Wednesday, July 30, 2008

A Clash of Two Ministers

The Federal Government’s green paper on emission trading highlights the dichotomies that plague many of our public policy decisions. It’s the differences between facts and beliefs, between those who promise and those who have to deliver, perceptions and reality, leadership and politics, what we would like to achieve and what we can achieve.
Australia faces two major challenges that are certainly not complementary. One is how are we going to attract the massive long-term investments we will need, particularly in the energy industry, to maintain our economy in face of rapidly growing international competition? The other is how are we going to reduce our carbon footprint?
The green paper shows that, for the time being at least, the Rudd Government wants to remain in “Opposition” mode and keep these issues away from each other.
While Energy Minister Martin Ferguson's report, Energy in Australia 2008, outlines the energy challenge and pays little attention to the emissions challenge, Climate Change Minister Penny Wong’s paper deals with the emissions by dancing around the energy challenge.
The language of the green paper reeks of the tired old assumptions that we will have to jettison if we are going to make any attempt to seriously tackle global climate change.
Number one is this concept that society is divided between big (bad) corporations on the one hand and the community, the battlers, working families on the other.
The green paper encourages the deluded view that significant emissions cuts can be achieved without major costs to the community. It’s a dream where our way of life will be saved by propellers and mirrors and petrol we can practically grow in our gardens. Emissions trading will force the “big polluters” – the carbon mafia, the bastards in the boardrooms – to switch over to the alternative, clean energy sources that up until now they have been conspiring to suppress.
In reality is there is no conspiracy. As Fergusons’s report makes clear, there are no quick-fix clean energy alternatives to switch to.
Furthermore we do not live in a divided society. We are all in this together.
You see, maintaining our standard of living requires major long-term investments. Business leaders make their investment decisions in the interests of their shareholders. To a rapidly increasing extent, those shareholders are "working families". Workers' super funds account for almost a quarter of the wealth on the Australian stock market. But these funds are not restricted to Australia. We have about $450 billion in funds under management invested here and around the world.
When business leaders make their investment decisions, it is helpful to remember they are investing to maximise our retirement income. Major corporations invest for long-term sustainable returns, rather than trying to make a quick buck.
This green paper seems to miss this point entirely. It is a document built around election-cycle timelines rather than investment outlooks. It has short-term provisions to assist some companies that have already made investments in energy and manufacturing, but it has very little to encourage the new, long-term capital investments we are going to rely on for our future economic growth.
The energy we are using today is provided as a result of major capital investments five, 10, even 20 years ago.
According to Ferguson's report we are going to need almost 40 per cent more energy than we currently use by 2030, despite dramatic improvements in efficiency, and fossil fuels are projected to account “for around 94 per cent of primary energy consumption in 2029-30".
Meeting this demand is going to require billions of dollars in investments in fossil fuels starting from now. There is no recognition of this in the green paper.
The green paper makes several references to the need for investments in "clean energy". But it does not say what this clean energy is. It comes close on page 72 where it says: "Carbon capture and storage, solar and geothermal technologies have been identified as strategic priorities for Australia." But none of these even rate a mention in Ferguson’s forecast to 2030.
The fact is that right now "alternative" energies are about as prepared to take over the role of fossil fuels as alternative medicines are to take over the emergency rooms in our major hospitals.
You see, when it comes to understanding the energy industry you really only need to know two things – how much, and how much? How much can you reliably provide, and how much will it cost?
With so-called clean energy alternatives the answer to the former is inevitably "very little" and the answer to the latter is "heaps".
For example, the fastest growing alternative source of power generation is wind. Yet, providing the energy needs of our aluminum industry alone would require a one kilometer-wide windfarm stretching from Melbourne to Brisbane.
It’s all about scale and cost. Minister Ferguson's report says our electricity demand will increase by more than 60 percent by 2030. Wind, it says, will be providing just 1.3 per cent of electricity 20 years from now. Coal, on the other hand will have to provide 70 per cent. In the absence of carbon capture and storage in that timeframe this is going to dramatically increase our carbon dioxide emissions from energy.
It will be interesting to see Ferguson and Wong united when the Government finally releases its projections for emissions. Projections have to be based on facts, whereas targets can be whatever you want them to be. That fact is the politicians setting the targets won’t be around to answer for the fact they will not be achieved.
So the question for us is, should business leaders be investing our super funds to get the best return, or should they forgo our profits and invest in Australia for the good of the nation? Those in favor of investing for the best returns say aye, those against nay – I think the ayes have it.

Leonard McDonnell is a freelance journalist and speech writer. His clients include major oil companies.

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