Australia: Emissions trading blocked by entrenched interests

By David Fickling

Published: December 13 2009 23:09 | Last updated: December 13 2009 23:09

Were it not for the pylons strung alongside the road, visitors could drive through the Latrobe valley two hours east of Melbourne thinking it produced nothing more important than dairy products and wine.

But from the air, the picture is clearer: five vast geometric scabs covering a greater area than the valley’s big towns mark out the open-cast coal mines that provide more than four-fifths of electricity in the state of Victoria, Australia’s manufacturing heartland.

Australia’s dreams of coming to the Copenhagen conference with an agreed plan to cut its carbon emissions died last month among the rolling fields of the Latrobe.

The episode is a cautionary tale of how the push for sustainability can mesh uncomfortably with party politics and business interests, and a reminder that any significant shift in a country’s economy creates both winners and losers.

Green spending in a recession can be sold as job-creating stimulus, but the dislocations involved in decarbonising an industrial economy also risk being painted as job-killers.

Coal goes to the heart of that problem. It accounts for three-quarters of Australia’s electricity generation, and its abundance and accessibility means Australia enjoys some of the cheapest electricity in the developed world.

Whereas Italian businesses pay around 29 US cents for a kilowatt hour of electricity and Britons pay nearly 15, Australians pay just 6 cents. In western Europe, only nuclear-powered France is cheaper, at 5c/kWh.

It is no coincidence that Australia’s economy is thus more energy-hungry than those of its peers – one study, by the World Resources Institute, found it needs energy equivalent to burning 208.3 tonnes of oil to generate $1m of national income, compared with 141.2 for the UK and 122.8 in Italy.

The country’s unusually high dependence on dirty fossil fuels compounds this, meaning that reaching western European levels of emissions efficiency would be even more wrenching.

“This is going to change the way the economy runs,” according to Heather Ridout, head of the Australian Industry Group. “We’re putting a price on something for the first time. It’s like putting a price on the air we breathe and it’s very hard to factor into business models.”

The Labor government of prime minister Kevin Rudd was elected on a platform of action on climate change, after years in which his predecessor John Howard joined the US in refusing to sign the Kyoto protocol.

The emissions trading bill presented to Australia’s parliament earlier this year promised a modest 5 per cent cut in emissions by 2020, rising to 25 per cent conditional on broader international action. But the debate quickly became bogged down in a squabble about compensation.

Money was promised to households to help them pay bills expected to rise by $12 a week as a result of the ETS; more was set aside for polluting industries to help them make the transition to a lower-carbon economy, including A$3.5bn (US$3.2bn) for electricity generators.

In the Latrobe valley the cries were particularly loud. Victoria’s state premier John Brumby warned that two of the valley’s three power stations might be forced to close if more compensation was not offered, threatening every politician’s worst nightmare – blackouts.

TRUenergy, owners of the Yallourn power station, warned that their Hong Kong-based owners CLP could consider legal action if more money was not forthcoming, and took out full-page adverts in local newspapers campaigning against the scheme.

The denouement of this political drama was as unexpected as it was dramatic.

In late November Malcolm Turnbull, leader of the right-of-centre Liberal opposition party, struck a deal with the government to allow passage of the bill through the country’s Senate, doubling compensation to electricity generators to A$7.5bn. But the genie of opposition to the bill was already out of the bottle. The coal industry rejected the compensation as still insufficient to meet its transition costs.

Within Mr Turnbull’s own party, climate change denialists were gaining the upper hand, and just 10 days before Copenhagen he was deposed by Tony Abbott, who says that human activity may not be causing climate change and that global warming has stopped, although he simultaneously denies being a climate change sceptic.

The day after Mr Abbott’s elevation to the leadership, Liberal senators rejected the emissions trading bill in spite of the Turnbull amendments.

The lesson from all this, according to Anthony Green, an elections analyst for public broadcaster the ABC, is that in carbon-intensive economies narrow political advantage can trump pragmatism and, ultimately, action on climate change, even in the presence of lavish compensation offers.

Two-thirds of Australian voters back an emissions trading scheme, according to pollsters Nielsen, but 11 of the 14 most marginal Labor-held seats are in outer suburban, regional and rural electorates that are likely to feel the cost of carbon permits particularly keenly.

“This comes down to the idea that you can split Labor’s working-class base in coal-mining districts, and if the debate ends up being concentrated on the price of electricity then there’s mileage in that angle,” Mr Green says. “Of course, if we have another hot summer they may have to come up with more of a policy.”