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Federal

Oct 18, 2011

The Coalition game of deterring renewables
investment

The opposition is pursuing a clear strategy of trying to scare investors away from anything to do with renewables. And some others are joining in.

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The federal opposition’s self-appointed role under Tony Abbott as a sovereign risk machine is, at least politically, well understood. Not merely content with forecasting a looming apocalypse as a consequence of the carbon pricing package, Abbott has deliberately embraced the tactic of adding to business uncertainty with a cross-my-heart-and-hope-to-die promise that he would repeal the package.

With any luck, that will discourage business investment in renewables, undermine the trading period of the scheme, which is likely to start before he can pass legislation to repeal it, and continue to place some upward pressure on electricity prices by reducing certainty for big generators looking to roll over debt.

Not so good for either the economy or the task of decarbonising it, but eminently sensible from the point of view of an opposition that has embraced a wrecking strategy to undermine a weakened government. This is a longer-term strategy by Abbott, by the way — one of his first acts as leader was the appointment of Barnaby Joyce as shadow finance minister, from which vantage point Joyce proceeded to campaign against foreign investment (particularly Chinese foreign investment, a particular obsession of Joyce’s) and predict Australia was at risk of default.

Joyce these days likes to claim that somehow he accurately predicted the risk of debt ceiling debacle in the US, but he insisted Australia, too, would be unable to pay its debts. The Abbott opposition embraced sovereign risk as a political tactic right from the outset.

The two significant problems for the strategy are the issue of compensation for carbon permits and one of the direct action components of the package, the Clean Energy Finance Corporation. The latter is problematic because, even if Abbott’s warnings about repeal deter private investment in renewables, there’ll still be billions available via the corporation, to be overseen by Jillian Broadbent, who graced many a Coalition-appointed board with her presence in the Howard years.

The idea of taxpayers funding a vast renewables investment portfolio intended to produce a commercial return is the worst component of the carbon pricing package (of which, more later this week), combining the winner-picking of the Coalition’s risible direct action plan with significant risk for taxpayers (c.f. Barack Obama’s current problems with the Solyndra solar panels company). But that isn’t what concerns the Coalition, instead it’s the capacity of the corporation to drive renewables investment even after an Abbott-induced flight of investors.

That’s the basis for the remarks by Joe Hockey, as reported by Lenore Taylor today, to warn business off from even accepting investment from the CEFC. Hockey made the explicit point that loans could be “revokable at any time”, in essence suggesting that if any business should be foolish enough to accept investment from the corporation, it could be immediately ripped out by an incoming Abbott government regardless of the impact on jobs or the companies involved.

There’s a slight problem with that plan, in the melodramatic “at any time” bit. The CFEC governance structure, while still being designed by a panel of experts for the government, is intended to be independent of government, for obvious reasons. Hockey, in whose portfolio the corporation would be, would thus have to remove Broadbent and, presumably, most of the rest of the board and install some compliant directors who would oversee the withdrawal of existing investments, based on a new ministerial “statement of expectations”.

But standard practice for independent boards is that directors are only removable if they engage in criminal or wildly inappropriate behaviour, so Hockey would presumably have to wait until the Labor-appointed directors’ terms expired — a bit like the Howard government had to wait to for Justice Fisher’s term at CASA to expire when he and his fellow board members declined John Sharp’s demand that they quit en masse for the crime of being appointed by the Keating government.

Still, that’s a small detail for Canberra insiders that most investors are unlikely to be aware of.

And while the opposition likes to gloss over the issue of compensation for permits, preferring simply to demand that business not buy any (which may well be a subtle admission that, yes, they would indeed be property and require compensation), there was a most unusual intervention today on the issue from David Murray of the Future Fund, who proposed the genuinely bizarre idea to The Australian of two types of publicly created property rights — those created within three years, and those older than three years, so that governments couldn’t commit future governments.

Core and non-core property rights, perhaps.

Murray’s intervention in the debate is motivated by a simple fact: he’s a scientific illiterate and climate denialist and under him the Future Fund has tried its best to ignore climate change as a significant investment issue. Thus the phrasing of his remark to The Australian about “whether you believe in this stuff or not” — Murray definitely does not believe in “this stuff”.

Murray also opposes the carbon pricing package because “it’s very bad time given what’s happening in the global economy”. It’s a curious view for Murray to express, given that in August he was calling for massive budget cuts to “stabilise debt levels”. By that logic, Murray thinks prudent fiscal policy would be to rip the floor from under demand at the moment when the global economy is facing problems so bad as to undermine the rationale for carbon pricing.

Then again, we had years of strong economic growth before the GFC, and it was always apparently a “very bad time” to take action on climate change back then, too. People such as Murray will always find reasons to delay reform, like they always find reasons to dispute climate change.

His over-long term at the Future Fund finally ends on April 3 next year. Labor, oddly, reappointed him. Judging by Hockey’s remarks, that’s not a fate to which Jillian Broadbent can look forward.

Bernard Keane — Politics Editor

Bernard Keane

Politics Editor

Bernard Keane is Crikey’s political editor. Before that he was Crikey’s Canberra press gallery correspondent, covering politics, national security and economics.

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50 comments

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50 thoughts on “The Coalition game of deterring renewables
investment

  1. Simon Mansfield

    OMG – the Neo Greenist is back with more of his whacky Green is the new God meets neo liberalism kool aid.

    As usual our resident failed Green candidate MWH conveniently ignores the critical part of BK’s article where he trashes the Clean Energy Finance Corporation as a shocking example of governments taking direct action instead of leaving it to the market.

    This of course was the bolt-on part to the CPRS Mark 2 policy – which just like CPRS Mark 1 could have been added on at anytime to the keep them new age Green Capitalists happy.

    But as usual MWH misses the key real politic part of the ETS debate and its implementation – which is that if the original CPRS had been supported by ever so politically correct Greens – it would be done and dusted and we would be debating the next phase of our national response to carbon reform.

    Like BK the Greens actually think that it will cost less than 100 billion to do something about C02 emissions. So much so that after reading BK and his beloved Greens you could almost conclude that a market based solution could do it for free. 100 billion dollars is what the internationalists what to give the developing world EACH YEAR under the next global climate deal.

    In short, the voodoo economics of low cost carbon reform is the new kool aid for BK and his merry mates at the Greens – when he’s in agreement with them.

    But alas BK has invented a whole new mantra of Green Politics on the left hand and Neo Liberalism on the right hand. A true disciple of modern Canberra.

  2. Peter Ormonde

    Simon

    Don’t really want to wade too deeply into this raging river but – well, when you think about it, money itself is a government ordained system imposed on society to solve a problem, yes? That’s why our ultra modern plastic $5 notes have got Betty Saxberg Gotha’s grimacing dial plastered all over them and not Gerry Harvey’s.

    Permits operate in exactly the same way … whether for water allocations, or air pollution or CO2… essentially a thing is limited (yes by the Government), permits are allocated (initially by the Government again) and can be traded (by private investors and polluters who need a licence to pump the effluent out).

    So no, it’s not market-based in the sense of being created by the market – remember it’s markets and unpriced externalities that get us into these messes in the first place.

    But the critical thing about these market schemes is the trading of permits between those who have them and those who need them. So the non-polluting operators get cash and the polluters get costs. Over time – something the panic merchants seem to have trouble with – this pressures the polluters to lift their game and stop it, or loads them up with extra costs. More importantly it provides an indirect injection into non-polluting industries and sectors of your economy.

    Has worked quite well in reducing acid rain in North America and more locally with coal miners pum ping salt water into the Hunter River for example.
    Of course whether the current CO2 scheme can do enough of this quickly enough is another can of worms entirely.

    But it’s important to realise that compensation for consumers and so forth is incidental – rather important if you are paying of course – but the central focus of the scheme is not on changing consumer behaviour but in sending economic signals into the markets and altering producer behaviour. And the way that these signals are transmitted is through a new market in permits… hence market-based.

    Hope that helps a bit…. think of it as an eddy in this raging torrent.

  3. Michael Wilbur-Ham (MWH)

    The Guardian article is interesting.

    One thing it gets wrong is how Europe and Australia will compare on carbon reduction. Australia is now only aiming for a 5% reduction on 2000 levels by 2020. Europe has, I think, already achieved cuts greater than our 2020 target.

    The other bit that leapt out at me was the line that once the tax is in place “Hopefully over time this will boost Labour and the Greens’ popularity, so ensuring that the policy is protected”.

    In Australia the MSM (including the ABC and The Age) would just write “boost Labor’s popularity”.

    @STREWTHALMIGHTY – I’m out of date on the latest figures, but the following is about right:

    Though there are taxes on fuel at present, none of these are aimed at putting a price on carbon. Also both Liberal and Labor have maintained huge subsidies for fuel (e.g. company cards, farming and mining). These subsidies are sort of an anti-price on carbon.

    The political circus had distracted us from real debate for so long that I have no idea of the view of either major party as to what level of future warming they think is acceptable. At the time of Rudd winning the election the figure of 2 degrees warming was often mentioned, but I don’t think either Liberal or Labor committed to this figure. Reports such as Garnaut have lots of detail about what is predicted for 2 degree warming, and it can easily be argued that these effects are so bad that we should limit warming to a lower level.

    For Australia to play its part in limiting warming to 2 degrees we would have to reduce our emissions by about 40% on 1990 levels by 2020 and by over 80% on 1990 levels by 2050.

    Note that as carbon stays in the atmosphere for a long time the early reductions are vital for limiting temperature increases.

    The political reality in Australia and the rest of the world is such that we are now pretty certain to have two degree or higher warming by 2100.

    Also note that the science has all been very conservative, and there are plenty of things that are not well enough understood to be put into the IPCC reports which, if they happened, would lock us in to much faster warming.

    All rather depressing.

  4. freecountry

    It’s a pity Barry O’Farrell didn’t give similar warnings in Opposition about the NSW solar rebate scheme, at a time when cynical opportunists across the state (including many hypocritical climate sceptics) were rushing to get their taxpayer ripoff installed on their roofs ahead of the NSW election.

    Democratic states around the world are staggering under the weight of legacy economic regulations, tax breaks, populist concessions to battles long forgotten, and half measures which were never cleaned up even when they were superceded. Just one example in Australia is the half-baked mandatory renewable targets and other direct-action climate policies. These were always known to be inefficient, even before the Productivity Commission estimated they cost us up to a thousand dollars per tonne of CO2 abatement. That was one of the main reasons for a secular carbon pricing scheme.

    Yet these schemes are not only being kept, but expanded. As Bernard concedes, the $10 billion Clean Energy Finance Corporation will now be funded by the carbon tax. Much of the compensation money to households will be funded not by carbon revenue but out of the budget. None of the inefficient pre-carbon-tax schemes are being axed.

    A strange reality of modern democratic systems is that they find it much easier to enact new laws than to clean up old laws. Tony Abbott may not have any such overarching view of these things — he just wants the carbon tax gone, any way he can — but if it sets a precedent that the country doesn’t always have to keep adding to the baggage of its past legislatures without ever putting something down, then that could be a good thing.

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