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Climate Change and Energy Policy

I am concerned that Australia’s lost its way with respect to Climate Change and consequently its energy policy going forward.

To understand my position it might be useful if I were to give you some of my history which will put some context about why I think the way I do.

To begin with, contrary to what some of you might think, I am not a climate change denier.

Twenty years ago I was appointed CEO of the electricity generating company, Stanwell Corporation. Even then I was concerned about climate change. Subsequently, I and my management team were able to make a case to my Board, which they accepted, that climate change would open up business opportunities in renewable energy. Whilst we focussed on renewable energy projects it also seemed clear to us that gas should also play a part in transitioning from an industry that was focussed largely on coal-fired generation. Closed Cycle Gas Turbine Technology produced considerably less carbon dioxide per MWhr of electricity generation than coal-fired plant. In support of our renewable energy ambitions we lobbied strongly for a mandated renewable energy target and were gratified when the Australian Government passed legislation to put such a scheme in place in 2001.

As well as this, I had for some time been chair of the Institute for Sustainable Regional Development. Our research showed that stream-flows of the rivers on the Eastern seaboard of Australia had been declining since the 1950’s. There was also some evidence of temperature increases.

But it was also obvious that whatever was happening climate wise, was far from a uniform effect. For example it was becoming evident that the incidence of cyclones on Australia’s East coast was reducing but there were more developing off the West coast. Southern coastal Western Australia was becoming drier resulting in authorities having to take action to secure a reliable water supply for Perth. Yet the Northern parts of Western Australia were getting wetter to such an extent forests were spreading.

Now there are two principal ways to respond to climate change.

The first is to try and contain and hopefully reverse the deleterious effects. But of course this assumes that we know the causes of global warming. Most environmentalists point to increasing concentrations of carbon dioxide in the atmosphere and relate this to Mankind’s environmental impact, principally the burning of fossil fuels. Consequently they agitate to reduce such activity.

However we know that carbon dioxide is not the only greenhouse gas. Water vapour is also a greenhouse gas, and methane and other organic gases are far more potent greenhouse gases than carbon dioxide. And even with atmospheric carbon dioxide there are large natural contributors such as emissions from volcanoes and the products from forest fires. So it would seem to me that merely curtailing man-made carbon dioxide emissions might not solve the problem.

There are many unknowns when we model the earth’s response to global warming. Among the least understood is the capacity of the oceans and indeed, our soils, to absorb carbon.

But even beyond this, most environmentalists emphasise the deleterious effects of carbon dioxide in the atmosphere and few admit of its benefits. Carbon dioxide stimulates the growth of plants. Graham Lloyd, Environment Editor for The Australian tells us a recent report from NASA indicates that “between 25% and 50% of earth’s vegetated lands show significant greening across the past 27 years largely because of rising levels of atmospheric carbon dioxide.”

Lead author Zaichun Zhu from Peking University , says the extent of greening over that period “has the ability to fundamentally change the cycling of water and carbon in the climate system.”

(One of the benefits of such “greening” would be that biomass generation would become more viable. This would prove beneficial because such generation counts as renewable and need not be intermittent like wind and solar. And of course the cultivation of crops would become more productive.)

The other response to global warming is adaptation.

The Director of the Institute of Sustainable Regional Development, Prof Bob Miles, was to his credit, an advocate of this response. I personally believe we should be focussing more of our efforts in adaptation.

Let me take a moment to contrast these different approaches.

The response of mitigation is hugely costly. Any move to substantially reduce our carbon emissions by curtailing fossil fuel generation will result in exorbitant electricity prices. The efforts we have made so far in this direction have transformed Australia from a low cost power producer, with the benefits this provides for manufacturing and metals refining, to a high cost energy producer which precludes any reasonable prospect for the maintenance of, let alone the growth of such industries. (Instance the recent problems with Alcoa in Portland and concerns regarding Comalco in Gladstone.)

What’s more any efforts Australia makes in this regard will have minimal impact on a global response to curtailing global warming.

Adaptation is a pragmatic approach. It seems likely to be more cost-effective to learn to live with global warming than trying to reverse it, at least in the interim. Moreover it would probably buy us time to address global warming in a more informed way and encourage the development of technologies that might help in that regard (for example carbon capture and storage).

As I have written previously, it seems to me that it is very difficult to debate climate change. Those who are bent on (for the most admirable of reasons) seeking to abate climate change do so with an evangelical zeal that seems to render them deaf to other responses.

In Australia in recent years we have had the unedifying spectacle of a respected researcher, the Danish Bjorn Lomborg being hounded from our shores, because he failed to align himself with the catastrophic views of many of Australian zealous anti-climate change academics.

Lomborg, is again, not a climate change denier. But being an economist he understands that we have finite resources with which to solve the world’s problems. His research shows that in terms of its net benefit to the world, it would be better to prioritise reducing hunger and preventing disease above our response to climate change. Now if you are a well-off academic in a university, or an environmentalist sipping lattes in the trendy cafes of our suburbs, that might not be so apparent to you. But if you live in a third world country, struggling to feed your family and under the constant threat of succumbing to malaria it probably makes some sense.

Lomborg, also to the chagrin of the environmentalists, argues that a major factor impeding the development of Third World countries is energy poverty. He argues that the world’s poor need better access to cheap fuels, including fossil fuels.

So consistent with this philosophy, I believe it is prudent to respond to climate change but not in such a way as to harm the Australian economy in the process. It should also be borne in mind that whilst we have a carbon-intensive economy our net contribution to the world’s carbon dioxide emissions is miniscule. And the exploitation of our fossil fuel reserves not only stimulates our economy but assist third world countries in improving their standard of living.

Understandably with my background, which I elaborated above, I believe we also should be prudently moving towards renewable energy. But we should not be doing it at any cost. The current renewable energy targets set by Labor State Governments are unrealistic given the current state of renewable technologies. As we have already seen in South Australia they are bound to vastly increase the cost of electricity and diminish the reliability of supply to levels unacceptable to consumers. Energy intensive industries will become increasingly less economic impacting on economic growth and employment. These targets are set arbitrarily for pure ideological reasons without any thought about their practicality. As I have written previously, these governments need to seek more advice from their engineers rather than their so-called “political advisers”.

The more extreme environmentalists seem now to have set themselves a goal of “killing off” coal at any cost. As I have previously written, these people seem hell bent on preventing good outcomes because they are not perfect.

Well, in this imperfect world, coal will play a significant role in electricity generation for quite a few more decades yet. And that is not necessarily a bad thing.

If we look at electricity generation in Australia, the principal technology for base-load generation is still coal-fired technology. And it would seem likely that will continue for the immediate future even though there have been no coal-fired power stations commissioned in Australia for a considerable time.

Under normal circumstances, as electricity demand increases, as has historically been the case historically, prices in the electricity market would increase, sending price signals to augment the stock of electricity generators. In recent years, largely because of the proliferation of renewable energy generation, electricity prices have increased dramatically. Because of these large price increases consumers have sought to reduce their energy consumption which has served to reduce demand, thus delaying the need for major augmentation of generation. What’s more, governments’ intervention in support of renewable generation has distorted the price signals in favour of renewable generation thus curtailing the development of more base load generation. This has had the perverse effect of causing electricity generators extending the life of their existing coal-fired plant, whereas in the past they would have moved to replace them. The dilemma here is that new coal-fired plants are far more efficient and have significantly reduced carbon dioxide emissions than the older plant. However an investor in a new coal fired plant would need to be assured of at least thirty years of operation to recoup their investment. In the current uncertain environment nobody is prepared to commit to suc an investment.

Any move to develop new base load generation utilising gas or high efficiency coal fired technology that would displace older coal fired power stations would result in reduced carbon dioxide emissions. But the climate change warriors oppose such moves because whilst the move is beneficial to the atmosphere, it is not the perfect solution. They are determined that any new generation be sourced from renewable energy technologies that produce no emissions at all. But notwithstanding concerns about carbon dioxide emissions these fossil fuelled technologies produce far cheaper power than renewables.

So whilst I believe it is prudent to move towards more renewable technologies, if we do so at a rate that reduces our standard of living and reduces our GDP, we will have less capacity to act in the future when it is most likely more effective strategies to combat climate change will evolve.

The climate change warriors have waged a very successful propaganda campaign. They have managed to convince many that the future of fossil fuels as a primary source of energy is quite limited.

In the wealthy, developed world it is true that fossil fuels are playing a diminishing role. But as Bjorn Lomborg points out, energy poverty is a major factor curtailing the standard of living of developing countries. Whilst fossil fuels provide electricity at far more economic rates than renewable generation, these countries are bound to continue to look towards fossil fuels to help stimulate their economic development.

The environmentalists made much of China’s pledge to move towards renewable energy and often instance the huge development of renewable projects in China. Conveniently they neglect to tell us of China’s continued investment in coal-fired technologies. In 2015 China added 52,000MW of coal-fired generation to its generation fleet (which equivalent to more than 30 Hazelwood Power Stations). Our environmentalist lobby cheered when it was announced that Hazlewood Power Station would close. Hazlewood generates a mere 1600MW of electricity which is but a drop in a bucket compared with the planned extension of coal-fired generation in other countries.

India also is committed to a huge increase in coal-fired generation (despite what the environmentalist activists would have us believe with respect to Adani’s coal development plans in Queensland). The International Energy Agency predicts India’s coal-fired generation will increase by 140% by 2040.

Even Japan is planning to commission 20,000MW of new coal-fired generation projects.

As part of their propaganda campaign the environmentalists point to the decommissioning of coal-fired power plant in the USA as evidence of the diminishing role of coal. They fail to inform you that the closure of coal-fired power stations in the USA is largely due to the diminishing cost of gas as the USA has learnt to economically exploit their coal seam gas reserves. Whereas in Australia state governments have thwarted such development.

These statistics assure us that other countries are smart enough to understand if they are to keep their energy costs at affordable levels then fossil fuels have a decided part to play in the overall equation. Australia will ignore this at its own peril!

As a country with immense fossil fuels reserves it seems perverse that we should not take the middle road, using such fuels to constrain our energy costs and maintain our reliability of supply, but at the same time prudently increasing our renewable energy base.

Now if we stand back and concede global warming is a reality, and despite the uncertainties regarding a causal relationship between man-made carbon dioxide emissions and such warming, a prudent move to renewables is sensible policy. But the haste to have Australia curb our emissions at any cost is illogical. Australia contributes just over 1% of carbon dioxide emissions to the global atmosphere. With current technologies, transitioning to renewable energy is very expensive. When I first started managing power stations, Australia was the second or third cheapest producer of electric power in the world. Now we would be lucky to be in the top twenty. Now all you who decry the loss of manufacturing jobs in this country need to understand that energy costs are a major factor, along with labour productivity.

We can transition to renewable power in an economic and sustainable way if we substitute our aging coal-fired plant with high efficiency low emissions coal technologies and better use of gas.

This would mean we wouldn’t meet the extremely optimistic targets of Labor State Governments, but we could still considerably reduce our emissions whilst maintaining reasonable cost, reliable energy supplies.

Now that all Australian States and territories, with the exception of Western Australia and the Northern Territory are interconnected into a single grid, it seems logical that energy policy should be the responsibility of the Federal Government and not the plaything of the states. Then we might be spared from the gesture politics of state based renewable energy targets and propagate a truly national approach to how we might best deliver energy in a responsible way to all Australians.

(As I finished writing this essay word has come in that Malcolm Turnbull has pledged to support clean coal technology and campaign against Labor’s profligate renewables policy. This is commendable as far as it goes but I would have to say the Government doesn’t have a comprehensive energy policy. We need a planned transition to renewable energy over many decades and that trajectory includes substantial roles for gas and coal. Large power stations require a commitment to billions of dollars of investment, and in the uncertain environment created by hopelessly optimistic renewable targets by Labor and a belated and unconvincing response by the Government, it is unlikely that investors will risk their capital on such investments whose lives might well be determined by who wins the next election.)

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  1. 3 Comment(s)

  2.   By Ian Herbert on Feb 5, 2017 | Reply

    Ted,

    I agree to a certain extent with your concluding thoughts about the need for coal (or gas) based power for quite some time yet, but I take issue with some of your earlier comments and assumptions.
    (a) According to Skeptical Science, volcanoes contribute between 0.2% and 1% of the CO2 emissions from burning fossil fuel ( https://www.skepticalscience.com/volcanoes-and-global-warming.htm )

    (b) You state that you are not a Climate Change Denier, but you only accept the result of climate change and not the cause. (So that makes you a half-denier.) When you observe the graphs of CO2 levels and temperature over time you cannot help but be struck by the dramatic change in trajectory in the mid twentieth century. There is overwhelming scientific evidence that this is caused by human induced burning of fossil fuels, following the steam-based industrial revolution, accelerated by a large scale up in emissions after WW2. Why is that difficult to understand?

    (c) Graham Lloyd, Environment Editor for The Australian has been spokesman for the Murdoch view of climate change scepticism for many years. While this does not damn that specific information that he quoted from NASA, I would be very wary of depending on anything Graham Lloyd says about climate change without thorough independent checking. It does your cause no good to be quoting him.

    (d) Mitigation vs. Adaptation. Going for Adaptation only is not good enough. People seem to think we only need to do one or the other and not both. That’s wrong. We are going to be doing Adaptation anyway whether we like it or not. However, it is predominantly human-centric. Vast swathes of natural ecosystems will not be able to adapt successfully. Two degrees rise and we lose the Great Barrier Reef. By going for Adaptation only is saying we will save ourselves but bugger the rest of the planet. I realise that the numbers are daunting when we compare Australia’s emissions with the big countries, but that only means that we must not only try really hard to reduce our emissions but also try really hard to persuade the others to do the same. Mitigation (by a huge scale) is the only long term solution for the survival of life as we know it on this planet.

    (e) I was of the understanding that the major cause of huge electricity price increases over the last decade was not renewables but from (i) Aust Energy Market Operator (AEMO) authorising gold-plating of network investment i.e. the ‘poles and wires’ upgrading, and (ii) State power authorities raking off dividends from their power utilities to return to state coffers. (Also, remember when Tony Abbot went to an election blaming all of these power price increases on Julia Gillard’s Carbon Tax. Well he abolished the Carbon Tax, but did any prices drop?)

    (f) Likewise, the black system event in South Australia has been incorrectly blamed on the large number of wind turbines. This is incorrect. The blackout was caused by transmission lines not designed to withstand high winds and circuit breakers that tripped out the interconnector from Victoria by mistake. (Those bloody engineers!)

    (g) I think you could lay off the old hackneyed “environmentalist sipping lattes” jibe. It is much the same as calling all engineers ‘rednecks’

    (h) Agreed that the world’s poor need better access to cheap energy. However they are much more likely to benefit from distributed systems using solar/wind/batteries than the hugely capital intensive construction of fossil fuel power stations and enormous grids.

    [(i) You might be surprised to know that I agree with you about Bjorn Lomborg. While I did not agree with his book, The Skeptical Environmentalist, that should not be used as an argument to silence him.]

    However, as an environmentalist and an electrical engineer I am in the difficult position of being persuaded by both sides of the argument. I agree to a certain extent with a fair amount of the latter part of your paper, although I see the need for coal (or gas) fired power stations mainly being required to provide a certain level of spinning reserve for frequency and voltage control of the grid. I am annoyed with the green movement’s call for the closing down of all coal fired power stations. it is just not practical.

    In conclusion, I am sad to say that the shortcomings that I have highlighted in (a) to (h) above detract from your ability to help us persuade environmentalist of the arguments for the continuation of coal fired power for the medium term.

    Cheers,
    Ian Herbert

  3.   By Greg Brown on Feb 5, 2017 | Reply

    I like wise agree with much of what you have written Ted but differ on some points. It is the rise in cost of transmission and distribution that is responsible for most of electricity price increases to consumers. A quick look at the NEM wholesale market price curves will confirm this. Yes the carbon tax increased wholesale price as did the renewable energy target but these are not as significant as the gold plating of the wires that came about from some stupid arrangement that allowed the wires companies to charge a price based on their asset value. The more you spend the more you get paid. Bad model and it got a bad outcome.

    As far as the predicted increases in global temperatures are concerned, this is not science. Science is a process of theory, experimentation and refinement to hone in on the truth with as much rigour as possible. Climate predictions are done with modelling and modelling is not science as I was taught it. It is more a kin to economics than science. The problem with models is many fold but the biggest one is that they are dependent on assumptions made by people and there are thousands of them in climate models. If a model returns a result that is inconsistent with what the modeller is certain it should return it is clear some assumptions are wrong so they get adjusted to tune the model. What we end up with is a model of what we want it to be. Any decent scientist will always embrace results that contradict his theory far more than results that support it. I don’t see this in climate science. Any doubter is viciously discredited. This is not science.

    So what is the truth? I really don’t know but I am convinced no one else knows either. I am also convinced that as a species we hate change. We see it as wrong and bad and almost always blame ourselves for it. A thousand years ago if the rains didn’t come it was because God was punishing us for some bad things we did. The rhetoric has changed today but the fundamentals are the same. We blame ourselves for everything that goes wrong that we don’t understand.

    I have also heard it said that if global warming was slower the planet could cope but the current catastrophically rapid increase is something that is totally new to the planet and of course therefore must be man-made. In relation to this I recently watched a documentary on the formation of the Great Barrier Reef. The researchers mapping the reef were also dating coral growth and talking with local aborigines to understand their spiritual stories. Latest research (collaborated by Aboriginal stories) suggests that the coastline in Queensland retreated as much as several hundred metres in a human life time (60 or 70 years) for many hundreds of years as a result of the end of the ice age, temperature increases and sea level rise. This change that created the GBR makes climate change look like a total sham. I’ll bet if we were living through this change we would see it as a tragedy of Armageddon proportions and of course this reef that was forming as a result as nothing but a cancerous growth on the once productive flat coastal plane. We humans are so self-focused and so insecure.

    Getting back to the perceived problem. I personally believe that technology will solve the emissions issue in the long term and it may not be that long. A combination of solar PV and battery storage will in the end be a lower cost solution than gas or coal even without subsidies. The time frame for this is the big question and currently I believe many industry executives are not prepared to gamble on it being less than the payback period of base load fossil fuel stations. Net result is they will not invest because of this uncertainty. Government policy uncertainty is of course still a factor but I don’t think it is the sole agency anymore. In the developing world the economics hold up better because they are coming from a much lower energy base (less competition). It would not surprise me though if we see a backing off in base load plant construction in the third world as well in the next 10 years.

  4.   By tedscott on Feb 6, 2017 | Reply

    Thank you Greg and Ian for your comments. I don’t intend to make a lengthy response but feel compelled to make a further two points.

    As you both rightly maintain the cost of the transmission and distribution systems supplying the National Electricity Market has made a substantial contribution to the rapidly increasing electricity charges. However a recent study conducted by BAEconomics commissioned by the Mineral Council of Australia has found that “feed-in tariff schemes to subsidise roof top solar are still costing other electricity consumers up to $1bn a year….”

    And Ian the other remark I would make to you is in response to the South Australian network blackout. I have been in correspondence with a senior executive from Powerlink who told me that industry studies concluded that the state was already blacked out by the time there was a failure of the transmission towers.Interestingly, he informs me that one of the solutions being investigated for South Australia is for the construction of a pumped storage hydro facility. That won’t help their electricity costs much but it would certainly help to secure greater security of supply.

    I suppose the other comment I should have made is to wonder at the efficacy of Australia’s global warming efforts if Trump withdraws from the Paris agreement which he has already flagged.

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