GMC Deputy Chair Rob Backwell was featured in this week’s Geelong Advertiser talking about Australia’s energy policy, the need for a proper cost vs benefit analysis on clean energy and why we’re at risk of losing manufacturing to high carbon emitting countries for no net benefit.
For decades, Australian political leaders – whether Labor or Liberal – were proud to be called “economic rationalists”. This meant that their policies carefully weighed costs and benefits, and aimed to maximise the nation’s economic well-being.
However, over the last 20 years, economic rationalism – both the term and the behaviour – has disappeared, replaced by a mix of glib opportunism and the hubristic belief that, with enough money and regulation, governments can solve even the toughest problems.
Nowhere is this seen more clearly than in energy policy.
During the 20th century, Australia built a manufacturing industry with protection from international competition and cheap and abundant energy. Economic rationalism stripped away most of the protection in the 1980s and 1990s, simply because the cost of providing that protection (in higher prices for Australian consumers and/or subsidies for manufacturers) exceeded the benefit of keeping jobs in a particular industry.
But, until recently, cheap and abundant energy endured. Then elected officials became obsessed with reducing Australian carbon dioxide emissions. Already, we have seen huge increases in the prices of both gas and electricity. There is more, much more, to come as it becomes increasingly difficult to further reduce carbon emissions through wind and solar without regular blackouts.
We now have an electricity policy where the taxpayer subsidises the construction of wind and solar generation. This is required because already there is a surplus of wind and solar power when it is windy and sunny, but nowhere near enough of this power when it is still and dark. Our governments won’t disclose the size of these subsidies, but they are at least tens of billions of dollars. Many tens of billions of dollars more will be required to transmit power from where it is generated to where it is consumed. Storage is another huge cost, with the Snowy 2.0 project alone likely to cost more than $20 billion. No Australian government has ever produced a proper cost vs benefit analysis to justify these investments.
Because our power is now so expensive, the taxpayer has to subsidise our most energy intensive forms of manufacturing – aluminium and other metal smelters, oil refiners etc – in order for these manufacturers to survive. In addition, all large Australian emitters are required by law to reduce their emissions each year or face large penalties.
This might be justifiable in a world where all countries were making equal efforts to reduce their carbon dioxide emissions. However, we don’t live in such a world. Australia is spending untold billions and forcing out manufacturers to reduce Australian emissions, yet year after year the world emits more carbon dioxide than ever before. None of the world’s largest emitters – China, the United States, India, Indonesia, Russia – imposes the same costs on their economies to try to reduce their carbon emissions, nor are there any controls on the import to Australia of products from countries which don’t have our carbon costs.
If Australia closed all industry and went to zero emissions tomorrow, global growth in emissions would make up the difference in a few months, and Australia would have to import all of what it used to make, with a net increase in global emissions.
Whatever that is, it’s not economic rationalism.