The non-policy on energy

On the June 15, 2004, with much fanfare, the Prime Minister launched the government’s view of how to secure Australia’s energy future. This long overdue, supposedly definitive energy statement is really a “non-policy” position. There is more actual policy in what is not said than what is said.

There are three fundamentally different aspects to energy, which are vitally important to the well being of our society:

• Provision of energy services to Australian citizens.
  In some ways, this is the most obvious, however it is often overlooked that what we need as individuals is “energy services” rather than “energy supply”. We want comfortable homes, warm showers, light, entertainment and convenient transport. We don’t actually want, electricity, gas and petrol per se. A true energy policy must address how best to do this in the next 5 years, 20 years and 50 years.
• The environmental effects of current fossil fuel use patterns.
  Possibly the most important defining issue of this century is how society deals with the issue of green house gas (GHG) emissions and the effect they are having on climate. It should be remembered however, that issues of local and not so local air pollution associated with other emissions remain important, as well as the environmental impacts of mining, exploration, gas pipelines etc.
• Australia’s economic dependence on fossil fuel exports.
  Coal is our biggest source of export income and we are the world’s largest exporter of coal. Oil is our second biggest, but offset by imports of almost equal value. Liquefied natural gas exports are significant and growing. Uranium is also significant. But all this is at a time when the end to the finite supplies of oil and gas are in sight and our international customers for coal are making the first moves to GHG emission reductions. Australia’s economy is very exposed to this situation. We need to map out how our economy will evolve and adapt in coming decades.

A good energy policy would combine a portfolio of solutions to address all these needs.
The statement Securing Australia’s Energy Future released on the 15th of June, contains many interesting background statistics, a collection of motherhood statements and essentially four policy contributions;

• reaffirmation of the position that the government will not ratify the Kyoto protocol
• decision not to extend the Mandatory Renewable Energy target
• removal of excise on diesel fuel
• a number of new and rearranged energy spending programmes

On greenhouse, the big one, the government will not ratify the Kyoto protocol because, “It is not in the national interest”. In parallel with this however, we are told greenhouse issues are important and emissions must be reduced. The government says it is committed to meeting our agreed Kyoto protocol target of 108 per cent of 1990 emissions by 2012. But they have also reiterated their opposition to any emission trading mechanisms to achieve this. At face value this is all contradictory. If we are going to meet our targets anyway, how can it be against our national interest to ratify, given that if it comes into force without us, the other signatories are likely to apply a number of explicit and implicit discriminations against us? The opposition to emissions trading is also at odds with a generally expressed philosophy of allowing market forces to find least cost solutions.

The Mandatory Renewable Energy Target was established by the present government and commits electricity retailers to a slowly increasing amount of renewable electricity (or electricity offset with solar hot water), peaking at a total of 9500GWh/year by 2010. Arguably this is the most significant policy measure renewable energy has ever had in Australia. It has launched the wind industry in Australia, with over 100MW of capacity installed by the end of 2002 and it has provided a major boost to solar hot water production and other renewable energy sectors.

When it was first introduced, lobbyists for the fossil fuel sector argued it would be un-workable and would introduce major costs to the economy. Once it was in place the renewable energy industry quietly got on with growing and delivering and has actually consistently produced more “Renewable Energy Certificates” than needed  for the past 3 years. The scheme was reviewed in 2003, with the renewable energy industry arguing strongly for extension of the target in magnitude and into the future and the fossil fuel industry again arguing that its continuation would be a terrible thing.

In the event, the Tambling review recommended maintaining the 9500GWh/yr target to 2010, but then to continue growing the target out to 20,000GWh/yr by 2020, a very modest and economically low risk suggestion. The government’s response has been to reject the suggested increase and maintain the status quo.

The removal of fuel excise comes at considerable cost to government revenue. It is argued that the current system is messy and that it is important to remove taxes from business inputs. This is all very well, but the unfortunate fact is that removing fuel excise removes the only government applied cost signal that existed in favour of moving to renewable technologies. It will undermine the economics of converting expensive and polluting diesel remote area power systems to Photovoltaic based systems.

The spending programs that are dedicated to renewable energy technologies are welcome, however they do continue a pattern of “changing the rules” every few years and creating artificial boom/bust cycles in the renewable energy industry. Taxpayers’ dollars would also be more effectively spent if they were offered a clear positive policy signal to industry.

The biggest of the programs is the $700 million “Low Emissions Fund”. Reading the fine print on this reveals that spending will not really commence until 2006-07 and that the $700 million programme is actually spread over 15 years and hence in reality, is more likely than not, to be changed by future governments. It also requires two thirds of project funding to come from industry and so clearly favours the extension of interests of the stronger fossil fuel sector.