Existing Climate Policy Could Cause Further Energy Price Rises

Climate and Energy Policies Test Both Parties

As we enter the New Year many ask what happened last year and what is likely to happen this year. Not surprisingly, the climate is a point of focus as is whether Australian governments’ policies to reduce carbon emissions are working.  Also not surprising is that there are fundamental differences in opinion about the merits of those policies, not the least being Trump’s withdrawal from the Paris agreement and his recent failure to mention in a major security statement.

Environment Minister Frydenberg has been active in defending the energy policy adopted by Turnbull and he attacks Labor for not clarifying its. Basically his claim is that while the closure of coal fired power stations has reduced the supply of coal-fired power, this has been offset by an increase in supply from renewables and an improvement in the management of the electricity market. He also claims that  “we now have the opportunity with the National Energy Guarantee (NEG) to turn a page and create a system that will ­deliver more affordable and ­reliable power. Recommended by the experts, energy users and ­energy producers alike are behind the guarantee, recognising that it represents the best opportunity to break a decade-long impasse” (see Frydenberg on Energy Policy).

But why is a detailed design STILL being devised for the NEG  by supposed experts on the Energy Security Board?  We were told the experts would finalise it before Christmas. Too difficult to present publicly? Now it will not even be considered until the next meeting of COAG’s Energy Council in April. But will the state governments then approved the project and will we have any assessment of its likely adverse economic effects? “Turning the page” and purporting that it will then be more affordable is just nonsense. But more affordable than what?  

Another “feature” of existing government energy policy is the project announced by Turnbull last year to build a second Snowy River structure which, he claimed, would provide additional storage of water that would be used to produce electricity as back-ups for electricity provided by renewable when they are not usable because there is no wind or sun. As Alan Moran points out in an excellent analysis (see Alan Moran on Snowy), Turnbull announced the project in March last year without publishing any analysis but estimating it would cost only a $1.5-2 billion. Moran points out that “a  heavily redacted feasibility study has now put the cost at $3.8 to $4.5 billion but this is likely to increase when a further iteration is published in April and excludes some considerable upgrade costs to the transmission system” ….   transmission costs are likely to be at least $3 billion and Judith Sloan’s speculative $10 billion cost may well prove conservative”. Yet Frydenberg is continuing to endorse the project without offering any qualifications or alternatives and appearing to accept a justification by  the Snowy CEOs that it will cost less than alternative back-ups that might be used elsewhere. Also not mentioned is whether the electricity used to pump the storage of water will be less than that produce when the storage is released.

As to energy prices, today’s lead front page article in the AFR indicates that there have not only been major increases in both gas and electricity prices and adverse effects on businesses.  The Energy Users Association of Australia also still sees “the forward curve for this year at over $100 a megawatt-hour in every jurisdiction apart from Queensland”. This is more than double what it would be under coal (see Energy Prices to Rise Further). Even if prices come down a little, a NEG policy would leave Australia with much higher prices than it had under a coal-fired system.

Yet maintaining  Australia’s Paris’s voluntary commitment to reduce carbon emissions  by 28-30% by 2030 cannot be justified. For one thing, it fails to recognise that many other countries have already been shown as unlikely to meet their targets and the next Germany government (about to be formed) is reported as likely to lower its target for 2020 seemingly because it recognises that it is now impossible to meet. Any reduction in Australia’s target would have minimal effect on global emissions and could readily be justified as needed in order to ensure lower energy prices.

We are also being reminded by Richard Morgan that there are basic defects in the model used to justify the reduction in emissions polices. In a half page advertisement in today’s Herald Sun by his Climate Study Group it is pointed out that “the planet cooled from 1940 to 1976 while CO2 levels continued to rise” (see Morgan on Next Ice Age). How could carbon reduction policies be justified on this evidence? Or for that matter on the fact that since about 2000 levels of  CO2 have increased quite strongly but temperatures have hardly increased at all? One expert analyst informed me today that in the 2000 to 2018 period satellite measurements show increases in average global temps were about 0.1 degree per decade and this included “natural” effects ie virtually no increase in temperatures from the strong increase in CO2 levels. Yet we find a spokesman for the BOM commenting on climate changes in 2017 not only predicting that the “odds [now] favour warmer-than-average temperatures more often than in the past” but completely failing to mention the lengthy periods when this has not happened.

The BOM spokesman was not the only one purporting to tell a climate story on 2017 and use that as a reminder of the supposed dangerous global warming. In typical fashion the ABC’s 7.30 report ran that story for about ten minutes without mentioning that there is a vastly different view, including by highly qualified climate scientists.

It may be that Turnbull will succeed in persuading the Opposition to adopt his existing energy policy because it is based on the same acceptance of the need to reduce carbon emissions  (Labor wants even higher emissions reductions). But it must be doubted that this will help improve the Coalition’s polling before Parliament resumes on 5 February.