Frydenberg: Saviour or Suicidal?

In 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