On the Road to Ruin for no Good Reason

This week’s announced closure of New Zealand’s only aluminium smelter presents the shape of things to come for Australia. Aluminium producers gravitated to these shores, attracted by some of the lowest electricity prices in the world. Those prices appeared to be sustainable, founded as they were on extensive low-cost and well-situated coal resources.

A wake-up call might have been the closure six years ago of the Port Henry smelter near Geelong. Although an old facility, no suggestion of it being replaced was entertained.  Already, with carbon taxes and governments determined to reject coal in favour of subsidising high-cost and unreliable wind, the bounty of new, world-class new aluminium smelters had become a history lesson.  

Things have only grown worse. 

Australia’s energy politics, in the form of subsidies and other favours to renewables — constantly punted as being on the cusp of being competitive with coal or gas — have left our own remaining smelters requiring government assistance to stave off bankruptcy. Hence, we have government subsidies in place to counteract the damage done by other subsidies!

Australia’s energy interventions come in three flavours:

1 Direct Commonwealth and state payments to renewables and vaunted new sources, with hydrogen being the latest fad

2 Regulatory favours to renewables

3 Additional spending on Snowy2, the “battery of the nation” link with Tasmania, and a host of other new transmission links to countervail the failings of wind and solar.

The annual cost of the first two, together with their effect on energy market prices as a consequence of  forcing the closure of coal generators is in excess of $15 billion.

It is difficult to estimate the cost of the transmission lines and conversion of the Snowy  and Tasmanian hydro into wind/solar auxiliary businesses. Moreover, additional subsidies to renewables are being constantly tabled, the latest being a bevy of uncosted “Renewable Energy Zones” designed to provide a further set of regulatory costs on electricity consumers to offset the costs of highly dispersed, low-density wind and solar electricity

The loss of Australian electricity supply competitiveness has been a long time coming.  Leading it was the formidable array of green propagandists persuading the community and politicians that the world will overheat unless Australian shuts down coal generators, which account for only half a percent of global greenhouse gases.

Swiftly on board were the suppliers of wind and solar energy with their claims that this “clean” power just needs a temporary leg-up and it will out-compete all those fossil plants using an archaic technology.  Thirty years on and the subsidies just become more exotic, with wind and solar still twice the cost of coal and demonstrating their inherent unreliability on a daily basis.    

Australia has been ill-served by advice from the public service in energy and greenhouse.  In particular, Treasury vacated its role as the praetorian guard against the predisposition of elected politicians to spend more and tax less in order to win hearts, minds and votes.

In the past, Treasury was the vanguard in opposing distortions such as trade barriers. Attracted by the use of “economic instruments” (code for taxes) to nudge the economy in a particular direction and infected by green ideology, Treasury was a willing accomplice in devising new taxes to decarbonise the economy.  Now, with the Treasury Secretary and the two key Deputy Secretaries being fully paid-up members of the Festival of Climate Change Controls, a hapless ministry is denied a source of rational advice.

Josh Frydenberg even appointed climate change activist Steven Kennedy to head up his department. For his part, Angus Taylor is more concerned that his Energy Department propagates the government’s success in presiding over lower emissions than in cutting subsidies and regulations supporting wind/solar. He relies on jawboning and regulatory force to keep a lid on prices, measures that can only ever work in the short term. 

Very few politicians understand the issues, and those who do in the Coalition: Craig Kelly and Matt Canavan, are sidelined.

Staggering on with present policies, aggravated by COVID-19 political measures, means the slow-motion economic train wreck caused by energy policies will, at best, continue at the same pace.  More likely we will see our economic fortunes rapidly deteriorate with announcements of closures of energy intensive businesses, which are among our most productive.

Some voices, including the Productivity Commission, are advising deregulation as a means to economic recovery.  That would be a major step from the brink but the Commission, while critical of renewable energy subsidies, sees a carbon tax as a solution. 

It is very difficult for a nation to devise policies that destroy its economy but Australia is succeeding.

8 comments
  • Peter OBrien

    This is a bit off topic, but mention of Craig Kelly prompted a couple of thoughts.

    Firstly, Kelly has gone ‘above and beyond’ in calling out the perfidy of BoM in disappearing temperature records from the past. See https://wattsupwiththat.com/2020/07/10/hottest-day-ever-in-australia-confirmed-bourke-51-7c-3rd-january-1909/

    Unlike any other Coalition MP, Kelly is prepared to personally ‘get into the weeds’ on CAGW and tell it like it is.

    A second off topic thought occurred when I was trawling Peter FitzSimons twitter account, for reasons which I won’t elaborate here. I was struck by the almost universal unquestioning approbation of his followers for Chairman Dan. My point? That conservative commentators, particularly in this forum, are just as ready to call out failures on the conservative side of politics as on the Left. Alan’s article is a case in point.

  • Tricone

    Peter, if you want to meet the real Dan Fans, the under-40 set, you should try the Melbourne subforum on Reddit.
    (Also a source of many excellent and beautiful photographs taken by users so trawling it isn’t a total waste of time).
    .
    .

    Anyway, on the NZ smelter closure I’ve been struck by assertions on other social media that this was a great thing because NZ electricity consumers were subsidising the plant. This is a common assertion everywhere there are AL smelters even though in the case of the NZ one it had its own off-grid supply.
    .

    Some posters asserted the same, but also asserted that consumer power prices would go up as a result of the closure.
    .
    How can they believe both things at once?
    .
    Is there some decent reference online that discusses aluminium production and whether smelters are really subsidised or not?

  • gardner.peter.d

    When I left my executive position in a listed company in Perth and joined a management consultancy the senior partner thought he should give me an overview of the consulting game as played by the firm. Being new at the game I listened attentively. Amongst other gems he informed me that the Federal Government was a productive field because all you have to do is tell department or agency A what departments or agencies B and C are doing and when it turns out a few months later you were correct you are elevated in the eyes of department or agency A to superhuman, if not God like, status. I didn’t believe him as I had worked in government before my executive position, although not in Australia. My experience, to my horror, proved him right.
    It was worse than that, on one project reviewing the export potential of a particular sector of industry it became apparent that whereas foreign competitors would win with a consortium or joint venture to do the complete project, Australia would usually put in a number of partial bids. Worse still, I researched various reports to the federal government addressing the lack of industrial export competitiveness in one field or another and found this problem was a common factor over the previous twenty or thirty years.
    I was an immigrant and I also discovered that Australia being the lucky country did not mean, as I had thought, that one is lucky to be living here but that Australia’s natural resources had, at least for a time, made it highly prosperous despite the incompetence of its governments.
    That experience was thirty years ago and I am now retired. When the Covid 19 pandemic struck I was greatly impressed with what was evidently a coherent, well co-ordinated and effective response. I had worked in Australian medical science and knew it to be world class. Likewise the Australian healthcare system is hard to beat – Australians like to grumble about it but they don’t appreciate how lucky they are. Australia had done better than any European country. What has gone wrong since is difficult to determine (the press doesn’t help) but it seems there are several causes among which are government incompetence in Victoria, Labour party cronyism, and the stupidly irresponsible behaviour of individuals among the public. Among the latter there seems to be a group that does not see itself as part of the wider Australian community, separate but in proximity, and I don’t mean the meatworks.

  • gardner.peter.d

    “In particular, Treasury vacated its role as the praetorian guard against the predisposition of elected politicians to spend more and tax less in order to win hearts, minds and votes.”

    It’s more subtle. Far from winning minds, the aim of government largesse is to stop minds thing, take the money and shut up.

    This video by the Australia Science Channel and supported by the Royal Society Australia, is circulated in schools and persuades children to become politicians so they can rig the market to favour private investors in green energy:

    https://australiascience.tv/vod/dr-karl-do-you-believe-in-climate-change/?fbclid=IwAR0xqzQj49a_hsU2PPUEOiT_jpOPfNTHST6blQ5dzbe-g-NE3XjbGuza2bc

    Climeworks, which Dr Karl promotes towards the end, is backed by wealthy private investors, whose profits depend on successful lobbying of governments, in their case the EU, to rig the market in their favour.

  • Alice Thermopolis

    PDG: “What has gone wrong [with Covid-19] since is difficult to determine….”

    In a pandemic Nature controls us, not vice versa, but marks for trying.

  • Alice Thermopolis

    “Australia’s energy interventions come in three flavours.”

    There’s a new flavour too, Alan, Caveat Emptor.

    Making money out of “climate change” reached a new low last week. The Clean Energy Finance Corporation (CEFC), the government entity created in 2012 and given $10 billion to play RE games, is extending its activities.

    The AFR reported that it “will tip in at least $70 million to a managed fund of so-called green bonds, believed to be the first of its kind in Australia and a milestone for the burgeoning ethical investment market.
    Boutique investment manager Altius, part of the Australian Unity stable, has launched a fund to sophisticated and institutional investors providing access to about 30 corporate and government bonds, the proceeds of which are earmarked for projects to reduce carbon emissions.
    The CEFC has been named as a cornerstone investor, committing $70 million this calendar year, and holding about 35 per cent of the nascent fund’s total assets under management, with the possibility of chipping in more subject to its growth and performance. It also sits on Australian Unity’s sustainable advisory committee, providing consulting services on ethical investing.”
    Ian Learmonth, the state-owned green bank’s chief executive and a former Macquarie Group managing director, said it was the first managed fund on the Australian market dedicated almost exclusively to green bonds and follows similar initiatives in the European investment industry.
    “It is really exciting and reflects the maturing of the market and the greater number of green and climate bonds that are that are on issue here in Australia,” .
    He said the investment was in line with the agency’s mission to entice investors and the private sector into bankrolling the Australian economy’s transition to low carbon energy sources.
    Mr Learmonth is hopeful that it may preface future product launches made available to retail “mum and dad” investors.” OMG.

    The fund is 98 per cent comprised of green and social bonds, of which 37 per cent have been issued by state and territory governments, 36 per cent by companies, 20 per cent as “supranational” initiatives of global central banks, and 5 per cent residential mortgage-backed securities. The fund has a remaining 2 per cent allocation to cash.”

    A loopy loop indeed: giving CEFC free money to invest in a “green” space that has so much grey in it. A pity the Auditor General did not audit the pseudoscience of “climate change” underpinning this colossal boondoggle.

  • Searcher

    Great article, Alan.

  • pgang

    I was contemplating last night, when the last time was that any politician did anything to benefit this nation or their state. I had no answer. At best they slow the damage caused by their peers. Perhaps it was Hawk’s break-up of union monopolies and some fairly basic economic reform.
    Howard, after marginally extending Hawk’s workplace reforms, then resolutely halted any desire for further productivity enhancement with his hubris, and oversaw the rise of PC/safety totalitarianism and an explosion in red tape. Apparently an additional tax was more important to the nation than anything else, as was forcibly removing guns from farmers, gifting us the age of politics by popular melodrama. He also pushed us further into the smothering bosom of the Panda. Howard left behind a morally exhausted nation which had no choice but to be rid of him.
    Abbott, of course, achieved practically nothing apart from defeating the woeful Gillard/What’sHisName. He even chickened out of repealing 18C.
    I don’t need to mention all the other ruinous traitors.
    The entire political edifice is devoted to self-harm and personal enrichment. Faced with their own engineered recession, these satan-spawn still want to continue to destroy our energy grid/market. They toss out a few trinkets along the way – build a road 30 years too late and that kind of thing – while bracket creep robs us blind as they ratchet up their only produce, wealth redistribution.
    Even Morrison’s belated defence revival is simply repairing the gross and obvious irresponsibility of the past. And that determination will only last as long as it’s construed to be a vote winner, which for Labor is never.
    When all is said and done the government has only one genuine task, and that is to provide for our defence. The rest is supposed to be up to us. If that remained their core objective, with all other functions subsumed to that goal, what a different place it would be.

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