A carbon price is not enough

This week, the Labor government’s Multi-Party Climate Change Committee (MPCCC) agreed to a set of principles to guide the development of a national carbon-pricing model. While a carbon pricing legislation is a worthy pursuit that will make fossil fuels more expensive, we must not forget that a carbon price alone is not enough to deal with the climate crisis. The mechanism has several limitations that inhibit the deployment of clean energy infrastructure.

Earlier in the year the head of the energy technology policy division of the International Energy Agency, Peter Taylor, argued: “a price on carbon is needed to send a strong signal to the market, but it’s unlikely this will be enough to transform our energy system. Other policies will be needed to support technology development and deployment.” To ensure effective climate change mitigation and the transformation of our energy system, the Gillard government and MPCCC must be cognisant of the limitations of carbon prices and include additional policies in next year’s climate and energy agenda.

The best public policy approach is to reverse the hierarchy between carbon price and the so-called ‘complementary measures’, such as a feed-in tariff, efficiency standards, public infrastructure investments and industry development. An effective carbon price will be the measure that best complements a whole-of-sector reform plan for energy generation, distribution and consumption. After all, Australia must effectively transition its whole energy system to renewable sources as soon as possible.

Concentrating solar thermal technology will play a large role in Australia’s future renewable energy mix. The technology uses molten salt storage to provide reliable baseload electricity day and night, all year round. Spain now has several operating plants and many more approved for construction. A 150 MW solar tower project was recently approved by the Californian Energy Commission and will receive millions of dollars worth of federal loan guarantees to ensure construction.

The US Department of Energy expects concentrating solar thermal plants to produce electricity at ever cheaper rates. Today’s plants now produce electricity at $A0.20 per kw/h, but will fall to $A0.12c per kw/h after 15 to 20 are built worldwide. Parity with coal will be achieved once around 50 plants are installed globally.

Unfortunately, a low- to medium- carbon price is ill-suited to deploy this critically important technology, at scale, in the short-to-medium term. While the first plants will require large upfront capital expenditure (that we can afford), they become more cost efficient with deployment, therefore the technology requires a model that is inverse to the slowly rising prices created by carbon taxes or trading.

The Gillard government should consider feed-in tariffs (FiTs) for large-scale solar thermal power, drawing inspiration from Germany which has used FiTs to successfully build a sizable photovoltaic generating capacity now at a whopping 18,000MWe of capacity.

A slowly rising carbon price reveals another problem. While incremental price rises are useful for capturing low-hanging fruit like efficiency gains, low carbon prices will encourage an undesirable shift to gas-fired power generation. Though less carbon-intensive than coal, the construction of a generation of gas plants that will lock in years of carbon emissions is questionable.

Further to these limitations is the inability of carbon prices to build the enabling infrastructure that will form the foundation for a clean energy economy. New electricity grids to remote places rich with renewable resources do not directly reduce carbon, and therefore don’t qualify for investment through domestic carbon ‘offset’ mechanisms. Add to this the high capital costs and lack of short-term profitability of building this type of infrastructure and we can see that such projects are beyond the capacity of the private sector alone.

Our energy transformation challenge requires an unparalleled level of infrastructure deployment. Market mechanisms will have to work alongside a range of smart energy policies, including: direct investment, loan guarantees, public-private partnerships, feed-in tariffs and government procurement. Combined, these initiatives can provide certainty for the private sector to make long-term investments in commercially available concentrating solar thermal energy.

This shift in thinking begs the question: Is this approach politically feasible to move beyond carbon pricing?

Labor can align its political interests with good policy outcomes by broadening its climate agenda. In a recent speech, climate change minister Greg Combet referred to Labor’s proud heritage of industry development. This is exactly what Australia needs to start addressing climate change. Economic rationalists within the Labor party are on the back foot since the GFC, when a Keynesian package saved the Australian economy from economic ruin. Add to this the high level of public support for the nation-building NBN project and we can see how an industry-focused climate/energy agenda can be.

Then there’s the Greens. So far the party has embraced the market-based mechanism of an ETS, however, an effective industry-based policy would fit very well with the party’s progressive approach to social and economic policy. The final outcome of the MPCCC will need the support of the newly expanded Greens Senate caucus to take effect. This gives the party substantial leverage in MPCCC deliberations. It’s time for the Greens to step up and start driving the debate and not stay blinkered by the same thinking that underpinned the CPRS.

In 2011, Labor and the Greens have the ability to deliver significant climate and energy legislation and address the limits of carbon pricing. Do they have what it takes?

Leigh Ewbank is director of communications for Beyond Zero Emissions.