Why the carbon stalemate will lead to power shortages: Kohler

It won’t happen before the next election, but what we need is a combination of the climate change policies of the Gillard Government and the Opposition.

That is, what’s required for Australia to make any kind of smooth transition away from coal-fired electricity generation is both a price on carbon and an industry policy that involves extra money from the budget, as proposed by the Coalition.

What we have instead are two political parties using each of these policies to fight a desperate war – one to survive, the other to prevail. The result is that each side of politics ridicules as utterly hopeless one of the two policies that are needed in combination.

This is now in stark contrast to the United Kingdom, where the Conservative-led government has produced an ambitious carbon abatement plan based on a bipartisan emissions trading scheme and an industry policy.

The key problem that Australia must solve is that 79% of the power sold into the National Electricity Market comes from burning coal and 27% of that is from brown coal. The brown coal alone produces 72 million tonnes of carbon dioxide, which is 13% of the nation’s emissions.

If the brown coal were replaced with gas, Australia’s carbon emissions would fall by 9%, which would more than meet the abatement targets of both the ALP and Liberal Party. Without replacing brown coal power generation, Australia’s emission reduction task would be virtually impossible.

UBS analyst David Leitch has calculated that to achieve that with a carbon price alone would require a price of $80 per tonne, which is four times the planned starting point for the Labor Government’s proposed carbon tax.

A price of $20-25 per tonne would not only result in any new gas-fired power generation, it would drastically cut the profitability of the brown coal power stations in the LaTrobe Valley, to the point where they probably would be unable to service their debts.

That means Labor’s policy would probably result in the disastrous bankruptcy of existing coal-burning generators without their replacement with gas-fired ones.

Meanwhile the Liberal policy of “direct action” is just as irresponsible, producing a massive blowout in government expenditure, as it tries to fully insulate the community from the higher cost of generating electricity from gas rather than coal.

The other problem is that Australia’s gas reserves are now being sold to China in vast quantities, so that very little remains for domestic consumption.

It’s estimated that replacing the 6,200 megawatts of electricity generated in the Latrobe Valley would require gas reserves of nearly 10,000 petajoules. About 30,000PJ have been found in Queensland coal seams but that’s all being sold as LNG; in the Gippsland basin, close to the Latrobe Valley, only 1000PJ remains uncontracted – nowhere near enough.

In other words, there needs to be some kind of specific government intervention to manage the transition from brown coal to gas: there needs to be the “pull” of a higher electricity price to make gas profitable; the “push” of compensation for the brown coal generators to close, just as Telstra is being paid to switch off its copper network to make way for the next generation of networking; and gas reserves need to be reserved for domestic power generation.

The two years remaining until there is another Federal election will be an incredibly dangerous period for Australia. Without the certainty of a clear, bipartisan plan, there will be no investment in electricity generation, and inevitable power shortages before the end of the decade.

The parties need to find something else to fight about.

This article first appeared on Business Spectator.