Era of cheap energy needn't be over
Energy Minister Martin Ferguson has launched the government's draft white paper on energy. Having run the gauntlet of bureaucratic committees, much of the paper comprises anodyne phrases that talk about energy use doubling, new markets emerging and so on.
It also contains fantasies about how renewables are going to replace fossil-fuelled electricity. That said, the draft is a useful compendium of energy market material.
Ferguson's remarks in launching the draft paper's policy statements were highly pointed. He used the occasion to make explicit some of the policy formats that are lurking inside it.
Among these is his acceptance that private ownership will always be a more efficient means of supplying electricity, including in the distribution and transmission networks - the poles and wires that account for half of electricity's costs. His call for privatisation of these networks recognises the inevitable workplace inefficiencies of government entities and sets him apart from state politicians, Labor and Coalition, other than in Victoria and South Australia.
He also wants to accelerate the process of retail competition in electricity, where residual regulatory barriers raise costs in all jurisdictions other than Victoria.
Ferguson has long been an advocate of increased uranium exports. Building on this, he further courts the ire of the Green left by proposing nuclear power for Australia. However, this is conditional on the failure of the optimistic nostrums about technological breakthroughs in renewables.
A key part of his vision of future energy supply is coal seam gas (CSG) reserves, which he noted were comparable in size and rather more conveniently located than conventional sources of gas.
He says he opposes populist calls to force producers to set aside some part of CSG production for local use on non-commercial terms. But he does leave the door open for such intervention.
Even so, Ferguson's promotion of CSG marks him out as more pro-development than the somewhat prevaricating Coalition position and certainly differentiates Labor from its Green allies. In that respect he also saw the case for having the government's research and development spending encompass nuclear, carbon capture and storage, and clean coal. All were ruled out by the Greens in the $10 billion Clean Energy Foundation.
But this faith in government research and development is at odds with the poor record of Australian government spending in commercialising R&D. The Australian Bureau of Statistics reports that though governments and universities account for 36 per cent of the nation's R&D spending, this is the source of less than 7 per cent of innovation.
Undiscouraged, Ferguson has snared increased spending for his Energy portfolio through the carbon tax policy. Research into technology like carbon capture and storage, low-emission coal and renewable energy will soak up more than $475 million of taxpayer money next year. A subsidy to converting food into ethanol will take up another $67 million. It would be astonishing if this spending delivered any value.
The Energy portfolio accounts for only a small part of the wasteful expenditure the government devotes to green schemes. Even excluding the direct departmental overheads, this expenditure amounted to $3 billion in 2009-10, the most recent year for which Canberra has published an aggregate figure of such outlays.
Ferguson claims that a Coalition government could never repeal the carbon tax, given the constellation of political forces in the Senate.
This view is inconsistent with his support for the surge of spending on green R&D. Putting a "price on carbon" was trumpeted as the single instrument that would efficiently encourage lower carbon emissions, while also fostering carbon-free and carbon-light technology.
Government R&D spending is a double subsidy that undermines the supposed theoretical elegance of the single instrument on which a carbon tax or cap-and-trade is based. The avalanche of new green energy projects shows no faith in the carbon tax policy. At best, this is wasteful "winner-picking" policy.
In the final analysis, Ferguson declared "the era of cheap energy is over". But we are not running out of cheap coal and gas, so it's only over if the government requires the fat lady to sing a final aria that our carbon tax is irremovable.
That, with China alone each year adding more coal-fired electricity generation than Australia's total capacity, would be a fruitless economy-busting end to the opera. A Chinese carbon tax at the trivial level mooted would not change this.