In this note we observe that the Federal Government has made a complete mess of energy policy during the time of the Turnbull and Morrison Governments. Current energy and emission reductions minister Angus Taylor has accomplished nothing and does not appear to be capable of articulating a policy capable of getting consensus support.
The federal government has pivoted from coal to gas, but all that has done is annoy its diminishing band of coal supporters and exposed its inability to get the basic economic analysis correct.
The Federal Governmnt has stuffed up so badly that in electricity it’s too late.
There is no longer a role for Federal Government in setting electricity carbon reduction targets or managing the generation mix, or helping coordinate distributed power. That role has passed to the states.
The fact that it has been asleep on the job means that most of the hard earned federalism around the NEM, AEMC, and even AEMO has been weakened, but its no good crying over spilled milk.
Where the Federal Government could start to get back some credibility, and at the same time reduce the estimated net present value of $300 billion of imported fuel, on which Australia is wholly dependent and which is a big security risk, is by having an electric vehicle policy that transitioned the car and diesel fleet in Australia to “new energy vehicles” in a timely fashion.
Australia has everything to gain and absolutely nothing to lose from such a policy. We don’t have a car industry, there would be improved balance of trade, after the initial investment. It would support the Australian resource industry. It would increase electricity demand, helping to stabilise that industry.
Even the CFMEU, that other group of “unrepresentative swill” doesn’t see its interests threatened. And everyone else is doing it.
My Christmas wish is that the Federal Government would develop a sensible policy and, if it won’t, I wish that either it would explain itself or at a minimum the mainstream media might ask the Government to explain why. The newly leaked “future fuels” discussion paper clearly doesn’t amount to much.
Listening to Keith Pitt is a reminder of why the Federal Govt does such a terrible job on energy policy
I actually do feel some sympathy with Scott Morrison – although he has more power than Turnbull or Abbott ever did, he is in the end, still hostage to the Qld Nationals.
I was shocked at the conviction with which Keith Pitt puts forward his views. I find working out what’s a good idea and what isn’t pretty difficult. I get things wrong the first time and sometimes the second and third time. Small insights require years of hard work, a ton of reading and constant small progressions.
It seems that QLD Nationals though are born clever, never in doubt, they know their right from their wrong before they start primary school. So there isn’t much point talking to them about anything really. And the reality is they are the decisive power block in Federal politics.
And just on straight politics. I applaud China setting a net zero target by 2060. However, China does a garbage job of actually reporting their emissions year by year.
Australia’s relative honesty, willingness to allow criticism, careful reporting of achievements, failures and progress stands in contrast to the totalitarian approach adopted in China.
Equally, I applaud the UK approach to emissions reduction but in political popularity terms Australia’s success with Covid compared to the UK far outweighs Australia’s policy failure on carbon relative to the UK. At least this year. And that is the political reality we have to manage.
The Australian Govt is betting on hydrogen. That may pay off but in ITK’s view it is a long shot.
Hydrogen: “It’s different this time”
There’s been a lot of talk about the prospects for cost reduction in hydrogen. There needs to be a lot of cost reduction and its more than reasonable to expect that cost reduction will be faster than official reports indicate.
Official reports in fast moving industries particularly from big organisations are mostly out of date before they are published. It’s just the drag created by the combination of bureaucracy and conservatism.
A great article covering many different aspects of hydrogen can be found here.
But if you read nothing else on hydrogen at Xmas, and assuming you haven’t read it already, then read about the issues for hydrogen demand from Michael Liebreich here.
Liebrich’s piece gets my “most useful article I’ve read in 2020” award.
There is no chance of it being written up in mainstream media, so anyone that does read it will have information that most of the commetariat and its pollical master class does not.
The states and the people, and an expired land use policy from 20 years ago, have saved Australia’s embarrassment
Australia is making progress on decarbonsiation in the electricity sector. This is of course no thanks to any of the Morrison, Turnbull or Abbott Governments but entirely due to State Governments and the will of individuals and business who have gone about filling the vacuum left by the Federal Government.
As a result, Morrisson can talk about Australia achieving its 26-28% carbon reduction as if he had something to do with it. Success has many parents alright.
Australia does need a good resources policy. Australia depends on resources very heavily now and into the foreseeable future. Australia is a world leader in resource exctraction, processing, whole of life management and marketing.
It needs a Minister who brings a 21st century approach to it. From what I’ve heard on the radio that person doesn’t appear to be Keith Pitt. But perhaps there is some substance beyond the public posturing and virtue signalling.
Frankly, Pitt’s shortcomings, as it appears from his public utterances, bear similarities to those of the Minister for Energy. That is a focus on trivial, small minded policy beset with problems of implementation because the original thinking and the vision isn’t there.
And in this lack of values, and lack of ambition, that is ambition beyond personal ambition, he is assisted by the ALP, where Albanese looks as one political commentator so adroitly put it, “like the dog that caught the car”
Good policy starts with a value framework and then sets a target
No-one has any idea what the Federal Government’s value framework is around global warming, other than that “they accept the science”. If only they actually did.
Then perhaps something might happen. The remainder of “policy” is about what they wont do and then promoting the exact opposite approach that all textbooks suggest, namely supporting specific technologies over setting a target.
Good policy, in ITK’s very humble and probably wrong opinion starts with a value framework.
In this case the relevant values are that scientists en masse, in a body of research built up by over 100 years of research and backed up by multiple strong lines of direct evidence; scientists predict significant changes to the world climate and ensuing economic, social and cultural consequences from increasing atmospheric carbon concentrations.
Multiple lines of theory and evidence show that Australia is exposed to those changes, although equally our advanced economy can adapt.
One economic consequence is likely global cost pressures on several of our major exports.
Aim to hit the target
Once you have the values in place then you set a target. The target of a 28% reduction from 2005 levels has become nothing but a slogan.
The easiest long term target which even Keith Pitt might accept because 30 years is, unsurprisingly to me, according to him too far into to the future for him to conceptualise properly (according to my understanding of what he said on ABC Radio National) net zero by 2050.
Let’s leave the nuancing around “net” to another time and focus on that goal. In particular this section answers two questions:
First if we have a linear approach, where do we need to be in 2030 to get to net zero by 2050 and second where could the Federal Government get the best result for Australia at the lowest political and economic cost.
The Government can only claim its 28% reduction from 2000 success because of land use changes
And if we exclude land use change, which since 2002 apparently equates to a carbon sink from reaforrestation and similar of a total 86 mt the overall result is that emissions in total have increased from 2002 to 2020 by 33mt.
Much less than GDP of course and I wouldn’t even argue with a statement that they are only a bit worse than flat, but reductions in some sectors are matched by increases in others.
Net Zero implies a further 150mt reduction by 2030
So if we start at 513 mt in 2020 and want to reduce to zero by 2050 and we assume a straight line path then that’s almost 17mt a year or 1/3 = 160 mt reduction by 2030.
Of course it doesn’t have to be, and certainly wont be a straight line and one can write lots of good stuff about how it might be cheaper later or more expensive, easier or harder but basically that’s the job
And when we look at the individual sectors there are a couple of obvious points.
An economy wide carbon price is the best approach
If there was an economy wide carbon price you could maybe make the NEM work again. But there isn’t going to be a carbon price with this Govt.
In the real world the Federal Govt can get the best results with a decent transport policy
Transport is responsible for 18% of Australia’s emission at 94 mt.
Australia imports virtually all its oil. Australia’s energy security is heavily dependent on imported oil
Australia does not have a car industry
In short Australia has everything to gain and nothing to lose by supporting electric vehicles. The single dumbest thing the Federal Govt has done since Tony Abbott came to power is not to develop an electric vehicle policy.
Australia imports about $24 bn of oil and oil products per year that’s about 365 megalitres or 24 million barrels at say US$50/barrel.
Over the next 20 years that’s an NPV at 5% of say $300 bn. $300 bn is a big number even bigger than the cost of 12 submarines.
Australia could probably halve that import cost with a decent electric vehicle program.
On the negative side there would be cost of importing electric cars, but over ten years this probably wouldn’t be much higher than the normal car replacement economy wide cost anyway.
And yes the Federal and State Government would lose their fuel taxes.
A quick run around the world.
Europe – explosive growth
EV and hybrid sales are already 11% of European sales:
And the penetration of BEVs is widespread. This is not just a Norway story anymore but now is being lead by Germany, the UK and France.
A skeptic might point to the decline in Chinese sales this year but on the other hand Hyundai plans to go from <100 K electric vehicles this year to 500 K by 2025 as articulated at its 2020 investor day last week.
Personally I think Hyundai is too conservative.
VW is going to go a lot harder.
I won’t go into the policy announcement but Europe is betting heavily, very heavily that EVs are the near term future.
South Korea stepping up
Hyundai believes 30% of world passenger car sales will be electric by 203 and plans to increase its own EV sales from 100 K in 2020 to 560 K by 2025.
These new plans were announced at last week’s Hyundai investor day.
USA – flat, driven by new models, Biden Presidency positive
In the USA sales have been flat 2018-2020 but are expected to jump in 2021 driven by new models.
Various news outlets suggest that the Biden administration will attempt to increase the number of vehicles eligible for the Federal EV tax credit from 0.2 m to 0.6 m. Biden also plans to move Federal Govt procurement towards 100% clean energy vehicles and perhaps tighten fuel economy standards.
China – a new growth surge
In China car sales in general and NEVs (New energy vehicles) have recovered in the December half. Total passenger car sales for the past 5 months have been above the previous year. According to Blomberg sales of NEVs more than doubled in November to 169 K.
The industry in China appears to be regaining optimism. There are about 4.6 m NEVs on the road in China and on track to be around 5 m by end of 2020.
“The number is scheduled to hit 5 million units by the end of this year. I think the target can be met, judging from the current situation,” Fu said.
The comments came after local governments rolled out favorable policies to support the development of new energy vehicles.
China, for instance, has extended subsidies for new energy vehicles until 2022 and such vehicles will remain exempt from purchase taxes for another two years as well.
To spur sales, the Beijing municipal government also said it would offer an additional 20,000 electric car plates for carless families in the capital city this year.
Other cities such as Shanghai, Hangzhou in Zhejiang province, and Guangzhou and Shenzhen in Guangdong province also announced similar plans in offering more license plates.” Source: China Daily
The same article states that NEVs are expected/hoped/may account for 25% of sales by 2025 and running around 3 m per year.
Japan – policy in a state of flux but ambition is increasing strongly
In Japan according to a recent article by Nikkei Asia the Government is looking at mandating electricfied vehicles. It will announce the policy after a December conference in which experts and car industry execs participate.
At the moment though Japan is still allowing hybrids. According to the ICCT, actual emissions in the US from hybrids are 2x-4x above those advertised.
Toyota plans to offer an electrified option for all models by 2025. It sells a wide range of such vehicles — hybrids, plug-in hybrids and fuel cell cars. It aims to sell 5.5 million electrified vehicles globally by 2025. Nissan Motor is aiming to raise the ratio of hybrid and electric car sales from 30% of all domestic sales to 60% by 2023.
“The new Note compact, which hits showrooms this month, will be available only as a hybrid. Honda Motor, meanwhile, is aiming to make two-thirds of all four-wheeled vehicle sales electrified. It began selling its first mass-produced electric vehicle, the Honda e, this year.” Nikkei Asia article
In ITK’s opinion, and it is just an opinion, Japan’s automakers are probably as reluctant as those in the US to get on board the electric program.
ITK’s take, only Tesla really gets it
Tesla cars are far from perfect. Their build quality is probably well below that of say Mercedes or Subaru. However, in the end owning a Tesla is apparently an enjoyable experience. The cars seem to be exciting, look good, perform well.
By contrast the conventional automakers from VW to Hyundai don’t get it, in my opinion. Despite all the investment dollars the ID.3 and ID.4 seem to be unexciting.
They cost more than the ICE equivalents at least in terms of purchase price without delivering enough perceived benefits.
This is nothing to do with range anxiety, although that’s a factor and everything to do with kerb appeal. But that’s just my opinion. And enough effort is going in that surely some other manufacturer will work it out. Surely.
Electric vehicles are an area where the Federal Govt could make a difference
The policies required to drive uptake of EVs are well understood. They are the typical carrot and stick policies.
Sticks in the form of emission standards and required percentage of zero carbon vehicles. Carrots in terms of price incentives, or priority access incentives such as free parking, ability to move on transit lanes.
The important point is signalling and direction. The most important thing the Federal Govt can do is to demonstrate by words and actions that its serious about the transition.
It’s a national priority, a job the Government is fully capable of doing and a job where it has much to gain and nothing to lose.
David Leitch is a regular contributor to Renew Economy. He is principal at ITK, specialising in analysis of electricity, gas and decarbonisation drawn from 33 years experience in stockbroking research & analysis for UBS, JPMorgan and predecessor firms.