The future of the Renewable Energy Target remains a hot policy potato and is likely to gain further publicity from a conference starting tomorrow on the electricity market. According the AFR Bill Shorten is willing to renegotiate the target “but only if Prime Minister Tony Abbott renounced the findings of the Warburton review”.
Somehow I don’t think he means reject Warburton’s advice that would mean a further 15 years of subsidies, albeit less than is presently in prospect, to the inefficient electricity producers. The cross subsidies to wind and solar from commercial energy have caused prices in Australia to rise to the top of the international table, having been among the cheapest in the years before the madness started.
Meanwhile in The Australian, Sid Maher reports the AWU is calling for aluminium smelting to be made exempt, a position supported by coalition MPs with aluminium suppliers in their electorates. Electricity comprises 30 per cent of aluminium production costs and in a world where all developing country competitors dismiss any thought of doing something as suicidal as taxing inputs into supply, with the present impost all the smelters will leave our shores as soon as they can. The RET and similar state-based measures may raise the costs of aluminium smelting in Australia by 5-6 per cent, an amount that the callow would consider affordable. But that cost wipes out all profits and in the dog-eat-dog world we live in that means irresistible relocation pressures.
The questions raised if aluminium is exempted are, first does this mean a correspondingly greater load to be carries by others; and secondly, if aluminium why not concrete, steel and other high energy using industries? Or, if the impost is to be retained, in line with the normal practice of not levying taxes on inputs into production, why not exempt all industries, leaving it like the GST solely on household consumers?
The impost should be wound back as soon as possible, on all industries not only those where it most savagely distorts costs and competitiveness.
The general hostility to renewables now that their costs have been better understood is increasing the risk of governments subsiding new investments and even the risk that existing fifteen year “obligations” will not be honoured. This is causing intensified lobbying by those who have taken the speculative position that a government can bind the next six Parliaments to a policy that makes no economic sense. But those who think iron clad guarantees are possible should take a look at the balance sheet write-offs that the vehicle assemblers are having to incur once governments cut them loose from the subsidy teat in spite of continued guarantees of on-going support. The car firms were given no restitution for their misplaced faith in government assurances firms.
As far as new renewable energy facilities are concerned, the increased risk means a higher premium for new ventures and is, at least temporarily, drying up the negative valued investment they entail.
Moreover, the regulatory arrangements covering new facilities have an unusual provision that allows the Industry Minister to simply declare that for the coming year he will not approve new subsidised proposals. At the very least we can therefore hope for a standstill, perhaps an indefinite one, in the productivity sapping expenditures that renewable energy represents.