Sunday, 22 July 2012

Wasting carbon tax cash on the living dead
2 Jul 2012

Have you heard the joke about the government that set up a carbon tax to reduce emissions but then spent nearly $100 million days before the scheme started to try to stop it from reducing emissions? Yes, it really happened. In one of the greatest examples of throwing good money after bad, the federal government provided $50 million to prop-up the Energy Brix brown coal power station and briquette plant which commenced operation in 1956; and in conjunction with the Victorian government, threw $40 million at Alcoa's 1963 Point Henry Geelong aluminium smelter-all on Friday. By the way the money for Energy Brix is on top of around $100m they'll receive in cash and free permits out of the Government's Energy Security Fund. Closure of these two plants would have been one of the quickest and lowest cost forms of greenhouse gas abatement the country had at its disposal.

Alcoa's Point Henry Smelter has been living off the generosity of other Victorians for three decades now. Thanks to what one former member of the Hamer Victorian government called a "collective moment of insanity", in the early 1980s the Victorian government committed itself to an electricity supply contract that has provided Alcoa with hugely subsidised electricity. The deal was so good for Alcoa and so bad for other Victorians that current Liberal Party Federal President Alan Stockdale described it as "manifestly unjust". Energy Brix and its associated briquette factory is the oldest fossil fuel power plant operating in the country, originally commencing production in 1956. It is also the third most polluting per unit of electricity generated, being just a shade better than Hazelwood-the most carbon intensive plant in the developed world. What's worse is that it also produces brown coal briquettes which are then used to fire boilers that might have switched to less pollution intensive fuels, were briquettes unavailable. Or alternatively production locations might have shifted to areas where gas was available.

Energy Brix is well past retirement age and should have been put out to pasture years ago. For a long-time, industry participants have looked at Energy Brix and seen a creaking, sub-economic scale power station; and a briquette factory that was museum piece from the time before gas was discovered in Bass Strait. But what they could also see was an option or gambling stake on lots of free carbon permits from the government that they could cash-in, after finally putting the plant out of its misery.

As early as the 1990s it was widely expected within the power industry that government would ultimately introduce a carbon trading scheme. At the same time many hoped, and furiously lobbied for, government to allocate the carbon permits based on historical levels of pollution.

For those owners of sub-economic scale or very old coal power plants that were on the verge of closure, this created an incredibly perverse incentive. Essentially you would invest as little as possible to keep the highly polluting plant just creaking over so you could lay claim to lots of free permits under a future carbon trading scheme. Once these free permits were in the bag, you could cash-in the chips so to speak even though you had no genuine plans to keep plant running over the long-term. As an illustration, a fire went through the briquette plant in December 2003, and rather than invest to restore the plant to full operation, they instead have just continued to run the plant at a fraction of its full capacity. Of course this was after putting its hand out to the Victorian government (something HRL seem to be rather practiced in) for $5.2 million dollars, which the government rejected.

Meanwhile during the same week the Baillieu government was bailing out aluminium workers, it has informed all staff working on renewable energy within Sustainability Victoria to pack up their desks. With the renewable energy industry about to invest close to $20 billion over the next eight years, Climate Spectator has been informed by government sources that there are now just two people within the Victorian government dedicated full-time to supporting renewable energy investment.

While South Australia has captured billions in power project investments and lower electricity prices thanks to renewable energy, it appears as if the Victorian government is resolutely determined to cut its nose to spite its face. In spite of the carbon tax finally becoming a reality, it appears as if a smoke-affected, near terminal job in the hand, is worth more than two clean energy jobs in the bush.