Saturday, April 2, 2011

Garnauts Gambit

In late February Ross Garnaut began to release his update papers. At the time The Age reviewed the history of his previous gig under Kevin Rudds leadership. The contentious issue was (and remains) the level of compensation paid to fossil fuel generators. Garnaut's favoured position was… none. First the history.

Garnaut's comeback

The Age,February 19, 2011

Somewhere between Garnaut's commissioning in early 2007 and the publication of his report 18 months later, Labor appeared to slowly step away from him. Initially portrayed as the central figure in Kevin Rudd's plan to tackle "the moral challenge of a generation", he was later described as merely "an input".

[He] condemned the government's failure to leave open the possibility of a 25 per cent cut in national emissions by 2020 if a strong global deal was reached. And he argued there was no justification for handing out a proposed $3.9 billion to the owners of fossil fuel power plants.

As the compensation bill was increased to $7.3 billion in an ultimately failed attempt at a deal with the Coalition, Garnaut damned the process as "one of the worst examples of policy-making we have seen on major issues in Australia".

Garnaut's criticisms of Labor were striking given his stature in the party as an architect of the removal of tariff barriers in the 1980s, when he was a senior adviser to prime minister Bob Hawke. He left Canberra in 1985 when he was appointed ambassador to Beijing.

The period shaped the economist's understanding of how the epicentre of growth in the global economy  would shift into the 21st century…

"It crosses my mind that our generation may leave problems that are simply too hard for human society in the generations that follow," he says. "The structures that separate civilisation from disorder are thin and fragile. [But] I am not gloomy by nature so don't presume that the global community will fail the young people."

China is the biggest threat, but also a cause for some hope. Beijing's non-binding target to slow emissions growth submitted to the UN is calculated to be equivalent to Australia making a cut of 25 per cent, much more than Canberra is prepared to do at this stage.

Within the current debate, Garnaut differs most markedly from the government on compensation for the power industry. Little suggests the government has come around to his view - shared by the Greens - that large cash handouts are not warranted.

The abatement contribution Australia has made was summed up dryly by Crikey contributor Giles Parkinson;

Parkinson: Garnaut’s inconvenient truths

15 February

The essential message has been this: Australia is in not danger of leading the world in carbon abatement; emissions locally and globally are still going up; and it is important — and will be cheaper — for Australia to act now, rather than play catch-up later.

None of this should have been a secret…

The first few reports reiterated what we should all know by now. It is us what done it.

The science is good, the media bad, the situation worse: Garnaut

The Age, March 11th

The latest update to Professor Garnaut's 2008 climate change review, launched in Hobart last night, finds that the world is continuing to warm. He also found that the evidence that human greenhouse gas emissions are the primary cause has strengthened beyond the high level of certainty of three years ago.

Despite this, public confidence in climate science seemed to have weakened in Australia, in part due to media coverage of the issue.

"If you take our mainstream media, it will often seek to provide some balance between people who base their views on the mainstream science and people who don't," he said.

"That's a very strange sort of balance. It's a balance of words, and not a balance of scientific authority."

The latest Garnaut update … finds that not only is the globe warming, but that most physical and biological systems are changing at least as quickly as predicted.

The climate change department estimates up to 247,600 existing homes worth up to $63 billion are at risk of inundation from a sea level rise of 1.1 metres.

"It is an awful reality that no major developments in the science hold out realistic hope that the judgments of the 2008 review erred in the direction of overestimating the risks," Professor Garnaut said.

He said he feared scientific projections to date might have been overly conservative.

With the release of the final few installments The Australian leads the attack against Garnauts submissions.

Labor at war with Ross Garnaut

The Australian April 2nd

ENERGY Minister Martin Ferguson has slapped down the government's chief climate change adviser, Ross Garnaut, flatly rejecting calls for more regulation on electricity markets and warning that mandatory renewable energy targets are pushing up power prices.

And here I was thinking that the price of coal and oil on the international market might have something to do with it [see below].

Mr Ferguson's comments come as the Labor government fights with the Greens over "extreme" policies.

According to Mr Ferguson and the Australian Energy Market Commission;

"Prices reflect the cost of investment to maintain and replace ageing assets to ensure the community gets the reliability it has come to expect.”

Whereas Garnuat has recomended that;

Calling for an urgent inquiry into power sector regulatory arrangements, Professor Garnaut said the current arrangements had allowed too high a rate of return for power companies, which "increases electricity prices that (are) just passed right on to the consumer".

According to Dennis Shanahan,

Professor Garnaut conceded there might have to be commonwealth loan guarantees to keep high carbon emitting generators operating if they failed financially under the proposed carbon tax from July 1 next year.

But this same idea is reported elsewhere as a practical compromise.

Circuit breaker for a dirty argument

Sydney Morning Herald, April 2

Finally someone has a brilliant idea that could end the stand-off between coal-fired power generators, their banks, regulators and the government over the introduction of a carbon price.

The idea, in climate change adviser Ross Garnaut's electricity sector update paper, is government-guaranteed loans to help the dirtiest generators and their banks restructure if the imposition of a carbon tax puts them into financial distress.

The kind of arrangement that seems to be good enough for drought stricken farmers and students.

But the sham dramatisations of The Oz (above) are revealed by Climate Spectator which  covered it this way;

The man who kicked the hornets' nest

Climate Spectator, 1st April, by Robert Murray-Leach is CEO of the Energy Efficiency Council.

As expected, Garnaut stuck to his guns and stated that there is no case to compensate coal-fired generators if we introduce a carbon price. However, as a concession to the generators the paper recommends the establishment of an Energy Security Council and provision of government loans to high-emissions generators. As expected, several generators are less than impressed and are already predicting variations of rolling black-outs, economic collapse, plagues of locusts and Armageddon.

Garnaut’s analysis has already been misrepresented, so it's worth summarising. Energy prices in Australia have been rising very rapidly over the last few years and will rise further – household energy prices rose 32 per cent in just the last three years. These rises are much faster than price rises in other developed countries. So what’s going on?

The paper’s analysis is clear and well supported by the evidence. Contrary to public perception, these price rises have very little to do with renewable energy programs – the main cause is the amount we’re spending on the networks. A whopping 68 per cent of the electricity price rises in Australia are due to network spend, with only 14 per cent due to increasing retail margins and just 19 per cent due to new generation and climate change programs.

[Network] companies are planning to spend over $39 billion over five years on new infrastructure – the largest spend on the network in history – and this is the main culprit for rising energy prices. There are good reasons for some of this network expenditure, and the paper acknowledges these. Australia has a lot of ageing network infrastructure that needs to be upgraded or replaced, new consumers need to be connected to the network and demand is rising.

Garnaut’s point is that the network spend appears to be excessive, particularly given that electricity demand has been growing slower than predicted. This decrease in demand is at least partly due to government programs and growing consumer interest in energy efficiency.

…a very generous allowance for cost of capital that provides a strong incentive to build more infrastructure…

Flaws in the NEM rules currently favour established supply-side options over distributed generation and energy efficiency.

Network companies are monopolies, and can set the terms for the cogeneration units that connect to their network.

[This] suggests that it must be an absolute priority to fix the [National Electricity Market] to ensure that demand- and supply-side options are balanced and to keep energy affordable.

So how “horribly expensive” are Mr Garnauts suggestions?

Predictably, The Australian is doom and gloom as;

Treasury warns on tactics as $863 carbon toll looms

TREASURY has warned Wayne Swan not to use the carbon tax compensation package to redistribute wealth across income levels, as its latest modelling puts the cost to households of a $30-a-tonne carbon price at up to $863 a year.

The documents also reveal that Climate Change Minister Greg Combet commissioned new Treasury modelling that found the impact of a $30-a-tonne carbon price on households would be $863 a year without petrol tax concessions and $608 a year if they were included.

I vaguely recall Amanda Vanstone dismissing similar sized costs being of the magnitude of a coffee and Big Mac (google fails me on this one – anyone?) although she might have been referring to a time span of a week – still inflation adjusted and all it doesn't seem that exorbitant.

There is one very large Government taxation reform program that we can compare it to… the GST. The following report models the implementation of the GST.


Journal of Australian Taxation,  Binh Tran-Nam, 2000

The introduction of a GST in Australia which commenced on 1 July 2000 heightened public interest in and concern for the
simplification of tax reform. In recent months, the media increasingly focused on the implementation costs of the GST. Some estimates of the start-up compliance costs of the Australian GST have been reported, many of which were either baseless or difficult to justify. This paper considers a number of conceptual and measurement issues associated with the implementation costs of a new tax. It reviews Canadian and Australian estimates, and suggests that the implementation costs of the GST in Australia would range from $4-5 billion dollars.

At an assumed interest rate of 6% the author estimated that annual equivalent costs were;  Business & Budget Sector - $168; Treasury (ATO and (ACCC) – $103; Economy - $271.  Which adds up to a comparable sum. In other words (and I’m treating this report as a guesstimate) the costs will not break the bank.
AND the real question is “Is it worth it?”

Also remember the compromises that were made to get the GST through.

For another comparison consider that:
Peeling back time - Aussies spend $1 billion a year on cosmetic enhancement

And closing this long post by returning to China, the bug panda bear of the inaction lobby;

China chooses expensive route to address climate change

ABC Radio Australia, April 1.

Australia's chief climate change advisor says China and India are doing far to act on climate change than he'd anticipated.
Ross Garnaut says the biggest shift in climate action since he conducted his first review in 2008 has come from the developing world.
Professor Garnaut says developing countries have accepted they need to make deep cuts to their emissions and while that may not be fair, it's the only solution.

GARNAUT: We've seen first China and then other major developing countries, accept major constraints and they've shifted the trajectory of their emissions growth substantially below what I had written into the review, so that China is doing more in reducing emissions than I had allocated China responsibility for.

GARNAUT: … Most of what China is doing is through regulation. As a result, although they're getting large reductions in emissions, it's costing the Chinese people and Chinese enterprises, including enterprises competing with our enterprises more than it needs to. It's sacrificing the Chinese standard of living more than is necessary.

Sacrificing standards of living and economic growth to prevent climate change and preserve the planet! Those crazy commies, do they have no hedonistic abacus!

Facts win over rhetoric on China and climate change

Sydney Morning Herald, April 1.

Over a five-day visit, Vice-Chairman Xie explained in detail the significant steps that China is taking to move to a low carbon economy. And in the process has hopefully put an end to the hysterical cries from the opposition that Australia should not act because ''China is doing nothing to tackle climate change''.

China has a tax on coal, oil and gas extraction in its largest gas-producing province and plans to extend this to all other western provinces.

And China is closing down older, high-pollution power stations and replacing them with new-generation capacity.

Over the next five years, the plan also commits China to increasing the proportion of renewables in their energy mix, reducing energy per unit of GDP by 16 per cent, reducing carbon emissions per unit of GDP by 17 per cent, and increasing the forested areas of China by 40 million hectares by 2020.

All of this action, along with China's commitment to gradually introduce market mechanisms, such as carbon trading, is significant for Australia.

China is no Saint, but can they be used as an excuse for inaction on behalf of the fossil fuel lobby in Australia? Its also somewhat hypocritical (self serving?) for Australia to do nothing about coal emissions while pimping the stuff to China. China is also in the unenviable position of being (in my view) perhaps the largest proxy emitter for the developed countries.

I trust (hope, actually) that the date of publication of some of the above sources does not reflect the veracity of the content.

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