By abandoning any effort to achieve Australia's carbon emissions reduction target agreed at the Paris climate change convention, the Morrison government has sought short-term political gain at the long-term expense of the planet, the nation and business. While this will be cause for celebration among the Turnbull-slayers and a victory for the Abbott-inspired insurgency that demanded as sharp as possible a contest with Labor on energy policy, it has rapidly escalated sovereign risk for business.
A week after Malcolm Turnbull's political assassination, major business organisations remained hopeful the Morrison government and/or the Shorten opposition would adopt as policy the National Energy Guarantee, or some such mechanism, to end the climate wars. As I explained last week, the removal of Turnbull as prime minister ensured that wherever Labor went on a legislative mechanism the Coalition would reposition to oppose it.
Labor now has no option other than to develop non-legislative energy policy measures to reduce electricity prices and emissions while achieving reliability. With the Morrison government's announced abandonment of the NEG and of any new legislation to reduce emissions, the Coalition has abandoned the Paris Agreement and any pretence of being serious about climate change.
Within the business community there will be climate change sceptics, deniers and advocates of the view that since Australia's carbon emissions are but a small part of global emissions we should not be seeking to reduce them at the cost of our competitiveness in fossil fuels. They can have those conversations at home, at dinner parties, restaurants and in public forums. It's a free country.
But if they take those views into board meetings and management committee meetings, they will not be discharging their fiduciary obligation of maximising shareholder value in their businesses. The corporate regulator – the Australian Securities and Investment Commission – has warned that directors who fail to account for climate change risks could be breaching their duties.
For example, company directors who approved the construction of a new coal-fired power station would be expected to take account of the risk of a future government mandatorily restricting its emissions. Since investments in coal-fired power stations are necessarily large and with long payback periods, directors who ignored these risks could find themselves in trouble with the regulator.
Similarly, managers and directors of businesses that use large amounts of electricity in their production processes might dispute the science of climate change but there is no chance of it being disproved. They might argue, as many Coalition parliamentarians do, there should be no subsidies for renewable energy and the market should be left to fix the looming shortage of generating capacity.
Let's think that through. The way the market fixes supply shortages is through lifting prices. In response to sharply rising prices, private electricity generators would come forward and install new electricity-generating capacity. Opponents of subsidies for renewables are really arguing for higher electricity prices.
Yet politicians have demonstrated they don't like sharp increases in electricity prices – because it costs them votes and quite possibly, government. In the absence of allowing the market to hike electricity prices, governments must intervene. They could do so in a multitude of ways.
One is prime ministerial candidate Peter Dutton's proposal to take the GST off electricity bills – an idea borrowed from Kim Beazley's proposed GST rollback of 2001. The states have indicated they wouldn't see the funny side of that, since they would lose $7.5 billion in GST revenue over four years.
Another is the proposal of some Nationals and conservative Liberals for taxpayers to fund a new, publicly owned coal-fired power station. But, in addition to the associated sovereign risk, the fuel costs of a coal-fired power station are much greater than the minuscule operating costs of renewable energy. Bizarrely, taxpayers would be expected to continue forking out every year to keep their electricity prices down.
The capital costs, running costs and sovereign risk associated with renewable energy sources are all lower than those of coal-fired generators. But a legacy problem is that Australia's eastern electricity grid system is built on its coalfields, while eastern Australia has world beating solar and wind sites.
Unavoidably, we will have to shift the grid towards these sites. With pump storage from Turnbull's taxpayer-subsidised Snowy Hydro 2.0 and other, smaller commercially viable sites, we will be able to achieve the trifecta of lower prices, lower emissions and greater reliability.
There is a solution to Australia's energy crisis. It's hiding in plain sight. If only the Coalition would take a dose of reality and accept we live in a carbon-constrained world.