Alan Kohler
Gas is the natural choice for Latrobe Valley
The intensifying race to build mass-market electric cars means the Rudd government will have to rethink its carbon pollution reduction scheme.
All the modelling that shows electricity demand declining as the price rises due to carbon emissions trading will have to be thrown out. Power demand is going surge again, as it did with the rapid take-up of household air conditioning.
It means, in my view, that the government will have to find a way to convert Victoria’s Latrobe Valley power industry from brown coal to gas.
Tesla Motors, which is shipping more than 100 lithium-battery-powered cars a month out of its factory in California, claims to get mileage of 12.7 kilowatt hours per 100 kilometres. That means your standard 15,000 km a year per car will add 2 megawatt hours to household power consumption – a 33 per cent increase on the household average. Two cars will double most family’s power consumption.
Don’t think it won’t happen, and fast. Bruce Mountain of Carbon Market Economics says that at current prices it will cost around $300 a year to power an electric car, compared to $2,300 a year for a standard 6-cylinder petrol-driven family car. And what’s more the Tesla is supposed to go faster than a Porsche, so with the latest technology there will be no reasons not to make the switch.
Nissan has just unveiled the Leaf, Chevrolet has the Volt, Mitsubishi the MiEV and BYD Co of China is also making electric cars. In Australia, Evan Thornley has jumped out of politics into Shai Agassi’s business, Better Place, which calls itself the world’s leading electric vehicle services provider, and will be pushing hard to encourage take-up here.
Last night the German government became the latest to jump on board the electric bandwagon, announcing a plan to put a million electric cars on the road by 2020. It is planning to spend $US1 billion on battery research over the next three years so Germany doesn’t have to replace oil imports with battery imports.
While all this may be excellent news for the planet, it’s an awkward development for the Rudd government.
Australia’s greatest carbon reduction problem is that we have the world’s greatest reliance on coal-fired power generation, and in particular on brown coal – the worst possible fuel for carbon emissions.
This country’s carbon reduction challenge really boils down to this: how do we make the transition from brown coal in the Latrobe Valley to gas base-load power.
While the German government spends money on lithium battery research, the Australian government is spending it on research into carbon capture and storage, so we don’t have to close the Latrobe Valley power stations, and on compensating the owners of the brown coal generators and mines.
The one decent contribution to the debate from the Liberal Party so far has been to highlight the work of Frontier Economic’s Danny Price in focusing the discussion where it belong – on power generation.
Price, on a commission from the Liberals and Senator Nick Xenophon, proposed separating out the electricity sector and putting them on an intensity benchmark scheme rather than an absolute cap.
That idea is unlikely to get up, but at least it means the politicians will be horse-trading over the right issue when it comes time to pass the CPRS in November.
In the end it will come down to dollars – that is, compensation and carbon price.
The current proposed compensation for the power industry is $3.5 billion. The industry says it needs between double and triple that to continue maintaining the generators so they don’t break down and cause brownouts (a threat fewer people are now taking seriously).
If the Australian Democrats still existed, as they did when the GST was being pushed through Parliament in 1999, there might be a chance of holding the line on that figure and getting the CPRS through without increasing it.
But with the Greens having taken over from the Democrats and basically bowing out of the game on CPRS (since they completely oppose it from the left) the negotiation will be with the Coalition, which is frantically trying to appease rent-seekers rather than make a stand on principle.
As for the carbon price – closed cycle gas turbines become competitive with the Hazelwood and Yallourn power stations when the ETS price of CO2 emission permits is $20 per tonne.
That isn’t due to happen for a long time and when it does the cost of compensation will be extraordinarily expensive.
In the meantime the renewable energy target legislation – decoupled from the CPRS and passed by the Senate this week – is supposed to kick start the building of wind and gas turbine generators.
But this will not cut it – the RET scheme is really just another rent-seekers’ cash shower, and won’t work much anyway because most of the RET certificates will come from households buying solar hot water and heat pumps.
It’s all about how to close down the Latrobe Valley mines and replace them with gas. Even black coal generation would do.
The simplest way for Australia to meet its entire commitment to greenhouse gas reduction under any scheme that might be devised in Copenhagen would be simply to convert the Latrobe Valley generators to gas.
It would, in fact, be the most efficient thing to do in many ways, since they already have the rotors, switching, transformers, transmission lines out, access to water and plentiful labour from people who will otherwise be out of work as a result of the CPRS.
In my view, the compensation payments should be linked to this.
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