Senator BOSWELL (Queensland) (1:32 PM) —Australians have to come to grips with the fact that we are facing power price increases in this country not in the distant future but possibly within five years that will simply be economically unsustainable. They will dramatically damage and transform our economy. Power prices are widely expected to double and possibly even triple by 2020. If we get increases at those levels at any time, entire industries and all of the jobs could be wiped out. There is not an industry in the country that would not be threatened by power price increases of that scale.
There are several drivers of these projections. One of the biggest is the existing and anticipated response to climate change. They are currently either unclear or a mess under this government. For example, the Prime Minister said in the election campaign that she was opposed to a carbon tax. After the election she said she was not opposed to a carbon tax. Following a statement by Mr Kloppers from BHP last week, and no doubt with an eye to the extreme pro-carbon tax position of the Greens, she is now a champion of a carbon tax. She has had three positions on a carbon tax in a month.
Only one of the Independents with the balance of power in the other place has made anything like a statement against a carbon tax. Clearly, a carbon tax in Australia ahead of substantive action by the big global emitters is now a distinct possibility. This is a hugely important and immensely dangerous development for Australia. There are few signs around the world of any developing commitment to a carbon price in anything like the foreseeable future. Just a couple of weeks ago in the United States the Democrat dominated Senate dumped a proposal for a cap-and-trade ETS. Therefore, the biggest economy in the world is not yet acting, China and India certainly will not and the implementation of a pre-emptive carbon tax in Australia would be an unmitigated disaster for power prices and for the competitiveness of the entire economy.
Australia desperately needs to come to grips with the stupidity of pre-emptive action and sufficient pressure needs to be put on the government to stop it driving this country off a cliff. It needs to understand that the imposition of a carbon tax in Australia ahead of action by others will destroy our economy by destroying our competitiveness while having absolutely nil effect on the global climate. Australia could cut emissions to zero tomorrow and it would not make the slightest difference to the temperature of the planet now or ever. China alone will open enough coal fired power stations in the next six months to make whatever we do utterly meaningless.
Demand for our coal to fuel economic growth in China and India is another major factor in the predictions for the unsustainable increase in power prices over the next decade. Demand is pushing the price of coal from $25 per tonne towards $100 per tonne. That increase is inevitably going to flow through to our own power prices and to the cost of many other products. Another massive factor is that the states have neglected their grid transmission systems for decades. Huge spending is now needed to set that right. Another push factor which is also important in relation to that growth in demand is the drought in investment in generation. The short- to medium-term result of that drought is that the level of reserve capacity in the system to handle our increasingly ‘peaky’ consumption patterns is reducing. It is already at a dangerous level of about eight per cent. It needs to be around 15 per cent for system security. We have that drought in investment because would-be investors in power stations do not know what is going to happen in relation to a price on carbon and are baulking. One of the policy conundrums is how to remove that road block to investment in baseload generation without driving the country off a financial cliff.
The emerging answer from the government to the question of how to unlock investment is a pre-emptive carbon tax. That is fine for generators and good for certainty of supply but it simply passes the buck to the consumer on the question of who pays. Mr Kloppers has suggested that a carbon tax could be revenue neutral. He certainly wants it to be revenue neutral for him because he wants trade exposed industries to be protected. For the rest of us there can be no such thing as a revenue neutral carbon tax. The thing is a nonsense. A carbon tax puts up the price of everything that involves carbon, which is just about everything. That is the whole idea. But a carbon tax is just one of the additional threats to ever-higher power prices.
The Minister for Climate Change and Energy Efficiency says the government’s priorities now are a price on carbon, energy efficiency and renewable energy. Improving energy efficiency is common sense. But renewable energy poorly handled is capable of being as disastrous for the economy as a carbon tax. However, like a carbon tax, it is another price driver over which we can have some control; and we need to exercise some control because the government’s renewable energy policies have been a rolling, self-defeating and massively expensive farce, with no sign of improvement in its thinking or its administration.
For the second time in a year the government has comprehensively and predictably sabotaged its own program. It first tried to establish a price for renewable energy certificates high enough to encourage investment in wind projects and then ensured it could not be achieved because it created millions of RECs through huge subsidies for rooftop solar systems. The REC price collapsed under the weight of the demand for the subsidies. Now we are undergoing a second collapse in the price also instigated by the government. RECs from domestic rooftop hot-water systems and solar generating systems can be banked by liable identities until the end of this year and be used to meet their liabilities into the future. After that they will become what will be known as ‘small RECs’ and will be quarantined from the market. The liable entities will have to buy all those ‘small RECs’ but they will not be able to set them against their target and they will have to buy every single ‘small REC’ that is created at a guaranteed price of $40, however many there are.
Because the big subsidies for the rooftop systems continue so does the flood of RECs onto the market from the huge demand for people to cash in on those subsidies. Never mind that the head of the Department of Climate Change and Energy Efficiency, Dr Martin Parkinson, says that rooftop mitigation is usually expensive abatement. The government keeps backing it not because it is effective mitigation but, rather, because stuffing money into people’s pockets is perceived as good politics—whether it is via direct subsidies; RECs at a ridiculous multiplier of what is actually being generated, or, in the case of hot-water systems, not being generated; or feed-in tariffs.
The Greens will now press for a gross feed-in tariff. This means that people who put these rooftop solar power systems in would be paid several times the price of mains power for what they generate, which will push the price up for everyone else. The more people see others benefiting in their hip pocket the more rooftop generators there will be and the higher power prices will go. It is just a round robin: gratuitous price increases for nil impact on the climate. But it gets even sillier. There is now an expectation in some areas of renewables industry that there will be some $30 million of cheap, excess RECs in the system by the end of this year and that they will keep the price depressed until around 2013. The latest collapse in price to near $30—when wind power needs around $50—is already impacting badly on existing generators. For instance, the New South Wales Sugar Milling Cooperative is describing the current outcome from silly policy as a nail in the coffin of the cogeneration business.
The government says it wants renewables but in fact it is destroying opportunities so it can curry expensive political favour with householders. If the REC price does not recover until 2013 then that is getting uncomfortably close to 2020 and the need for wind power to be a big contributor to the government’s 20 per cent renewable energy target. REC creation this year reflects the scale of the challenge for wind projects and the already tattered credibility of the entire renewable program. So far this year, according to the REC registry, the ratio of creation has been around 60 per cent from rooftop solar power systems, about 16 per cent from rooftop solar hot water and about 18 per cent from wind.
Wind would in fact be coming a poor last were it not for the bureaucracy running a block on RECs from rooftop hot-water systems for much of this year to slow down their progress to the market. Last year rooftop solar hot-water systems, which do not generate a single kilowatt, dominated the entire renewable sector. Changing the subsidies earlier this year enabled a go-slow on the management of claims and thus a slowing of RECs onto the market. The government’s entire suite of policies on renewables is simply an ongoing policy, economic and administrative disaster.
In conclusion, we have a number of factors driving what now is widely expected to be a massive increase in power prices over the next decade—a doubling and possibly even a tripling of prices. We cannot do anything about several of the big drivers. We cannot do anything about the deficit in investment in the transmission infrastructure. We cannot do much about the rapidly rising cost of fuel. We have to find a way of driving investment in generation. We simply cannot sustain power price increases on the scale projected. We therefore have to exert downward pressure on prices where we can. First of all, we do not have to implement a carbon tax ahead of the rest of the world—which Marius Kloppers wants but does not want to pay for. It would be madness. We have to control this populist preoccupation with huge subsidies for rooftop generation. These things are within our control. We have to seek to reduce increases in the cost of power where we can; not maximise them across the board, which is what the current government is doing. Unchallenged and uncontrolled, the Labor-Green alliance in this place will destroy the Australian economy for zero impact on the climate.