The “clean energy” hustle

Some aspects of the Prime Minister’s advo­ca­cy for her coal tax are, at best, mis­lead­ing: a wedge for the much greater costs implied by the Labor/Greens agen­da.

She says: “Putting a price on car­bon will dri­ve inno­va­tion and invest­ment in clean ener­gy tech­nol­o­gy, mov­ing pro­duc­tion towards less pol­lu­tion-inten­sive process­es.” But that is far from the whole sto­ry. Accord­ing to the advice in her Treasury’s mod­el­ling report only much high­er car­bon tax­es than she is proposing—on top of the “large scale renew­able ener­gy tar­get” (LRET) that is already cost­ing us $40 per tonne of CO2 abated—will force a change in the Aus­tralian ener­gy mix.

Hydro­elec­tric gen­er­a­tion grows only mar­gin­al­ly, as most of Australia’s hydro­elec­tric poten­tial is already exploit­ed. Oth­er renew­ables, par­tic­u­lar­ly wind, increase their share of gen­er­a­tion ini­tial­ly in response to incen­tives cre­at­ed under the LRET scheme. How­ev­er, with­out new poli­cies, renew­ables com­prise a declin­ing share from the late 2020s owing to the cost advan­tage of fos­sil fuel tech­nol­o­gy (page 58, empha­sis added)

Treasury’s mod­el­ling is able to show a 40% con­tri­bu­tion of “renew­ables” to over­all elec­tric­i­ty con­sump­tion in 2050 (Chart 1.5 on page 10) only by assum­ing a CO2 price of $131 per tonne (Table 1.1, page 11); that is six-times the tax that the Prime Min­is­ter now says will “dri­ve” the change.

As the Pro­duc­tiv­i­ty Commission’s recent report com­par­ing inter­na­tion­al car­bon abate­ment sub­si­dies showed (see Fig. 5.6), the LRET already accounts for the major­i­ty of our car­bon-abate­ment sub­si­dies. It is already cost­ing us almost twice the amount of the Gillard/Brown coal tax ($40 per tonne of car­bon abat­ed). Trea­sury is now telling us that this most­ly “hid­den” charge on con­sumers will have to be sub­stan­tial­ly boost­ed to bring about the changes that Ms Gillard claims will be a major achieve­ment of her coal tax.

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