High-Energy Dreaming

In Superpower Ross Garnaut stakes his reputation on renewable energy in Australia becoming cheap and reliable enough to supply Australia and power a heavy-industry renaissance in our regions. But is it credible?

It’s an important question, because Labor leader Anthony Albanese echoed Garnaut in his Perth headland speech in October 2019:

We have the highest average solar radiation per square metre of any continent … We also have some of the best wind and wave resources … Australia can be the land of cheap and endless energy—energy that could power generations of metal manufacturing and other energy intensive manufacturing industries.

Ross Garnaut is a high priest of Australia’s economic and public policy establishment. He was Prime Minister Bob Hawke’s economic adviser, was ambassador to China, and the list in his CV of policy, academic, diplomatic, business and other roles goes for pages. He founded renewables company Zen Energy. It is now controlled by Greensteel businessman Sanjeev Gupta, who owns the Whyalla steelworks and is developing a pumped-hydro and solar power project to help power it.

This review appears in the latest Quadrant.
Click here to subscribe

Garnaut does not make the mistake of pretending that Australia can solve its climate challenges by its own efforts. In a succinct encapsulation of what he called the “diabolical policy problem” of climate change, Garnaut emphasises that the “relevant mitigation is global”, but the “costs of various levels of mitigation for a single country depend mainly on the extent of its own mitigation”.

Garnaut solved the diabolical problem for Australia with his Climate Change Review for Prime Minister Kevin Rudd and the premiers in 2008. He updated his approach in 2011 for Prime Minister Julia Gillard, which her minority government passed as the Clean Energy Futures package. Carbon pricing at $23 per tonne started on July 1, 2012. Tony Abbott’s Coalition campaigned against the package, dubbing it the “carbon tax”, and winning the 2013 election. Although his government axed the tax, substantial elements of the package remain, including the Australian Renewable Energy Agency, which finances renewables research and development, and the Clean Energy Finance Corporation, which finances deployment.

The first part of Superpower rehashes this history. Garnaut then tells us that nothing of strategic importance has changed since then. The projections of climate change are clearer, improving the estimates of the benefits of reducing emissions. And the costs of action are lower, because renewable energy and storage equipment costs are falling and interest rates are at record lows.

The economic rationalist Garnaut even invokes Pope Francis’s 2015 encyclical Laudato si to support the moral, but unquantifiable, “value of conserving our common planetary home and its biological heritage, and of climate change as a social justice issue”.

Garnaut’s tone is: I was right then, we’d be better off if we’d stuck to the Clean Energy Futures package I devised, and I’m even righter now.

Garnaut minimises the role climate change policy may have played in the rejections Labor suffered in the 2013 and 2019 elections. He says a 2013 exit poll shows carbon pricing was not an electoral negative for the Labor government. In the 2019 context he thinks:

by making the Adani mine emblematic of attitudes to climate change, environmental groups on the one hand and the government on the other succeeded in making [Labor’s] position on climate change appear weak or equivocal. This undermined what otherwise would have been an advantage among voters who favoured strong action on climate change.

Garnaut absolves renewables of any blame for Australia’s rising electricity prices, saying, “expanded supply from solar and wind could only reduce and never increase market prices in the short term”. Instead, he lays the blame on major regulatory mistakes in electricity privatisation and corporatisation, the export of east coast gas raising prices to Australian generators, and oligopolistic pricing in each state market by a small number of dominant generator-retailers. He also fingers “policy uncertainty inhibiting investment in generation and transmission” following the repeal of the carbon price regime.

Naturally, the economist Garnaut remains fully committed to a comprehensive carbon price, but recognises the time is not right:

Comprehensive carbon pricing is the centrepiece of any environmentally and economically efficient program to reduce emissions …

But the politics of the past decade have for the time being poisoned the well for carbon pricing …

I would not support going back to such a system without unequivocal bipartisan support in the Australian parliament.

Absent such a comprehensive carbon price, for the moment, Garnaut sees the continuation and maximum use of established institutions such as the Australian Renewable Energy Agency, the Clean Energy Finance Corporation and the Clean Energy Regulator, with the Climate Change Authority restored to advise on emission reduction targets.

Superpower then assesses possible strategic competitive advantages for Australia in a carbon-constrained world—we’ve got the land, the sun, the wind and the resource inputs that others haven’t.

The economic core of Garnaut’s argument is based on unprecedentedly low interest rates making capital cheap, renewable equipment such as solar panels, wind turbines and batteries continuing to become cheaper through increasingly massive production, and meaningful global restrictions on carbon dioxide emissions with an attached emissions trading regime.

These factors, Garnaut says, together with Australia’s large land mass with good solar, wind, biomass and mineral resources, and the difficulty and cost of transporting over long distances electricity, or the energy-carrier liquid hydrogen, make Australia a natural place for Japan, Korea and other countries to base their heavy industries such as steel, aluminium and energy-intensive chemicals.

Garnaut sees Australia growing a renewables-powered, export-oriented, liquid-hydrogen industry despite the technical and cost challenges. This would compensate for the loss of fossil-fuel exports.

Australia also has the agricultural expertise and land to develop biomass as a feedstock for chemicals, replacing fossil fuels, and to store carbon in the landscape. Compared with 2008, when Garnaut thought Australia would be a buyer of international emissions permits, he now thinks we can be an exporter, selling permits into an international emissions trading regime.

For Garnaut, it’s all positive—cheap electricity from renewables, a renaissance for regional heavy industry, new energy exports, a rebirth of Australia’s agriculture and land sectors, and lower emissions.

Garnaut’s confidence in globally enforceable limits on emissions and a workable emissions trading regime seems misplaced. No binding targets have been agreed since the Kyoto protocol of 1997, amended in 2012 at Doha. But its 2020 targets cover only thirty-six countries (including Australia) collectively responsible for less than 20 per cent of global emissions. After 2020, there are only the voluntary national pledges made under the 2015 Paris agreement. The Madrid conference in 2019 failed to agree on global rules for emissions trading, its key objective. The three largest emitters of carbon dioxide—China, America and India—have not agreed to binding targets. These three countries account for about half of global emissions. Understandably, China’s and India’s emissions continue to rise, as do emissions from scores of developing countries.

Absent a global agreement, it is possible that bilateral ones, for example by Australia with Japan, Korea and Singapore, or with the UK and Europe, could to some extent support Garnaut’s vision—a coalition of the willing. There are some signs that point to this possibility: Kawasaki Heavy Industries is piloting a liquid-hydrogen supply chain from Victoria’s Latrobe Valley to Japan, Mitsui is investing record amounts in Australia, and a consortium is looking to build a 4500-kilometre transmission line connecting Singapore to a massive solar farm proposed for Tennant Creek.

Nevertheless, I am sceptical about whether there will be enough incentive to power Garnaut’s renewables-driven industrial renaissance in Australia. The industries involved, particularly steel, aluminium and explosives, are strategically important, both industrially and militarily. But Garnaut only sees them as commodities: in “a zero-carbon world economy, there would be no economic sense in any aluminium or iron smelting in Japan or Korea”. Nor does Garnaut discuss the implied job losses and political difficulties de-industrialisation might pose for those countries—perhaps because he doesn’t countenance the possibility that no global regime of emission limits coupled with a trading scheme will be agreed. In his mind they’ll have no choice, because they’ll have to reduce emissions, don’t have domestic access to large-scale renewables, and nuclear power seems to be off Garnaut’s menu.

Overlooked too are any pesky local difficulties Australian governments might face implementing his vision. Garnaut imagines a renewables-only electricity system generating twice as much electricity as our current one to meet the needs of minerals-processing and electrified transport. This implies many hundreds of big wind farms and solar farms, many pumped hydro and other storage schemes, and big, long-distance transmission lines. Garnaut does not countenance that these projects might face local or other opposition, or regulatory challenges arising from, say, threats to endangered birds, or to human health and amenity. He appears blind to the challenges illustrated by Bob Brown’s objections to a “mega wind farm” on Tasmania’s Robbins Island, with a transmission line through “wild and scenic countryside”. In New South Wales, the Independent Planning Commission has upheld the rejection of the Crookwell 3 wind farm, stating, “visual impacts of the project are unacceptable given the significant visual impacts on multiple residences”.

Similarly, Garnaut’s vision for biomass industries and carbon storage in the landscape flies high above any considerations of regional histories, traditions or competing interests that might resist change. Garnaut’s large-scale landscape interventionism might also encounter resistance from environmentalists.

Garnaut goes to some trouble to say of places that will suffer job losses in the coal and energy generation sectors that there “will be special advantages at first in the old transmissions nodes for coal generation: the Upper Spencer Gulf, Collie, the Latrobe Valley, Newcastle, Gladstone … Northern Tasmania and Portland present variations on the theme”. But, through omission, he leaves the impression that the new jobs he envisages will come on stream at the same time, and with similar wages and conditions, as the ones that might be lost. Or perhaps from his economist’s perspective he views any mismatches as a process of economic structural adjustment that people will just have to accommodate.

Garnaut does point out that to realise his vision Australia needs to tackle its “disadvantages in high construction costs … and in many transport, energy distribution and other infrastructure services”. He blames “oligopoly, high costs and inflexibility in supply chains”. This poses something of a quandary for Labor, challenging the interests of the big Australian constructors and the powerful CFMEU. Governments are highly involved with these players through massive, long-term infrastructure agendas. I can’t see taking on the major constructors and the CFMEU to deliver low-cost renewables, storage and transmission infrastructure being as easy as Garnaut seems to imply with his breezy call for “new entrants with more positive attitudes to innovation and globally competitive pricing”.

Garnaut is also very optimistic about the costs of storage to firm supply from intermittent renewable electricity generators, saying that today, “the cost of firming would typically add $5 to $20 per megawatt hour to total costs”. This is unreferenced, and I can only assume it relates to modest capacity storage for up to a few hours. The estimate may be fine when renewables are contributing into a grid that remains dominated by reliable generators, but larger capacity, longer duration storage is needed for the renewables-only grid Garnaut envisages. Recent US research concludes that the levelised cost of longer duration storage is much higher—on the order of US$186 per megawatt hour for pumped hydro, and US$285 per megawatt hour for lithium-ion battery facilities, over a forty-year operating life.

This may be the key reason Garnaut suggests dividing Snowy Hydro into a generator-retailer and a separate pumped hydro storage capacity, which he says could be called the Snowy National Energy Guarantee (SNEG). The SNEG “would be given the sole purpose of guaranteeing the reliability of the [National Electricity Market]”. Thus, the Australian government, through the SNEG, would be the final guarantor of electricity supply.

Garnaut’s other policy recommendations to transform the grid include: the government helping developers of appropriate new generation projects secure finance by guaranteeing long-term revenue through energy offtake agreements; and allowing the development of unregulated transmission infrastructure that would connect load centres to regions with high-quality opportunities for renewable generation, or for storage, and paying operators for the security and reliability benefits to the grid.

Though apparently modest, these proposals all involve a notable increase in the Australian government’s involvement in the electricity grid and market. It would be underwriting demand for the output of renewables projects, rewarding unregulated transmission infrastructure investors for “grid benefits”, and would be the ultimate guarantor of grid supply. The last one is quite a sleeper, because the cost of storage, and therefore supply security in a renewables-only grid, rises as the requirements for capacity and duration increase. The government would be on the hook to cover the costly risk of a calm or cloudy week, with the private sector only having to cover the less costly, shorter-term and lower-capacity storage requirements.

Garnaut’s key initiatives for the land sector are further research and development, and an expanded Emissions Reduction Fund (now the Climate Solutions Fund), in which projects that can demonstrate emissions abatement earn carbon credits, which can be sold to the government or to others wanting to offset their emissions, and links to international carbon trading schemes. Most of the projects so far have been landscape projects, such as forestry or soil carbon.

His agricultural futurism also foresees livestock industries downsizing. He predicts, “Products from processes using animal stem cells to grow chemically indistinguishable meat substitutes from biomass will also become indistinguishable in taste, texture and nutrition to meat from the killed animal …”
Moving to transport, the sweeping scale and the optimism of Garnaut’s vision for change are clear:

Battery and hydrogen electric vehicles will sooner rather than later be highly competitive with and replace internal combustion engines. The expansion of rail and more compact cities with greater opportunities for public and active (walking and cycling) transport are valuable in themselves, but also important to emissions levels for the period before the full electrification of motor transport …

The regulatory authorities would need to insist upon time-of-use pricing that shifts the charging of vehicles away from the peaks in grid use and wholesale prices …

It also perfectly illustrates Garnaut’s technocratic approach. Time-of-use pricing of electricity has proved a hard sell. Only Victoria has rolled out the necessary smart meters and allowed a choice between “flat rates” and “new, flexible” pricing. Relatively few Victorians have opted for it. Urban densification has been politically contentious almost everywhere. Walking and cycling have proved difficult to develop on a large scale—the 2019 National Cycling Survey found that “Australian cycling is in free-fall, and has been since the National Cycling Participation strategy was launched in 2011.”

Garnaut seems aware that the relentless optimism of his tone in Superpower strains credibility, because he goes to the trouble of defending it:

The awful reality is that we may fail to change far and fast enough, and that our grandchildren will inherit a parched and disordered country in which a past time of prosperity, democracy and good order is a myth of origin. Yes, that is a possibility. And yes, sometimes I do think that the time of hope has passed. But there is still a path to a manageable outcome. And I see no good purpose in acceding to despair while the path to a manageable outcome remains open to us.

In outlining the path, Garnaut gives no consideration to potential resistance from the Australian electorate for any of the initiatives in Superpower—emissions targets, joining global trading schemes, hundreds of massive new wind and solar farms whose intermittent output is underwritten by government, subsidies for electric vehicle charging infrastructure, time-of-use pricing for electricity, urban densification, landscape interventionism, a clear agenda to reintroduce a comprehensive carbon pricing regime, the list goes on. Nor yet any resistance to his top-down, totalising transformation of Australia’s economy and the lifestyles of Australians.

Neither does he consider implementation challenges—the potential for large-scale blackouts if the transition to a renewables-dominant grid is mismanaged, or poor acceptance of load shifting; problems with renewables equipment or electric vehicles, or with industry and regional transition, or with fraud or failures in schemes to sequester carbon in the landscape; or with failure to realise the promised renaissance of Australian manufacturing.

The Australian’s Adam Creighton reminded us in December 2019: “Economists such as Ross Garnaut … once promised a hi-tech manufacturing future if we opened ourselves up to the world. That has not happened.” Nevertheless, Garnaut’s vision cleverly mixes plausible reorientations of long-standing Australian themes, transferring Australia’s traditional competitive advantage in cheap electricity from coal to a similar competitive advantage in a carbon-constrained world in cheap electricity from renewables. He builds on that with the familiar goal of using cheap power to value-add to Australia’s mineral resource endowments. And he reorients Australia’s competitive advantages in food and fibre towards biomass to substitute for fossil fuels as a chemicals feedstock, and to store carbon in the landscape.

Superpower is a seductive cocktail of strategic economic visioning, the Pope’s climate morality, faith in a global agreement to limit emissions and trade carbon credits, and Wellsian techno-futurism.

But the bottom line is that Garnaut has convinced himself that zero-emissions, renewable electricity can be reliable and almost free. And with that miracle in hand anything is possible.

Garnaut’s Superpower is a renewables romance.

Superpower: Australia’s Low-Carbon Opportunity
by Ross Garnaut
La Trobe University Press/Black Inc., 2019, 210 pages, $29.99

Dr Michael Green has a PhD in Systems Engineering.