Taxpayers bear the cost of dumping coal
The Commonwealth's carbon tax hits all Australians by increasing the costs of goods and services. The Treasury forecasts this cost at $863 a year each household. This comes on top of other costs to consumers and to business competitiveness. These include the requirement of electricity retailers to incorporate high-cost wind and solar energy into our bills and losses due to higher fuel prices.
But NSW and Queensland citizens, like shareholders of private coal-fired generators, face an extra loss. This is because the carbon tax destroys value in the generators. The additional costs of a tax undermine, and are intended to undermine, the value of these generators in order to encourage generators that emit less carbon dioxide per unit of electricity.
Almost all NSW and most Queensland electricity is from government-owned coal generators. The value of these and privately owned coal generators has fallen precipitously in Australia due to of fears of a carbon tax and other measures that discriminate against electricity generated from coal.
Thirteen years ago the NSW premier, Bob Carr, tried to privatise the state's generators. He expected to raise a similar amount that Jeff Kennett got for the Victorian generators, $15 billion in today's money. The unions, fearful of being forced to shed workers, vetoed this.
The carbon tax was looming by 2008 when the Iemma government tried to sell NSW's generators. The estimated value had fallen to $8 billion. Again union opposition thwarted the sale. It is difficult to estimate the worth of these assets today. The NSW botched privatisation process leaves the risks associated with a carbon tax largely with the government. But evidence of further decline in the value of coal-based assets is provided by the valuation in AGL's accounts of its 32.5 per cent share in the Victorian generator Loy Yang.
Based on the estimates of AGL's accountants, the total value of Loy Yang is $866 million. It remains a relatively modern facility but it is now worth only one-sixth of the $5 billion that it sold for, even without taking inflation into account. A similar pattern of value destruction is seen overseas. In the US state of South Carolina, a form of carbon tax and fears of additional impositions has led the state government to attempt to sell the machinery from two new coal plants.
The state's generators are facing rising costs because they are required to reduce their greenhouse gas emissions, a measure that has a similar affect to a carbon tax and has reduced the publicly owned generators' worth to scrap value.
The NSW experience, like that of South Carolina, is evidence that the long-term income-earning value Queenslanders had in their state-owned power stations has fallen considerably. And this decline in value is present whether or not the facilities are to be privatised.
It reflects the reduced ability of coal to compete with other sources of electricity under a carbon tax .
All this information is ominous for the citizens of NSW and Queensland. In addition to higher energy costs, a carbon tax - even the prospect of such a tax - destroys the value of coal generators they own.
The carbon tax is designed to increasingly reduce the output and profits of coal-based power stations. Citizens, as the shareholder owners of the states' coal-fired stations, incur this loss. People in other states within the national electricity market largely avoid this detrimental effect because their power stations are mainly privately owned.
The replacement cost of Queensland's state-owned generators is about $10 billion. NSW generators, in the absence of a carbon tax, might be worth 50 per cent more. The prospective carbon tax has stripped most of this value from the assets. It means a loss in value of perhaps $2000 for every household. Queensland and parts of NSW have arguably the lowest cost, large coal deposits in the world. These should make the states magnets for energy-intensive industries and for businesses seeking to generate cheap power. Yet the actions of the Commonwealth - and state governments have been complicit - is both preventing such investment and reducing the value of the existing power stations.