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.

So overall the picture is one of actual policy actions that are inconsistent with rhetoric, combined with a continued re-arrangement of taxpayer-funded schemes. The unspoken true policy appears to be to work behind the scenes to undermine any attempt at internationally agreed GHG emission reductions, in order to protect our fossil fuel export income. That is a logical policy if not a very moral one.

What the other parties offer

Presumably at some stage before the federal election, the ALP will present an updated policy statement on energy and greenhouse issues. In the meantime the most relevant document is the platform adopted at the January 2004 ALP National Conference. In addressing “A sustainable Environment”, the platform contains many positions that seek to address the greenhouse issue and the development of the renewable energy sector. The need for cuts of 60 to 80 per cent in GHG emissions is recognised, although no timescale for doing this is given. Most importantly there is a firm commitment to ratify the Kyoto protocol, with emissions trading suggested as the mechanism of choice to achieve targets.

There is also a commitment to a Mandatory Renewable Energy Target of 5 per cent. Whilst these positions combined represent a much more forward looking view of sustainable energy than the Coalition offers, the chapters concerned with economic development indicate there remains a level of schizophrenia in the overall position. Chapter 12 deals with “Developing Australian Industry” and contains a commitment to employment growth in the mining sector. The section addressing the “The Future for Minerals Resources and Energy”, is explicitly and implicitly devoted to the continued growth of the fossil fuel industry. It seeks “sound” development of coal resources and exports and commits to intensification of oil and gas exploration. There is also a commitment to a national effort on energy with the stated aim to bring down energy prices to industry and consumers.

What is completely missing is any reconciliation between the environmental goals, how to manage a transformation of the energy industry, and long-term replacement of the export income from fossil fuels. The continued emphasis on keeping energy prices low also misses the point that it is provision of “energy services” at the lowest true cost that should be the goal.

The minor parties have the luxury of not having to worry about the actual detail of forming a government and keeping the economy functioning. It is politically easier for them to adopt clear principles and this they have done quite well. Both the Australian Democrats and the Greens, have articulated clear policy positions on moving away from fossil fuels and supporting renewable energy technologies. It is the Greens that have spelt this out with the most specific detail in their “specific goals” for climate change and energy, advocating a 50,000GWh/yr MRET by 2020 and a reduction of GHG emissions to 80 per cent below 1990 levels by 2050.

An interesting issue that has come to prominence with the release of the energy statement is the idea of capturing CO2 emissions at the point of creation and then pumping them underground or into the Ocean. This has been embraced with enthusiasm by the fossil fuel lobby and the government. It appears that it may also be quite appealing in some quarters of the ALP.

At a first analysis, the policy position and diversion of money in this direction is quite distressing to supporters of renewable energy. However just a few years ago, the basic fossil fuel lobby line was to suggest that there was no proven link between GHG emissions and climate change. We have now seen a major shift. Essentially the whole industry and all sides of politics are now accepting that the GHG/climate change issue is a real and serious threat that must be dealt with. The fossil fuel industry have come up with their own preferred solution, which, (surprise, surprise), will require a great deal of research and development investment and take many years before it can be commercially applied. In the meantime it is being used to justify business as usual and divert resources away from the renewable sector.

From a commonsense point of view, it is reasonable to imagine that some percentage of emissions could indeed be captured and effectively sequestered in locations such as old gas wells. It is interesting to note that in contrast to the government/fossil fuel lobby position that large percentages can be sequestered at low cost, the experts funded by industry to work on the issue actually suggest that only 25 per cent of total annual emissions could realistically be sequestered and that the costs do not appear cheaper than renewable.

This situation makes it increasingly hard for the fossil fuel lobby to argue we should not immediately allow market forces to choose between technology options via mechanisms like emissions trading.

The good news is that energy issues are now well and truly on the political radar screen. What we need from the major parties is clearly articulated long term plans which spell out a timeline for a transition to an energy scenario with zero emissions and avoiding any side tracks to involvement in the nuclear fuel cycle. We need to restructure our energy markets so that they incorporate all currently “external” environmental and other costs and facilitate the provision of energy services rather than energy units. Plus we need a major strategic plan for replacing the role of conventional energy exports in our economy. The following specific suggestions ought to be part of such a plan:

• Immediate adoption of a legally binding target for GHG emissions that reduces to zero in 50 years;
• Introduction of an emissions trading scheme that recognizes the offsets associated with efficient deliver of energy services;
• Strengthening of the MRET measure to increase to 20 per cent by 2020;
• A 20-year plan to build a new industry that replaces coal exports with renewable energy derived fuels such as gasified biomass and renewable hydrogen derivatives.