For all the fuss about an Emissions Trading Scheme (ETS), Australia already has a version of a market in carbon credits and it was set up in 2001 by the conservative Howard government. The RET, Renewable Energy Target, aims to reduce emissions by mandatory use of 20% renewable energy by 2020. For all kinds of reasons we are overachieving, and headed for 27% renewables mix (along with shocking electricity bills, see here too).*
“Official estimates suggest that the RET will generate a transfer of $20bn from householders and industrial users by 2020.”
So in this artificial government-mandated market, which sector is fast to get involved? Finance.
This is not so much an efficient free market as its pale cousin, the whimsical fake market. But free or fake, banks are there. You can’t blame them. But nor do we need to feed the machine unless there is a good reason.
Banks exposed to big RET risks
The Australian: AUSTRALIA’S banks are holding nearly $900 million worth of certificates designed to stimulate investment in renewable energy generation as the price of those instruments becomes captive to the political debate over green energy schemes.
Banks including ANZ, Macquarie Group, Westpac and Commonwealth Bank hold 5.9 million, or 20 per cent, of the 28.4 million large-scale energy certificates (LGCs) issued and yet to be redeemed under the Renewable Energy Target scheme, according to information supplied to the Senate.
Any artificial market almost instantly creates players with property rights. That’s the reason a trading scheme is much harder to unwind than a tax. Once it is created, automatically, there are lobby groups, armed with lots of our money, to keep it going. At least with a tax, voters might get the chance to vote for or against it. In a true free market, voters have the ultimate right — to ignore it completely. They can vote with their feet every day, and spend their money on something better. That’s not what is happening here.
The players in this market are not so much betting on natural events as they are betting on politics. Does that help the nation produce real things, or does it just turn us into a kind of casino where people can bet and lobby on the dice?
Market sources speculated that the banks were holding large pools of LGCs under financing arrangements with renewable energy generators and electricity retailers. According to information on the holdings given to Senate Standing Committee on Environment and Communications by the regulator, ANZ is the second-largest holder of LGCs, with 4.36 million, behind Origin Energy, with 5.9 million. Origin is also the largest holder of retail certificates, with 372,677 of the 5.1 million on issue. The price of the retail certificates has climbed from about $25 last year to nearly $40.
Macquarie Bank has almost 800,000 LGCs in two accounts, while CBA holds 536,527.
Mr Crockett said the price of the LGCs needed to be between $40 — where it had been in 2011 and 2012 — and $50 to act as an incentive for investment once the carbon price was removed.
“As soon as you have uncertainty you can’t put the capital to work and get on with building new capacity,’’ Mr Crockett said.