The price of carbon: A view from the mendicant state | RenewEconomy

The price of carbon: A view from the mendicant state

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Tasmania will suffer from the axing of the carbon price, with hundreds of jobs to perish.

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tas damnTasmania was a clear winner from the carbon price. And Tasmania will be the biggest loser now that it has gone. Apart from an emergency backup gas fired plant all our distributed electricity is hydro or wind powered.

Axing the carbon price will axe Tasmanian jobs and incomes. 100 direct Hydro jobs will go plus many more due to flow on effects. Hundreds more potential jobs will never be created as planned renewable energy schemes are dropped.

Last year Aurora (Tasmania’s power company) paid a $116 million dividend to Tasmanians, plus a minuscule cut in electricity bills. The Hydro made a record profit of $238 million, but this year it will crash to less than $20 million if the carbon price is dropped.

Tasmania’s hydro and wind power generation attracted no price penalty. It was the one bright spot in an otherwise bleak national outlook for power generation. In the last financial year (2013-14) the carbon “tax” meant Tasmania enjoyed the lowest wholesale price in the National Electricity Market. Tasmanian wholesale prices averaged $10 to $20 per megawatt hour less than the other states. That’s a 20-40% advantage.

There will be no compensation for the resulting loss of hundreds of jobs and over $200 million in lost revenues. Compensation for these losses to Tasmania should have been be an essential pre-condition of passing the bill. Tasmania’s coalition senators and Senator Lambie have been strangely quiet on this.

The demand for electricity and generation emissions have been falling since the 2010. Since the introduction of a carbon price in June 2012 they have fallen faster.

According to Dr Hugh Saddler, Principal Consultant, Energy Strategies at Pitt&Sherry: “Throughout this period, and for a year and a half before that, demand for electricity in the National Energy Market (NEM) has been falling steadily. Falls in demand have occurred in every NEM state, except for Western Australia.

“The total fall in emissions has been 10.4 per cent, or 18 million tonnes (Mt) of CO2-e in absolute terms. Changes in electricity consumption have always been of great importance to the outlook of Australia’s emission.” The demand in WA has remained flat.

Meanwhile, the Coalition still lies about the cost of Australia’s electricity bills. Over 50% of price rises are due to the electricity companies’ rorting loopholes in the electricity pricing system. They get paid to build poles and wires even if they carry no power at all. While they were claiming more infrastructure was needed to meet rising demand real demand fell about 18 per year , and emissions fell by 18%. They are still pursuing increased tariffs.

While the details can be debated, we are about to see a dramatic demonstration of just how effective carbon pricing has been in reducing emissions and stabilising electricity prices.

If Tasmania’s rainfall declines to below average there will dire consequences for Tasmanian wholesale electricity prices in the medium term. Tasmania’s hydro dams are already low due to the power company (Aurora) profiting from its low carbon advantage by selling record amounts of power to mainland states. The forecast El Nino could dramatically push up the wholesale price of hydro electricity.

Cutting the carbon price will also put Tasmania’s implementation of its ambitious wind power schemes in jeopardy.

It’s not just Tasmanians who will suffer. Despite corporate and government lmisinformation a market price on carbon is still the best way to reduce emissions and encourage investment in renewables. It also provides the policy certainty and incentives necessary for manufacturer confidence in this country.

BlueScope Steel’s recently unveiled solar energy gathering roof is a case in point. It incorporates photovoltaics, solar hot water and building temperature control. Abandoning the price on carbon will remove an incentive for building Bluescope’s proposed Australian manufacturing plant. Opportunities for new manufacturing and service jobs will be lost, as will the financial benefits for all Australians.

If Tasmania’s new PUP senator Jacqui Lambie is sincere in saying she will always put Tasmanian interests first, then she could do no better than to vote against the repeal of the price on carbon. She he would advocate for a strong price on carbon, both nationally and internationally. At the very least she should vote for retention of a carbon pricing mechanism with no fixed price.

That would help secure Tasmanian interests in the event that the world moves more quickly on pricing carbon. In a world carbon market Tasmania would be significantly advantaged. The higher the price the more the advantage to our cash strapped state.

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9 Comments
  1. Winston 6 years ago

    You have to give Tassie Hydro their due. Before the carbon price fell they stored up their energy, sucking cheap coal power down from Victoria. With the carbon price in they turned that on its head and generated like mad, at the expense of their storages. Now, with their storages running low, the carbon price is repealed and they can re-stock using Victorian coal once again.

    They’ve played the game to perfection. Fair play to them.

    But with their storage running low, the hay they were making can’t last. It would be good of you to mention that, Phil, instead of simply quoting figures from what’s (sadly) turned out to be an exceptional period. Also, loss of the carbon price isn’t going to be the stymying factor for wind projects in Tassie. They were in limbo anyway, because of network constraints and a bottomed-out wholesale price (relative to other regions).

    Also, give your article a bit of a read-through before you hit the post button. The mess of typos and cut and paste errors in there is kind of embarrassing.

    • Phil Gorman 6 years ago

      Sorry for the sloppy editing guys. The feeble excuse: it was posted at 2am.
      I am squirming with acute embarrassment as I type.

      I can’t resist suggesting that you give the article a more thorough read through. I mentioned the looming problems with storage levels, including the forecast El Nino, in the tenth paragraph. A lack of reading comprehension can be kind of embarrassing. 🙂

  2. juxx0r 6 years ago

    I dont understand, because it was not explained, how the job losses come about.

    Nor do i get how a lower wholesale price is both a good thing and a bad thing at the same time with respect to revenue.

    • Brad 6 years ago

      I agree I have seen the number throw around and I live in Tasmania and can tell you they can lose a lot more job before there will be any change in service. They re-structured and split the generation and distribution. it has probable come from this as the old ‘hydro’ has some many people who don’t do any real work but union etc. etc.

    • Phil Gorman 6 years ago

      The initial 100 job losses announced by the Hydro are due to the company’s projected loss of $220 million in profit.

      Public service jobs are under threat due to the coming crash in the variable compulsory dividend the company pays to the Tasmanian Government. It is due to fall by over $100 million, from $116 million to less than $10 million. More flow-on effects include complex job loss multiplier effects on the community.

      The methods of calculating the multiplier are beyond my limited comprehension of economics. It can also take many months to have its full effect. When Caterpillar shed 200 jobs in Burnie unions and the council estimated up to 4.000 households would be directly affected. The mayor, Steve Kons said, “You have to consider the multiplier effect, and that will be close to 1000 jobs overall.” That gives a lost jobs multiplier of 5.

      If we use a multiplier of 3 we get 3 extra lost jobs in the community for every redundancy. So the loss of 100 hydro jobs will result in 300 more job losses over time.

      I don’t understand your second remark. Please be a little more explicit as to the parts of the article you are having difficulty with.

      • juxx0r 6 years ago

        Hi Phil,

        I still don’t get the job cuts. I don’t get how jobs have to do with profitability. If the extra sales created the need for the 100 jobs, or roughly 10%more jobs, then yay, but i don’t see that from a salesperson perspective nor from a maintenance perspective, so to retract them and blame carbon seems like blaming something because it’s fashionable.

        On the wholesale price. The wholesale price is not going to change in Tassie due to the carbon tax as the interconnector is not free. So profitability is not going to change in Tassie, and you say that tassie had a 20-40% advantage. Now we know that the interconnector delivered 2TWh to Victoria, from roughly 13TWh production.

        So given the profitability is not going to change from tassie sales, now you want me to believe that 15% of sales accounted for 91.6% of profitability. Or that the 2TWh sold to the mainland received a profit after all costs including the interconnect of $109/MWh. And that the carbon tax removal is going to flood the NEM to the point that this profit reduces to zero.

        So the incremental cost of the last 2TWh and the cost of the interconnect use is going to be less than the NEM wholesale cost 24/7/365.

        Colour me sceptical.

        • Phil Gorman 6 years ago

          Hi juxx0r,

          You obviously know a great deal more about the economics of electricity production and distribution than I. As a fellow sceptic I am as entitled as you to hold my own opinions but no-one is entitled to hold their own facts.

          I have no background in the field of power generation and distribution. My interests are more in the fields of education, meteorology and climate change. However I am happy to explore the topic with you.

          Do you have the evidence to support your dismissal of Hydro Tasmania’s statement of its reasons for 100 retrenchments?

          The price on carbon meant Tasmania enjoyed a significant cost of production advantage relative to the mainland’s fossil fuel based generators. This enabled it to offer power at a 20% to 40% cheaper wholesale price for all the
          power it generated, not just the amount exported to the mainland. The Hydro’s profitability will fall because it no longer enjoys that advantage.

          Other factors in play include.
          -the fall in global demand for Australian coal;
          – the falling price of Australian coal (currently around $70 per tonne);
          – the demand for grid supplied electric power continuously falling for several years in Australia, as in many other advanced countries;
          – the power industry’s market failure due to consistently forecasting rises in demand over the same period;
          – the resulting significant over-capacity in fossil fuel based generation;
          – the stranding of assets such as coal mines and coal fired power stations;
          – the industry’s massive over-investment of billions of dollars in transmission infrastructure, and
          – the resulting very large rises in the cost of electricity to consumers;

          I refer you to an article by a professional expert in the field. Mike Sandiford published “How much will Tasmania pay for shorting the carbon price?” in The Conversation on 14 July 2014 . This gives a knowledgeable, factual and detailed account of Tasmania’s situation.

          • juxx0r 6 years ago

            Mike suggests that the wholesale price in Tassie is the wholesale price in Victoria plus $10/MWh under importing, and the wholesale price in Victoria minus $10/MWh under export conditions.

            This implies that the profit significantly came from the local market in Tassie, yet taswegians were gifted with a drop in power prices, unique in the country, as per your article.

            I don’t have the answers, but the title refers to “The Price of Carbon” and i don’t see the link. I see vested interests blaming an easy target.

            Basslink has more to do with this than the carbon price, but nobody complained about the cheap imported power when you needed it.

            Tassie should pull its finger out and develop its wind assets to ensure export via basslink, utilising its hydro as storage and deliver income and jobs to the state. Perhaps that would have been a good use for the $238M in profit.

            Which brings me back to jobs. I have no faith that government organisations hire efficiently. And i don’t have the time to go back through the annual reports. Instinctively, 15% more power doesn’t equal 10% more jobs. Your mate Mike states: “and the extra demand for Tasmanian hydro power pushed prices to around $48 per megawatt hour. With no significant extra cost on the generation side”. This makes sense since incremental Hydro is about valves and bearings.

          • Phil Gorman 6 years ago

            to juxx0r from Phil. Sunday 1205

            Hi ,

            I’m glad we’re now on the same pages regarding where the cost advantage came in.

            “This implies that the profit significantly came from the local market in Tassie, yet taswegians were gifted with a drop in power prices, unique in the country, as per your article.”

            Yes.

            “I don’t have the answers, but the title refers to “The Price of Carbon” and i don’t see the link.”

            The ‘price of carbon’ in the title is what the article is about in as much as it discusses the effects of removing the price on carbon on Tasmania’s economy. It is also an admittedly oblique reference to the price humanity is going to pay for its folly in failing to curb carbon pollution through the use of pricing mechanisms.

            “I see vested interests blaming an easy target.”

            So do I, due to their self evident culpability; although I don’t recall targeting them in my article.

            “Basslink has more to do with this than the carbon price, but nobody complained about the cheap imported power when you needed it.”

            I take the “this” you mention is Tasmania’s wholesale price. I agree that Basslink, depite its costs, is a worthy addition to the National (Eastern states) Electricity Grid and Taswegians (with a capital T if you please) should be eternally grateful for the benefits it brings.

            I absolutely agree with you that “Tassie should pull its finger out and develop its wind assets to ensure export via Basslink, utilising its hydro as storage and deliver income and jobs to the state.” It certainly would have been the best use for the $238M in profit.

            The tiny 1.5% drop in consumer power prices was only made at the behest of a Labor government frantically trying to claw back some credibility prior to losing an election.

            Now we have the other bunch of venal, corrupt, incompetent charlatans in charge again. They’re destroying the forestry peace agreement, trying to revive the Tamar pulp mill, and inviting resort developers and miners into
            national parks. Oh yes, and frackers into prime dairying and
            cropping areas. They are also encouraging a Mount Wellington cable car cum tacky mountain resort. Aaagh! But I digress.

            I too lack faith that government organisations hire or fire efficiently; even corporatised ones the government is desperatley trying to flog off cheap to the private sector.

            I’ve just looked back at the original article. My original list of references is missing, so here it is.
            References:
            Two articles by Professor Mike Sandford: Professor of Geology & director of Melbourne Energy Institute, university of Melbourne, published in The Conversation:
            ‘Jacqui Lambie’s Carbon Tax dilemma – what is
            good for Tasmania’ and
            ‘How much will Tasmania Pay for shorting the carbon price?’ The Conversation

            Electricity emissions update ‐ data to 30 June 2014 ‘Looking back over two years with a price on emissions ‘. by Dr Hugh Saddler, Research Associate, Centre for Climate Economics & Policy at Australian National University, Principal Consultant, Energy Strategies at Pitt&Sherry, Carbon Emissions Index (CEDEX), published by Pitt
            & Sherry, Canberra, 2104. http://www.pittsh.com.au/cedex

            Carbon Tax Repeal: Hydro Tasmania says it will cut nearly 100 jobs. The Guardian 27th June, 2014.

            Energetics ; David West, Mark Bourne,
            http://www.energetics.com.au/…/falling-electricity-demand-in-australian’s-ener...

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