Emission cuts yes, at a price

Canberra Times
Wednesday 21/2/2007 Page: 1

A national emissions trading scheme is the only way to make deep cuts in Australia's escalating greenhouse emissions, but electricity costs will rise substantially as a result, according to Australia's major power generators.

The National Generators Forum - the industry body representing Australia's 21 major power generators - says it supports emissions trading in preference to a carbon tax, but a carbon permit price of around $40 per tonne would be needed to halve Australia's greenhouse emissions by 2050.

In a report issued yesterday, it warns emission cuts will come at a price, with wholesale electricity prices rising by 100 per cent and retail prices by 40 per cent over the next 12 years to meet projected greenhouse reduction targets.

The $40 billion industry body also wants coal-fired electricity generators to be "compensated fairly'' for any impact government-imposed greenhouse polluter penalties would have on the value of their assets. But the Australian Conservation Foundation has described the suggestion as outrageous and unthinkable.

"We wouldn't think of compensating James Hardie or Big Tobacco for lost revenue as a result of changes in government policy decisions. We wouldn't contemplate it for one minute with industries like asbestos or tobacco, so why should we think any differently about a big greenhouse polluter like the coal industry," the organisation's climate change spokesman Tony Mohr said.

Carbon dioxide emissions from Australia's electricity generation sector are about 190 million tonnes per year and expected to exceed 400 million tonnes by 2050.

The report claims halving present greenhouse emissions from the industry by 2050 can only be achieved by closing or rebuilding most existing coalfired power stations. This would require $128 billion capital expenditure compared to $78 billion for "business as usual".

The report says a "poorly managed transition to a lower carbon future" would incur major costs and devaluation of assets and compensating businesses affected by loss of asset value resulting from policy change is a key issue for electricity generators.

"There must be recognition that Australia's electricity generation sector, in particular coal-fired generators, face an uncertain future as the drive for emission reduction escalates." Brown coal generators - like the Loy Yang power plant in Victoria's industrial La Trobe Valley - would be substantially affected by government policy mandating deep cuts in carbon emissions, with revenue per megawatt of installed capacity falling by 91 per cent. Black coal generator revenue was likely to fall by 20 per cent.

National Generators Forum executive director John Boshier said to preserve the confidence of investors and "stop them losing boatloads of money", generators should be allocated sufficient free carbon emission permits by the Federal Government to preserve the value of their assets and prevent them being stranded.

"If an emissions trading scheme is introduced and a brown coal power plant can't lower its emissions to the required level, it would be unable to operate... The business would be almost immediately bankrupted because of government policy." Mr Boshier said if an emissions trading scheme was imposed and the Federal Government earned money from it, it should be required to compensate owners of assets who were left "stranded". This was a fair exchange considering electricity generators had already invested more than $2 billion in research and development for low emissions technologies in Australia, he said.

The report says "two key base-load technologies" - nuclear and advanced coal with carbon capture and storage - are essential to achieve cuts.

Chief executive of Renewable Energy Generators Australia Susan Jeanes has called for nationally consistent market based policies to "deliver an incentive between the cost of providing electricity generated by burning coal and the cost of delivering emissions-free electricity." She said economic modelling showed the cost of generating electricity from geothermal energy would reduce from a $50 per megawatt to $30 in 2050, and the cost of wind energy would drop from $70 to $45 over the same period.