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Grattan unreliable on electricity networks

March 26th, 2018 14 comments

The Grattan Institute has just released a report blaming high electricity network costs on public ownership and excessive reliability standards. I commented on a draft of the report, but there wasn’t much change in relation to my comments.

My comments are over the fold. Let me offer the following, slightly ad hominem argument. Grattan has backed the National Energy Guarantee, a radical change in Australia’s energy policy, which was justified mainly by the occurrence of a single blackout in Adelaide. Yet it asserts (without any evidence I can see) that the responses to earlier blackouts in Queensland and NSW represent unjustified “gold plating”.

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Categories: Economic policy, Environment Tags:

Adani: Put up or pack up

March 19th, 2018 7 comments

That’s my suggestion for the way Bill Shorten can resolve his continuing problems over the Adani Carmichael mine-port-rail project. To spell it out, he should set a deadline (say June 30) for Adani to achieve financial close for the entire project, and commence construction. If the deadline isn’t met, Labor should oppose the project outright. This is only a marginal variant on the position of leading Adani supporter, Jenny Hill, who suggested a six month deadline in February. So, it gives plenty of cover for those who have supported Adani to fall into line.

The big risk is that Adani will somehow come up with the money to fund the project. As Tim Buckley has pointed out, Gautam Adani is, on paper, rich enough to pay for it out of his own personal wealth, but he shows no sign of doing so. The basic problem is that, while India may not achieve its stated goal of eliminating coal imports, the long term trend is clearly down. That’s only going to accelerate with the shift to renewables, in which Adani itself is a major player. While Mr Adani would rather keep the Carmichael project alive on life support, he’s unlikely to risk his own fortune on such a marginal project.

The end of Adani’s project will entail the end of the whole idea of developing the Galilee Basin. None of the other potential mines have any chance of starting if Adani fails. That leaves open the broader question of a moratorium on new coal mines, which Labor will need to address sooner or later. But the threat posed by the Galilee Basin coal is so great that it’s worth an inelegant compromise.

Categories: Environment Tags:

No new coal mines

February 9th, 2018 15 comments

It’s just been announced that Aurizon is not pursuing its application to the Northern Australia Infrastructure Facility to build a rail line to the Galilee Basin, essentially because the company hasn’t been able to secure any commitments from putative customers (most obviously Adani and GVK Hancock but also Clive Palmer and others). This is great news. It’s now highly unlikely that coal mining in the Galilee Basin will go ahead any time soon.

Opening the Galilee Basin would have been a huge disaster, so it made attention to focus attention on Adani, as the leading proponent, and secondarily on Aurizon and GVK Hancock. But, with this threat apparently staved off, a more comprehensive policy is needed.

Fortunately, we already have one. The Australia Institute has, for some time, been proposing a moratorium on new coal mines. That allows for a gradual winding down of the industry and gives more protection to existing jobs than there would be if new, competing, mines were allowed to open.

Politically, there’s a precedent, with Labor’s “three mines” policy on uranium. That was a fudge, of course, but it was clearly within the export power of the Commonwealth and it didn’t create any big problems with sovereign risk.

Categories: Economics - General, Environment Tags:

The Murray Darling Basin Plan is not delivering …

February 5th, 2018 17 comments

there’s no more time to waste.

That’s the headline for a piece in The Conversation I’ve signed along with a dozen or so prominent scientists and economists who have worked for many years on the problems of the Murray Darling Basin. It’s been released along with a Declaration, reproduced over the fold.

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Categories: Economic policy, Environment Tags:

Decarbonizing the economy is easy and cheap

January 8th, 2018 43 comments

Since I wrote my post on good climate news for 2017, a couple of news items have caught my eye

* Britain now generates twice as much electricity from wind as from coal, and around 30 per cent from renewables in total
* More than half the vehicles sold in Norway are now electric or plug in hybrid

My thoughts on these examples over the fold:

TL;DR version: These examples show that, at least for developed countries, massive reductions in CO2 emissions are feasible right now, with no discernible effect on living standards.

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Categories: Economics - General, Environment Tags:

Why “extremely unlikely” climate events matter

January 5th, 2018 19 comments

I’ve just been advised that my latest article “The importance of ‘extremely unlikely’ events: Tail risk and the costs of climate change” has come out online in The Australian Journal of Agricultural and Resource Economics. For those who can use it, the DOI is 10.1111/1467-8489.12238. For everyone else, here’s a link to a pre-publication version. The main points are

* The IPCC convention is to use the phrase “extremely unlikely” to refer to outcomes (in particular, values of climate sensitivity) in the range of 0–5 per cent.
* Most of the risks against which we act to protect and insure ourselves (for example, car crashes, premature death in any given year) are “extremely unlikely” by this definition
* Around half, or even more, of the expected welfare loss from climate change arises from the worst-case 5 per cent of high values for climate sensitivity.

Nothing really startling here, but it’s the other side of the coin to the contrarian suggestion that since there’s a 5 per cent probability that global warming will turn out not to be a problem, we should do nothing.

Categories: Environment Tags:

Some good news on the global climate

January 3rd, 2018 8 comments

I’ve published a couple of articles recently on climate issues. One, in Inside Story, is an expansion of a post here, making the case that 2017 was a good year for climate policy globally. One more item to add to the list: India’s additions of coal-fired generation capacity are running at the slowest pace since 2006.

The other, in New Matilda, was about the (lousy) economics of the Adani coal mine-rail-port project. It’s part of a series on the struggle against the mine by indigenous Wangan and Jagalingou (W&J) people. Publication has been a bit slow, so my article doesn’t keep up with all the latest events, which seem likely to ensure that this disastrous project won’t proceed. The most important has been the split between Adani and its main contractor EDI Downer, one of a handful of companies with the expertise to run a mine on this scale. Adani’s current claim that it will operate the mine itself seems untenable, according to everything I’ve read.

Categories: Environment Tags:

A good year for the global climate.

December 24th, 2017 15 comments

Ten years ago, when Bob Brown and the Greens called for a plan to end coal exports, their position was way outside the Oveandrton Window (the range of opinions taken seriously by the political class and commentariat). Ten years later, it’s entirely normal for financial institutions to announce that they will no longer fund coal projects, and for major national governments to join an alliance with the self-explanatory title Powering Past Coal.

The news isn’t all good. For a variety of mostly temporary reasons, China has increased its coal consumption in the last year, so that CO2 emissons are likely to have risen in 2017. But the general direction of public policy and energy investment is clearly right, and even reactionary governments like those of Turnbull and Trump have been powerless to do much about it. After all the posturing of the National Energy Guarantee, the coal lobby in the government had to swallow the announcement that the AGL Liddell power station would be closed and replaced by renewables.

More significantly, the threat that the massive (though low-grade) coal reserves of the Galilee Basin might be developed as a result of the Adani mine-rail-port proposal appears to have been staved off. Labor’s victory in the Queensland state election meant a veto of public loan funding through the Northern Australia Infrastructure Facility (a veto which also encompasses a rival rail project put up by Aurizon) makes it highly unlikely that Adani will find any commercial lenders. This conclusion was confirmed by the announcement that Adani has parted ways with Downer EDI, with which it had a $2 billion agreement to operate the mine. Downer is just the latest in a string of Adani partners to walk, or be pushed away (Posco, Worley Parsons and the bankers who were lining up to lend a few years ago). In the US, Trump’s efforts to save coal have been similarly ineffectual.

Looking beyond coal, we’ve had major developments in battery technology, symbolised by Tesla’s 100 MWh SA battery, which has already proved its worth and discredited the Turnbull/Abbott rhetoric about the reliability of coal. That goes along with electric cars and the announced decision of numerous national governments and some carmakers to go all-electric.

None of this should cause complacency. Turnbull, Trump and various likeminded governments (mostly nascent or actual rightwing dictatorships) are still doing their best to sabotage the planet, and the urgency of the problem is clearer than ever. But overall, this has been a very good year for the global climate.

Categories: Environment Tags:

Victory in sight on Adani, but Aurizon still a threat

December 4th, 2017 22 comments

After years of campaigning, it finally looks as if the Adani mine-rail-port proposal in the Galilee Basin has been defeated. A week after the Palaszczuk government was re-elected on a promise to veto funding from the Northern Australia Infrastructure Facility, the two biggest Chinese banks have announced that they will not be lending to the project either.

The election outcome is particularly striking. Premier Palaszczuk executed a rather inelegant backflip on this question after it became apparent that her weak pro-Adani position was politically untenable (I hope my column on the subject may have had some small influence there). My expectation (widely shared, I think) was that this would cost the government seats in Townsville and Rockhampton, where the local governments had committed millions of dollars to be nominated as FIFO hubs. In fact Labor held all these seats, with the possible exception of Townsville, still in doubt. Meanwhile, the LNP proposal for a coal-fired power station gained them nothing in North Queensland and cost votes in the South-East. With the election over, Adani’s political leverage in Queensland is now non-existent.

The Chinese banking decision also welcome. Although China is rapidly moving away from coal in its domestic economy, the Chinese export finance machine is still pushing coal projects around the world, as long as they use Chinese equipment and expertise. Perhaps this announcement is part of a broader change, or perhaps the Carmichael mine project is too much of a dog even for pro-coal lenders.
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Categories: Environment Tags:

Renewables, coal and culture war

November 22nd, 2017 11 comments

In the final week of the Queensland election campaign, I’ve been busy trying to do what I can to influence the result. I’ve put out a couple of opinion pieces about the choice between coal and renewable energy. This one, in The Guardian, focuses on the central role of the culture war in motivating rightwing opposition to renewable energy. In The Conversation, I look at the economics and business aspects and debunk the idea that ‘ultrasupercritical’ technology makes coal-fired power a high efficiency, low emissions technology

Also, in New Matilda, I’m collaborating with Morgan Brigg and Kristen Lyons of the Global Change Institute to produce a five-part series on Adani and the resistance to the project by the Wangan and Jagalingou people.

Categories: Environment, Oz Politics Tags:

The end of fossil fuels: some data and quick calculations

October 29th, 2017 44 comments

The International Energy Agency recently released data showing that world coal production fell sharply in 2016, mainly because of big cuts in China. Looking at the graph, it appears that the peak in production was around 2013. The price of coal has experienced a “dead cat bounce” over the last year or so, essentially because China has been closing coal mines faster than it’s been closing or cancelling coal-fired power stations, but the picture tells the story for the future.

Global coal production (source IEA)

Until relatively recently, the decline of coal was the result of competition with gas, while new renewables weren’t even enough to cover the growth in demand. But a quick calculation shows that renewables will soon be taking out a bigger bite. Global electricity generation is currently about 20000 terawatt-hours (TWh) a year, growing at around 1.5 per cent, or 300TWh a year. Installations of solar PV and wind (I haven’t checked on hydro and other renewables) for 2017 look set to come in around 150 gigawatts (GW). Assuming 2000 hours of operation per year, that’s just enough to offset demand growth. So, any future growth in renewables must come directly at the expense of existing fossil fuel generation which in practice will almost always mean coal.

Turning to transport, regular commenter James Wimberley has an analysis of the prospects for peak gasoline (petrol) used in internal combustion engines. Summarising drastically, his best estimate for peak gasoline is 2032. Decarbonization requires an end to petrol-driven vehicle sales by around 2035. On this front, the good news is that quite a few countries, including the UK, France and India are pushing for an end by 2030.

Of course, all of this assumes that the attempts of Trump and Turnbull (along with likeminded culture warriors in Turkey, Poland and elsewhere) to bail out the dying coal industry come to nothing and also that Trump doesn’t manage to destroy the planet through nuclear war.

Categories: Environment Tags:

Nuclear starts stop

October 23rd, 2017 40 comments

A steady stream of negative evidence hasn’t shaken the faith of believers in nuclear energy. Many of them are under the impression that the failure of nuclear energy is specific to the developed world, where some combination of environmentalism and NIMBYism prevents the adoption of an obviously sensible solution. It is widely imagined that China, India and other countries are forging ahead. This idea was plausible until fairly recently, but the latest evidence suggests that nuclear power is in terminal decline. Globally, only four nuclear plants commenced construction between 1 January 2016 and 30 JUne 2017. China hasn’t started any new plants this year and is sure to miss the 58GW target set for 2020.

The problem, simply, is that while China’s problems with delays and cost overruns have been less severe than those in the developed world, the same patterns are evident. New nuclear plants simply can’t compete with renewables.

I don’t expect that this will have the slightest impact on the Australian and US right, who have long since ceased to regard evidence as relevant to anything. But, for anyone who is still open to evidence, this debate ought to be over.

Categories: Economics - General, Environment Tags:

Pumped hydro

October 21st, 2017 34 comments

In my Conversation article on the Turnbull government’s plan to keep coal-fired electricity alive, I said that most of the opportunities for hydro-electric power had already been exploited. I was thinking of primary power generation, and in this respect, I maintain my view. However, I neglected the option of pumped storage, where water is pumped uphill when excess electricity is available, then run downhill through turbines to (re)generate the electricity when it is most needed.

My old university friend, Andrew Blakers, now with the Research School of Engineering at ANU emailed me to point out this study, looking at the large number of sites potentially available in Australia, more than enough to backup all the renewable energy we will be generating in the foreseeable future.

This isn’t just a theoretical proposition. The Kidston hydro storage project in the advanced stages of planning, will offer 2000MwH of storage combined with a co-located 270MW solar PV project. The same report mentions some big wind + storage projects.

Still, if Labor is silly enough to endorse Turnbull’s NEG idea, it’s hard to see any more progress being made.

Categories: Environment Tags:

Breaking ground in Adani’s Utopia

October 14th, 2017 12 comments

Having argued for some time that Adani’s Carmichael mine-rail-port project is unlikely to go ahead, I was initially surprised to read the announcement that Adani says it will break ground on Carmichael rail link ‘within days’. My mental image was of heavy earthmoving equipment excavating the route along which the line is to be laid. This seemed surprising to me, since there had been no evidence that the project was anywhere near that stage.

But a closer reading suggests that the “ground breaking” is of the kind seen in a typical episode of Utopia, in which lots of dignitaries are presented with shovels and turn over a piece of dirt, to “mark the official start” of the project. That is, presumably, a different “official start” from the one that was marked by another ceremony back in June. Obviously, this ups the pressure on governments to lend public money to the project since a failure to do so would mean abandoning a project that is “officially” under way.

Categories: Environment Tags:

Who will pay for Adani’s infrastructure? We will

October 7th, 2017 19 comments

A couple of days ago, it was announced that the Fly In Fly Out workforce for Adani’s putative Carmichael mine would be split between Townsville and Rockhampton. Since I’ve long argued that the mine is highly unlikely to go ahead, I didn’t read the news stories closely. So, I missed the fact, buried in the middle of this ABC news report, that the deal requires Townsville and Rockhampton councils to build Adani an airstrip at a cost of $20 million. It turns out that not everyone in Townsville is happy about having their money spent on a project far away from the city.

This outcome is consistent with what I and others have been arguing for some time. Adani has to keep the project alive to avoid recognising the loss of the money its spent so far, and admitting that coal volumes at its Abbot Point port will be far lower than planned. On the other hand, there’s no point throwing good money after bad. So the strategy is to move slowly on the development, building a railway with money from the Commonwealth government and, now, an airstrip paid for by the people of Townsville. When, with much regret, the mine is deferred indefinitely, the Australian public will be the proud owners of a railway to nowhere, with the option of a flight back.

Categories: Economic policy, Environment Tags:

How to replace the National Electricity Market

September 12th, 2017 42 comments

There are quite a few proposals around to intervene in, or repair, the National Electricity Market. In my view, it’s much too late for that. We need to scrap the NEM and start on a new path towards a zero-carbon electricity and energy system. I’ve written down some preliminary thoughts. I’d appreciate comments and also suggestions as to how I might push this idea along a bit.

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Categories: Economic policy, Environment Tags:

The Minerals Council of Australia pushing zombie ideas

September 4th, 2017 28 comments

Fighting zombies is a tiresome business. Even when you think you’ve finally killed them, they bounce back as often as not. But it has to be done, and there are some benefits. When you see a supposedly serious person or organization pushing zombie ideas, it’s an indication that nothing they put out should be presumed to be serious.

There can be few zombies more thoroughly undead than nuclear power in general, except for the idea that nuclear power is a sensible option for Australia. The strongly pro-nuclear SA Royal Commission demolished this zombie so thoroughly that it should have taken a decade at least to regenerate.

But here’s the Minerals Council of Australia, which has taken a break from promoting coal to push the idea that Australia needs a nuclear power industry and that the biggest obstacle is a legal prohibition imposed in 1998. The supporting “analysis” is riddled with absurdities, some of which have already been pointed out. I’ll give my own (incomplete) list over the fold

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Categories: Boneheaded stupidity, Environment Tags:

Alternatives to Adani

August 9th, 2017 10 comments

It’s obvious to anyone who cares to look that the Adani rail-mine-port project is an environmental and economic disaster area, and that claims that it will generate thousands of jobs and billions of dollars in revenue are nonsense. But that’s little comfort to people in the region, facing high unemployment following the end of the mining boom and the general slowdown in the economy. What’s needed is a positive alternative, and a development strategy that’s adapted to the future rather than the post. Adani’s application for a $900 million concessional loan from the Northern Australia Infrastructure Facility to finance the rail component of the project raises the obvious question: if this money is available, what more productive ends could it be used for?

Farmers for Climate Action commissioned me to do a report on this, focusing on alternative investments in the agricultural sector. It was release at the weekend, and got some coverage, including in The Guardian. The report is here, along with a summary

Categories: Environment Tags:

Can we get to 350 ppm? Yes, we can

July 18th, 2017 27 comments

In a recent post, I made the optimistic argument that, despite all the obstacles thrown up by rightwing denialism, the world is on track to reduce CO2 emissions to zero by 2050, on a trajectory that would hold atmospheric concentrations of greenhouse gases below 450 ppm. On current models, that gives us a 67 per cent chance of holding the long term increase in global temperatures below 2 degrees. Warming of 2 degrees would not be cataclysmic for humanity as a whole but it would be a disaster for many people and also for vulnerable ecosystems such as coral reefs. That’s why 350.org wants to reduce concentrations to 350 ppm from current levels above 400 ppm.

Is that even possible?
And, what would it mean for global warming?

In this post, I’ll argue that the answer to the first question is definitely yes. I’m going to start with the assumption (based on this post) that we can reduce emissions from fossil fuels to zero by 2050, and keep concentrations below 450 ppm at that point. What are the options to reduce concentrations over the following fifty years? In the absence of some new technological fix (not implausible, but there’s nothing in sight as of 2017), there are three main possibilities

* Reducing methane emissions and concentrations. Methane emissions arise mainly from agriculture (paddy rice and ruminants), with some possible addition from fracking. It appears feasible, though not trivial, to greatly reduce these sources at fairly low cost. And because methane has a short residence time, a reduction in emissions will lead fairly rapidly to a reduction in concentrations. The conversions are very tricky, but the radiative forcing associated with methane is currently about 0.5 watts, compared to 1.94 for CO2. So, if methane concentrations were reduced by 40 per cent, that would be equivalent to a 10 per cent reduction in CO2, or about 40 ppm.

* Natural absorption. Only around 50 per cent of the CO2 we emit (the so-called atmospheric fraction) ends up as increase in atmospheric concentrations, with the rest being absorbed by oceans. After that initial addition to sink, CO2 stays in the atmosphere for a long time. However, there is still some additional absorption by sinks. Yale Climate Connections suggests that around 50 per cent is absorbed in 50 years, and around 70 per cent in 100 years. So, by 2100, an additional 20 per cent or so of the CO2 emitted around now will have been absorbed by sinks. A rough estimate would be 0.2*(450-280) or 35 ppm, where 450 is the peak concentration and 280 the stable pre-industrial level. Of course,this is far from an ideal solution, since CO2 contributes to acidification of oceans and therefore to coral reef decline.

* Reforestation and other land use changes. Land use change is currently a big net contributor to global warming, but a systematic program of reforestation could turn this around. The potential has been estimated at 85 ppm.

Against these possibilities, there is currently a net cooling effect, equivalent to around 50 ppm, from aerosols associated with air pollution. Hopefully, pollution will be reduced over the coming century, but that makes the task of stabilizing the climate a bit more difficult.

A question I haven’t yet been able to find a good answer on is: how much warming would a trajectory peaking at 450 ppm and declining to 350 ppm ultimately produce? If anyone can point me to a good source, that would be great.

Finally, at least some of the pollutants we’ve emitted over the past century will, on our current understanding, stay there for hundreds or thousands of years, leading to long term problems of sea level rise. But if we can get to 2100 without destroying the planet through climate change or nuclear warfare, I’m sure our great-grandchildren will work out some way of cleaning up what’s left of our mess.

Categories: Environment Tags:

Sense and senselessness in transport policy

July 18th, 2017 31 comments

I’ve been doing various pieces of work on transport. Here’s a quick update:

* I’ll be speaking at a one-day seminar organised by the Institute for Sensible Transport in Sydney on 8 August. It should be a good event for those with a professional interest in road pricing and related topics.

* For those with a general interest, I have a section over the fold from my book-in-progress, Economics in Two Lessons. Comments and criticism much appreciated.

* While I was a Member of the Climate Change Authority, I put a lot of work into a report the Authority did on vehicle fuel efficiency standards. With the rejection of just about every other policy measure to reduce CO2 emissions in Australia, this was the government’s last chance to do something useful. Naturally, Turnbull and Frydenberg went to water the moment the denialists who dominate the LNP raised an objection. Perhaps, now that the laws of mathematics have been subordinated to Australian law, Turnbull can solve our problems by simply decreeing a change of sign, so that an increase in emissions becomes a decrease.

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Technology to the Rescue ?

July 12th, 2017 38 comments

There’s been a fair bit of buzz about an article in New York Magazine with an apocalyptic picture of climate change over the next century. I’ll for a more complete response later. But as it happens, I was already thinking about a much more optimistic post.

From the Climate Change Authority, of which I was a Member until recently, here’s a set of emissions trajectories consistent with a 67 per cent probability of limiting warming to 2 degrees.

There’s a pretty good case to be made that we are on the blue trajectory, and that, with decent political outcomes, we will be able to go below it and hold warming to the Paris aspirational target of 1.5 degrees. That would still have plenty of negative effects, for example on coral reefs, but it would not be an existential threat to humanity.

The points that are critical in the blue trajectory are a peak in emissions, right about now and a drop to zero net emissions by 2050. The first looks to have been achieved. As for the second, we are already seeing commitments to this goal from developed countries and jurisdictions, and there’s every reason to think it can be achieved at low cost.

As an economist, this is about the outcome I would have expected given a global commitment to an emissions trading scheme with a carbon price on a rising trajectory to $US100/tonne or so. In fact, we’ve seen nothing of the kind. There has been no real global co-ordination, and where carbon prices have been imposed, they have been low and limited in scope.

Instead, we’ve had a series of favorable technological surprises of which the most striking have been the plummeting cost of solar photovoltaics, and advances in battery technology allowing both low-cost electricity storage and affordable electric vehicles. There’s no reason to think these advances have run out, or that any of the remaining problem areas (air transport, cement manufacture and so on) will prove insuperable.

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Categories: Economics - General, Environment Tags:

Adani: trouble on all fronts

June 30th, 2017 11 comments

My latest report: The Economic (non)viability of the Adani Galilee Basin Project

and, news that Adani is blending more domestic coal in the fuel for its Indian power plants to cut costs. That makes high-ash Carmichael coal even less appealing.

Categories: Environment Tags:

Murray-Darling Plan Doomed to Fail

June 26th, 2017 28 comments

That’s the conclusion of a recent depressing report from the Wentworth Group. There is, of course, an “unless”, but having spent decades of my professional life on this issue, I can’t say I’m hopeful. Certainly, there’ll be no progress under the current government, as this issue is now part of the culture wars. Whether Labor will do any better, I don’t know. Here’s the comment I provided to the Australian Science Media Centre.

The depressing outcomes reported by the Wentworth Group are the inevitable result of the policy decision to abandon buybacks, that is, the voluntary purchase of water entitlements from irrigators who are willing to sell those entitlements. Buybacks are by far the most cost-effective method of securing additional water for the environment as well as providing a direct benefit to farmers, who can use the proceeds to reinvest in dryland agriculture or to assist a transition out of agriculture. The abandonment of buybacks, combine with a failure to address the needs of irrigation-focused communities in the Basin represents the worst of all policy worlds.

Categories: Environment Tags:

Finkel

June 16th, 2017 11 comments

I’ve been flat out for the last couple of weeks, and haven’t had time to post. But I’ve finally found enough time to read the Finkel Review into the Future Security of the National Electricity Market (NEM). There are four inter-related points that come out of the report

1. The NEM has failed in its own terms, that is, with respect to the objective of providing reliable and affordable electricity. The Review recommends a variety of tweaks to the market rules, but the core measure is a shift to central planning by a new Energy Security Board, which effectively overrides the multiple existing market bodies. Not surprisingly, given the political environment the Review ignored my submission calling for renationalization of the Grid, but the logic is the same.

2. We need a carbon price, in one form or another, if we are to reduce emissions in line with our commitments. Given that all economy-wide options have been ruled out, we may as well start with an electricity specific policy. Within electricity, the existing Renewable Energy Target is a crude kind of price mechanism, with only two prices, one for renewables and the other for non-renewables. But, if we tweak that a bit, we can replace the largely irrelevant notion of “renewability” with emissions-intensity, and we have something like a carbon price. I pointed this out a couple of years ago. The Clean Energy Target Finkel Review doesn’t quite get there, but it goes most of the way.

3. The only way to get lower wholesale electricity prices is to expand renewables and let the owners of coal-fired power station take a corresponding hit to their profits.

4. Policy uncertainty has been at least as big a problem as bad policy. This was most obviously true of the Abbott government’s attacks on the RET, which stalled investment in renewables, while doing nothing for coal. Abbott is correctly blamed for many of our current problems. The implication is that a bipartisan compromise is better than holding out for the right policy, only to see it reversed after the next change of government. Whether that judgement stands up remains to be seen. If Turnbull does indeed face down Abbott, Abetz and the rest, and can reach an agreement with Labor, the arguments of the Review will be vindicated. And, with the denialists sidelined, it will become obvious that we need and can easily achieve more ambitious targets.

Categories: Economic policy, Environment Tags:

What is Adani thinking?

June 8th, 2017 31 comments

A couple of days ago, Gautam Adani made the long awaited announcement that the Adani board had decided to proceed with the Carmichael mine-rail project in the Galilee Basin. As usual there was an asterisk. Construction work won’t start until Adani can get financial backing. This was previously supposed to in June 2017 (that is, within weeks) but has now been deferred until 2018. Still, Adani has opened a head office in Townsville, promises to hire up to 250 staff and is also saying it will begin pre-construction works like land clearing in the September quarter.

But on the same day, unnoticed by almost the entire Australian press, with the exception of Peter Hannam at the SMH, the board of Adani Power, the putative buyer of Carmichael Coal, made a much more consequential decision. They are spinning off the 4GW Ultra Mega Power Plant* at Mundra, along with a huge load of debt, into a subsidiary, provisionally called Adani Power (Mundra). The plan it seems is to sell majority ownership, hopefully to the government of Gujarat, and thereby leave the slimmed down Adani Power with a manageable debt load, while it shifts further away from coal and into renewables.

But without Mundra, Adani Power won’t have nearly enough coal-fired plant to take up the output of even the first stage of Carmichael. And this “mine to plug” model was crucial to the viability of the project. Even if the modest recovery in thermal coal prices over the past year were sustained, Carmichael couldn’t cover its costs by selling on the world market.

So what is Adani up to? I’ve thought about a bunch of hypotheses and now I have one that I think makes sense. Adani doesn’t want to write off the $2 billion or so it’s already put into acquiring the mine site, but it also doesn’t want to throw good money after bad. Suppose that, Adani gets $1 billion in loans from the Turnbull-Canavan Northern Australia slush fund to build the rail line, which is owned by a separate Adani company in the Cayman Islands. They could use that money to get started on the rail line, while discovering yet more reasons not to start spending their own money on the mine.

That would buy them perhaps a couple of years during which something might turn up. The price of coal might go up a lot. abd the Hancock-GVK Alpha project might somehow be revived. If so, the rail line could be viable even without Carmichael.

And, if nothing did turn up, Adani would have bought a couple of years breathing space before writing off the losses that have already been incurred, without spending a significant amount of its own money. Adani (Caymans) would slide gracefully into bankruptcy and the Australian public would be left with a half-built rail line to nowhere and a billion dollar hole in our collective pockets.

Of all the explanations I’ve tried out, this is the one that makes most sense to me right now. Comments appreciated.

* I love this grandiose name, redolent of the great days of Soviet-inspired central planning. The UMPP program was started with great fanfare a decade or so ago, but has now collapsed almost completely.

Categories: Economic policy, Environment Tags:

Clean coal

May 31st, 2017 37 comments

The Energy Minister Josh Frydenberg has announced legislation to allow the Clean Energy Finance Corporation to fund coal-fired power stations using Carbon Capture and Storage (CCS), often called “clean coal”. Although there has been plenty of criticism, this is actually a Good Thing.

If it worked at low cost, CCS would solve a lot of problems, particularly for Australia. We could burn coal, and store the resulting carbon dioxide underground, fixing much of the climate change problem without changing anything else. The ease of this (hypothetical) solution is why CCS plays a big role in lots of climate change scenarios.

Unfortunately, cost-effective CCS doesn’t exist, and isn’t likely to. So, barring some great new discovery, the change in CEFC rules is purely symbolic.

What makes the announcement a Good Thing is that avoids the “bait and switch” used by Frydenberg and others in the past, where clean coal is described in terms of CCS, then shifted to included “High Efficiency, Low Emissions” (HELE) coal plants. This term refers to the fact that plants constructed today are indeed more efficient, and therefore have lower emissions per unit of electricity, than those built thirty years ago. But they are still far worse than gas-fired plants let alone renewables or (if it could be made to work) CCS.

Categories: Economic policy, Environment Tags:

Queensland government backing away from Adani?

May 29th, 2017 21 comments

Looking at news coverage and the emails I’m getting from climate action groups, it looks as if I may have misinterpreted the Queensland government’s move on royalties (or maybe I posted before the decision process was complete). The latest news is that the state government will take no part in processing any loan to Adani from the Northern Australia Infrastructure Fund. I’ll try to post again when I get a clearer picture on this.

What remains clear is that Adani is having a lot of trouble finding bank loans or equity investors to invest in the Carmichael mine project. Given the poor economics of the project, any money lent by Australian governments is likely to be lost, leaving the publci with a stranded and useless asset.

Update 31/5/17 The Guardian reports that https://www.theguardian.com/business/2017/may/30/adani-reaches-mine-royalty-agreement-with-queensland-government to defer nearly all of its royalty obligations for the first five years of production under the new deal, with interest charged on anything owed to the state above that. Almost certainly the interest rate would be well below what a commercial lender would charge, given the risk of default.

More noteworthy, I think, is the following

That would be the trigger for what the company has flagged would be $100m to $400m of preliminary works. But the deadline for financial close, the securing of bank backing to build the mine and rail to haul coal to the coast, is early 2018

As has been true for the past several years, the date when the project actually starts still seems to be at least a year away.

We’ll see at least some money on the table if the “preliminary works” start on the supposed schedule. But my guess is that the scale of the work will be less than meets the eye. I wonder, for example, whether the expenditure figure includes work done before Adani mothballed the project back in 2015.

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More Adani asterisks

May 26th, 2017 9 comments

The Palaszczuk government has, unsurprisingly, capitulated to the Adani corporation’s demands for a tax holiday. To avoid accusations of bias, they have offered the same deal to other new coal projects. If these projects go ahead, the implications for the planet are disastrous. But, at least in Adani’s case, there are plenty of reasons to doubt that this will happen.

It’s now clear that any “investment decision” by Adani will involve spending modest sums on land clearing and surveying. That’s enough to keep the option open and avoid writing off the money already spent on the project. But the real decision, which requires bank finance, appears to have been deferred from June 2017 to some time in 2018. The first shipments of coal aren’t expected until 2020.

My guess is that, before anything of substance happens in the Galilee Basin, Adani will be back with more demands (maybe a Danzig corridor). Sooner or later, they’ll make an offer that can be refused, at which point they’ll pull up stumps and send in the lawyers asking for compensation.

(Sorry for the absence of links, I’ve been reading different bits and pieces).

Categories: Environment Tags:

Meanwhile, in the real world

May 23rd, 2017 26 comments

Advocates of an expansion of Australian coal mining are constantly claiming that India is desperate for imported coal to supply urgently needed electricity. Leaving aside the Indian government’s stated determination to end coal imports in the next few years (at least for the large public sector), what’s happening to actual demand for coal-fired electricity. Undoubtedly, it was growing very rapidly until quite recently. The Indian government had grandiose plans for a fleet of “Ultra Mega” power plants UMPP, a couple of which actually got built. And state governments were tendering out large contracts to supply electricity, designed with coal-fired power stations in mind.

In the last few weeks, there have been two big developments. Following a string of other cancellations, the government of Gujarat has cancelled a proposed UMPP Key quote

The new decision is believed to be also in line with the Centre’s push to bring down coal import. However, the state government is willing to provide land for a UMPP if the central government wishes to initiate one, says Sapariya. Adding: “Our focus is now on renewable energy. The government will encourage solar power.”

Meanwhile, the government of Uttar Pradesh has cancelled bids conducted in 2016 to procure 3,800 MW of power from independent power producers. Adani was among the suppliers shortlisted to share in the supply contract. This isn’t an isolated event

The UP government’s move, analysts said, is symptomatic of the deeper malaise: On the one hand, hardly any power purchase agreements (PPAs) are being signed and now, the bids for new contracts are being cancelled; on the other, plans to set up large thermal power plants are either being put in abeyance or abandoned. The Gujarat government, for instance, recently dropped the plan to set up a 4,000 MW imported coal-based ultra mega power project at Gir Somnath district, apparently because it thinks that upcoming renewable energy units could meet the the power requirement.

About 33,000 MW of thermal power plants, with an approximate investment of about Rs 2 lakh crore, are left stranded across the country due to the lack of PPAs.

That’s nearly 8 GW gone in the space of a few weeks. By my calculation (a check would be much appreciated) a 1 GW thermal coal station operating at 70 per cent capacity uses about 3 million tonnes of coal a year. Multiply that by 8 and you get 24 million tonnes, the entire projected output of Adani’s first stage project.

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There are better things to spend $1 billion on than the Adani coal mine

May 20th, 2017 10 comments

That’s the self-explanatory headline for my latest piece in the Brisbane Times (reproduced in the other Fairfax papers, I think). Text is over the fold.

And, on the same theme, Richard Denniss.

Read more…

Categories: Economic policy, Environment Tags: