Alan Kohler
Rudd's hot-air solution
If Richard McIndoe of TRU energy is right, then Australia’s carbon pollution reduction scheme (CPRS) will be the most effective yet devised and serve as a model for the world, come December in Copenhagen.
In our KGB Interrogation of McIndoe on the weekend, he suggested that uncertainty about subsidies after 2015 will result in the bankruptcy and probable closure of the Latrobe Valley coal-fired power stations in 2015.
So this is how Australia will meet its 2050 carbon reduction targets – in one hit, in 2015. There won’t be enough electricity for us to warm last night’s dinner in the microwave oven, but at least those stinking brown coal generators will be closed down.
And the government has managed to achieve this planet-saving outcome while totally alienating the green lobby on the grounds that the scheme is not ambitious enough, and at the same time alienating the resources industries on the grounds that it is too ambitious – to the point that the legislation has no hope of being passed through the Parliament.
No wonder Climate Change Minister Penny Wong and PM Kevin Rudd are a little half-hearted in their selling of Australia’s CPRS – saying, basically, that it’s better than nothing.
It won’t work to reduce carbon pollution, it will impose a massive compliance burden on companies and cost jobs, and it will lead to the cessation of investment in base load power generation at best, and the closure of the Latrobe Valley at worst.
The good news is that it won’t be passed into law anyway.
But that just means it will be an unpopular failure, rather than an unpopular success like the GST – the Howard government’s marquee economic reform.
Penny Wong is probably thinking that Richard McIndoe is hysterical. After all, Origin Energy quickly came out with a press release last week praising the scheme and calling it the “lowest cost and most flexible way to address climate change”.
But Australia’s problem is that much of its base load power generation was leveraged to the smoke-stacks during the great credit bubble when the Victorian government sold it, and then again during subsequent resales, and thanks to the collapse of the credit bubble it is now a house of cards on a knife-edge on a cliff top.
As the teeth-grinding Richard McIndoe makes clear in our very powerful interview, the slightest touch by a government trying to reduce carbon pollution and the whole thing tumbles over. But the “slightest touch” will not save the planet.
Overall, the best and worst feature of the Australian scheme, as opposed to the floundering European one, is its flexibility. Instead of locking in the emissions cap and therefore the permits out to 2020, the Rudd Government proposes a review every five years. The first is in 2015.
Reviews inherently create uncertainty; it can’t be any other way.
European power generators have certainty, thanks to a locked-in cap out to 2020, but as a result of that, and the issuing of too many free permits, the price of the EU emission allowances (EUAs) has collapsed to less than €8 a tonne, which is not enough to reduce carbon pollution at all.
Perhaps it’s all just different ways of politicians who are under pressure from rising unemployment trying to appear to be doing something about global warming, while not doing anything at all.
Europe’s method is to have a cap and trade scheme that doesn’t work. Australia’s method is to propose one that does not happen.
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