Yesterday morning on Insiders, Bob Brown pointed out that neither Howard or Rudd mentioned the drought in the debate last Sunday. That may be so, but Labor has put it back on the agenda with the promise of a $1 Billion National Urban Water and Desalination Plan”. The plan, in a nutshell, is a 10% tax credit on private sector capital investment in approved new water projects – for every dollar of capital invested in the project, whomever is responsible gets 10 cents knocked off their corporate tax bill. State government-owned water corporations – who don’t pay tax – would receive a cash grant of 10% of the capital cost.
Meanwhile, on the global warming front, Labor has announced some new plans to combat climate change, of which the headline was solar panels in every school, while the Liberals have interrupted their confusion over Kyoto to announce some extra grant money for renewables research.
Particularly with Labor’s plans, it seems that there is an inverse correlation between the quality of the policy and the amount of media attention it gets, if you look into the policy detail.
The urban water plan is, aside from the research money allocated to investigate both desalination and water recycling, essentially irrelevant. All it will mean is that the federal government will pay a bit of the cost of the various water supply projects that will be built anyway over the next few years. This will reduce the cost of the water delivered. But the same net outcome could have been achieved if the money had simply been given back to people as a tax cut (and a rise in the pension). It’s not like there’s going to be any problem for state governments or private companies to raise the capital to build the infrastructure anyway. As I read it, it’ll all come out in the wash (so to speak) exactly the same (except that the citizens of Hobart and Darwin are going to miss out on government-funded gravy trains…for once), except for another layer of bureaucracy running their ruler over projects. There’s not reallly that a social equity issue, either; water usage correlates pretty well with income, I believe. But I suppose the harm is minor, and politically, it does offer the great advantage that Labor looks like they’re doing something big on the issue.
The same can be said for the aforementioned headline part of Labor’s “solar schools and homes” plan. As has been repeatedly noted, at present prices, solar cells are a ridiculously expensive way to reduce CO2 emissions; if that was the goal, simply giving schools grants to buy green power from the grid would have bought a hell of a lot more CO2 reduction for the same price. But buying Green Power doesn’t provide the visual symbolism of the solar panels. One could take the optimistic view and claim that they’re a teaching opportunity, but you can’t help but think they also serve as a potent visual advertisement of a Rudd government’s purported commitment to tackling climate change. But, in any case, if you look at the fine print they’re promising to roll these out over eight years. If the optimists are right, by that time solar panels will be cheap enough that we’ll all be putting in grid-connected solar systems purely on financial grounds. The bigger proportion of the grant money (up to $30,000 per school), however, is actually going into the same kind of stuff that the Liberals want to fund – solar hot water, insulation, skylights, and so on. This may be less exciting, but will make a much bigger difference.
The more interesting part of the plan, however, is the “Green Loans” scheme. As has been discussed before, energy efficiency is by far the cheapest way to reduce greenhouse emissions: as the Labor policy puts it:
The Clean Energy Council calculates the net cost of replacing electric hot water systems in New South Wales with solar and heat pump systems at $6.21 for every tonne of greenhouse gas emissions reduced – a far lower cost of cutting emissions than many supply-side alternatives, like using renewable energy or advanced coal technologies.
Unfortunately, convincing people to pick up the “$100 notes lying around on the street” – as somebody else whose name I can’t recall put it – is surprisingly difficult. This is where Labor’s gotten a little bit clever – and probably cleverer than I was prepared to credit them in the past. To get people over the hurdle of installing energy-efficient technology, they’re offering several things:
- A cashback of up to $1000 for replacing electric hot water systems in established homes with solar or heat pump systems.
- Rebates of 30% of the cost of installing insulation in rental properties, which are the least likely to have insulation because landlords can’t increase the rent through installing it, and tenants pay the electricity and gas bills but won’t capture the full benefit if they install insulation themselves.
- But probably most usefully, a “green loans” scheme.
Under this scheme, you pay $50 to have your home audited for energy efficiency, which includes a free giveaway of some compact fluorescents and other energy efficiency goodies. The auditor will offer a list of suggested energy efficiency improvements, and, if you so choose, will arrange their installation and the loan to pay for them. The loan carries an interest rate equivalent to CPI, meaning that it’s effectively interest-free. A lot of the time, the energy saved will easily outweigh the interest on the loan, putting you well in front.
In a nutshell, this part of the package seems reasonably well-designed to tackle the inertia in installing energy-efficient technology, particularly when combined with their previously-announced plan to phase out electric hot water heating. It just strikes me as a bit unfortunate that the politics of climate change have gotten so confused that the policies which will actually make a substantial difference attract the least attention.
As far as the Liberals’ plan goes, research money is always good, but it’s chicken feed. Does anyone get the feeling that they’re just going through the motions?
Let the ideological boondoggles commence.
Not really. The Commonwealth Grants Commission will almost certainly see the funding as a change in the capacity of those state governments to fund their services, and re-balance the equations. Except for this:
This we all get to pay for.
I do believe that loans scheme was first suggested by the Greens. I remember seeing it in the NSW state election.
While I totally agree there are many ‘low-hanging’ fruits available in terms of energy efficiency which are cheaper and should be pursued, there is still some merit to the solar panels for schools plan.
As you point out, a few schools have already used grants to buy the panels and have incorporated into the curriculum and to encourage awareness of the issues.
Therefore, I think schools will be perhaps more inclined to offer some of their own funds (or from the school’s community) to the project.
Secondly, if say 500 schools take up the offer (at a minimum), and each school installs a largish system of 5-10kW (family home is around 1-3kW) then that becomes a sizable demand for solar systems which will stimulate the market and drive the cost down further.
As I’m sure you know Robert, the price reduction you mention will occur much faster once those incentives are in place, and industry knows that they can increase production facilities because the demand will be there.
m
Michael D: supply for solar panels can’t meet demand at the moment. All we’re doing by increasing short-term demand is pushing up the profit margins of solar panel manufacturers.
And as for 5-20 kilowatt systems, you’re talking around $60,000 for a 5 kilowatt system, and closer to $200,000 for a 20 kilowatt system. Find me a government school that has a spare $180,000 – or even $40,000 – to spend on such non-essentials and I’ll find you a principal who should be sacked.
I can’t speak for Hobart, but Darwin’s water supply is not a huge issue. We have a lot of rain here for half the year and our dams hold a lot of water. PowerWater (the local mob) are going to start a new, truly huginormagantuan dam in the next 10 years.
You guys enjoy the artificial desal. Ours is already solar-powered
Jacques: my point being that it’s a rare occasion for either the Northern Territory or Tasmania to miss an opportunity to milk the citizens of the more populous states – traditionally, New South Wales and Victoria.
A solar panel at every school? The best the Libs could do was a flagpole…
Robert merkel said:
Michael D: supply for solar panels can’t meet demand at the moment. All we’re doing by increasing short-term demand is pushing up the profit margins of solar panel manufacturers.
While I’m opposed to these sorts of boondoggles on principle I would like to point out that this is precisely what you want if you wish to create more capacity. The extra profits provide the working capital to increase production. Unless its taxed away of course!
The loans scheme sounds great to me. It won’t be long before people are going door to door offering it, and it will be for free. Heaps of people will impulse buy, because everybody loves shiny new things, especially if you don’t have to pay for it (now)!
Fair point, Peter, but I’d argue that we should we doing the easy things first, then worrying about solar panels.
From a pragmatic perspective, let the Germans fund the R&D if they’re silly enough to try to get a significant fraction of their power from PV panels.
Thanks for running the slide ruler over this bunch of stuff, Robert.
The Green Loan thing sounds good.
We’ve just had a waterwise audit for which we paid $20. A plumber gave us the once over, installed a free new shower rose, fixed the washers in our taps and installed those flow lmiters in the bathroom and kitchen. Not sure who was actually paying him – probably the State government, but might have been the city council.
Here’s a thought: Lets close down a smelter or six.
Closing six aluminium smelters would make more difference than replacing every electric hot water system and insulating every house, and could be achieved with much less inconvenience for voters. Who cares if Alcoa makes a few billion less next quarter? I don’t.
According to Guy Pearse:
Not I don’t like the green loans policy, but FCS, this is the future of the planet we’re talking about! Lets tax carbon (hard) and hand back the proceeds as income tax cuts at the bottom end and increased welfare payments.
They’re actually doing it in British Columbia:
carbonsink, the trouble with the “shut down the smelters” plan is whether you’re actually reducing net carbon emissions, or just shifting them offshore.
It’s the same as shutting down coal exports – sounds great, until you realize that Australia is not the only place from which the carbon-intensive good can be purchased.
Robert, fair point, but when our smelters are run on brown coal I think shifting them just about anywhere would be an improvement.
Something that is often overlooked when discussing solar hot water, better insulation, solar PV etc (all laudable initiatives) is that domestic emissions in Australia are relatively small (20% of total emissions is the number I have in my head but I don’t have time to confirm this now). Why is there is so much focus on domestic emissions and so little on industry?
This is why I advocate an across-the-board carbon tax rather than loans and rebates for solar hot water, solar PV, better insulation and the like. IMO we should be getting rid of all these fiddles and simplify the tax system so the burden is shifted away to income and onto carbon emissions.
As to shutting down coal exports, of course its politically impossible and would cause considerable economic disruption, but if the world’s largest coal exporter suddenly dropped out of the market it would take many years for the world to make up that coal production capacity and the inevitable result would be much higher coal prices and slower growth in coal consumption.
carbonsink: the places they’d bre most likely to shift to a) run their smelters on coal as well, and b) while it’s usually black coal, they use crappy, low-efficiency turbines and use inefficient smelting technology. Hence, the carbon intensity’s probably just as bad.
You know I agree with you on the broad thrust of price signals rather than specific fiddles, but often there is inertia to be overcome that stops otherwise sensible changes being made. Insulation in rental properties, for instance, seems a clear case of where the outcome is decidedly non-optimal if just left to the market.
Bugger, that should have been “away from income and onto carbon emissions”
I agree that (gasp!) the market may not work perfectly in all situations, and insulating rental properties is one such case, but we should be plugging those holes after the broad-based market approach is in place, rather than implementing a complex collection of loans, rebates, and subsidies first.
Of course the reason why we’ve ended up with this dog’s breakfast is political inertia, and worse denial from Howard and co. Witness the state-based emissions-trading schemes and MRET targets, which never would have happened if Howard wasn’t in full denial mode for the past decade.
Its so much easier to put solar panels on schools than make the hard policy decisions.
Rob: You have discussed the danger of letting the smelters head off shore where they’ll face lower enviro standards, and presumably lose jobs/eco benefits too.
And yet you’re happy to let what was Australia’s burgeoning solar industry head to germany and japan? (we used to be top 3, now struggling to stay top 10)
Plus until the full benefits of solar are incorporated into their costs, I think its unfair to dismiss them as simply too expensive. Peak-power generation, on-site, reduced loss from transmission etc.
I’m certainly not advocating that PV is the answer to ALL our problems, I’m just surprised that you seem so ready to dismiss them, when they have a distinct role to play in the mix. While will be even more possible with a little investment now.
Is it simply the cost per CO2 tonne reduction that you’re against?
(I should reveal that I do like shiny silicon wafers so perhaps I’m biased. =) )
I think Robert’s main objection to solar PV is that its by far the most expensive way to reduce greenhouse gases at the moment. On the other hand, solar PV probably has the biggest long term potential, so its a balancing act.
As part of my reform of the tax system I’d love to see some ultra generous tax concessions for any R&D done in the clean tech area.
Michael: why would Australia invest money in solar panel manufacturing right now? Manufacturing is not very profitable, mining is hugely profitable, and if and when the drought ends agriculture will be doing very nicely (I must do a post on New Zealand’s “dairy boom” one day). It makes a lot more sense to continue making lots of money digging dirt up, shipping it overseas, and use the proceeds to buy solar panels.
And the “full benefits” of solar are fully encapsulated by the fact they’re competing against retail electricity, not wholesale. They’re still multiple times dearer than power off the grid. Maybe this will change over the next few years. Maybe not. We’ve been promised cost reductions for years, but they’re not happening.
I don’t have anything against solar panels, per se. I just want to see us put our efforts into reducing emissions as much as possible, as cheaply as possible. And solar panels, for the medium term at least, will only be able to deliver minimal emissions reductions at a very high price. What really shits me, however, is the fact that relentless campaigning by various environmental organizations has left the general public with the mistaken belief that solar panels are a sensible short-term solution to the problem.
There is another alternative to doing manufacturing here, which may or may not be potentially profitable depending on the industry. In the rag trade Billabong, last time I looked was employnig only about 600 people but generating about $100 million in after tax profits, selling about 1800 products in at least 80 different countries. Imagine how rich we would be if we all produced so much profit per capita.
It’s not about doing the stitching and sewing here, it’s about design, brand development, product development within the brand and management setting up the supply and distribution networks etc. – mainly brain work.
In industry development policy we need to look at how we can set the right environment so that Australia is the best place in the world to do the brain work for clusters of industries and then manage the commercialisation. What this means in renewable energy is for people smarter than I am to work out.
Investing in mining and investing in PV are not mutually exclusive, and wouldn’t advocate simply ending mining to fund a PV industry.
However, IMO it just seems as though fed/state govts have missed an opportunity to get a new branch of manufacturing/R&D started in this country in a sector which will (and has) clearly rapidly expanded of late. Even if we didn’t want to manufacture them here, then as Brian points out, we could simply develop/design them here and get the silicon factories in taiwain/japan to pump them out. Of course, Origin have attempted to go their own way in any case.
I would still argue that PV does not yet encapsulate the full benefits because most retailers do not buy your PV power at peak rates where appropriate (often just providing a flat rate) – peak wholesale power rates can be significantly higher because that’s when your gas turbines/peaking plants need to kick in. Yet we continue to compare PV prices to essentially baseload power rates.
Nor do they take into account the fact that you just saved the elec company the cost of upgrading/maintaining transmission lines from latrobe valley (say) to Melb and having to add capacity to existing peaking plants.
I do take your point though that the hype of PV has tended to mask the much cheaper and easier gains to be had through energy efficiency.
After energy efficiency – what do you see as the next best/most sensible way of reducing emissions? (Please just point me to another thread if you’ve covered it there…)
m
Energy efficiency is of course a continuous process, but for what it’s worth we will need to switch our stationary energy mix to some combination of renewables, geosequestered fossil fuels, or nuclear.
The trouble with most renewables is that the technology for storing energy and releasing when we need it (demand management can help to some extent, but it’s not a panacea) is way, way, way behind the renewables tech; and even ignoring that renewables are in my view currently a lot dearer than the alternatives. Geosequestration is unproven and the costs are highly uncertain. That’s why I think that ruling out nuclear is unrealistic. Yes, I’ve thought a lot about the downsides as well; I don’t have the time or space to go into details here, but my conclusion is that some of them are flat-out wrong, some are highly exaggerated, and what’s left is acceptable when you look at other things we live with without any great concern.
Robert, you endlessly state that renewable energy is too expensive. You fail at every point to factor in the cost of business as usual.
Nuclear will not fly in this country. So put that out of your head. And move on.
wbb: my point is simply that unless renewables tech improves – and fairly dramatically – we might be forced into a choice between tripling our energy costs, not making meaningful cuts in emissions, or nukes.
I’m yet to be convinced that people’s ickiness about nuclear power extends to being are willing to pay in the order of 40 cents a kilowatt hour for the alternative. And, unless energy storage starts improving, that’s what we might end up paying. And even if householders are, I very much doubt industry will wear it when there is a cheaper alternative.
Here is a research direction with significant environmental benefits that may surprise you:
CSIRO do research into computer modelling of “granular media” with the aim of improving the efficiency of mining and other industrial processes. Obviously with the current Australian mining boom, a lot of ore is being crushed into small pieces. According to a recent CSIRO talk I attended, rock crushers operate at about 1% efficiency, and a large rock crusher (e.g. at Olympic dam) consumes the same amount of electricity as a large regional centre (e.g. Ballarat). Yet the detailed mathematics/physics of rock crushing is poorly understood.
CSIRO Particulate Dynamics
Alison: that’s fascinating.
Robert’s Options
===========
1. tripling our energy costs
2. not making meaningful cuts in emissions
3. nukes
2. is not an actual option.
So your choice is between cheap nuclear and expensive renewables.
I don’t buy the premise that geothermal, wind, passive solar, PV solar etc etc are more expensive than nuclear. But even if they were – and always remained more expensive – we’d still pay for it.
We pay a lot of money for our petrol already. We’d pay a lot more than we do now for our electricity. We don’t notice our electricity bills. They are in the salad roll and milkshake territory. We don’t economise. We run ridiculous levels of air-conditioning; we don’t turn off endless gadgets in the home and workplace; we light our bldgs all night long; we flood our environment with unnecessary lighting; we heat outdoor dining tables; we run huge mostly empty coke dispensing fridges; plasma screens in every public space we can find; we ain’t begun to even look at our excessive consumption.
wbb: If you don’t mind my asking, how much is your electricity bill?