Friday, July 29, 2011

Will Australia's carbon price stop new coal plants?

On Sunday evening, after reading the Dr Seuss classic “If I ran the zoo” to my three year old daughter, I sat on the couch, fortified myself with a strong drink, and began to read the Treasury modelling on the carbon price (I know, I know, it’s an exciting life).

After reading the projections for the likely impact of the carbon price between now and 2050, I began to wonder if Dr Seuss actually might work at Treasury. While there aren’t any ten-footed lions, Elephant-Cats or Tufted Mazurkas, there are certainly plenty of heroic assumptions, interspersed with ludicrous notions.

According to Treasury, Carbon Capture and Storage (CCS) will somehow become commercially viable around 2030, triggering a large-scale investment in coal with CCS and gas with CCS. It is a bit like predicting in 1990 how many betamax video machines will be sold in 2011 (except that betamax videos actually worked). They might as well have assumed that someone will invent a free energy machine. Seriously, it is becoming increasingly clear that even the coal industry have given up on CCS. The dream of ‘clean coal’ is slowly but surely collapsing under the weight of its own hubris as people actually start to think through what is required to make it work.

Treasury recognise that the long term direction for both coal and gas prices is up (notwithstanding an anticipated short term reduction in coal prices as supply catches up with demand) but they seem to have substantially under-estimated the costs of CCS and under-estimated the extent to which the cost of renewable energy is falling.

The modelling also assumes that no new conventional coal power station will be built in Australia, and it is clear that Julia Gillard and Martin Ferguson are planning on using this as an excuse to avoid their election promise to implement an emissions performance standard.

I asked the PM about this at a breakfast on Monday and pointed out to her that the Deloitte modelling of Electricity Generation Investment (commissioned by DRET) concluded that a carbon price of at least $70/tonne would be required to rule out new coal in WA, where three proposed new coal plants have environmental approvals. She said that she was more optimistic than me about the impact of a carbon price on directing the future of energy investment.

It is true that she is more optimistic than me about the impact of a $23 carbon price – much more. As far as I can tell, the only thing that is stopping three new coal power stations being built in WA is a strange combination of State Government policy incoherence and an increasingly convoluted commercial stoush between Lanco Infratech (the Indian buyer of Ric Stowe’s Griffin coal mine) and their customers over coal supply contracts. A low carbon price of only $23/tonne simply isn’t going to rule out coal in WA, even though their poor quality coal makes WA coal plants among the dirtiest in the country.

Similarly in Victoria, the proposed new HRL coal power station continues to stagger on – albeit without finance from the major Australian banks. The big question is whether or not Ferguson will give HRL $100Million of taxpayer money as promised (by the Howard Government). Mind you, it would be quite embarrassing to be publically subsidising a polluting coal plant immediately after the introduction of the carbon price package – so no doubt the Government will be looking closely at how they can get out of the contract. It shouldn’t be too hard given HRL’s record of missing deadlines.

As for the coalition, their climate and energy policy is a wretched pile of nonsense and despite claims of being interested in ‘direct action’ it is becoming abundantly clear that they are only really interested in ‘direct opposition’ to whatever the Government is saying. The only vaguely good thing that can be said about their approach is that it is so incoherent and destabilising that it is likely to undermine investor confidence in both coal and gas for some time to come, regardless of any actual regulation (This obviously isn’t a sensible policy approach but anything that delays fossil fuel investments is arguably a good thing as the price of renewables continues to fall). Abbot continues to play a high stakes game of wrecking the consensus for climate action for his own short-term political interests – without heed to the costs. It will no doubt define his legacy and it is difficult to imagine it being well regarded by those who follow.

Ruling out new coal power stations should fit perfectly with Abbot’s “Direct Action” approach, and it should fit perfectly with Gillards pre-election promise to “rule out new dirty coal power stations”. The fact that it seems so difficult for both of them seems more a reflection of the political/ideological aversion to putting the words ‘no’ and ‘coal’ together in the same sentence, rather than any rational policy objections.

We still need an emissions performance standard to rule out new polluting power stations.

Tuesday, May 24, 2011

New coal plant approved in Victora

The approval by the Victorian EPA on Friday of a new coal power station is set to create yet another headache for Julia Gillard. In the leadup to the election, she promised that "We will never allow a highly inefficent and dirty power station to be built again in Australia”.

With a projected emissions intensity of 0.8tonnes of CO2/MWh (almost double the OECD average), the HRL power station in the Latrobe Valley is clearly a highly inefficient and dirty power station. So presumably, either there will be some kind of federal intervention to block it, or Gillard will break an election promise.

But even if the political system fails, as it so commonly does, the plant may not go ahead for purely financial reasons. The front page of Saturday’s The Age ran the headline “Big banks ‘no’ to coal plant”, revealing that all four of the major banks have stated that they are not involved in the project. This means that HRL is likely to struggle to arrange finance, even with $150million in direct government handouts.

The fact that none of the big four banks is involved in HRL is no doubt partly a reflection of the individual project, which is highly speculative and financially marginal, but also reflects the wider sentiment that coal is slowly but surely having it’s social license withdrawn. While none of the big four banks have categorically ruled out financing new coal power stations, they know that they face significant reputation risks from being associated with the coal sector.

So, while HRL has received at least partial approval, there is still a long road to travel before they can obtain finance and start construction. Even then, it is likely that the plant would be the focus of a sustained campaign of direct action to physically stop it from being built.

As usual, regulators are running to catch up to community expectations.

[First published on Crikey]

Wednesday, May 11, 2011

Probability and Responsibility at Fukushima

In the long run, the least likely event will occur. Such is the nature of probability, and the nature of risk.

The environmental movement have been talking about this for some time now. It has been the basis of much of the opposition to nuclear energy and releasing genetically engineered organisms into the environment for the last several decades.

The standard formulation of ‘risk’ is that it is a function of the probability of an event occurring and the magnitude of the hazard. From the viewpoint of technological optimism and managerialism, the seductiveness of a very low probability often leads people to discount the magnitude of the hazard. This distortion is amplified even further by the fact that the profits of success remain privatised, wheras the responsibility for large-scale hazards is often socialised, with Governments and taxpayers picking up the tab.

Insurance companies are reluctant to underwrite nuclear power stations for the simple reason that, although the probability of catastrophe may be low, the potential magnitude and cost of a meltdown is staggeringly large. The only reason that nuclear power stations have been able to be built is because Governments have provided insurance and have limited the financial liability of operators.

A similar dynamic is at play regarding carbon capture and storage. Private companies will no doubt be willing to profit from storing CO2 underground, but nobody would be seriously willing to invest in it unless they are exempt from liability in the case that things go seriously pear-shaped . That is why the federal Government passed legislation that exempts companies from long term responsibility for storage of CO2 and places it instead in the lap of taxpayers.

Coming back to Fukushima, Japanese taxpayers will undoubtedly pick up a significant portion of the cost of managing the crisis, which is expected to require serious and ongoing management for many decades. If TEPCO were to be held fully responsible for the entire long term costs of the disaster, they would probably go insolvent. In a capitalist system, this ought to happen, otherwise we perpetuate the endemic problem of short-term and sociopathic behaviour on the part of corporations who operate in the knowledge that they’ll never really be held accountable for the negative consequences of their operations.

But it is not only responsibility for the financial costs that need to be considered. What about responsibility for the actual physical work and the related personal risks?

I’ve read various news reports about TEPCO’s difficulty in recruiting workers to help manage the crisis. Most of their staff have reached or exceeded the allowable radiation exposure limits so the the company is having to find new recruits. Some of these people obviously are technical experts, while others are labourers needed to spray cooling water and perform other physical operations.

At Chernobyl, hundreds of peasant workers trooped in to the reactor with little or no knowledge of the danger they were being exposed to. Fortunately, this can’t happen in Japan. Instead, TEPCO will have to pay enough danger money to enable them to recruit a steady stream of workers who are willing to take the risk of subjecting themselves to radiation in the hope that the money is worth it.

It seems to me that it is these workers who are actually the ones who are really taking the responsibility for Fukushima. They are the ones who will live with the consequences. And I think it is useful to ask, who SHOULD be doing this dangerous work? Who should be taking direct, personal and physical responsibility for the crisis?

Surely the people who have benefitted from the previous profitability of Fukushima, the people who own it and built it, should now be responsible for managing the downside? This means the Directors and shareholders. But what would that look like in practice?

How is this for a thought experiment…what if there was a kind of conscription, where the names of directors and shareholders were put into a hat, to be randomly selected for frontline roles helping to cool the reactor? What about staff at the banks that financed the plant? Should they be in the conscription pool as well? Or people like Andrew Bolt, Ziggy Switkowski and the other strong advocates of nuclear power?

Or should it just be left to working class Japanese people who have no connection with the plant but who happen to need the money?

Fukushima should not only cause us to reconsider the risk of nuclear power, it should also cause us to reflect on the nature of corporate responsibility – or irresponsibility as the case may be.