Aug 29, 2014

The strange silence of the business community on the gutting of the RET

The business community is oddly silent as the government goes about killing investment and jobs as part of its ideological hatred of renewable energy.

Australian businesses, and their economists, talk a load of rubbish sometimes. Other times, it's their silence that is especially contemptible. Today our old friend Innes Willox of the Australian Industry Group will, The Australian Financial Review tells us, deliver yet another speech about the need for industrial relations reform. Seriously, someone needs to reboot the Willoxbot's system -- he keeps saying the same thing over and over like his programming is stuck in an eternal loop and all he can utter is "low productivity... high wages... IR reform... urgent need." Earlier this week, the Fin also gave us a rendition from The Four Bank Economists, who came together to sing from the same hymn sheet about how the budget impasse in Canberra was hurting "confidence" and that parliament needed to "pass the budget or risk destroying already fragile consumer confidence" because "uncertainty" was leading to "businesses diverting their capital spending plans." It's a strange kind of argument -- that consumer confidence will be boosted by the passage of budget measures that consumers, everyone agrees, hate passionately. It's the kind of argument that came from European austeristas -- that voters may not like austerity, but at least it gave them confidence that problems were being fixed -- even as demand was ripped out of economies and the ranks of the unemployed swelled by millions. Nobel economics laureate Paul Krugman talks about the "confidence fairy" that -- along with the (inflation) "expectations imp" -- is claimed by some economists to improve the confidence of consumers and business, and their expectations about the future, so that harsh austerity measures are accepted, or there's no need for actual policies designed to stimulate demand. And the Four Bank Economists' lament is at odds with what the confidence surveys are showing. Yes, the budget had an immediate negative impact on consumer confidence, enough that consumers slowed their spending -- as we saw from mid-May onwards and reported by a host of companies, from retailers to car sellers and some manufacturers. But retail sales data show that the downturn has since eased. For example, two mid-level retailers -- Specialty Fashion and Super Auto Group have both noticed an upturn of sales growth in the first weeks of the new financial year. Westpac's Bill Evans should know this: Westpac's monthly consumer sentiment survey, conducted with the Melbourne Institute, reported improving consumer sentiment at the start of this month, saying "the index is now only 1.2% below its level prior to the government releasing its tough Federal Budget on 13 May." And NAB's Alan Oster should know this -- his business surveys have shown a remarkable improvement in business confidence in the past two months.
"At at a time when we need non-mining investment as the resources investment boom slows, Warburton and his cronies are content to blow up estimated billions in investment ... "
And there was no mention of the greatest threat to investor certainty under current debate: the Coalition's assault on the Renewable Energy Target. That's the RET that the Coalition swore on a stack of bibles before the election that it would keep -- it was, after all, a Howard government policy -- which it is now setting out to gut. Gutting the RET will kill over $10 billion worth of investment and the thousands of jobs associated with it at the exact moment that policymakers are trying to manage an economy with falling mining investment and soft employment. It will also kill one of the few high-tech industries that Australia has a huge comparative advantage in, in areas like solar power. It's also -- courtesy of the direct contradiction between what the Coalition promised before the election and what it has done since then -- an elegant example of sovereign risk, in the proper sense of that much-misused term. Not the "sovereign risk" continually claimed by the mining industry, which is basically any regulatory change it disagrees with, but the real thing -- investors having made decisions based on what the Coalition said before the election will now find they have lost their money as it moves to gut the scheme. Climate denialist businessman Dick Warburton doesn't like the term "sovereign risk" when it comes to gutting the RET -- his review prefers the term "regulatory risk". But what exactly the difference is isn't spelt out. Where's the business community to lament this sovereign risk and complain about the impact on investment? Where are the business economists to note that gutting the renewables industry is directly at odds with the "open for business" mantra that we used to hear from this government? Of course, if Labor had appointed Bob Brown to review mining industry subsidies and then proceed to remove them without consultation, you would still be hearing the shrieks from the business peak bodies. Actually the silence wasn't total -- the creeps and rentseekers of the Minerals Council welcomed the review, and the Australian Aluminium Council welcomed it as well -- hilariously, that's the industry that has received hundreds of millions of dollars in taxpayer subsidies in recent years. At at a time when we need non-mining investment as the resources investment boom slows, Warburton and his cronies are content to blow up estimated billions in investment, the sort that slots into the broad "other selected industries" group in the Bureau of Statistics quarterly investment data, the latest of which, for the June quarter, was issued yesterday. That showed a 12.2% rise in expectations for investment for this group to more than $55 billion, compared to a year ago. That should see it top $65 billion, compared to just over $58 billion for 2013-14 -- exactly what we need as the mining boom cools down. But that's without the decision to gut the RET. What's Warburton's argument for dumping the RET? Not that it increases power prices -- the review is reluctantly compelled to admit the RET places downward pressure on wholesale electricity prices and, in the long run, will see lower prices for consumers. No, it should be gutted because in the presence of lower-cost mechanisms for driving carbon abatement, it's not necessary. That's a sound argument -- similar to Ross Garnaut's, who said that an RET wasn't needed if you had a functioning carbon price. Of course, we no longer have a carbon price -- the old white male climate denialists got rid of it. There are no lower price abatement measures on the horizon. Even if Greg "like a rolling stone" Hunt's Direction Inaction scheme gets up, we know from the experience of similar schemes during the Howard years that the cost of abated carbon will be hundreds of dollars per tonne. Except, we know the real reason why the government wants to gut the RET -- it has an ideological obsession with destroying renewable energy, regardless of the facts. It associates renewables with the Left, and therefore renewables must be destroyed, regardless of the investment and jobs that it will destroy along the way. And the business community stays silent.

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19 thoughts on “The strange silence of the business community on the gutting of the RET

  1. The Pedanticist

    And of course, the Big 4 banks will nod sagely over the axing of the RET. And why wouldn’t they? After all their boards are stacked with current or former board members or employees of the likes of Woodside, Gresham Partners, Calibre Global, BHP Billiton, Caltex, Royal Dutch Shell, Leighton Holdings, Orica, Mobil, Santos….

    Interestingly, not a single board member has ties to a company whose core business is in renewable energy. Fancy that!

  2. Tamas Calderwood

    So you guys are against car industry subsidies and other types of corporate welfare, but when it comes to renewables – well! – energy consumers should subsidise a favoured industry to the tune of billions and billions and billions of dollars?

    I know, I know – it’s about saving the planet, right? The planet that hasn’t warmed for 17 years…

  3. nullifidian

    If the direct and indirect subsidies to the fossil fuel industries were removed, even ignoring the threat to the planet, then the costs of coal powered electricity would double or triple. There then would be no doubt that renewable energy offers cheaper power. And, typically, Tamas recycles the same old porky about the planet not warming.

  4. The Pedanticist

    OK Tama, let’s have a level playing field and cut out the all the fossil fuel industry subsidies (only $10 billion a year). As for your other contention – I’m sick of arguing science with the ignorant, gullible and corrupt.

  5. Chris Hartwell

    Prove it Calderwood.

  6. Mark Duffett

    “one of the few high-tech industries that Australia has a huge comparative advantage in, in areas like solar power” is a strange statement. Australia certainly has an advantage compared to others in using solar power, but there’s nothing high-tech about installing it. All the ‘high tech’ currently involved in solar is mainly in the manufacturing, which is done in China and, decreasingly, Germany, irrespective of the Australian market.

  7. Luke Hellboy

    Let me try and explain algebra to a labrador… there is a difference between compensating declining, rent-seeking industries and their majority foreign shareholders (the coal industry and it’s power generators, the car industry) and investing in projects that have short and long term benefits to the Australian public (renewable energies where there is a global economic and environmental demand as well as a science/engineering/construction ability to become a world leader in Australia and a need for employment in these sectors or medical research for the same reasons.) If the archaic corporations in globally declining industries weren’t receiving hundreds of billions of dollars in corporate ‘entitlements’from the tax payers pocket then the idea of not supporting RET might have some merit, given we’d have a more level playing field. But we don’t and it doesn’t.
    And on your 15 year fetish… temperatures have been recorded since the late 18th century and with geological and ice core samples, the temperature sample can extend over hundreds of thousands of years. The earth is heating, just not uniformly, with the oceans absorbing most of the heat energy at the moment. It sure to pay it back with interest. Given the miniscule time frame that you keep harping on about, any recent ‘cooling’ is statistically insignificant, even compared with the last century of accelerated warming.

    I appreciate people with different perspectives to challenge my ideas and philosophies but people with no perspective offer little value. A broken clock is right twice a day and even the hand can come up something reasonable on the rare occasion. Looking forward to the day you can add something of value Tamas. If the Oz wasn’t bleeding money, you’d be a shoe in for a new columnist or editor

  8. C Jones

    There will be a case for removing subsidies to the renewable energy sector as time goes by – the technology is maturing and costs are falling. But until the existing generators who dominate the electricity market wind down, there will be no hope. Sure, a level playing field is desirable, but it’s hardly level when the incumbents refuse to budge.
    I’d say a trimming of the most successful elements of the RET could be acceptable, while those sectors that are still floundering (emerging tech, vehicle storage to grid etc) can maintain their access to support.
    It doesn’t have to be all or none you know.

  9. Tamas Calderwood

    What are these fossil fuel subsidies guys???? Name them!

    And EVRYONE is talking about the warming pause these days. The Economist, SMH, ABC… everyone.

    In any case, my position is no subsidies for any industry. None.

  10. Mark M

    Tamas – burning coal to boil water to turn a turbine to produce power kilometres away from where it is needed is just plain stupid, even if it is cheap. It is only cheap because the cost of pollution is not factored in to the process. We can do much better. Don’t forget that the coal power stations were paid for by the tax payer.

    Do you really believe that warming has stopped, even with all the evidence to the contrary. We know where the heat is going. It has to go somewhere or don’t you “believe” in the greenhouse effect.

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