’s as good as that, but anyway…
    Now, at present, my washer says it will use 90 KWh a year. In fine print, it says, “Actually, it will be a fucking sight more than that, if you actually wash clothes in it,” but let’s stick with 90, Bugger it! Say 100!
    So, my new 200 buckly subsidised washer will use a quarter less, say 25 KwH less, per year.
    At present, I’m paying 28 cents plus per KWh. Say 30 cents, to allow the subsidy for a few more solar panels next door.
    So, 30 cents by 25 comes to the magnificent sum of $7.50 per year. Let’s be generous and double it. Fckit, triple it! That’s $22.50. So, it will take 8.8 years to recover the 200 bucks, long after the machine has shit itself, and ceased to be saving anything.
    And somehow, this is supposed to be a good thing? I’m also led to believe that Turnbull has put aside – meaning added to the deficit – 20 million for this stupid, outrageously moronic, lying scheme, to try and add a decimal point or two to Turnbull’s dismal approval rating, and/or a decimal point or two, to Frydenberg’s chances in the Prime Minister Lottery.
    What a jackass this Turnbull really is.
    (Also posted at Catallaxy.)

    • whitelaughter says:

      “long after the machine has shit itself”

      It’d be interesting to calculate the environmental impact of planned obsolescence; mountains of scrap rubber and oil must far exceed the power differences you’ve just shown to be minimal.

  8. Ben says:

    I work in one of the three energy companies. Snide remarks about Tony Abbott are not uncommon and the calamity it would bring if he was returned as this would see us “go backwards on renewables”. Their modelling and strategising would be for naught. Many in my organisation don’t believe in climate change but speaking out is risky. We now sit around and nod our heads to SSM, how awful it is that Donald Trump was elected and lament the terrible things the white person has done to aboriginal people. At one meeting a senior manager asked “aren’t we happy that no more coal fired power stations will be built in Australia?” We all agreed it was wonderful.

    The fact is the government’s policies are leading to impairments for each of the energy companies’coal-fired assets. The middle-of-the-road shareholder might be annoyed by that. However companies are more concerned about loud minorities which turn up at their general meetings. There are increasing numbers of green board members. By staying on the government’s side energy companies can have a say on technical policy changes, when public servants and staffers have no idea.

    I suspect that in the highest echelons, managers are attracted to the status quo – more subsidies for renewable projects which have led companies to make millions out of nothing (buy a paddock, do a 10 page EIS, receive ARENA funding and on-sell for tens of millions in a PPA), greater volatility and hence more trading profits and 3) and an inevitable higher reliance on gas. More renewables will mean a re-configuring of the transmission system. That won’t be born by the three retailers, rather consumers.