The Labor government’s Clean Energy Policy: a capital agenda
by Stuart Rosewarne
‘The Clean Energy Future Policy, along with various proposed supplementary measures not incorporated into the resolutions of the multi-party talks, represents a considerable win for Australia’s emissions-intensive industries while promising no real abatement of Australia’s greenhouse gas emissions.
Indeed, as the Treasury modelling informs us, Australia’s emissions will continue to increase in the immediate future even with the imposition of a carbon tax and the emissions trading system in 2015.
In large measure, I contend, the Clean Energy Future Policy is subterfuge for a ‘business-as-usual’ policy that is predicated on the continued growth of the resources sector, of fossil fuel extraction and exports and energy-intensive industries.
The government’s propaganda makes much of the compensation for low-income households to alleviate some of the burden engendered by the inflationary effects of placing a price on carbon.
But as much as this is sold in terms of committing at least 50% of the revenue generated from the carbon tax to households, this pales into insignificance with the measure of compensation and support that has been promised to the energy-intensive industries.
While the Treasurer continues to declare that the federal budget will be returned to surplus in 2012-13, all talk of the carbon pricing system being revenue-neutral has been quietly abandoned. And the ramifications of this warrant serious scrutiny because balancing the budget will necessarily require reducing funding across a range of portfolios with distributional consequences for the Australian community.
The Clean Energy Future policy is most definitely not self-funding. By the government’s questionable reckoning, the scheme will draw down the budget by almost $4 billion over the period 2012-15. Initially priced at $23 per tonne of CO2-e, the carbon tax will create a bank that can drawn on to compensate those who stand to be disproportionately disadvantaged and to ignite innovation in low-emissions technologies. While equity considerations helped inform the promise of early handouts to welfare recipients and tax relief for low-income households, this allocation was clearly a less-than transparent ploy to garner support in Labor’s disaffected electoral heartland.
Support for transitioning loomed large with the Greens. It sees the agreement to set up the Clean Energy Finance Corporation and the Australian Renewable Energy Agency, some financially smaller industry assistance measures and the withdrawal of funding for research into carbon capture and storage as a marking solid progress towards a sustainable future, but it is important to bear in mind that this finance is conditional.
The more salient measures with which we should be concerned those unconditional government commitments to business. Set emissions reductions targets, emissions-intensive industries will receive substantial levels of compensation: the most emissions-intensive trade-exposed sectors generating more than 2,000 tonnes of CO2-e emissions are to be issued 94.5% of their emissions requirements in the form of free permits; less emissions-intensive industries generating more between 1,000 and 1,999 tonnes of CO2-e are to be granted free permits equivalent to 66% of their emissions target; LNG producers are to receive a supplementary allocation to establish an effective assistance rate of 50%; and, the steel industry is to be allocated free permits with a additional $300 million in direct financial support paid out of general revenue.
In addition to free permits, electricity generators will be provided with financial support, and, again funded out of the budget, monies are to be dedicated to compensate some electricity generators to effect the closure of around 2000 megawatts of brown coal-fired generating capacity.
Given the extraordinary array of business compensation packages, it would be difficult to conceive a policy that was not more favourable to business and big business more particularly.
This is quite a paradox given that emissions-intensive industries have been on notice since the 1990s that they would have to either reduce the emissions intensity of their operations or pay some of the costs associated with the atmospheric accumulation of greenhouse gases.
Yet, over the course of the last 25 years business has done comparatively little to enhance energy efficiency, invested next to nothing to develop emissions-abatement technologies or renewable energy technologies, and campaigned successfully against most national and international efforts to combat climate change.
Capital is in effect being rewarded for years of inaction.
Take for example the case of the Hazelwood brown-coal generator in Victoria, the most GHG polluting generating plant in Australia. Purchased by the world’s biggest utility company, International Power GDF Suez, in 1997 when the Kennett government privatised the State-owned electricity industry, the company undertook risk analysis of the venture. It evaluated the prospect of changes to the regulatory environment which could result in a carbon impost. In other words, International Power proceeded with the purchase fully cognizant of the possibility that Australia’s commitment to the Kyoto Protocol could result in the introduction of a carbon pricing system. The prospect of decommissioning the Hazelwood plant to achieve an immediate reduction in emissions has not escaped the government, but electricity generators argue that unless decommissioned plants are fully compensated the industry will not be able to raise sufficient capital to fund necessary infrastructure investment, and the security of future energy supply will be placed in jeopardy. In the case of the Hazelwood plant, the cost of shoring up confidence in the future of the industry is reckoned to be in the $3 billion-plus range. Negotiations are also in train to close the South Australian brown-coal generator owned by Alinta Energy, and it too is arguing that the rumoured compensation package on offer is insufficient. The potential to capitalise on the opportunity is not lost on the industry, as Victoria’s TRUenergy has also indicated that it would consider an offer to close its Yallourn plant.
Despite the government’s proposed energy security assistance, which would see the equivalent of $5.5 billion in free permits and cash pumped into the electricity generation sector, the industry has not stopped pressing for more support, repeating the mantra that the security of future energy supplies could be jeopardised if this additional support is not forthcoming.
State governments, which have bled the State-owned generators through dividend payments and thus hindered investment in energy efficiencies and renewable energy, and the generators themselves, such as NSW’s Macquarie Generation, and have joined this chorus in arguing that assistance should not be skewed in favour of the brown coal-fired generators and that they should be compensated for the erosion of asset values consequent upon the introduction of the carbon price.
The coal mining and steel industry have been considerably more successful in securing government funding. This success certainly explains why steel producers and the CFMEU now declare their support for the Clean Energy Future policy.
Existing coal mines will be eligible for $1.3 billion in support over 6 years for better managing fugitive emissions. The $300 million assistance to the steel industry will, according to corporate researcher MSCI, boost the profits of BlueScope Steel and OneSteel by more than 2%.
The costs of these two industry assistance packages and of the planned closure of some brown coal-fired generators will not be met from the revenue raised by the carbon tax but rather funded out of general revenue. The complete Clean Energy Future package is anything but revenue neutral. The magnitude of the draw down on government finances will likely be even more substantial through time because the policy is designed to encourage the continued growth of the resources sector and energy-intensive industries.
What should be equally galling for Australian taxpayers is that new entrants into emissions-intensive industries will be eligible for assistance. New coal mines and liquid natural gas ventures will be awarded free emissions permits.
This is despite the fact that fugitive emissions from these as well as from established coal and gas investments will contribute substantially to increasing Australia’s greenhouse gas emissions.
Notwithstanding the adoption of a policy that promises to deliver a 5% reduction in the level of emissions issued in 2000 by 2020, the reality is that Australia’s emissions will continue to increase.
Interestingly, the transition from the carbon tax to the emissions trading system becomes a crucial ingredient in this subterfuge.
For the period of the carbon tax, emitters will be able to meet some of their emission target obligations by purchasing carbon offsets delivered under the terms of the Carbon Farming Initiative, through issue of carbon credits associated with soil sequestration (although the scientific evidence on carbon farming suggests that the potential magnitude of sequestration is highly exaggerated). Once the emissions trading system is introduced in July 2015, a more substantial means for achieving Australia’s reduction target will be provided by enabling to purchase carbon credits in the international market to meet up to 50% of their obligations. In fact, Treasury modelling regards this as a crucial means of meeting Australia’s emissions target. This will be made still easier because the government is proposing to regulate which carbon offsets and credits will be accepted, and it is clear that these credits will not be restricted to Kyoto-certified carbon offsets and will thus be more price competitive than the Australian carbon credit units.
The rationale for marrying the Australian emissions trading system with other schemes is the classic ‘efficient market’ thesis propounded by Treasury and so stridently by the Minister for Climate Change: it will be more cost-effective for Australian emitters to meet their obligations not by reducing their emissions but by being permitted to buy carbon offsets overseas.
What is completely ignored in this appeal to the benefits of international carbon trading is the sting in the tail for the Australian government’s finances. As emitters meet their obligations by buying international carbon credits, the sale of Australian carbon credit units will drop and/or the price of Australian permits declines. This will have serious consequences for government revenue streams.
It should be abundantly clear that the Labor government has abandoned any pretence that its climate change policy is revenue neutral – let alone that it is first and foremost about reducing Australia’s greenhouse gas emissions. So determined has it been to avoid adopting a policy that might frustrate the continued expansion of the resources sector and energy-intensive industries it has evacuated its climate change policy of any really meaningful measures that could make substantial inroads into emissions mitigation, and this will come at some considerable cost.
To this cost equation must be added a range of additional costs not factored into account. As the Treasury has noted, these include all he transaction costs that will be incurred in establishing and monitoring the carbon tax and the emissions trading system.
The Australian taxpayer has been sold a pup.
The Clean Energy Future Policy will come at some considerable cost to the Australian community without any really material benefit in terms of emissions reductions. Labor’s pledge to return the budget to surplus by 2012-13 can only be achieved by making substantial cuts to public expenditure across the spectrum of portfolios. Education, health and social security are the obvious candidates for economy measures, and reducing the funding of these will underscore the fundamentally inequitable character of the Clean Energy Policy.
But it is not just the taxpayer and others dependent upon state services who will end up carrying this burden. Setting aside the personal income tax concessions and the assistance to pensioners and other social security recipients, the single biggest budget item in the Clean Energy Policy is the $9.2 billion ‘Jobs and Competitiveness Program’. Yet, this could not be more inappropriately labelled.
The Program makes absolutely no provision for assisting workers transition into low-emission jobs.
The funds are wholly dedicated to assisting business, to providing free emission permits and thus to discouraging the transition to a low-emissions economy. A paltry $32 million is set aside under the Clean Energy Skills program for retraining and reskilling workers to promote clean energy skills, and this is not surprising because the Treasury modelling assumes that there is no cost to workers as they are forced to transition out of emissions-intensive industries to low-emissions and other jobs.
There are some fundamental asymmetries in the Labor government’s Clean Energy Future policy that we cannot afford to ignore.
It is a policy that promises to deliver reductions in greenhouse gas emissions whilst simultaneously underwriting, and subsidising, the continued development of the very industries that are primarily responsible for Australia’s high per capita emissions. Australia’s emissions will continue to increase.
It is a policy that proposes to require emissions-intensive enterprises to pay some of the costs that emissions give rise to whilst simultaneously rewarding these enterprises through the issue of free emissions permits and thus transforming a cost into an asset.
The environmental costs are being capitalised mostly to the benefit of the transnational resource corporations that are biggest emitters. It is a policy that promises to ameliorate the costs for low-income households consequent upon putting a price on carbon whilst simultaneously eroding the state’s financial capacity to provide the raft of services that are so crucial to the wellbeing of these low-income and other households. And it is a policy that transfers to many workers the risk and costs that will be incurred as they seek to transition to the low-emissions economy. This is a capital agenda.’
Stuart Rosewarne teaches environmental economics at the University of Sydney.
A version of the above appears in the magazine Australian Options no 66 Spring 2011.
right to strike on the environment
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