It never ceases to amaze me how proponents of nuclear power can be against a carbon price, the very piece of policy required in this country to make it economic. At the moment, nuclear power remains significantly more expensive than fossil-fueled power, at around twice the cost.
Yet Ziggy Switkowski, one of the country’s most ardent promoter of nuclear-powered energy supply for Australia, rails against the open letter from economists supporting such a policy, in his piece yesterday Refuse the Carbon Tax’s Junk Mail.
Perhaps unwittingly, his contribution powerfully illustrates the point that the economists and Garnaut are making: that our national interest is served by letting the carbon price be the arbiter of the best abatement solutions, and not the bureaucracy, the politicians and the advisers.
We should start by acknowledging that Switkowski accepts the underlying science of climate change, including the contribution of man-made fossil fuel emissions to the higher concentrations of CO2 and other greenhouse gases in the upper atmosphere. It would, of course, be untenable to be trying to promote a nuclear industry in Australia while also saying that the science was unfounded. But nevertheless, if one accepts the science, then the next question is what to do about it.
Switkowski says that “economists should be helping us understand whether such a tax is the best catalyst for a generational transformation of our economy (as Garnaut asserts), or whether it derives from a political ideology consistent with social engineering, income redistribution and pork barrelling”. Given the title of his piece, we are led to presume that a carbon price is more the latter rather than the former, yet he offers not a single piece of critique as to what the economists or Garnaut are actually saying and where their arguments might be flawed. What they are actually saying, consistently, is that the carbon price IS the best catalyst for generational transformation of our economy. It leads to a much lower cost way of reducing emissions, because it unleashes the power of the market and innovation to deploy existing technologies to optimal effect and to pull forward new technologies.
The irony here is that the “political ideology consistent with social engineering, income redistribution and pork barrelling” all come from the alternative policy. In eschewing a market-based approach, we rely on a small number of politicians and their advisers to make decisions about abatement; a process that is highly susceptible to lobbying. If abatement is taxpayer funded and susceptible to a political process, then we are almost guaranteed to end up with a higher cost way of meeting any given abatement task. As Garnaut puts it “we would rely on a the ideas of a much smaller number of politicians and their advisers [and] while some of these ideas might be brilliant, in sum they would not be as creative or productive as millions of Australians minds responding to the incentives provided by carbon pricing and a competitive marketplace”.
At the same time, the abatement challenge gets even harder because without a carbon price our emissions continue to grow, as our energy system continues to be based on last century’s coal-dominated fuel mix. We would be playing catch up, with emissions growing out of control and taxpayers trying to subsidise abatement to control it.
Case in point, Ziggy calls for a “disciplined [Energy] White Paper process” and then “adopting best practice energy technologies and solutions”, before (if ever) adopting a carbon price. A White Paper process is a government piece of work, susceptible to consultation/lobbying. There will be lobbying, for example, for nuclear to be included in the energy mix. Others will lobby for renewables, and others for carbon capture and storage. The choice will be made by some faceless bureaucrat that has no hope of getting it done with the efficiency of the million minds at work in the marketplace.
The alternative of a market-based approach takes this role off government, and uses the price to decide the best abatement solutions and to pull through new technology. Moreover, without a carbon price, the new technologies, or existing but more expensive low emission technologies, will struggle to eek out a role.
Today we are reaping the benefits of the liberalisation of the energy markets in the 1990’s. Generators compete with each other to offer their power to the market for each half hour period, and this has led to wholesale power costs very close to long term marginal costs. The policy vision underpinning this was not to specify the plant mix going forward (that was the preserve of the old state-owned utilities like the SECV), but to ensure least cost and reliable energy supply. Similarly, the policy vision now is to overlay a carbon constraint on the same energy market, to then deliver least cost energy while also minimising total greenhouse emissions. There is no need, as Ziggy would prefer, to go back to the central planning days and define the required plant mix. Doing that would guarantee high cost energy supply.
It might make you wonder why Switkowski would prefer the White Paper route. Is nuclear not quite as economic as he would like to think? Would it not cut it in the market against other alternatives? Is convincing the Minister or the Department the only way of it seeing the light of day? Is it easier to convince taxpayers to part with the billions to support an industry than going head to head with the competition?
Economists have been relatively clear about why a carbon price is required. Ignoring them will consign future generations to much lower prosperity.