The End of Clean Energy Subsidies?

The federal government has given generously to the clean energy industry over the last few years, funneling billions of dollars in grants, loans and tax breaks to renewable power sources like wind and solar, biofuels and electric vehicles. “Clean tech” has been good in return.

During the recession, it was one of the few sectors to add jobs. Costs of wind turbines and solar cells have fallen over the last five years, electricity from renewables has more than doubled, construction is under way on the country’s first new nuclear power plant in decades. And the United States remains an important player in the global clean energy market. 

 

Yet this productive relationship is in peril, mainly because federal funding is about to drop off a cliff and the Republican wrecking crew in the House remains generally hostile to programs that threaten the hegemony of the oil and gas interests. The clean energy incentives provided by President Obama’s 2009 stimulus bill are coming to an end, while other longer-standing subsidies are expiring.

If nothing changes, clean energy funding will drop from a peak of $44.3 billion in 2009 to $16 billion this year and $11 billion in 2014 — a 75 percent decline. 

This alarming news is contained in a new report from experts at the Brookings Institution, the World Resources Institute and the Breakthrough Institute. It is a timely effort to attach real numbers to an increasingly politicized debate over energy subsidies. While Mr. Obama is busily defending subsidies, the Republicans have used the costly market failure of one solar panel company, Solyndra, to indict the entire federal effort to encourage nascent technologies. 

The Republican assault obscures real successes that simply would not have been possible without government help. Wind power is a case in point. By spurring innovation and growth, a federal production tax credit for wind amounting to 2.2 cents per kilowatt-hour has brought the cost of electricity from wind power to a point where it is broadly competitive with natural gas, sustaining 75,000 jobs in manufacturing, installation and maintenance. 

But the tax credit is scheduled to expire at the end of this year, with potentially disastrous results: a 75 percent reduction in new investment and a significant drop in jobs. That is just about what happened the last time the credit was allowed to lapse, at the end of 2003. 

This is clearly the wrong time to step away from subsidies. But it may be the right time, the report says, to institute reforms, both to make the programs more effective and to make them more salable to budget hawks. One excellent proposal is to make the subsidies long term (ending the present boom or bust cycles) but rejigger them to reward lower costs and better performance. 

The idea is not to prop up clean tech industries forever. It is to get them to a point where they can stand on their own — an old-fashioned notion that, one would hope, might appeal even to House Republicans.

The End of Clean Energy Subsidies?

Swan Talks Up Carbon Tax Compensation

Treasurer Wayne Swan is talking up carbon tax compensation cheques for Australian households a month before the federal budget.

Mr Swan has defended the scheme to hand out carbon tax compensation even as the government faces a tough budget with declining revenues.

Pensioners and families with children eligible for family tax benefits will start to receive cheques in coming weeks.

"We raise revenue from the carbon price, and we use that revenue to assist with the price impacts which are relatively small," Mr Swan told ABC Radio on Monday.

"The fact is we've got to look our kids in the eye and say we did the right thing .... to reduce carbon pollution into the atmosphere, to combat dangerous climate change, but also to assist people with the price impacts of that."

He could not say how much an advertising blitz about the compensation package would cost because it was still under government consideration.

"We will have to advertise some of the important parts of this package so people know what they're getting and why they are getting it," Mr Swan said.

"There's nothing unusual about that at all, nothing unusual at all."
Mr Swan said restoring a budget surplus was entirely appropriate.

"It's very important given this global instability and uncertainty that Australia sends a message to the world that our financials are strong, but also giving the Reserve Bank room to move, should it wish to do so, in terms of interest rates at some stage in the future," he said. 

Swan Talks Up Carbon Tax Compensation

Poll Shows Carbon Tax Needs Sale of the Century to Change Voters' Views

THE government's task of selling the carbon price to voters when it begins on July 1 remains difficult, with a poll showing entrenched negative attitudes towards the policy.

The latest Herald/Nielsen poll shows support for a price on carbon at 36 per cent, with 60 per cent opposed.

Just over half of voters - 52 per cent - believe they will be worse off, even though low- and middle-income earners will get $15 billion compensation to cover cost-of-living increases.

Another 39 per cent believe it will make no difference to their cost of living, while 5 per cent feel they will be better off.

The poll of 1400 voters was taken from Thursday night to Saturday night last week, after Labor's crushing defeat in the Queensland election.

The Opposition Leader, Tony Abbott, sought to implicate Julia Gillard's broken promise not to introduce a carbon tax as a factor in that defeat.

The numbers in the latest poll have barely changed in more than a year. Before Ms Gillard announced the carbon policy in February last year, the poll found support for putting a price on carbon evenly split. After the announcement - and opposition claims she had broken her promise - support fell to 35 per cent and opposition rose to 56 per cent. The levels have altered little since.

In July, the government revealed details of the household compensation, which will be worth $15 billion in the first four years. It would be paid as tax cuts and welfare and pension increases. In many cases, those on very low incomes would receive more in compensation than their increase in cost of living as estimated by Treasury.

The Herald poll taken then showed 53 per cent felt they would be worse off, 37 per cent felt there would be no change and 6 per cent felt they would be better off. These numbers are almost identical to the latest poll.

Ms Gillard has rejected calls from business to reduce the impact of the carbon price by cutting the fixed starting price of $23 a tonne roughly in half, to bring it in line with the carbon price in Europe.
Yesterday, she said voter anxiety with her government had been fuelled by the Coalition's ''hyper-partisanship''. She said it had ''force-fed for many months a diet of completely outlandish scare campaigns about what carbon pricing is going to mean''.

She repeated that employment would still grow, the cost-of-living impact would be less than 1 per cent and the compensation would be in place.

Mr Abbott has promised that, if elected, his first act as prime minister would be to unwind the price on carbon. Ms Gillard told Channel Ten's Meet the Press program this ''chest-beating'' would ''prove to be incredibly hollow''.

By next year, the carbon price would be a year old, the economy would have started to adjust and ''people would have got the money in their hands''.

''Mr Abbott, I think, will find it very difficult indeed to pretend to the Australian people that he is going to seriously dismantle all that,'' she said.

Poll Shows Carbon Tax Needs Sale of the Century to Change Voters' Views

Outgoing Future Fund Chairman David Murray Says Carbon Tax Will be 'Very, Very Bad' for Economy

OUTGOING Future Fund chairman David Murray has condemned Labor's carbon tax as "the worst piece of economic reform I have ever seen in my life".
Mr Murray, who has also lashed the Gillard government's mining tax, warned the tax would undermine the nation's competitiveness and damage the economy.

“If you want me to tell you my view, it is the worst piece of economic reform I have ever seen in my life in Australia,” he told ABC radio this morning.

“The consequence of introducing that tax at that level in Australia today is very, very bad for this economy, particularly in terms of international competitiveness.

“It raises costs further within Australia, it reduces our competitiveness for export of energy-related commodities, and it therefore renders us less competitive in the future.”

Mr Murray has previously questioned the dire warnings of climate scientists, telling the ABC's Lateline program last year there was insufficient evidence of environmental risks to warrant major policy impositions on the economy.

Today, he said the government should instead focus its efforts on improving energy efficiency.
“The sweet spot in dealing with a climate problem is to reduce reliance on energy and be more efficient in using it,” said Mr Murray, whose six-year term as head of the Future Fund ends on Monday.

“So anything that does that, improves the productivity of the economy and hedges the problem of a changing climate, if indeed it turns out to be as serious as some people think.”

In a wide-ranging interview, Mr Murray also criticised the process to select his replacement, saying measures should be put in place to make statutory appointments independent of government.
He said former treasurer Peter Costello, who founded the fund in government and was passed over for the chairman's job, could “above all” been expected to stand up for the fund.

But he said incoming chairman David Gonski was a “good appointment”, and he would have been “inclined to consider” the argument put by former federal Liberal politician Nick Minchin that an ex-politician should not be appointed to the post.

Mr Murray said Australia should look to Britain, which had introduced new rules to make statutory appointments more smooth and transparent.

“The issue with the selection process is it was not timely, which creates tensions,” he said.
“The key is some form of independence in the selection process, some timely approach in the selection process, a much more predictable process to make the appointment.”

Mr Murray also defended the Future Fund's earnings during his time at the helm, which have averaged 4.2 per cent - below the fund's target of 5 per cent plus inflation.

He said the fund had generated better returns than balanced superannuation funds, while still retaining a low risk profile.

“The portfolio is appropriately structured for the sort of world we are in today and I think those returns have been very good in the circumstances,” Mr Murray said.

He also called for further sovereign wealth funds like the Future Fund to be created to ensure mining revenues were not squandered.

“If a community depletes its resources - particularly in countries that have very significant resources relative to a smaller population - then those countries should consider whether the proceeds of that resource generation are set aside for future generations.”

He said this should apply not only to the federal government but also to the states.
Mr Murray also reiterated his criticism of the government's “jawboning” of the banks over interest rates, saying the banks had a role to play in the economy.

“By jawboning their interest rates down when the international cost of funds and the domestic cost of funds has been behaving the way it is, is to render the banks less able to perform their very important economic role,” he said.

A spokesman for Climate Change Minister Greg Combet said the government's climate change policies were based on scientific and economic advice.

“The scientific advice from organisations such as the CSIRO and the Bureau of Meteorology is that climate change is happening, that it poses risks to our environment and that carbon pollution is contributing,” he said.

“The economic advice from organisations like the Treasury, the Productivity Commission, the OECD and the International Monetary Fund, is that a price on carbon is the most economically-efficient way of reducing carbon emissions.”

Outgoing Future Fund Chairman David Murray Says Carbon Tax Will be 'Very, Very Bad' for Economy

Power Firms Face $4bn Carbon Slug

ELECTRICITY generators have warned that they face a cashflow crunch of hundreds of millions of dollars to buy carbon tax permits as the latest greenhouse gas emissions figures suggest almost $4 billion of the $7.7bn to be raised in the first year of the policy will come from power companies.

Data from the Climate Change Department yesterday shows the power generation sector accounted for about 170 million tonnes of carbon dioxide emissions in the 2010-11 financial year, which could mean a carbon tax bill of $3.9bn if repeated next year.

The Weekend Australian reported this month that InterGen - the operator of Queensland's black-coal power generator Millmerran - sought help from the federal government's Energy Security Council for loan support because the looming carbon tax had hit its $467 million refinancing.

Victoria's largest power plant, Loy Yang Power, has also had talks with the ESC as it has a $565m refinancing due in November.

The latest greenhouse emissions figures show the nation's top five carbon dioxide emitters in 2010-11 were all coal-fired power generators. But as the government assembled the carbon pricing package, emissions from the sector fell about six million tonnes over the previous 12 months.

The two NSW state-owned generators - Macquarie Generation and Delta Electricity - were the two biggest emitters in 2010-11, with 20.3 million tonnes and 19.8 million tonnes in CO2 emissions respectively.

If the same emissions levels were repeated next year, Macquarie would face a carbon tax bill of more than $466m and Delta would pay $455m, based on the government's starting carbon price of $23 a tonne from July.

The companies told The Australian yesterday they would try to recoup the cost through higher electricity prices, but because prices are set by bids in the national electricity market, they are uncertain how much they will be able to recover.

The government warns that the National Greenhouse and Energy Reporting figures, released yesterday, may not be an accurate guide to next year's carbon tax liability. This is because the reporting is for holding companies, and some of their emissions may not be subject to the carbon tax.

But The Australian confirmed with several of the big power companies that their reported NGER figures broadly represent emissions they would be liable for under the carbon tax.

The chief executive of the Electricity Supply Association of Australia, Matthew Warren, said some companies might have to pay hundreds of millions of dollars for permits in advance of when the electricity was generated and sold.

Mr Warren said the Investor Reference Group estimated that electricity generators would need to hold positions on $6bn worth of forward permits to maintain current levels of electricity contracts.

But a spokesman for Climate Change Minister Greg Combet said the government had announced it would make loans available to generators for the forward purchasing of carbon permits. This was in addition to $5.5bn in assistance for the emissions-intensive generators.

The mid-year budget update had shown the carbon price would raise $7.7bn in 2012-13, Mr Combet's spokesman said.

"Electricity generation is one of the most pollution-intensive sectors of our economy," he said.
"It is essential Australia begins to transform this sector so our economy remains competitive as the world moves to tackle climate change by reducing carbon emissions."

The government will put more than $4bn into household assistance this year to offset higher prices caused by the carbon tax.
Mr Combet's spokesman said there was substantial assistance for industry through the Jobs and Competitiveness Program, and for households through tax cuts, higher family payments and pension increases.

But Mr Warren said: "Without deferred settlement arrangements, allowing energy companies to pay for permits when they sell the energy and produce the emissions, they will need new lines of credit to finance their upfront purchase of forward vintages."

The opposition yesterday attacked the government over Virgin Australia's decision to introduce a carbon tax surcharge.
But Mr Combet's spokesman said Virgin had made the announcement on July 11 last year.

Power Firms Face $4bn Carbon Slug

Alumina Rejects Wagerup Carbon Tax Claim

Alumina Ltd says the high cost of construction in Western Australia rather than the carbon tax is a key reason that the expansion of its Wagerup alumina refinery has stalled.

WA's Environmental Protection Authority on Monday granted AWAC, Alumina and Alcoa's joint venture company, an extension until September 2016 to substantially commence the expansion that was first given environmental approval in 2006.

The Australian newspaper this week reported an Alcoa spokeswoman as saying the company would not revisit the expansion until it had a clearer picture of the full impact of the carbon tax, due to start on July 1.

The media report also cited the need to secure energy supplies, which Alumina chief executive John Bevan concurred with on Thursday.

But, Mr Bevan said, it was 'not the case' that the carbon tax was the key reason the project was not yet going ahead.

'The capital cost of building in WA is high, as seen with BHP's Worsley (refinery),' Mr Bevan told a conference call for analysts.

The cost of expanding BHP Billiton's Worsley alumina refinery in WA has blown out substantially due to factors including inflationary pressures and the stronger Australian dollar.

This had prompted analysts to speculate recently that the asset may be sold by the mining giant.

Alcoa last week announced that AWAC could close one of its two Australian aluminium smelters, Point Henry in Victoria, in the face of continuing difficult global economic conditions for the industry.

The company warned in January that it planned to close or curtail about 12 per cent of its global smelting capacity to improve its competitiveness amid falling aluminium prices and escalating raw materials costs.

The Point Henry announcement triggered a parliamentary furore, with federal Opposition Leader Tony Abbott blaming the possible closure on the government's carbon tax.

Prime Minister Julia Gillard labelled his comments a disgrace given that 600 jobs at the smelter hung in the balance.

'It (the potential Point Henry closure) is really not firm at this stage,' Mr Bevan said on Thursday, adding that Alcoa's global curtailments would occur in the next four or five months.

In delivering a near fourfold surge in full-year net profit on Thursday, Alumina said costs at Point Henry and its other aluminium smelter in Portland, Victoria, were last year pushed up by increased alumina and coke prices, and the rising Australian dollar.

Alumina booked a net profit for the 12 months to December 31 of $US127 million ($A119.16 million), up from $US35 million ($A32.84 million) for the 2010 calendar year.

Mr Bevan said margins rose after the company moved to price some of its alumina on an index/spot basis.

Morningstar analyst Mark Taylor said a 55 per cent rise in underlying earnings to $US128 million beat the investment research firm's forecast of $US113 million ($A106.02 million).

The company to maintain its full year dividend at six cents per share.

Mr Bevan said the company was cautious on the outlook for 2012, reflecting volatile pricing conditions, a strong Australian dollar and high input costs.

Conditions deteriorated towards the end of 2011, with prices for Alumina's products falling significantly.

Shares in Alumina closed up 1.5 cents, or 1.3 per cent, at $1.17.

Alumina Rejects Wagerup Carbon Tax Claim

Our ETS Future 'Will Not Come Cheaply

AUSTRALIA will be unable to produce affordable baseload power supplies while meeting its emissions targets under present policy, new research has found.

A study by Melbourne's Grattan Institute, to be published today, warns that while carbon pricing will help make low-emissions technologies competitive, it will not be enough without big structural and policy changes.

Tony Wood, the institute's energy program director, says governments face "an acute intellectual and policy challenge" steering a course between inadequate support for low-emissions technologies or unduly favouring one technology over another. He cautions "Australia's move to a low-carbon future will be too expensive unless they do."

The Grattan research stresses markets as the primary mechanism by which Australia can reduce its emissions, but it says markets cannot work properly unless governments optimise regulatory and policy frameworks.

The study also warns against letting ideology limit the scope for manoeuvre by preventing serious evaluation of carbon capture and storage and nuclear energy. "A range of technologies available today can generate electricity at or below 0.2 tonnes of carbon dioxide per megawatt-hour and have significant scale-up projection," the Grattan research finds.

"Yet none currently represents more than 2 per cent of Australia's electricity supply and

their future technical and economic potential is shrouded in uncertainty."

The report finds further refinement of the underlying technologies of low-emission energy options will be the most important tool for their future development and commercialisation.

It reminds governments of their roles overseeing the development of new transmission networks and pipelines, resource maps, market frameworks, regulations and engineering skills.

The Grattan researchers urge the commonwealth to ensure the carbon pricing scheme works properly by setting long-term emission caps and call on all governments to act to ensure there is a level playing field for all power-generating technologies.

The report's authors urge the removal of obstacles that impede technologies such as wind and geothermal from connecting at large-scale to electricity grids built around the needs of very large fossil-fuel plants.

Our ETS Future 'Will Not Come Cheaply