Smoke-free signals for power industry

Cabinet must act to make sure Australia isn’t locked out of new renewable energy technologies, says Allan Fels IN THE next month, federal cabinet is expected to release a statement on the future of its mandatory renewable-energy target, or MRET, policy. It will arguably be the most significant decision the government takes on the environment this year and the stakes for the emerging green power sector are very high. MRET, introduced in April 2001, requires the electricity industry to source an additional 9500 gigawatt hours (about 2 per cent of the total market) from renewable sources by 2010. A review of the policy, led by former Northern Territory politician Grant Tambling, recommended in January that the target level remain at 9500 gigawatt hours. Submissions to the review from renewable-energy industry groups and climate-change NGOs argued for lifting the MRET target to an additional 10 per cent of the total market. They pointed to Australia’s comparatively poor performance in curbing its output of greenhouse gases and the need to encourage greater investment in renewable-energy projects to improve economies of scale in the sector. The Labor Party says it would lift MRET to 5 per cent of the total electricity supply by 2010. Cabinet members are likely to be under heavy lobbying pressure from major energy-consuming industries such as aluminium and coal. Submissions to the Tambling review from these industries argue that MRET will significantly raise the cost of production, force job losses and harm export industry competitiveness. Some estimates put the annual cost to the country of the current MRET level at more than $400 million in reduced GDP per year. There are also detailed claims in these submissions that the MRET policy is an inefficient means of achieving abatement in greenhouse gases. The Minerals Council of Australia points to research from economics consultants ACIL Tasman which finds that the reductions achieved under MRET have been smaller and more costly than those resulting from voluntary, incentive-based initiatives aimed at business such as the greenhouse gas abatement program. Almost all the submissions to the Tambling inquiry, from both supporters of MRET and from its critics, acknowledged that action is needed to reduce our output of greenhouse gases and that the power-generation industry has to be central to this action. About half of Australia’s greenhouse gas emissions come from coal-fired power stations. These 24 stations produce 180million tonnes of carbon dioxide gas a year, equivalent to a fleet of 40 million cars. All other efforts to tackle the greenhouse problem are marginal unless this is addressed. The question is who should bear the costs to establish alternative renewable electricity sources to absorb future energy needs. Interestingly, it seems that while many in business strongly object to the additional cost of green power, individual consumers are quite comfortable with bearing the extra strain on their household budgets. A Roy Morgan poll in January this year found that 89 per cent of consumers would be prepared to pay the estimated $3.50 a month extra on their power bills if the MRET level were raised to 10 per cent. Renewable-energy producers’ revenues rose to $1.8 billion in 2002-03, up from $1.1 billion before the introduction of MRET. Hydro operators earned about a third of this with wind farms, the fastest-growing form of renewable supply, at 11 per cent. However, operators such as Pacific Hydro, the renewable-energy sector’s largest and most profitable company, claim they need the government to commit to higher long-term quotas than are in the present MRET if they are to maintain the levels of investment needed to build capacity, lower costs and present a sustainable alternative to the cheaper electricity supplied by coal-fired power stations. The Tambling review actually agreed with the industry on this point, conceding that under the present MRET level, investment in new renewable-energy projects would probably stall in 2007. Australia could be locked out of new renewable-energy technologies and any attendant cost savings if this investment ceases. Cabinet faces a difficult choice, but our economy’s reliance on coal for its electricity needs is simply not sustainable. Electricity generation is a long-term business. Most plants have a productive lifetime of forty years or more. The MRET policy has provided an important foundation for the emergence of a vigorous renewable energy sector. A higher level of MRET would continue this progress towards sustainability. Allan Fels is dean of the Australia and New Zealand School of Government. This article first appeared in the Australian Financial Review Photo: Andrew Jeffre