Apr 28

Rudd climate change delay until 2012

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Yesterday Kevin Rudd confirmed that the Emission Trading Scheme had been shelved, prompting outrage from environment groups and opposition accusations he was ”running scared” from his centrepiece policy to tackle the problem he has described as ”the great moral challenge of our age”.

The Prime Minister said the government had decided ”to extend the implementation time for the introduction of a carbon pollution reduction scheme until the end of 2012”. It would then ”make its assessment on the implementation of a CPRS based on the commitments which are then entered into by the rest of the international community”.

Kevin Rudd’s retreat from climate change could save his government $4 billion in the Federal budget next month, helping the Government pay for a large share of the proposed health care reforms.

The ETS delay is the latest sign the government is clearing the decks before a possible early poll.

Together with new fuel efficiency regulations and existing funding for solar and clean coal projects (possibly the solar flagship program), the measures will become pre-election announcements to justify the claim the government is still committed to tackling climate change and able to meet the reduction targets it has pledged internationally.

Hazlewood power station

Who would have thought the difference between ”the greatest moral challenge of our age” and ”absolute crap” could wind up being so small?

On one side there will be the Coalition’s ”soil magic” scheme based on implausible assumptions about the greenhouse-abatement capacities of the earth, and on the other the government’s ”energy efficiency” measures, which it implausibly hopes will provide sufficient cover for it to duck discussion of an emissions trading scheme altogether.

To understand just how far this debate has shifted, think back to poor old Brendan Nelson, who lost the Liberal leadership in 2008 for suggesting the wait-and-see approach that now seems to have bipartisan approval.

Kevin Rudd suggested yesterday he was just shifting the timing of the ”implementation” of his carbon pollution reduction scheme – like it was a minor administrative matter.

This decision significantly compromises the Prime Minister’s credibility on the issue and clouds in uncertainty business investment decisions, and Australia’s international negotiating position.

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Mar 02

MacGen Australia’s heaviest emitter

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NSW power company Macquarie Generation is Australia’s biggest emitter of greenhouse gases, according to Department of Climate Change data.

The company, which operates the massive Liddell and Bayswater coal-fired power stations in the NSW Hunter Valley, reported total direct (so-called ”Scope 1”) emissions of 25.3 million tonnes of carbon dioxide or other greenhouse gasses, or about 4 per cent of Australia’s total.

Once audited and refined the Scope 1 NGER emissions data could provide an indication of a corporation’s potential liability under the Government’s proposed Carbon Pollution Reduction Scheme.

MacGen Liddell power station

Also published last week were indirect or ”Scope 2” emissions data, including major power users and electricity network operators and retailers. The top 10 Scope 2 emitters were Alcoa Australia, Rio Tinto, Transgrid, Wesfarmers, Hydro Aluminium Kurri Kurri, Woolworths, BHP, Queensland Electricity Transmission, SP Australia, CHEDA Holdings, Energy Australia and ENERGEX.

See The Age 2nd March 2010 for the full article.

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Dec 15

NSW electricity prices set to rise

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The state’s pricing regulator, the Independent Pricing and Regulatory Tribunal (IPART) has today recommended that electricity prices rise by up to 62 per cent, including inflation, over three years.

Electricity prices are already rising at a double-digit pace, following agreed price rises to allow big capital spending programs by electricity retailers such as EnergyAustralia and Integral Energy.

IPART says the biggest impact on the proposed price rises is the Federal Government’s recommended emissions trading scheme and increased network prices.

By 2013, the impact of the Federal Government’s emissions trading scheme would increase the average bill of EnergyAustralia customers by 23 per cent, Integral Energy customers by 25 per cent and Country Energy customers by 21 per cent.

See the SMH 15th Decemeber 2009, for the full article.

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Nov 30

Scope to improve pollution reduction scheme

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Kevin Rudd’s carbon pollution reduction scheme, especially as amended to (supposedly) win the Liberals’ support, will do too little to change behaviour, reduce emissions and move us towards a low-carbon economy because it’s so weak and so many options have been closed off.

But it should be noted that:
1. Much of the excessive compensation runs for only the first five years or so. There are various points where the legislation provides for reviews of the pace of progress and the urgency of the problem we’re grappling with.
2. The scheme has focused on the unconditional target of reducing emissions by only 5 per cent, it now seems likely the global agreement to emerge from Copenhagen or a subsequent meeting will require us to lift that to the promised 15 per cent reduction.

The way the scheme works is that the higher the market-set price of carbon, the greater the incentive for households, businesses and major emitters to economise in their use of electricity or switch to lower-emissions sources of energy.

The scheme will hold the price at $10 per tonne of carbon dioxide in the first year, then allow market forces to push it higher. Treasury’s modelling of the scheme assumed prices of $20 to $25 a tonne. It’s not widely understood, however, that because the scheme is open to the unlimited purchase of carbon credits from overseas, the world price of carbon will impose an effective ceiling on the domestic price and it’s likely that a lot of overseas credits – coming from developing countries – will be purchased.

See the SMH 30th Nov 09, for the full article.

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Nov 30

Power giants crying foul

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THE Yallourn brown-coal electricity generators are trying to blackmail government into giving them even more billions of dollars in compensation for the carbon pollution reduction scheme, saying that otherwise they will refuse to maintain their power stations, leading to blackouts across Victoria.

In full-page advertisements in daily newspapers last Tuesday, TRUenergy, which operates the Yallourn W power station, claimed the CPRS as proposed would bring down the electricity sector in Victoria and families and businesses would pay the price. According to TRUenergy, if the CPRS is eventually passed, ”over $8 billion is wiped from the balance sheets of private generators immediately”.

This is after compensation in the form of free pollution permits has been increased 50 per cent as a result of the negotiations between the Government and the Opposition. This is estimated to be worth some $2 billion to the three Latrobe Valley generators over 10 years on the basis that the cap on emissions is reduced by only 5 per cent and possibly worth twice this amount if the cap is reduced by 20 to 25 per cent. On top of this, generators are also offered government guarantees for any borrowings for loans in their highly geared companies, which might have to be rolled over during the next 10 years.

All this bounty led Greens leader Bob Brown to describe the amended CPRS accurately as a ”polluter’s paradise” but TRUenergy chief executive Richard Macindoe says this is not enough for the Yallourn generators because all their $8 billion equity will be wiped immediately the CPRS legislation is passed.

The written-down value of the six gigawatts of capacity of the four generator companies (Hazelwood 1.8Gw, Yallourn W 1.4Gw, and Loy Yang A&B 3Gw) is about $4 billion according to consultant and management educator John Legge, who worked as an engineer on the construction of the power stations in the 1960s. The SECV depreciated power stations over 25 years. The oldest and dirtiest stations, Hazelwood and Yallourn W, were written off years ago. The Loy Yang generators were put in place in stages from the 1980s and would have a residual value less than a third of construction costs.

The politicians in Canberra have put together a CPRS that will give free pollution permits worth anything between $7 billion and $20 billion over 10 years, depending on whether the cap is reduced 5 per cent or somewhere up to 25 per cent following the eventual Kyoto Mark II agreement.

The generators don’t get the money unless the price of electricity rises. Macindoe said after the Government/Opposition deal was announced that the price of electricity would double in the next four to five years if the CPRS went ahead as planned. If that happens then the value of the free permits will more than double to $15 billion to $20 billion and the generators might then be worth $8 billion or more expressed as the present value of the stream of future earnings.

See The Age 30th Nov 09 for the full article.

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Nov 24

AGL is in a good position to benefit from a CPRS scheme

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CPRS should be a net positive for AGL as the carbon intensity of their generation portfolio is lower than the pool average. AGL has a deep portfolio of renewable developments in its pipeline as well as some coal seam gas assets which could help secure it longer term gas needs for low emission electricity generation.

It is estimated by analysts that AGL’s earnings per share could climb by 4 to 9 per cent following the introduction of a CPRS scheme.

One area of concern for analyst is the economic viability of the company‚Äôs wind farms, given the low price of RECs and the dispute with S&Ps ratings agency over AGL’s methods for financing wind farms. While AGL has secured long term contracts to supply renewable energy to major desal projects in VIC and SA, David Leitch (UBS analyst) say it remains to be seen if they will properly insulate the business from price fluctuations.

See the AFR 24th November 2009 for the full article.

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