Australian Democrats Dissenting Report
Introduction
The Government's failure to
implement recommendations 8 and 9 of the Tambling report (to increase and
extend MRET) in this Bill is economically, socially and environmentally
irresponsible and short-sighted.
Every business or industry
representative in their submission to this inquiry unequivocally stated that
renewable energy development had now stalled, because sufficient projects now
exist or are under development to fully deliver the 9500 GWh target; more than
three years ahead of the target date of 2010.
The predominance of existing
hydro schemes in generating the MRET renewable energy certificates (RECs) in
the first three years of operation (due to generous baseline arrangements) has
meant that the value of RECs is now well below the $40 anticipated in the
design of MRET and, as a result, wind power makes up a mere 15% of MRET's
energy mix.
The original aim of MRET was
to increase the proportion of Australia's energy generated from renewables from
10.5% to 12.5% by 2010 but the conversion of this proportion to a GWh target,
based in inaccurate forecasts of energy use, means that by 2010 renewables will
make up only 10.5% of power generated and by 2020 it will have dropped to a
mere 8.5% without an extension of the target.
All submissions called for an
increase in the target and extension of MRET beyond 2010 to facilitate ongoing
growth in wind power development.
The majority report defends
the Government's decision to not increase and extend MRET by citing only one
report, The Energy Market Review, 2002, that recommended that MRET not be
expanded because:
(a) Australia has abundant coal and natural gas, and a focus on
renewable energy diverts investment away from 'more efficient carbon reducing options'.
(b) Increasing renewable
energy may lead to unnecessary cost escalation in the price of energy.
(c) A national economy wide
trading system should be introduced instead.
There are several significant
problems with the majority report arguments.
There have been a raft of
other reports, research and industry representation, including the Government's
own independent review of the Renewable Electricity Act in 2003 – the Tambling Report - that recommends that
MRET be increased and expanded.
The Government's obvious
preference for relying on 'clean coal' technology is highly risky as the
technologies are unproved in the context of stationary energy generation, it is
not expected to be developed and available for implementation until the middle
of the next decade, and it is unlikely that the costs can be brought down
sufficiently to make the process viable. It is worth noting here that Australia has the 3rd lowest electricity prices for
industry and 2nd lowest for households in the OECD[60].
Whilst MRET is a market-based
mechanism that has certainly driven investment in renewable energy, at least
until now, a nation-wide carbon trading scheme would better account for
greenhouse gas emission and provide a level playing field in which truly clean
technologies could compete. The
Australian Democrats have called for emission trading for many years[61]. However, despite such a scheme being
developed by the Australian Greenhouse Office some years ago, it was mothballed
by the Government in favour of mechanisms and funding that continue to allow
coal-based energy generation to evade the environmental costs of its operation.
The consequences of the
Government failure to increase and extend MRET include:
-
Reduction in
investment in renewable energy in Australia
-
Loss of potential
export industry
-
Loss of jobs and
failure to create more jobs (especially in regional areas)
-
Increase in
greenhouse emissions
-
Increase
long-term costs
These issues are explored in
more detail below.
Reduction in investment in renewable energy in Australia
Many of the submission to
this inquiry noted that the MRET scheme to date has been very successful, but
went on further to comment that it would be unfortunate if the past successes,
including job creation were partially lost.
Investment has already stalled
The Australian Business Council for Sustainable Energy
in their submission noted that investments have stalled because the current
MRET target of 9500 has essentially been met:
We would also highlight
that new investment in renewable energy projects has now effectively stalled as
sufficient projects now exist to fully deliver the 9500 GWh target.[62]
This sentiment
was also stated by another industry association, Renewable Energy Generators
Australia:
Most of the projects needed to
meet the cumulative MRET target have already been built or committed and in the
advanced planning stages.[63]
The wind association body, Auswind, noted that there
were projects in the pipeline but they had not been taken to the next stage:
This investment cliff is
clearly evident in the number of projects and associated investments that have
now banked up in Australia. These projects, nineteen wind farms with a total
capacity of 1369 MW, have received planning approval and yet have not been
taken to the next stage.[64]
The sentiments of the industry
associations were also echoed by companies themselves:
The ‘cliff’ at
2020 for bioenergy projects remains, and the non-expansion of MRET has resulted
in several bioenergy projects under development struggling to go ahead without
an expanded and extended MRET scheme.[65]
While the
Roaring 40s has been an active developer in Australia to date, its development activities have
stalled due to the Government's decision not to increase the MRET.[66]
Investment in
new renewable energy is likely to stall by 2007 due to a restricted market and
subsequent lack of commercial viability.[67]
Loss of jobs and failure to create more jobs
A number of submissions noted how valuable
the renewable energy industry had been to date in generating jobs, especially
in regional areas.
The Renewable Energy Industry as a whole provides around 15,000
direct and indirect jobs across Australia... The activity from upgrading existing
infrastructure and developing new projects has also contributed to significant levels of investment in
regional Australia which has also generated increased levels of
employment in areas of significant need. [68]
Industry growth
has also led to the establishment of manufacturing facilities to support wind
farm installations. These facilities have included a nacelle factory in Tasmania, blade manufacturing in Victoria and tower manufacturing in Tasmania, Victoria and South Australia. The local manufacturing industry now
employs several hundred people in regional centres.[69]
Concern was expressed that, without an
increase and expansion of MRET, jobs would be lost.
This [stalling
of investments] will also put pressure on the associated manufacturing industry
that has developed to support the industry.[70]
The investment (much of it
in regional areas) will stop and the established jobs and knowledge will be
dissipated.[71]
Moving offshore and a loss to the export industry
In addition to potential job
losses submitters also indicated that because of the Government's failure to
provide business certainty companies and investors are moving offshore
resulting in billions of dollars of lost investment in Australia. This is criminal given Australians widening trade and
current account deficit gap.
The Australian Wind Energy
Association cited in their submission a number of examples of investors going
offshore as a result of Government inaction:
The investment cliff is
also clearly demonstrated by the amount of investment that is proceeding
offshore to countries and regions providing market incentives for the renewable
energy sector. For example:
-
Novera Energy
withdrew from the Australian Stock Exchange on April 4th 2006, and relocated to
the UK. The company expressed its disappointment at what it considered to be
little incentive for market innovation in Australia's renewable energy
industry, and it being a very difficult market for small companies, given
competition by larger companies and the state-owned enterprises for limited
renewable energy opportunities; and
-
The Investec Bank
(Australia) Ltd, in its submission to the Victorian Government’s Paper “Driving
investment in renewable energy in Victoria – options for a Victorian
market-based measure”, states that: “The practical reality is that the
Commonwealth MRET scheme delivered significant impetus to the nascent renewable
energy in Australia and resulted in the development and construction of many
landmark projects since its introduction in 2000. However, with the non-renewal
of the MRET scheme and its targets, this momentum has stalled, with many
renewable energy projects across Australia unable to be brought to construction
and many renewable energy stakeholders leaving Australia for more conducive
jurisdictions”.
This migration of business
offshore is resulting in billions of dollars of lost investment in Australia, excluding the monetary value of the lost emissions
reduction.[72]
AusWind's sentiments were
shared by wind energy company the Roaring 40s:
Without this
change [increasing and expanding MRET], the Australian Wind Industry is likely to
stall and emerging capabilities in the industry will, in our view, locate
off-shore.[73]
Business needs certainty
It is important in any
business setting that business is given some degree of certainty. Most of the
submissions indicated that because of the timeframe needed to establish energy
projects, that investors and developers needed certainty that there would be
demand for renewable energy.
In their submission Auswind stated:
Auswind and
other organisations have emphasised, additional market incentives are needed
for this growth to continue and for the current investment cliff, which, in the
absence of government intervention will bring a halt to further wind energy
developments by the end of 2006, to be averted.[74]
Bioenergy Australia said:
Greater impetus
would be given to bioenergy projects under MRET if the ‘cliff’ at 2020 were
softened or the MRET extended well beyond that date. The project life of a
bioenergy plant would typically be in excess of twenty years and capital
recovery is typically fifteen years or more. The longer the period for capital
recovery, the less this cost affects the electricity selling price. As the
target only reaches 9,500 GWh/a in 2010, many proponents see this ‘cliff’ at
2020 as being a disincentive for a project with
an economic life of 20 to 30 years. MRET would have a greater impact in
bringing forth bioenergy projects if the 2020 horizon were extended.[75]
The Renewable Energy Association said:
No further investment is
likely to be committed from that time under current policy settings and the Bill contains no provisions to reverse this reality.[76]
The
Tambling Report realised the importance of creating business certainty,
concluding that:
The Review Panel....considers that there is a strong case for an increase
in the target post-2010. Such an approach would help maintain the momentum
created by the first decade of MRET without adversely affecting electricity
users in the short term...
...steady progress towards a target of 20,000 GWh in 2020 will:
-
Maintain the momentum established by the 9500 GWh
target and provide ongoing certainty and industry development.
-
Provide a minimum critical mass of investment
needed to enable the industry to demonstrate its commercial viability,
including the possible domestic manufacture of components for renewable energy
projects.
-
Provide a domestic demand base to allow the
development of further export markets.
-
Provide a more managed investment framework that
will promote cost effective technology improvements and industry learning.
The need for a target to reduce long-term costs
In the past 2 months two
reports have been released that have looked at economic costs of reducing
greenhouse gas emissions – The Business
Case for Early Action by the Australian Business Roundtable on Climate Change;
and Options for Moving Towards a Lower
Emissions Future by AGL, Frontier Economics and WWF.
The Business Case for Early Action showed that if action on climate change is delayed it
becomes more expensive for business and the wider Australian economy to reduce
greenhouse gas emissions. The report concluded that you need long-term
aspirational goals coupled with short-term binding targets as a milestone. That
we need to accelerate efforts to manage energy and reduce emissions – not stall
them.
The Options for Moving Towards a Lower Emissions Future showed that
costs can be minimised by immediately setting an emissions target, that results
can be achieved with today's electricity generation technology and knowledge
about energy efficiency, and that the cost would be between $0.43 - $2 week per
person each year to 2030. The report again emphasised the importance of setting
targets.
Both reports emphasise the need to act now to prevent
greater cost in the long-term and critical to this is the need for market
mechanisms and targets.
The submission by the Roaring 40s noted that China had set a renewable energy target of 15% by 2020, and
the Victorian government proposes to build on the existing MRET to achieve a
state renewable energy target of 10% by 2012. [77]
Renewable energy vs other energy sources
Nuclear Power
There has been talk lately
amongst some Government members that Australia should go down the path of nuclear energy to address
climate change. Nuclear industry in Australia would be dangerous, costly and would still contribute
to greenhouse emissions. According to Friends of the Earth:
Nuclear
power could at most provide a very partial and problematic 'solution' to
climate change. To double nuclear power output by the middle of the century
would require the construction of about 1,000 reactors with a capital cost of
several thousand billion dollars. The reactors would produce 1.5 million tonnes
of high-level nuclear waste over a 50-year lifespan, and they would produce
enough plutonium to build 1.5 million nuclear weapons. The climate dividend? A
lousy 5% reduction in greenhouse emissions - about one-tenth of the reduction
required to stabilise atmospheric concentrations of greenhouse gases.
That meagre 5%
climate dividend assumes that the comparison is with fossil fuels. If the
comparison is with renewables and energy efficiency measures, nuclear power
results in increased greenhouse emissions in addition to the legacy of
nuclear waste and plutonium. A US study found that, per dollar invested, energy
efficiency measures yield greenhouse emission reductions seven times greater
than nuclear power.[78]
Even if a nuclear power
station was built today, it would be at least 15 years before the first one
could deliver electricity.[79] There is
also a limited supply of uranium in the world, so by the time a plant was built
its life span would be very short.
Most of the world is rejecting nuclear in favour of renewable energy. The rate
of increase is nearly 30% for wind, 20% for solar, and only 0.6% for nuclear.[80]
In contrast to nuclear power, renewable
energy development is cheaper, cleaner and more flexible.
Clean Coal Technology
The Government have signalled
that they are looking to carbon capture and storage from coal fired power as a
primary means to address greenhouse emissions, and earlier this year the
Government announced major funding for 'clean coal technology'.
The Senate ECITA References Committee report Lurching Forward, looking back: budgetary
and environmental implications for the Government's Energy White Paper,
cited evidence stating that there are
problems with the Government relying on clean coal technology:
-
There is not a
single operational coal-fired power plant in the world, even at a pilot level,
the sequesters its greenhouse emissions;[81]
-
The technologies
are unproven in the context of stationary energy;[82]
-
will not help
reduce CO2 emissions by any significant amount for at least the next 25
years - far too
late to contribute to the
immediate problem of controlling CO2 output;[83]
-
that it is not
zero emission technology, you might get 80 to 90% emission reduction;[84]
-
that the
development of geosequestration would be costly around $50 to capture one tonne
of CO2.[85]
A Discussion Paper produced by the Australia Institute
in September 2004 concludes with:
Over the
next two decades,
however, a policy
that neglects or
excludes other low emission technologies, in favour of coal with CCS
(CO2 Capture and Storage), will
place Australia on
an unnecessary high-cost
path to reducing emissions. This
is not an economically optimal policy for reducing greenhouse gas emissions
from the energy sector.[86]
Renewable Energy
Renewable energy sources are
diverse and numerous including solar, wind, hydro, wave, ocean, tide,
geothermal-aquifer, hot dry rocks, and numerous forms of bioenergy.
Used in a mix or with gas,
renewable energy is flexible, reliable and can meet spiking energy demands.
Renewables now account for a
quarter of the installed capacity of California, a third of Sweden's energy, half of Norway's and three-quarters of Iceland's.[87]
The Majority report reiterated the Government's
previously stated view that MRET would impose significant economic costs
through higher electricity prices. However as pointed out in the evidence to the
Senate ECITA References Committee into the Government's Energy White Paper, the
costs of renewable energy are small and decrease significantly as the industry
gets bigger:
Several submissions
disagreed with the Government's assessment of the cost of increasing the MRET
after 2010. For example, the ACF stated that:
....most studies, except
those commissioned by the mining and coal industry and those quoted by the
Federal government, indicate only small costs for increasing renewable energy
targets. For example McLennan Magasanik Associates forecast that costs due to
an increase in target size in 2010 are projected to be some $180 million per
annum with a 5% renewable target. In addition, as the size of the renewable
energy industry increases, the costs of renewable energy decrease
significantly.
Hydro Tasmania also disagrees with the Government's assessment,
arguing:
The 2003 Charles River
Associates Report found that a 5% MRET target would have no change on GDP or
employment. The Governments commissioned McLennan Magasanik Associates 2003
Report found that a 5% target would result in an increase in GDP of [only]
0.08%.
Hydro Tasmania also analysed the cost of the increased MRET proposed
in
the Tambling Report, and
concluded that:
[it] will result in
residential electricity price increases of only 0.5% per year above the current
target costs... It is estimated that there would be approximately a $5 increase
per quarter on the average household electricity bill representing an increase
of just over 3% per annum (not 27% as claimed by Senator Abetz).
The Committee notes the
results of the study commissioned by REGA and conducted by Charles River
Associates to assess the industry and economy-wide impacts of different levels
of MRET:
The study found that
electricity prices would rise 1% under a 5% MRET (relative to the current MRET)
and 2.1% under a 10% MRET. These percentage increases are small relative to
those seen in the wholesale contract market for electricity over recent years.[88]
It is also important to note
that clean coal technology and nuclear power all come at additional costs and
will inevitably lead to an increase in electricity prices. The difference is
that renewable energy is safe, plentiful, lasts forever and most importantly
renewable energy is clean.
Increase in Greenhouse Emissions
Failure to increase and
expand MRET has already led to stalling of investment and development of
renewable energy projects. Given that at present there aren't other viable
greenhouse gas emission technologies in place, Australia will struggle to reduce greenhouse gas emissions in
the short to medium term, without renewable energy sources and will in fact
risk increasing the level of greenhouse gas emissions.
A report released on 2nd
of May 2006, found that greenhouse gas emissions continue to increase worldwide
in 2005.
The single largest
contributor to human induced gas emission is the burning of fossil fuels to
create energy.[89] On a per capita
basis, Australia is one of the highest emitters in the world. Australia's high emissions levels are largely due to the
country's abundant coal reserves which are used to produce electricity and
other forms of energy.[90] The stationary
energy sector is the largest and fastest growing emissions sector in Australia, with the stationary energy sector contributing 51.4%
of Australia's total CO2 emissions in 2003. The Australian
Greenhouse office predicts that electricity generation will contribute nearly
70% of the sector's emissions by 2010.[91]
As the majority report notes,
MRET was originally established as a greenhouse gas abatement measure; and that
it was designed to accelerate the uptake of renewable energy in grid-based
power applications, in turn reducing fossil fuel emissions. It also established
at 2% target. Yet as Hydro Tasmania noted in their submission, the MRET target has been diluted over time due to higher
than expected electricity demand growth. This means that the intended target of
an additional 2% of renewable generation by 2010 is very unlikely to be reached.[92]
Conclusion
Renewable Energy Generators
Australia argued in their submission that the ongoing
rate of growth requires action now in terms of deploying existing clean energy
technologies and enabling the deployment of yet to be developed technologies and
reducing the upwards trend. The MRET has been an effective deployment
mechanism and has enabled the deployment of renewable energy technologies into
the electricity market at the lowest cost.[93]
The fact is that the
Government has no valid justification for not increasing and expanding MRET.
The Minister for Environment, Senator Ian Campbell, recently invoked the Environment Protection
Biodiversity Conservation Act to reject a wind farm at Bald Hills, Victoria, using the spurious argument that there was a 1 in
1,000 chance that an endangered orange bellied parrot could be killed. This is despite the fact that there had never
been a sighting of the bird there. This rejection was soon followed by a threat
to withdraw previously provided approval and funding for three small wind
turbines proposed by a community-based group in Denmark, WA under the remote area power generation scheme
negotiated by the Democrats to bring renewable energy to off-grid
communities. These moves suggest a
growing antagonism on the part of the Government towards renewable energy, of
which refusal to address the inadequacies of MRET is a part.
The Democrats concur with the statement made by the
Clean Energy Crisis Meeting Group in their submission to the Senate ECITA
References Committee into the Government's Energy White Paper:
The failure to increase the
[MRET], the only measure that drives industry
growth for the renewable
energy industry, defies international trends, is out of step with community
expectations and signals the end of growth for the clean energy industry in Australia.[94]
The Renewable Energy
(Electricity) Amendment Bill 2006 is
somewhat pointless without increasing and expanding MRET.
Senator Lyn Allison
Australian Democrats
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