If the federal government can’t do anything constructive on climate change, it should at least get out of the way of those who can.
If standing between a premier and a bucket of money is risky, as Paul Keating once warned, standing between a farmer and a bucket of money is downright dangerous. Yet that’s what the Morrison government intends to do.
As Australian business travels the road towards zero net emissions, if the Coalition government can’t do anything constructive it should get out of the way.
The Morrison government is planning to restrict the right of farmers to generate lucrative carbon credits, it wants to prolong the life of coal-fired power stations and it is keen to underwrite favoured projects to the detriment of investor confidence in solving the emissions challenge.
Much has changed since the declaration of the decade-long climate wars when Coalition and Greens senators voted down the Rudd government’s emissions trading scheme. While the Coalition has barely changed its position since, other than to declare a target of net zero emissions in 29 years’ time, markets have shifted tectonically.
Debt and equity markets are refusing to fund emissions-intensive projects in Australia, for electricity generation or any other purpose. Companies are factoring in carbon prices in their cashflow analyses of prospective projects way in excess of the Gillard government’s 2012 price of $23 per tonne.
A market has already been established in credits earned from carbon removal, with spot prices of Australian Carbon Credit Units (ACCUs) already doubling this year from less than $17 to $35. Driving this market are corporate buyers whose companies have committed to zero net emissions by 2050 or in some cases much earlier.
That’s right. Despite the Morrison government’s denials, it has introduced a carbon price or, to use its favoured nomenclature, a carbon tax.
A freely functioning market is capable of delivering greater emissions reductions than a federal government meddling with the intended or unintended consequence of slowing the transition to a low-carbon economy.
The Nationals have secured the agreement of the Prime Minister to limit to one-third any farm’s area that can be used for carbon farming. If the best and highest use of a property on marginal land were revegetation – perhaps with an ACCU price premium for restoring biodiversity – the Morrison government is limiting farmers’ access to a bucket of money.
Obviously, there would be legitimate concerns if big corporations seeking to offset their own emissions were to buy large tracts of land to generate ACCUs and failed to manage those properties for weeds, fire and feral animals. But the reputational damage to any such corporations against their ESG obligations would soon become unbearable.
Nationals consider land-clearing restrictions an expropriation of private property rights but are keen to impose tree-growing restrictions on private property owners. How is that not restricting farmers’ property rights?
Similarly, the market is moving to phase out Australia’s fleet of coal-fired power stations. No private corporation will build a new one. Outgoing chair of the Energy Security Board, Kerry Schott, told The Financial Review’s Energy and Climate Summit that Australian coal-fired power is likely to disappear by the mid-2030s.
For most of each day, renewables – with zero fuel costs – are out-competing coal-fired power stations for despatch. Only from the late-afternoons do coal-fired power stations begin to make money. To avoid even larger losses during the daytime, these ageing power stations are being ramped down and then up in the evenings. Yet they are designed to go like the clappers all around the clock. This ramping puts extra physical strain on them.
If one of the two or four units in a coal-fired power station blows up, the business case for replacing it will be weak.
Yet the Morrison government wants to impose capacity payments on electricity retailers for times of the day when renewables cannot meet demand.
That spare capacity could come from batteries and pumped hydro, but the government wants it also to include unused capacity in coal-fired and gas-fired power stations, prolonging their lives.
That’s just two examples of the Morrison government intervening to slow the transition to zero net emissions.
Another is the Underwriting New Generating Investment (UNGI) program, which has attracted the attention of the Auditor General. Private investors in electricity storage for peak hours need to factor in the risk of a government-underwritten or otherwise subsidised rival popping up belatedly in a ministerial media release.
It’s worth considering how much of Australia’s zero net emissions task could be delivered by the market.
While the free market comprises climate-change deniers, sceptics, cynics, non-believers, true believers and evangelists, they are united in their understanding of the reality that their financiers and shareholders will no longer fund big, new carbon-emitting projects.
Based on these free-market realities, by 2050 or well before, Australia will:
· Have no coal-fired or gas-fired power stations;
· Require any remaining coal mines and gas projects to fully offset their fugitive emissions;
· Have no new internal combustion engine vehicles on its roads, the world’s carmakers having fully switched to electric vehicles that will definitely tow your boat;
· Have low-emissions cattle and sheep belching less methane by eating less grass and more seaweed;
· Sell credits to the world from carbon-removal activities; and
· Have no politicians in the federal parliament fondling lumps of coal.
Governments can play a legitimate role in accelerating those changes to achieve zero net emissions, but if they can’t bring themselves to do that they should get out of the way.
Craig Emerson is CEO of Emerson Economics, a distinguished fellow at the ANU, director of the APEC Study Centre at RMIT, adjunct professor at Victoria University’s College of Business and chair of the McKell Institute.