Saving Solar From The Floods (Levy)

The federal government's proposed new "flood levy" to pay for cleaning up after the Queensland floods had a number of flaws (even ignoring the fundamental injustice of making regular taxpayers foot the whole bill leaving business untouched), chief among them the axing of a number of alternative energy programs.

The Greens (with support from GetUp) seem to have managed to block at least one of the cuts, with the "solar flagships" program getting a reprieve (the bill has passed the house of reps but still remains stuck in the Senate).

PM Gillard originally tried to claim the programs were unnecessary given her intention to put a cost on carbon emissions one day - given the governments failure to do this in its first term (and the general inadequacy of the CPRS bill they put forward back then) its unsurprising people want to keep the programs in place.

The ABC has a look at the issue - Gillard is gambling with her climate credibility.

AT HER RECENT NATIONAL Press Club address, Prime Minister Julia Gillard rationalised Labor's decision to cut its investment in renewable energy to fund the flood levy on the basis that these policies "are no longer necessary" with a carbon price. Last week, addressing the Committee for Economic Development of Australia, Gillard argued that "a carbon price will drive another sweeping technological revolution like Information Technology did in the 1980s and 90s."

Both cases reveal that those advising the PM grossly misunderstand climate and energy policy.

Nations with fast-developing renewable energy sectors are using policies like feed-in-tariffs (among other mechanisms) to drive investment. Feed-in-tariffs (FiT) in Spain, for example, have kick-started a domestic solar thermal industry. The Spanish engineering giant SENER has just completed its flagship concentrating solar thermal (CST) plant, and there are another US$20 billion worth of solar thermal projects in the pipeline.

Bizarrely, the Australian Prime Minister thinks that a carbon price alone will drive an economic boom comparable to the IT revolution even though pricing instruments did not kick-start those industries. "We didn't tax typewriters to get the computer. We didn't tax telegraphs to get telephones," the Breakthrough Institute's Michael Shellenberger is fond of saying. On the contrary, there was a long history of US government investment that helped nurture IT into the profitable sector that it is today.

Matthew Warren, chief executive of the Clean Energy Council, correctly notes that "many of the biggest technological 'leaps' forward and infrastructure projects in modern history have been underwritten by government. Typically these are large-scale investments with either big risks or long paybacks - or both." This is where the Gillard government needs to increase its focus. The government must craft policy that mobilises the investment needed for driving clean technologies down the cost reduction curve. "Relying on a carbon price alone," warns Warren, "is institutionalising market failure."

Gillard's narrow focus on a carbon-price is just the most recent example of a string of clumsy strategies. Since taking over the prime ministership from Kevin Rudd, Gillard announced and killed the 'cash for clunkers' program that was estimated to abate carbon at $394 per tonne. The now defunct program won't be missed. Similarly, the idea of a citizen's assembly was met with derision before being quietly replaced with the Multi-Party Climate Change Committee thanks to the influence of the Greens. Whether Gillard's climate policy gaffs were based on poor advice from outgoing chief-of-staff Amanda Lampe or for other reasons, the current government's approach to the climate crisis to date has been anything but prolific.

It's clear that PM Gillard has it backwards. She has been led to believe that carbon pricing alone is enough to decarbonise our economy, when in fact, it's carbon pricing that is the ultimate complementary measure. It will take a range of policies to drive renewable energy deployment, clean technology uptake, and energy efficiency improvements. This is the true consensus.

Gillard's carbon-price-only position is not only off the mark policy-wise, but out of step with even the most cautious voices in climate policy debates. The hitherto carbon price-focused Climate Institute has changed their tune - perhaps realising the inherent difficulty of explaining emissions trading to the public or the political liability of increasing energy prices. They concede that a carbon price "will not completely replace the need for public investment in developing clean energy technologies," adding that "… public investments are crucial to develop cleaner energy industries even with a price on pollution".

Politically speaking, the PM's decision to abandon public investment also misses the opportunity to rally people who support investment in renewable energy more than carbon pricing. GetUp's post-election survey showed that 83 per cent of over 33,000 members who participated strongly support investing in renewable energy. Given that renewable energy investment was the top ranked issue out of ten and carbon pricing last, Gillard's agenda makes for bad politics and bad policy.

Ross Gittins at the SMH also has an interesting column on the value of a carbon price versus additional programs to accelerate development of renewable energy sources - Carbon price is no fix-all.

Our wide brown land has always been subject to ''extreme weather events'' - droughts, floods, cyclones, bushfires and heatwaves. That's why no one can say the extreme events we've been suffering lately are a direct consequence of climate change.

But scientists have long predicted that one effect of global warming would be for extreme events to become more extreme, which is just what seems to be happening. So it would be a brave or foolhardy person who denied recent events had anything to do with climate change. And, certainly, the insurance industry, which keeps careful records of these events, is in no doubt that climate change is making things worse.
Advertisement: Story continues below

All this being so, you'd expect it to strengthen our determination to get on with doing our bit to reduce emissions of greenhouse gases. Yet cuts in spending on climate change programs are one of the main ways Prime Minister Julia Gillard proposes to cover the cost of rebuilding public infrastructure in Queensland. The cuts will save almost $1.7 billion over four years, compared with the $1.8 billion the temporary tax levy will raise.

So what on earth is Gillard on about?

She says the key to it is her determination to deliver a carbon price. ''There is complete consensus that the most efficient way to reduce carbon is to price carbon. Some of these policies are less efficient than a carbon price and will no longer be necessary - others will be better delayed until a carbon price's full effects are felt,'' she says.

She's right that there's strong agreement among economists and others that the most efficient - that is, the least costly in terms of economic activity discouraged - way to reduce our emissions of carbon dioxide is to build the cost of the damage done by the emissions into the prices of the emissions-intensive goods and services we produce.

This is the way to enlist market forces - our tendency to change our behaviour in response to changes in the prices we pay - in the service of the environment. It encourages us to find ways to reduce our emissions while giving us freedom to choose the ways that work best for us.

It also removes the price disadvantage suffered by the various forms of renewable energy because the prices of fossil fuels don't include the cost of the damage they're doing to the environment.

But, as the Australia Institute's Richard Denniss and Andrew Macintosh point out in a paper to be released today, imposing a price on carbon emissions won't solve the problems most of the affected climate programs were intended to tackle.

For instance, the cash-for-clunkers scheme and the Green Car Innovation Fund are designed to reduce emissions from cars. But the government's former emissions trading scheme specifically excluded petrol, and there's been no suggestion the new arrangements will include it.

The government plans to cut research into carbon capture and storage. But though raising the price of coal in Australia will provide some incentive for coal companies to continue pursuing clean-coal technology, they're unlikely to put in nearly as much money as the government was promising because the technology is not at all promising.

The government plans to cap or cancel various programs aimed at encouraging households to install solar panels. Again, it's doubtful whether raising the price of coal-based electricity will be sufficient to overcome the various impediments to better energy use in the home. So Gillard's claim that a price on carbon will remove the need for other measures to discourage emissions doesn't stand up.

But that's not to say she shouldn't be cutting back or getting rid of those particular measures. Most of them would be no loss. The cash-for-clunkers scheme is a hugely expensive way of encouraging a modest reduction in omissions. The green car fund is just a disguise for giving further help to car makers.

And the hope that the carbon dioxide emitted during the generation of electricity from coal could be captured and stored underground in a commercially viable way is probably a pipedream.

As for the schemes to encourage households to go solar, they've been far too generous, requiring the taxpayer to pay much too much for the reduction of emissions - up to $280 a tonne in the case of one scheme.

No, the disappearance of most of these programs will be no loss. But in claiming they will be made redundant by a carbon price, Gillard is trying to cover the government's embarrassment because most of them were introduced by Labor itself. And, as Denniss and Macintosh argue, she is inflating expectations about how much a carbon price could achieve. It may be the most important thing we need to do, but it's not the only thing.

Because market forces are powerful but far from perfect, the carbon price needs to be complemented by other measures. Getting rid of bad complementary measures is fine, but they need to be replaced by measures that are more cost effective.

And if Gillard is looking for cost savings to help pay for flood damage, she should start by getting rid of programs that actually subsidise the use of fossil fuels: the concessional taxation of company cars, the exemption from fuel excise for aircraft and natural gas and certain other tax concessions. Getting rid of those would not only help reduce emissions, it would save the budget more than $4 billion a year.

Cross posted from Peak Energy.