I have a piece in the Herald Sun this morning on renewable energy. After rehearsing familiar ground on how this form of energy is imposing colossal costs on the economy, it addresses the Sword of Damocles that the renewables lobby claims hangs over the head of any government seeking to abort this monstrous scheme. On this matter I argue
Beneficiaries of the subsidies argue that unless they are maintained, Australia will suffer adversely by being regarded as a nation imposing “sovereign risk” on investors. This, so it is said, will discourage future investments. Sovereign risk is where governments seize property without proper compensation.
But changing a tax or subsidy can hardly be considered an imposition of sovereign risk. Such changes happen all the time and invariably mean losses to somebody.
Moreover we have seen policy changes in recent years that have very severe repercussions on investments.
Take the automotive industry, where reductions in industry protection, changes to industrial relations laws and the energy price hikes have caused investment write-offs amounting to billions of dollars. Or the “alcopops” industry, severely impaired by a sudden and unexpected 70 per cent tax increase. Or cigarette manufacturing, hounded from Australia by tax hikes and restraints to marketing.
We also saw the former Commonwealth government, in response to claims by the ABC about animal cruelty, dramatically close the live beef trade to Indonesia. Many graziers had to shoot their stock and average prices fell by a third.
The victims of these government activities got no compensation. Importantly, nor did the measures bring a rise in investment risk.
While the less government meddling there is in the economy the better, the fact is taxes, subsidies and tax rates do change. No government can reasonably expect to bind its successors to paying a worthless subsidy for 15 years as is nominally the case with the RET. And no investor would sensibly expect this.
Many governments are seeking ways of escaping the wanton cost impositions irresponsible green predecessors have bequeathed them. None more so than Spain, the former poster child of green energy. Following its election the current Spanish Government has wound-back previously agreed green energy subsidies. This has prompted claims of retrospectivity and sovereign risk, including an appeal to Brussels.
The Spanish risk premium seems unaffected by this and has in fact been declining.
Australia’s renewables rort, with seemingly guaranteed high returns, has provided a bonanza for many union pension funds, but these have mainly provided the capital and sold back the forecast stream of electricity. Those most at risk from a termination of the scheme are the electricity retailers, who have taken long-term contracts on the wind power as part of the portfolio of forward buying to cover the requirements imposed by the current legislation.
Renewables and climate change matters were among the many issues of government imposed costs and liberty curtailments addressed by the late Ray Evans whose funeral is today.