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.