Nothing makes sense about Renewable Energy Targets, except at a “Bumper-Sticker” level. Today the AFR front page suggests* the federal government is shifting to remove the scheme (by closing it to new entrants) rather than just scaling it back. It can’t come a day too soon. Right now, the Greens who care about CO2 emissions should be cheering too. The scheme was designed to promote an  industry, not to cut CO2.

UPDATE: Mathias Cormann later says “that the government’s position was to “keep the renewable energy target in place” SMH.  Mixed messages indeed.

We’ve been sold the idea that if we subsidize “renewable” energy (which produces less CO2) we’d get a world with lower CO2 emissions. But it ain’t so. The fake “free” market in renewables does not remotely achieve what it was advertised to do — the perverse incentives make the RET good for increasing “renewables” but bad for reducing CO2, and, worse, the more wind power you have, the less CO2 you save. Coal fired electricity is so cheap that doing anything other than making it more efficient is a wildly expensive and inefficient way to reduce CO2. But the Greens hate coal more than they want to reduce carbon dioxide. The dilemma!

The RET scheme in Australian pays a subsidy to wind farms and solar installations. Below, Tom Quirk shows that this is effectively a carbon tax (but a lousy one), and it shifts supply — perversely taxing brown coal at $27/ton, black coal at $40/ton and gas at up to $100/ton. Because it’s applied to renewables rather than CO2 directly, it’s effectively a higher tax rate for the non-renewable but lower CO2 emitters.

Calculating the true cost of electricity is fiendishly difficult. “Levelized costs” is the simple idea that we can add up the entire lifecycle cost of each energy type, but it’s almost impossible to calculate meaningful numbers. Because wind power is fickle, yet electricity demand is most definitely not, the real cost of wind power is not just the construction, maintenance and final disposal, but also the cost of having a gas back-up or expensive battery (give-us-your-gold) storage. It’s just inefficient every which way. Coal and nuclear stations are cheaper when run constantly rather than in a stop-start fashion (just like your car is). So the cost of renewables also includes the cost of shifting these “base load” suppliers from efficient to inefficient use — and in the case of coal it means producing more CO2 for the same megawatts. South Australia is the most renewable-dependent state in mainland Australia, and it’s a basketcase (look at the cost stack below). Real costs only come with modeling, and we all know how difficult that is.

If the aim is really the research and development of renewables (and not “low CO2”) then I’ve long said that we should pay for the research and development directly, not pay companies to put up inefficient and fairly useless versions in the hope that companies might earn enough to pay for the research out of the profits. Tom Quirk points out that it’s all frightfully perverse again, because most innovations come from industry, not government funded research, but in Australia we hardly have any industry making parts used in power generation — we don’t have the teams of electrical engineers working on the problem anymore. I suppose the theory is that Chinese companies will profit from solar panels and do the R&D for us (keeping “our” patents too)? It would be cheaper just to gift them the money direct wouldn’t it — rather than pay an industry to produce and install a product that no one would buy, which doesn’t work, and hope that the “profits” translate into discoveries that will produce royalties and jobs for people overseas. I’m sure Chinese workers and entrepreneurs will be grateful. Yay.

Meanwhile, Green fans have suddenly discovered the idea of sovereign risk (where were they while the Rudd-Gillard team blitzed Australia’s reputation for stable, predictable policy?). According to the AFR, the government is scornful (and rightly so):

The government source said the market was oversupplied with energy and there was no longer any cause for a mandated use of any specific type of power. The source said while there would be investment losses if the RET was abolished, or even scaled back, investors “would have to have been blind to know this wasn’t coming’’.

On Catalaxy files, Judith Sloan mocks the Fin for pushing a press release from a rent-seeking firm, and guesses the Abbott government will be too “gutless” to ditch this economic and environmental dog of a policy.

—   Jo

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Renewable energy sources – Complications!

Guest post by Tom Quirk

Early in 2014 the Committee for the Economic Development of Australia (CEDA) issued a report entitled The Economics of Climate Change[i]. This report proposed a way forward in assessing and ordering the development of technologies to combat the uncertain source of climate change, fossil fuel emissions of carbon dioxide (CO₂).  The report casually mentions that the science is “settled” for understanding climate change despite the obvious failures of climate models to predict the almost constant global temperature of the last 12 years while atmospheric concentrations and fossil fuel emissions of CO₂ have continued to rise.

In passing it is worth noting that many countries offer subsidies to renewables similar to our Renewable Energy Target (RET) scheme. CEDA does not consider the scheme very helpful for emission reduction. The table below shows just how extraordinary the scheme is. Generators of renewable energy in Australia, in fact mainly wind farms with some small solar contribution, are paid a subsidy of $40 per megawatt hour (MWh) for electricity produced. This source of electricity displaces that generated from conventional power plants. The equivalent carbon tax is the $40 subsidy paid for one MWh of wind generated electricity with no CO₂ emissions displacing one MWh of electricity from black coal that would give rise to one tonne of CO₂ but for brown coal electricity with 1.5 tonnes of CO₂ the equivalent tax is $27. The tax equivalents for these and other energy sources are shown in Table 1.

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