Households and energy-efficient businesses face a rise in electricity prices of 25% more than expected following the Government’s decision to exempt the biggest electricity users from its mandatory Renewable Energy Target (RET).

As Lenore Taylor flagged earlier this week, yesterday COAG signed off on the implementation of the Government’s commitment to increase the current RET to 20% by 2020 and included an exemption for the biggest electricity users. The exemption will mirror that given to energy-intensive, trade exposed industries.

The decision again demonstrates that the Government will neuter any policy that might adversely affect big polluters, in effect locking Australia into its current, carbon-dependent industrial structure.

Under the COAG agreement, the RET will increase more than four times from 9,500 gigawatt‑hours (GWh) to 45,000 GWh in 2020. However, there will be a legislated exemption for EITE industries from the RET above the current level matching the 90% and 60% thresholds that apply to emissions trading permits for EITE industries.

Those industries consume over 20% of Australia’s electricity. The biggest beneficiary by far is the aluminium industry, which by itself consumed 15% of electricity alone in the whole country, based on COAG’s 2001-02 figures. The exemption means that the additional cost of the 16% increase in renewable energy will be borne by households and other businesses alone. According to a COAG working paper, fully exempting the aluminium industry from the RET would cost $73m in 2013, rising to $168m in 2020. Exempting all energy-intensive industries from the RET would, based on the COAG figures, shift nearly $1b over eight years from those industries to the rest of us.

The cost of power for the aluminium industry accounts for about a quarter of its revenue — the industry owns and operates its own coal-fired power stations. Its economic significance rests with trade: in 2006 it generated $11b in exports, but it only employs 13,800 people. Other large electricity users are also small employers — the pulp and paper industry employs 5,000 people, the cement industry less than 2,000 people.

Given aluminium’s massive consumption of power, there is a case for Governments to consider some sort of assistance for the industry, but it should have been designed to assist the industry to invest in renewables. In other countries, aluminium smelters operate entirely or mostly on renewable energy. The world’s fourth largest aluminium producer, Norsk Hydro, which owns the Kurri Kurri plant near Newcastle, powers two-thirds of its overseas production with renewables, mainly hydro power. RET exemptions will remove any incentive aluminium producers have to make a similar switch to renewable power here.

The exemption will be in addition to the massive handouts those industries would receive under the Government’s ETS. The aluminium industry will get nearly $940m worth of free permits in the first year of the ETS, and more each year thereafter.

Big polluters are on a roll. They have convinced the Government to structure the ETS to reward them for continuing their carbon emissions and have now warded off the threat of renewable energy requirements. It represents a huge victory for lobbyists Gavin Anderson (now Kreab Gavin Anderson), who represent the likes of Alcoa, cement manufacturers, BHP and the steel industry, all of whom will benefit from the Government’s largesse. The rest of us get to pick up the bill.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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