Tuesday, July 22, 2008

Tuesday Column: Wong's gift to lobbyists

This column is about the coal-fired power industry, but it could have been about the asbestos industry, or the tobacco industry

Never once on the countless occasions that Australian governments have restricted the sale of tobacco have they felt compelled to compensate the manufacturers for ''significant reductions in their profitability''.

Why would they? The cigarette manufacturers knew what was coming (and had decided to invest anyway) and were blessed with rusted-on customers.

But there was another more important reason why our governments didn't offer ''compensation'' to the industry they were trying to cripple.

To do it would have been to accept that the existing tobacco manufacturers had continuing ''rights'' that the government had to buy out in order to proceed.

It would have helped create a precedent that would have undermined the right of Australia's parliaments to act as they saw fit.

It would have undermined our sovereignty as voters...

The Government's independent climate change adviser, Ross Garnaut, saw the danger clearly in his interim report delivered earlier this year.

As he put it, ''There is no tradition in Australia for compensating capital for losses associated with economic reforms.''

Among the reforms for which he pointed out Australian businesses have not been compensated were the floating of the dollar, the introduction of the goods and services tax and the massive tariff cuts that Garnaut himself oversaw as Bob Hawke's economic adviser in the 1980s.

By the same token he pointed out that there had been no tradition of taking away from businesses the extraordinary windfall gains that they had enjoyed as a result of government decisions, including cuts in the company tax rate.

In the case of emissions trading, businesses had been ''aware of the risks of carbon pricing for many years''. Many had ''sought to re-engineer their production processes to reduce their reliance on emissions''.

He must have been worried that the argument wasn't getting through. In his draft report released just days before last week's Government green paper, he devoted an entire appendix to applying the argument explicitly to coal-fired electricity generators.

There was ''no basis'' for the claim that generators had a ''right to emit carbon dioxide and this right is being taken away by a policy change''.

As he put it ''governments always retain the absolute right to vary policy and industry is generally cognisant of the risk''.

There's no doubt that Australia's coal-fired electricity generators have been cognisant of the risk. They have been lobbying on the basis that their businesses have been at risk since way back before Australia took part in the Kyoto negotiations a decade ago.

But last week, despite all they'd done, and despite all that Garnaut had said, they succeeded in convincing the Australian Government that its 2010 emissions trading scheme was unexpected and that they needed compensation.

In her green paper, Climate Change Minister Penny Wong justifies the idea this way: ''If the change in regulatory arrangements was unanticipated and implemented without compensation, and investors viewed this as evidence that the Government was likely to change the regulatory regime in future in an unpredictable way, then investors might regard Australia's electricity market as a riskier investment proposition.''

Try submitting that sentence to the laugh test.

That is, try to read it out loud without laughing.

The truth is that when it finally makes a decision on the type of emissions trading system that Australia will have from 2010, Parliament will have ended, not added to, the uncertainty that has been making Australia's electricity market a risky investment proposition.

Does Wong really think that investors will stay away from Australia's electricity market when they know what the rules are? Does she really think they haven't had a fair idea of what was coming for a decade?

Apparently she does. Her green paper proposes making cash payments or payments in the form of free pollution permits to all of the coal-fired power stations that were in existence or planned before June 3, 2007.

Why that date? Because it was the day on which former Prime Minister John Howard came out in support an emissions trading scheme, the day the idea ''became bipartisan policy in Australia''.

The Minister says that Sunday, June 3, 2007, was ''the point beyond which investors could not reasonably argue that they had no knowledge of a potential carbon constraint''.

Where's the laugh test?

It's actually worse than funny. By giving a gift to a class of firms that neither needs it nor deserves it (quite separate to the grant of free permits to exporting and import-competing carbon-intensive firms such as aluminium producers who will need them), Wong has opened the door to all sorts of special pleading.

Woodside Petroleum is just the first cab off the rank. If dirty coal-burning power stations can get compensation, why not cleaner natural gas producers?

It's the sort of endless special pleading for access to ever-widening and ever more complex loopholes that killed the goods and services tax the first time the Coalition proposed it.

John Hewson was unable to explain why he would be taxing a cold pie but not a hot pie and lost the 1993 election.

Australia's existing coal-fired power stations won't need the compensation anyway. They will be able to pass on the extra cost of the emission permits. They will be encouraged to. It is how the scheme is meant to work.

Eventually the higher price of power will prod some of us to use less of it, and eventually wind and commercial solar power generators will become competitive against coal because they won't to buy emission permits.

But none of that will happen in a hurry. In the short term we will have no choice but to buy our power from the existing coal-fired generators. It is where our power comes from.

It is likely that by the time those plants are out of commission they would have been out of commission anyway.

The generators will doubtless pocket the gift Wong plans to give them (the NSW Government will be one of the biggest beneficiaries, owning many of the generators) but it won't encourage them to give up lobbying.

Why should they when another part of the minister's plan has the parliament resetting the five-yearly carbon-reduction target each year?

The tobacco industry would love the opportunity. It shouldn't be given to a dinosaur industry that has served and will continue to serve Australia well and has known for years that its days were numbered.


Anonymous said...


I enjoyed your article today and generally am a bit of a fan. You suggest that the LNG industry’s recent push in relation to the ET proposal was kicked off by the Government’s cave in to the generators. While this certainly makes thing worse in terms of having to find someone who’s going to pay for it all(and clearly as a perceived successful industry the LNG industry is in the Government’s sights) it has not been the impetus for the industry's concern. It begins with the ALP’s very sensible election commitment: “Labor supports activities undertaken in Australia that offset emissions elsewhere (for example Liquid Natural Gas production and export that displaces coal fired generation [their brackets]). Labor supports the introduction of international flexibility mechanisms that ensure that such projects are not disadvantaged”. It received a further shot in the arm when they introduced the renewable energy target as a vehicle for encouraging an industry, like the LNG industry, that has a constructive role to play. The renewables scheme has an extremely distorting impact on the ET scheme by increasing electricity prices by up to 8 percent more than they would be under a stand-alone ET scheme for no additional greenhouse benefit. And by essentially mandating a substantial part of the ET market to the very expensive renewable energy other options such as energy efficiency, offsets, and greenhouse gas emission reduction technologies are squeezed out as is innovation in these areas because the slice of the pie is so much smaller as a consequence. But we haven’t heard too much from the economic analysts about this – it seems that greenhouse religion about good and evil, right and wrong has even crept into good economic analysis blinding us, even in that domain, to good public policy. In any event, presumably, because renewable energy is “good” we are happy to suffer very significant distortions – why should it be any different for liquid natural gas which arguably has a much greater potential, right now – no waiting for technologies that may or may not work - for taking the world from where it is now to where we all want it to be?

Again, I enjoyed your article

Kind regards

Belinda Robinson

Australian Petroleum Production &
Exploration Association

Joel said...

Several points in your comment seem unreasonable.
Firstly, I object to your unnecessary use of the phrase "greenhouse religion". The abundance of such ridiculous, empty and destructive rhetoric on both sides of the debate is unfortunate. For all the pigheaded environmentalists who discredit a scientist merely for challenging the theory of anthropogenic global warming, there are skeptics who are clinging to whatever vestiges of support exist for their position. Neither extreme is healthy, and what surely needs to be achieved is a recognition that both sides have legitimate interests, but what is required is cohesion such that the legitimate interest of Australia, its citizens, and humanity at large can be fulfilled.
Your disregard for the role that renewable energies need to play is alarming. You are right to suggest that options such as energy efficiency are necessary, and clearly greenhouse gas emission also beneficial. Your commitment to offsets is more dangerous, as they are 'too little too late', trying to make up for greenhouse gases that are already in the air. Especially in lieu of better market regulation, but even with it, offsets cannot replace the need to urgently reduce emissions. What renewables do is generate electricity with much less of a carbon cost than other sources. Your implication that such technologies "may or may not work" is facetious and outdated, especially given the success of such initiatives in places such as Germany, where preferential feed-in tariffs have helped to establish an effective and productive source of electricity. Surely there is an important role for renewables to play, at the same time as we increase efficiency, reduce our emissions, and overall decrease Australia's wanton consumption.

King regards,

Joel Dignam

Casual Internet-users
for Carbon Consciousness
Canberra, ACT, 2054

Anonymous said...

Thanks Peter for your interesting article.

Giving free permits to major emitters is uneccessary and its main impact will be to increase the profits of those industries.
I strongly object to such financial assistance from the government.

I can't help but wonder if the planned NSW electricity privatisation has something to do with it.


Anonymous said...

Belinda Robinson - your special pleading for the LNG industry looks suspiciously like rent-seeking.


Darren Lewin-Hill said...

A clear and informative article, Peter. In seeking compensation and free permits, the big emitters are essentially asking us to continue sharing the negative climate impacts of their actions, while they continue to concentrate profits among their shareholders. Whether or not it is ultimately sound, the AWU's call today to hand workers the permits of companies that leave our shores was interesting in that it highlighted the need to compensate workers for impacts that come with the transition to sustainability, not their big-emitting industrial masters.

Letter said...

Letter to Editor, July 23, 2008

Making up for losses Your Peter Martin ("Wong's green gift is hardly deserved", July 22, p15) and Ross Garnaut say, in relation to the Australian Government's intention to compensate some industries for the extra costs they'll incur with a carbon trading scheme, "There is no tradition in Australia for compensating capital for losses associated with economic reforms."

They're wrong. There was a Structural Adjustment Assistance Scheme in 1973, whereby firms adversely affected by the famous overall 25 per cent tariff cut that year could receive compensation from the government, and there were some rural adjustment schemes too, which provided compensation for farmers adversely affected by government initiatives for example, as I recall it, particularly apple growers in Tasmania and dairy farmers.

R.S. Gilbert, Braddon

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