Alternative to Carbon Pricing

Remove Investor Risk Premium on Nulcear – How?

This comment https://bravenewclimate.com/2010/01/31/alternative-to-cprs/#comment-109491 suggests an approach to implementing nuclear in Australia so it can supply electricity for a cost less than from coal. The investor risk premium is one of the major costs; this can be dealt with by the right government policies and legislation.

Here are a few suggestions on how we might remove the investor risk premium on nuclear and transfer it to fossil fuel generators.

The investor risk premium is caused because investors fear that governments are likely to change their mind about nuclear in the future so that the value of the investment and return on investment will decrease compared with what they expected. Investors also fear that the project will be delayed during construction, governments will change the rules and regulations, unions will hold them to ransom once work starts, and there will be never ending public disruption during construction and throughout the life of the plant.

How can we remove this risk premium? The most important thing the government can do is to send an unambiguous message to investors that nuclear is welcome, it is the future, the government will ensure it is profitable and the rules will not be changed, without fair compensation, once the investors have committed their investment. Here are some thoughts on how to achieve this:

1. Public contributes through taxpayer subsidies to the initial builds. This will encourage the taxpayer to be concerned about waste of money on frivolous protests and disruption. This will strengthen the government’s hand to prevent it occurring. (the subsidy for nuclear is instead of the subsidies being wasted on picking winners on renewables and energy efficiency)

2. Allow the construction companies to use non unionised labour if they prefer.

3. Ask the vendor and construction companies what Conditions of Contract are causing them to have to raise their price and what the Owner could do to reduce their price. We don’t have to accept all they say, but atr least we know what of our contract requirements are increasing the cost of the plant. Then we can make changes before the contract is awarded if we want to.

4. Remove all the legislated and regulatory impediments that favour some types of generating technologies compared with others. This would mean removing subsidies, tax breaks and other favouritism. (The NSW government is opening a new coal mine that will be owned and operated by the government to supply coal to NSW electricity generating stations. It has guaranteed it will supply coal at half price until 2030)

5. Direct the Productivity Commission to investigate and report on the distortions that favour one type of generator over another.

6. Set up a tribunal, perhaps as part the Administrative Appeals Tribunal, to adjudicate on claims that one electricity generating technology is getting an unfair advantage over any other. This will allow the distortions to be exposed, so they can be dealt with by government.

7. Fast track planning and site approval – as is being done for wind farms

8. Establish a lean, effective nuclear regulatory regime which is aimed at regulating the industry at least practicable cost for the industry and the community and keeping in mind the goal of achieving least cost low emissions electricity as quickly as possible.

9. These two links describe the costs that have been imposed on nuclear due to regulatory racketing:

http://www.phyast.pitt.edu/~blc/book/chapter9.html

http://deregulatetheatom.wordpress.com/2011/01/27/when-the-aec-became-the-nrc-nuclear-energy-stopped-growing-in-the-us/

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This joint report by IEA, OPEC, OECD, World Bank Analysis of the Scope of Energy Subsidies and Suggestions for the G-20 Initiative http://www.oecd.org/dataoecd/55/5/45575666.pdf is interesting (see the Context, p4): For example:

Furthermore, subsidies provided to producers of fossil fuels may be on the order of US$ 100 billion per year (GSI, 2009). The total order of magnitude of subsidies to consumers and producers – almost US$ 700 billion a year – is roughly equivalent to 1% of world GDP (World Bank, 2009; OECD, 2008a)

OECD countries have been raising taxes (negative subsidies) on energy, mainly fossil transport fuels, in amounts exceeding US$ 400 billion (excluding Goods and Services Tax and Value Added Tax) in each of the years between 2003 and 2008; these taxes significantly affect relative end-use prices for fuels.2

Subsidies to other non-fossil-fuel energy are considerable and have been increasing over time. A rough estimate by the Global Subsidies Initiative (GSI) indicates around US$ 100 billion per year are spent to subsidize alternatives to fossil fuels. Based on this, OPEC estimates that renewable energy sources and biofuels are subsidized at a much higher rate than fossil fuels. The per unit basis subsidies to renewables and biofuels are equal to US cents 5.0 per kWh, compared with US cents 1.7 per kWh for nuclear power, and US cents 0.8 per kWh for fossil fuels.

Poorly implemented energy subsidies are economically costly to taxpayers and can damage the environment through increased emissions of greenhouse gas and other air pollutants. Recent OECD and IEA analyses indicate that phasing-out fossil fuel subsidies could lead to a 10% reduction in global greenhouse-gas emissions in 2050 compared with business-as-usual (OECD, 2009b; OECD 2010a). Several studies reviewed by the Independent Evaluation Group (IEG) of the World Bank (IEG, 2009) found that subsidies to fossil fuel use tend to benefit high-income households more than the poor, due to the former‘s higher consumption levels. According to the same study, the bottom 40% of the population in terms of income distribution received only 15-20% of the fuel subsidies in developing countries. Nonetheless, some subsidies related to fossil fuels can improve the environment or the welfare of the poor if they encourage reduced reliance on biomass in areas at risk of deforestation, and fund research into ways to sequester carbon emissions from combustion.

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’AEMO Cost Data Forecast for the NEM’ – A Critique

AEMO contracted WorleyParsons in October 2010 to conduct a review of the ACIL-Tasman (2009) cost and performance information for existing and new entrant electricity generation technologies in the National Energy Market (NEM). The report, “AEMO Cost Data Forecast for the NEM”[1] is dated 31 January 2011:

The ACIL-Tasman report[2], ‘Fuel resource, new entry and generation costs in the NEM’, has been useful and educational. It has been the source for much of the information for several of the previous articles I have written for BNC, especially “Emission Cuts Realities”[3]

Unfortunately, the WorleyParsons (2011)[1] report seems biased towards renewable energy and towards providing support for carbon pricing. I have these main reasons for this view:

1. Nuclear is not included. It was included in the ACIL-Tasman report and it would appear it has been excluded by a policy directive, not an accidental omission. The report considers 39 electricity generation technologies, most of which are at or before the “bleeding edge” stage of the ‘technology life cycle’ 4], but not nuclear, a mature, low-carbon emissions technology.

2. The descriptions of the five scenarios selected, and the assumptions of rate of change of commodity, equipment and labour cost applied to each scenario. These seem to be biased towards producing data to support the case for a carbon price. For example, Scenario 1 has the most stringent emissions targets and yet assumes the best performance of the Australian economy, the opposite of what most would expect. Scenario 5 has the least stringent emissions targets and yet yields the worst economic performance.

3. The assumptions about the rate that costs will change as a result of ‘learning curve’, especially for the “bleeding edge” technologies like renewables and Carbon Capture and Sequestration (CCS), seem to exhibit optimism similar to previous assumptions applied to solar thermal (e.g. NEEDS (2008)[5] and Sargent and Lundy (2003)[6]). All have proved to be highly optimistic.

Below are extracts from the WorleyParsons report. The extracts are of:

1. the 39 electricity generation technologies covered in the report

2. description of the five scenarios

3. assumptions of rate of change of commodity, equipment and labour cost applied to the five scenarios

Electricity generation technologies considered

The agreed work scope was to review the 2009 AEMO data in particular the relevant cost and efficiency curves for the following generating technologies:

1. IGCC – Brown Coal
2. IGCC – Brown Coal with CCS
3. IGCC – Black Coal
4. IGCC – Black Coal with CCS
5. Supercritical Pulverised Coal – Brown Coal
6. Supercritical Pulverised Coal – Brown Coal with CCS
7. Supercritical Pulverised Coal – Black Coal
8. Supercritical Pulverised Coal – Black Coal with CCS
9. Supercritical Pulverised Coal – Black Coal Oxy Combustion CCS
10. CCGT – Without CCS
11. CCGT – With CCS
12. OCGT – Without CCS
13. Solar Thermal – Parabolic Trough with 6 hrs Storage
14. Solar Thermal – Parabolic Trough without Storage
15. Solar Thermal – Central Receiver with 6 hrs Storage
16. Solar Thermal – Central Receiver without Storage
17. Photovoltaic – PV Fixed Flat Plate
18. Photovoltaic – PV Single Axis Tracking
19. Photovoltaic – PV Two Axis Tracking
20. Wind – Small Scale (50MW)
21. Wind – Medium Scale (200MW)
22. Wind – Large Scale (500MW)
23. Geothermal – Enhanced Geothermal System (EGS)
24. Geothermal – Hot Sedimentary Aquifers (HSA)
25. Biomass – Bagasse
26. Biomass – LFG
27. Biomass – Small Waste to Energy
28. Geothermal – Enhanced Geothermal System (EGS) – Other
29. Geothermal – Hot Sedimentary Aquifers (HSA) – Other
30. Small IGCC – Black Coal
31. Small IGCC – Black Coal with CCS
32. Small Supercritical Pulverised Coal – Black Coal
33. Small Supercritical Pulverised Coal – Black Coal with CCS
34. Small Supercritical Pulverised Coal – Black Coal Oxy Combustion CCS
35. 300MW CCGT – Without CCS
36. 300MW CCGT – With CCS
37. 100MW CCGT – Without CCS
38. 100MW CCGT – With CCS
39. Wave Power

The five scenarios

For each of the above mentioned technologies, the cost curves are required to be established
according to the following five scenarios:

Scenario 1 – Fast Rate of Change
Scenario 2 – An Uncertain World
Scenario 3 – Modest Rate of Change
Scenario 4 – Independent Climate Action
Scenario 5 – Slow Rate of Change

The five scenarios may broadly be described as follows:

• Scenario 1 (Fast rate of change): successful deployment of both centralised and decentralised supply-side technologies, combined with high demand side participation, facilitates a rapid transformation of the sector to meet strong emission targets. Australia remains competitive on the global stage and reaps the benefit of strong international growth.

• Scenario 2 (An uncertain world): carbon policy uncertainty creates barriers for emerging demand and supply-side technologies. Strong international demand for Australia’s resources drives high domestic economic and population growth, resulting in high energy demand.

• Scenario 3 (Modest rate of change) International agreement on carbon reduction targets and the impact of climate change has been reached. The carbon price paths are universally adopted but are only moderate. All sectors of the Australian economy are doing reasonably well, with economic growth at intermediate levels. Moderate carbon price targets push development of new technologies along at a reasonable pace and globally some of the new low emissions technologies are maturing.

• Scenario 4 (Independent Climate Action) International agreement on climate change objectives is not reached and there is no development of and international carbon trading scheme. Climate change is impacting on agriculture and tourism and Australia chooses to move to a low carbon economy faster than its trading partners by imposing a carbon tax on its industry. Population growth and emigration is at the low end of the range and reduces economic growth in Australia.

• Scenario 5 (Slow rate of change): low domestic economic growth and population growth, driven by difficulties accessing capital, slows the rate of transformation of the stationary energy sector. Australia moves further towards a service economy, with some manufacturing and energy intensive industry moving off-shore.

Assumptions of rate of change of commodity, equipment and labour cost

3.3.1 Exchange Rate Variation
Our assumptions for the starting point for exchange rate was based on the current average rate of A$1.00=US$1.00. Therefore the starting point for all capital costs is based on the current exchange rate. Based on the description of the five scenarios we assumed that the average exchange rate variation for the five scenarios would be as follows:

Scenario A$1= US$ Scenario title
1 $0.85 Fast rate of change
2 $0.85 An uncertain world
3 $0.75 Modest rate of change
4 $0.75 Independent Climate Action
5 $0.65 Slow rate of change

3.3.2 Productivity Rate Variation
Based on the description of the five scenarios we assumed that the productivity rate variation for the five scenarios are as follows:

Scenario Productivity Rate variation Scenario title
1 1.75% Fast rate of change
2 1.45% An uncertain world
3 1.30% Modest rate of change
4 1.00% Independent Climate Action
5 0.80% Slow rate of change

3.3.3 Commodity Variation
Based on the description of the five scenarios we assumed that the commodity variation for the five scenarios are as follows:

Scenario Commodity Variation Scenario title
1 3.30% Fast rate of change
2 2.90% An uncertain world
3 2.50% Modest rate of change
4 2.10% Independent Climate Action
5 1.70% Slow rate of change

References

[1] WorleyParsons (2011) – ’AEMO Cost Data Forecast for the NEM – Review of Cost and Efficiency Curves’

Click to access 0419-0017.pdf

[2] ACIL-Tasman (2009) – ‘Fuel resource, new entry and generation costs in the NEM’

Click to access 419-0035.pdf

[3] Lang (2010) – ‘Emission Cuts Realities’

Emission cuts realities for electricity generation – costs and CO2 emissions

[4] Wikipedia – ‘Technology life Cycle’
http://en.wikipedia.org/wiki/Technology_lifecycle

[5] NEEDS (2008) – ’Final report on technical data, costs, and life cycle inventories of solar thermal power plants’

Click to access RS1a%20D12.2%20Final%20report%20concentrating%20solar%20thermal%20power%20plants.pdf

[6] Sargent & Lundy LLC Consulting Group (2003): ’Assessment of Parabolic Trough and Power Tower Solar Technology Cost and Performance Forecast.’ NREL/SR-550-34440.

Click to access 34440.pdf

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I sent this letter to the Australian today in response to this editorial:
http://www.theaustralian.com.au/news/opinion/the-case-for-climate-action/story-e6frg71x-1226000424533

Dear Editor,

“The case for climate action” (Editorial, 5/2) says “The Weekend Australian supports a market-based approach to managing carbon”. And “…underlines how urgently the government must tackle the issue of compensation to householders and businesses”.

Why do you say that government-imposed carbon pricing and compensation is a market based approach? A genuine market-based approach would be to eradicate the policies and regulations that prevent us getting low-cost nuclear energy.

The government should ask the Productivity Commission to determine the impediments that prevent low-cost nuclear, and how they could be removed. Removing them could provide benefits equivalent to the of economic reforms of the Hawke, Keating and Howard governments.

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Garnaut Update ignores ‘market-based’ alternative to carbon pricing

Garnaut ignores the option of removing the impediments to low-cost nuclear

http://www.garnautreview.org.au/update-2011/update-papers/up1-weighing-costs-benefits-climate-change-action.html

The Garnaut Update does not considered the option of removing the impediments that prevent us getting low-cost nuclear. His analysis seems to assume all the impediments to low-cost nuclear that exist in the western democracies will be implemented in Australia. He does not appear to have considered what the impediments are, nor quantified their effect on the cost of nuclear relative to coal, nor suggested how they could be removed. This seems like a serious omission to me. It’s as if the whole study is being done to support an entrenched political position.

Comments on selected statements in the overview of Paper six and Paper eight:

Paper six: Carbon pricing and reducing Australia’s emissions

The Review examined various approaches to reducing emissions. It concluded that a market-based approach, with economy-wide pricing of greenhouse gas emissions applied through an emissions trading scheme (ETS) or a carbon tax, would be cheaper than regulatory approaches to reductions in emissions.

But the Review did not consider the alternative approach of removing the impediments to low-cost nuclear. Removing the impediments to low-cost nuclear, in parallel with removing many of the impediments to business, could give productivity improvements and other benefits of similar magnitude to the reforms implemented by the Hawke, Keating and Howard governments.

Calling a government imposed carbon pricing mechanism a “market-based mechanism” is spin. A government imposed carbon pricing mechanism is another impost on business, similar to the many that COAG (Council of Australian Governments) is now trying to remove.

The following extracts are not consistent with the term “market based” mechanism. It is advocacy for government interference in the market, the opposite of “market based”.

An efficient transition to a low-carbon economy would require the price on carbon would need to be supported by public fiscal support for research, development and commercialisation of low-emissions technologies, funded out of the revenue generated by the sale of emissions permits. The Review suggested that the ETS and support for research, development and commercialisation of new technologies should be complemented by a small number of targeted policies, including assistance to low-income households and transitional support for some emissions-intensive and trade-exposed industries.

…

… an ETS should be legislated and its institutional arrangements established, but that it should operate with a fixed, rather than floating, emissions permit price.

…

The Update reflects on different mitigation policy approaches and carbon-pricing regimes. It considers the implications of Australia’s current fiscal position on the use of carbon-pricing revenue, and discusses the various potential uses of revenue, including support for technology innovation. It examines the rationale for and approaches to providing assistance to trade-exposed industries, electricity generators and households to manage the effects of mitigation policies, and to reduce the national costs of transition. This paper sets out what a fair and efficient mitigation package might look like for Australia in the current, post-Cancun world.

Paper eight: Transforming the electricity sector

The Review noted the likelihood that Australian electricity generation costs would rise rapidly even in the absence of policy to reduce greenhouse-gas emissions.

Yes. But the reason is that there has been 20 years of mucking around with many different economically irrational policies while all the time preventing the option of low-cost nuclear being considered. If Labor and environmental NGO’s had not prevented nuclear from being an option in 1990 and since, we’d have perhaps 10% of our electricity generated by nuclear by now and we’d be at the ‘settled down costs’ stage. We’d have the skills to be able to roll out nuclear at the rate of 1GW per year by now (one unit per 5-years per mainland state, on average).

and exacerbated by extraordinary increases in costs of electricity transmission.

Also due to 20 years of government interference in the electricity market, including Renewable Energy Targets forcing us to build transmission systems to be able to accommodate fluctuating power from renewable energy sources.

Regulatory measures that have been presented as instruments of emissions reduction that are already in place add to the pressures on generation costs. Recent developments show that increases in the costs of transmission and distribution of power have been even more important than increases in generation costs, and raise questions about the policy regimes within which they are occurring.

Instead of having a narrow focus on pricing carbon, we should focus on a solution that removes all the impediments that are preventing us from getting low-cost, low-emissions electricity generation. This would be rally beneficial reform. Some of the impediments to low cost nuclear are listed in the links at the end.

Much work has taken place since 2008 to prepare the National Electricity Market for the transition that will be required in the coming decades. In particular, the establishment of the Australian Energy Market Operator and analytical work on Scale Efficient Network Extensions and the 2010 National Transmission Network Development Plan address some of the concerns raised in the Review.

The changes being made in the electricity system are in response to, and caused by, an environment of government intervention and bad policy: e.g. Renewable Energy Targets and prohibition of the least-cost, low-emissions electricity generation technology, nuclear. This is part of the cause of the cost increases that will be imposed on us over the years ahead.

Reducing Australia’s emissions—such as through a carbon price—imposes costs. These costs flow through to businesses, industries, households and communities, particularly through higher electricity prices. The Update examines the distributional impacts of a carbon price, particularly on low-income people, and suggests cost-effective means of reducing regressive distributional effects.

“The Update examines the distributional impacts of a carbon price, particularly on low-income people, and suggests cost-effective means of reducing regressive distributional effects”. Interpretation: more government intervention in the market. More politicians and bureaucrats “pulling the levers” to make the market operate as they feel it should. More ‘picking winners’. More pork barrelling to win elections. More policy manipulation aimed at winning the votes of swing voters in marginal electorates.

Instead of advocating more government intervention in the market, why doesn’t Garnaut advocate reform that would reduce the cost of business, reduce the cost of electricity, and increase productivity? This could be achieved by removing the impediments to low cost nuclear and removing many of the government imposed imposts on business.

And here is a suggestion on how to do it:

1. Nuclear cheaper than coal in Australia. How?

Alternative to Carbon Pricing

2. Some impediments to low-cost nuclear

Alternative to Carbon Pricing

3, Subsidies that encourage fossil fuel use in Australia.

Click to access CR_2003_paper.pdf

4. Impediments to low-cost nuclear – Industrial Relations

Alternative to Carbon Pricing

5. The excessive cost due to regulatory ratcheting
http://www.phyast.pitt.edu/~blc/book/chapter9.html

6. Suggested Terms of Reference for a “Productivity Commission” Investigation into the impediments to low-cost nuclear

Alternative to Carbon Pricing

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The State of New South Wales alone is considering up to 4 GW of new baseload. That’s about 90 units of 45 MW each. These will replace or augment the Pt Piper and Bayswater pulverised coal stations. Prime candidates at the moment at combined cycle gas and supercritical coal with air cooling. However the Federal govt has just put out the frighteners by talking about a $30 carbon tax. I don’t think they’ll implement it but it puts nuclear on the table.

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Barry,
@ https://bravenewclimate.com/2011/02/04/an-environmentally-sound-energy-rich-future/#comment-111937

You said:

Peter, I’d like to discuss this and work towards it, sure. But I’m still not sure what to advocate along these lines that would have political resonance. I think most people in BNC feel the same. What to do, beyond the motherhood statement that virtually all of us would agree with? I really don’t see it as people avoiding this issue because it runs counter to their ideology. People are not tackling this issue because they don’t know how to and have nothing effective to say.

That statement suggests BNCers have accepted (wrongly IMO) that Gen II or Gen III in Australia must be higher cost than coal.

I also suspect that many BNCers do not want to tackle the issue because their loyalty to the political Parties that advocate a Carbon Price exceeds their desire to see substantive policies to reduce emissions. (Remember, carbon price in Australia means gas not nuclear, and that will be the case for a long time and until the carbon price is high).

Debating the alternative to a carbon price – removing the impediments to low-cost nuclear – means facing up to some hard choices that I expect many people just don’t want to have to face up to. Here are some of them:

• Carbon price means gas, not nuclear.

• Removing the impediments to nuclear means backing-off on the demand that ridiculously stringent safety regulations is non negotiable, no matter what the cost.

• Also non-negotiable is that the nuclear power stations must be built and operated by unionised labour, and

• anti-nuke protesters and environmental NGOs can use existing laws and legal loopholes to disrupt construction, operation and potentially force early termination of the power plant (as is happening in the USA)

• we would have to implement genuine reform that removes the favouritism to fossil fuels and renewable energy

• we’d also need to remove many other imposts on business, and

• conflicting with the attempts to remove the distortions in the energy market, we’d have to subsidise nuclear to get it established.

I suggested here https://bravenewclimate.com/2011/02/04/an-environmentally-sound-energy-rich-future/#comment-111937 a way to lead the debate with relevant expert input:

My suggestion is to ask a few suitably qualified people to write some articles.

I would suggest inviting articles from people who would not necessarily have opinions that align with the majority of BNCers. The first person I am thinking of is Alan Moran. He was a commissioner (?) of the Productivity Commission. He could write an excellent and informative article telling us how the Productivity Commission would approach the task if instructed as per the Terms of Reference I suggested here: https://bravenewclimate.com/2010/01/31/alternative-to-cprs/#comment-109732 which says, in part:

Terms of Reference for Productivity Commission Investigation

1. What are the impediments to low-cost, low-emissions electricity supply in Australia?
2. What could be done to remove these impediments?
3. What could be done to give Australia a secure supply of the least-cost, low-emissions, environmentally benign electricity for the next 4 decades?

Another version of the Terms of Reference:

1. Could electricity from nuclear be cheaper than from coal in Australia?
2. If so, how much cheaper?
3. What would we need to do to achieve this?
4. What are the options?
5. What are the benefits and costs, advantages and disadvantages of each option?

Next, you might ask Chris Berg, also from IPA, to write an article to respond to these terms of reference as if he was the Productivity Commission. Here is one of his articles that appeared on the ABC The Drum in December:
”Can’t compare emissions trading and reforms from the past”
http://www.abc.net.au/unleashed/42196.html

Regarding your point “But I’m still not sure what to advocate along these lines that would have political resonance”, I have a suggestion. It is that BNCers who can influence Labor Members of Parliament and Senators point out to them that imposing a carbon price is not consistent with the type of reforms the Minister for Trade, Hon Craig Emerson, MP, is advocating. He is advocating continuation of the types of reforms implemented by the Hawke, Keating and Howard governments. To be consistent with what Minister Craig Emerson is advocating, Labor should change from advocating a carbon price to advocating that Australia continue the reforms of the Hawke, Keating, Howard governments by removing the impediments to business and competition, including removing the impediments that would prevent nuclear being cheaper than coal.

Minister for Trade, Hon Craig Emerson, MP, is presenting the case in Cabinet and in public statements that the government needs to continue the economic reforms implemented by the Hawke, Keating and Howard governments. He is presenting a strong case for economically rational reforms. He wants to remove the impediments to business and free trade. He wants to remove excessive imposts on business and allow the market to do what it does best, with of course appropriate light regulations. What he is advocating is exactly what needs to be done, in my opinion. However, what he is advocating is not consistent with Labor’s policy on carbon pricing. This policy, if implemented, would add more market distortions and imposts on business – by imposing a carbon price and all the many mechanisms to redistribute wealth so as to reward Labor Party voters and bribe swing voters.

Hopefully Labor supporters can find a way to frame and present this message in a way that is acceptable to the Labor Party. Remember, a carbon price means gas not nuclear; and gas means stabilising emissions at current levels for decades not reducing them. If we want to cut emissions by 50% to 80% by 2050 or 2060, nuclear is the only option. I’ve addressed in previous posts why imposing a carbon price first and hoping we will then remove the impediments to low cost nuclear is likely to delay genuine progress on nuclear for, in the order of, a decade. We need to confront the issue of removing the impediments to low cost nuclear first, before the issue is buried under a carbon price.

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I agree with all this.

But extend your thinking to the next level. We have the choice of higher electricity costs, higher fuel costs because gas price is being pushed up because of the electricity industry demand for it, as well as only smallish cuts in emissions. That is what a carbon price will do because it will force us to gas generation.

The alternative to pricing carbon – reducing the impediments to low cost nuclear so it is cheaper than coal – will keep electricity costs lower than they would be with coal, keep transport fuels costs lower (because there is less demand for gas), cut emissions much more than gas will do, get Australia technically involved in the energy source that will supply the world this century, and most importantly, help to make nuclear cheaper than coal so it can be rolled out to the poorest countries faster (to replace coal and reduce world emissions faster).

What could be better than this.

All we need to do now is:

1. put our mind to brainstorming how to get nuclear cheaper than coal in Australia

2. Feeding information on this alternative to media, politicians and the public (from the BNC website and all who read it)

We are running out of time – again! Let’s get started.

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An excellent article in today’s Australian discusses the situation in the electricity industry concerning investor uncertainty, lack of appropriate price signals and resulting under-investment in generating and transmission capacity.

Burnout for populist power plays
http://www.theaustralian.com.au/news/features/burn-out-for-populist-power-plays/story-e6frg6z6-1226001058940

Following are some extracts of particular interest:

Matt Zema, the managing director of Australian Energy Market Operator, which manages the national electricity market. (The NEM connects about 200 large electricity generators to about nine million users in eastern and southern Australia.)

is quoted as saying

“In big-picture terms, do we have a problem today? No,” Zema says. “The issue is: does the market have enough signals and and is there enough certainty at a policy level for people to invest for the long term? That’s where it starts to get blurry.”

The article does not suggest what the price signals should be. Reading between the lines one of them is that the price cap of $12,500/MWh should be removed. Obviously, the article is talking about the market uncertainty caused by frequent policy shifts and the uncertainty over carbon pricing (which has been ongoing for two decades). I’d argue that even if government does impose a carbon price the uncertainty will remain because industry will expect that governments will continue to intervene in the market. Changes of government, even changes of prime minster within one party, will change policy, legislation and regulations (as has been clearly demonstrated within just the last 3 years and the change of PM from Rudd to Gillard). Furthermore, what policies are going to be implemented internationally is fluid and uncertain.

But, one policy that could send the appropriate signals necessary to encourage investment in the least-cost, low-emissions electricity is to remove the policies, regulations and investor risks that are preventing low cost-nuclear energy being implemented in Australia. See up-thread for my suggestions as to how to do this.

Last year, Tony Concannon, the executive director of International Power Australia – the largest private investor in power stations in Australia – estimated that between $2.5bn and $7bn would need to be spent to reinforce the grid to connect to wind farms, and a further $9bn spent on back-up gas-fired power stations, given the intermittent nature of renewables. Concannon argued that generating power using renewables would cost between $150 to $200 per megawatt hour, compared with about $40 from today’s coal-fired generators.

Total investment required to make wind a goer is $12 to $16 billion. For that we could have 3GW to 4GW of nuclear, and real costs would decrease thereafter. That would supply around 10% to 15% of our current electricity, and do so with near zero emissions – far lower emissions than the same investment in wind and gas power.

But whatever measures politicians think up in populist bids to shield consumers from rising power bills, they are fighting an uphill battle. The RBA noted in its December bulletin that while there had been notable increases in utilities prices, further large increases would continue. And, it hints, crippling investment is anything but the answer.

From what I’ve seen over the past 20 years, I believe a carbon price will not remove the uncertainty. In fact I thinks it will continue the uncertainty that has prevented appropriate investment decisions over the past 20 years. It will push us to build lots of gas generators.

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I’ve had a discussion with an authoritative source on energy economics.

I presented my argument that if we remove the impediments to low cost nuclear, nuclear generated electricity could cost less than electricity generated by new fossil fuel power stations. My interpretation of the response (with my own embellishment) is:

1. No it couldn’t. Nuclear would be too costly to compete in Australia.

2. We should keep using coal until there is world agreement on how to reduce carbon emissions.

3. Australia cannot change the world on its own, nor can it lead by example. Saying so is a display of naivety and ignorance about how international negotiations are conducted.

4. However, there is considerable support from business for a carbon tax if it will lead to stopping the continual flow of government subsidies and interventions, which are being justified on the basis they are needed to mitigate dangerous climate change.

I am becoming persuaded he is probably correct. My reasons are:

1. It is clear that almost no one in Australia would be prepared to seriously consider the sorts of changes to our systems that would be needed to allow nuclear to be cheaper than coal in Australia. I imagine this would require looking into contentious areas like our ever increasing regulation of everything, nanny state, Industrial Relations, OH&S, and much more. If BNCers are not willing to discuss any of this, as has been clearly demonstrated by the lack of response on this thread, what chance is there that the remainder of the population could discuss it rationally and objectively.

The latest figures for the cost of nuclear power in Australia (and for new fossil fuel and renewable energy power plants) are provided in this EPRI report commissioned by the government and dated February 2010.

Click to access AEGTC%202010.pdf

The figures from this report are being used for modelling by the Australian Government departments. Here are a few selected figures for 2009 in $/MWh
Nuclear = $173
Black Coal = $78 (without CCS),
Black Coal = $167 with CCS
CCGT = $97 (without CCS)
CCGT = $153 (wind CCS)
OCGT = $227 (note: OCGT is needed for wind firming)
Wind = $137 – $214
Solar thermal = $283 – $558
Solar PV = $327 – $436
Geothermal = $85 – $218
Note: The LCOE does not include the cost of back-up for intermittent, non-dispatchable, renewable energy generators, nor the cost of transmission and grid stabilisation enhancements)

2. “We should keep using coal until there is world agreement on how to reduce carbon emissions.” This article in today’s Australian, right on cue, explains: http://www.theaustralian.com.au/news/opinion/climate-adviser-misses-the-point/story-e6frg6zo-1226003951163 This explains very well, why we should not embark on economically irrational polices.

3. “Australia cannot change the world on its own, nor can it lead by example.” The article in today’s Australian (see link above)) explains clearly why this is so: “unilateral mitigation would be anti-insurance”.

4. “However, there is support from business for a carbon tax if it will lead to stopping the continual flow of government subsidies and interventions, which are being justified on the basis they are needed to mitigate dangerous climate change” – such as Renewable Energy Targets, Pink Bats home insulation programs, cash for clunkers, green car programs, green energy programs and many others. $10 billion has been committed by the federal government to such programs in just the past 3 years http://www.budget.gov.au/2010-11/content/overview/html/overview_26.htm and probably an equivalent amount has been wasted by state governments’ climate programs.

At the moment, given we are not prepared to consider what we would have to do to allow nuclear to be cheaper than coal in Australia, I lean towards doing nothing that would damage our economy until there is a world agreement.

If we can’t have nuclear cheaper than coal, we should wait until we can.

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This topic should be closed and archived, if necessary iterating a part 2 in its place.

Loading this page took six minutes. I wonder how many will bother.

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Carbon pricing, what is the cost to the country?

Can someone please answer these questions and/or point me to authoritative sources where I could find the answers to them:

1. How high would the carbon price have to be to force CO2 emissions to be cut to 20% of 2000 levels by 2020?

2. What would be the effect of such carbon prices on the economy?

3. By how much would it increase the cost of living?

I would like to know the answers to these questions assuming realistic assumptions, not optimistic assumptions as I understand Treasury has used in its analyses of the CPRS.

For example, I expect we will have to replace most of our fossil fuel electricity generation with nuclear power plants. EPRI projects that the cost of electricity from nuclear is about 2.2 times the cost electricity from a new coal power station, and over 4 times the cost of current coal generation. The source is here: http://www.ret.gov.au/energy/Documents/AEGTC%202010.pdf

I understand the figures in this report are being used for modelling by the Australian Government departments. Here are a few selected Levelised Cost of Electricity (LCOE) figures in $/MWh (in 2009 $):

Nuclear = $173
Black Coal = $78 (without CCS),
Black Coal = $167 with CCS
CCGT = $97 (without CCS)
CCGT = $153 (with CCS)
OCGT = $227 (note: OCGT is needed for wind firming)
Wind = $137 – $214
Solar thermal = $283 – $558
Solar PV = $327 – $436
Geothermal = $85 – $218
Note: The LCOE does not include the cost of the fossil fuel back-up generation that is essential for intermittent, non-dispatchable, renewable energy generators, nor the cost of transmission and grid stabilisation enhancements.

I suspect the government is using optimistic assumptions for the amount of energy that can be saved by renewable energy and energy efficiency. The McKinsey report suggested that retrofitting insulating to existing buildings is one of the most cost effective ways to cut emissions (Exhibit 4, http://www.mckinsey.com/clientservice/sustainability/pdf/Australian_Cost_Curve_for_GHG_Reduction.pdf ). They argue it has a large negative abatement cost. Yet the ‘Pink Bats’ home insulation program would have cost $200 per tonne of CO2 emissions saved, and that was if the program had been successful. The program was a fiasco so the cost per tonne avoided was far higher than $200/t. If individuals had to arrange, contract and pay for retrofitting insulation themselves the cost would be much higher. And this is supposedly the lowest of the ‘low hanging fruit’. If the cost of the supposedly least cost option is so much higher than the cost the government is using in its analyses, imagine how much worse the other proposed ‘cost-effective’ efficiency measures must be.

Hence my question asks for the best estimates of cutting emissions using realistic assumptions.

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Once we legislate a carbon tax we’re stuffed

Once we legislate a carbon tax it will not be removed – taxes are almost never removed – and this is what will happen:

The tax will be ratcheted up at almost every budget (excluding election years).

It will be used (like other taxes) to pay for profligate spending by incompetent governments and to pay for pork-barrelling to swinging voters in marginal electorates.

The tax will be ratcheted up to meet international commitments made by governments who did not realise what they were committing to.

The government has committed Australia to cut our emissions by 5% below 2000 levels by 2020. But the government has no idea how to achieve this target. So it wants to legislate a price on carbon and then ratchet it up, progressively, until they think the target will be achieved. The problem is that the 5% by 2020 target cannot be achieved at any reasonable cost. So, not knowing what they are doing they will ratchet up the tax until we are in deep recession (just like Prime Minister Paul Keating did when he sent us into the “recession we had to have” by raising interest rates to 18%).

According to “Reality Check” (http://rogerpielkejr.blogspot.com/2011/02/reality-check.html ) to achieve the targets we’ve committed to we would have to build 35 medium size nuclear power plants or 12,667 Cloncurry sized solar power stations by 2020. That would require 24 of such solar power plants coming on line every week.

This is clearly impossible at any cost.

Once we legislate a carbon price, the future is out of the electors hands. We cannot undo it. We will be controlled by the international commitments the government has made. We will be committed to a deep recession as the only way we can cut emissions, because we certainly cannot build emissions free power plants fast enough to achieve the targets. (efficiency improvements on the scale required are impossible too – see the above link to “Reality Check”.)

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Peter as a partial answer to your 1.22 pm post economists often assume a price elasticity of -1.5 other things being equal, That is a 10% price increase causes a 15% quantity drop. Make it a 13% price increase to get a a 20% cut. A $20 carbon tax could add 2c or around 10% more to black coal fired electricity. However there are income and substitution effects as well as hidden variables that amplify over time. A more sophisticated model should attempt to take these into account which needs major computing and data collection resources.

Imposed carbon pricing is a stopgap measure as all fossil fuels will get expensive as they deplete, either in dollar terms or relative to income. That suggests pricing should ideally remain flexible. Hopefully it will lessen price shocks as seen with oil in 1974 and 2008. Some are tipping the next oil price shock will be 2012. Meanwhile China and India are scouring the globe for new coal supplies.

Recall that the NREL calculator found that under reasonable assumptions CCGT and new nuclear both came out around $100 per Mwh without imposed carbon pricing. The high figure you cite for nuclear doesn’t gel with that. Therefore even a modest carbon tax (say $10) swings the pendulum towards nuclear but public fears, long build times and so on work against it.

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John Newlands,

You didn’t mention if you had read this link and didn’t seem to be responding to it.

http://rogerpielkejr.blogspot.com/2011/02/reality-check.html

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Peter I don’t know the long term effects of a carbon price in terms of GDP and employment as this requires modelling way beyond my resources. However I believe if we take some economic pain now we’ll emerge stronger as a result. Think of it as giving up smoking. If China and India keep growing their emissions we can simply put a carbon tariff on their goods. We are in a weak moral position as the world’s biggest coal exporter and OECD’s biggest per capita emitter. It also makes us vulnerable to inevitable carbon price rises. Australia is not powerless to influence world carbon flows and it is in our interests to do so. Australians are hypocrites, Luddites and short term thinkers while remaining dependent on the outmoded technology of coal.

The Pielke blog doesn’t appear to attempt system modelling. Their point that we simply can’t create enough low carbon generation in time ignores the immediate benefits of greater fuel use efficiency. Low carbon baseload will obviously take longer. I’m puzzled by the reference to Cloncurry solar thermal. My understanding is that the project has been mothballed because of glare problems.

The NREL calculator is here http://www.nrel.gov/analysis/tech_lcoe.html though it seems to give different results since I last used it. To get comparison figures between CCGT and nuclear I assume both can get 7% financing with plant capacity 85% for both. I leave the O&M costs the same at the default value. In both cases I take the thermal efficiency as 40% so the heat rate is 2.5 X 3412 btu/kwh = 8,530.

For gas I take fuel cost as $5 per mmbtu or GJ, 30 year plant life and capital cost as $2,000/kw. The calculator gives a levelised cost of 6.8c per kwh. For nuclear I take fuel cost as $2 per mmbtu ($1.97 per GJ according to WNA), 50 year plant life and capital cost as $5,000/kw. The calculator gives a levelised cost of 6.9c per kwh. Without carbon taxes or price rises gas beats nuclear by a tenth of a cent! Wait til millions of trucks and cars are running on gas to see if it stays cheap.

Therefore I’m mystified how ACIL Tasman can find all these extra costs for nuclear. It would be a huge amount of work to reconcile the estimates line by line. Thus I believe Australia can and should introduce CO2 constraints in some form starting yesterday.

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Peter here’s how I think carbon pricing will influence decision making. Let’s assume for argument’s sake that NREL, Shell Europe and others are correct in saying that new nuclear and combined cycle gas costs are about the same. Call it $70 per Mwh. If the CCGT plant emits 450 kgs of CO2 per Mwh then a $20 carbon tax adds 0.45 X $20 = $9. Thus gas fired electricity costs $79 while nuclear remains at $70.

Several investment decisions are then possible. Existing CCGT could be run at higher capacity while planning to build nuclear baseload later on. If output needs to ramp up quickly then new CCGT plant could be built with the knowledge that NP would be more profitable for a given electricity price. In that case build the combined cycle plant now and run it at lower capacity later on when NP takes over the heavy lifting. Either way the NP build decision has to be made within a few years.

Absent CO2 penalties the new plant will be neither gas nor nuclear but coal.

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Since Australia is Co2 obese by world standards cutting at least 100 Mt by 2020 is a fair cop. That should be evenly spread over generation, transport and direct heat with no giveaways. Some of the feared economic pain is more like a reduction in privileges so we’ll still be OK afterwards. We can drive, fly and air condition less. We can eat less meat. More like 90% not just 30% or whatever of aluminium can be remelted which means less coal in the boilers. We don’t yet know what is possible until put to the test. The carbon money can be spent on new products and industries which will boost GDP in unexpected ways.

Even after all of that GDP may still show a reduction. Then again 50C summers, future Category 6 cyclones and high depletion fuel prices don’t help wellbeing either. In any case I’m not sure Australian GDP will keep growing if and when Asian resource demand rolls back. Remember both world crude oil and Chinese coal production are now at peak. This is why I favour auctioning Co2 (absent scams) rather than carbon taxes as the price can adjust according to what the economy can afford.

I believe we can and should make major Co2 cuts commensurate with our population and lifestyle. It’s up to us to adapt as best we can because sooner or later natural forces will do it for us. If we haven’t knocked off at least 50 Mt from baseline ghg’s by 2020 then we’re not trying hard enough.

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I accept that 160 Mt cuts by 2020 are what we should be aiming for. We’ve done the carbon crime now we should do the time. If we are on about 580 Mtpa at present the broad possibilities are
1) 30% less CO2 for 30% less GDP vs
2) 30% less CO2 for lower or no GDP sacrifice,

The assumption seems to be that the first scenario won’t happen anyway. I’m not sure. The price of liquid fuels is certain to go up taking food prices with it and dragging down coal demand. Major man-made CO2 cuts are certain by 2050 since coal, oil and gas will be prohibitive. I think it is better to take some tolerable pain in the next decade to prevent a calamity by mid century and beyond.

Artificial carbon pricing makes the phaseout more orderly. It sets up a forced redistribution of wealth so some new economic sectors will pick up the slack. That could be small cars, efficient appliances, unsubsidised home weatherproofing, high speed rail and so on. That will claw back some jobs and GDP. Even if we can’t build any NPP between now and 2020 the build decisions can be made.

Consider the alternative; we keep burning coal and importing more oil so their depletion catches us unprepared in fits and starts. We lock in worse climate change for future generations while getting constant reminders. I think we must take some economic pain now because it’s coming sooner or later.

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Peter I shall re-examine all of your links later today. While some of us may appear to be using a ‘motherhood’ approach I suggest some critics of carbon pricing may be fixated with the short term. The long term benefits are difficult to quantify which the bean counters take a sign of weakness. They also see their own little patch not thinking it could be wiped out by a larger system collapse.

Example; suppose a tobacconist makes 87.3c profit on a packet of cigarettes. Now somebody talks about banning cigarettes. Oh no the bean counters cry, what about the sheer decency of hard working ordinary tobacconists who raise kids and support other businesses. Banning cigarettes will have no tangible benefits whatsoever and we’ll lose the 87.3c.

That’s really the essence of what I’ve read before in links opposed to carbon constraints. However I’ll read them again.

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If $20 carbon tax gets up that will add about 2c per kwh to black coal fired electricity and 5c a litre to petrol if it is included. I agree with Ergas that the coverage should be wide and freebies kept to a minimum, Conceivably it could raise as much as 500 m X $20 = $10 bn. Think of it as wealth redistribution not wealth destruction.

If the carbon revenue was redistributed via paypackets and pensions there would be some clawback ie many would simply pay more for the same carbon. Without access to good models a rough guess is that a $20 carbon tax could cut use of coal, oil products and gas by 5-15%. That is not the 30% represented by 160 Mt. In theory low carbon products and services will get a lot of the $10 bn.

However you’re probably right 160 Mt is a bridge too far barring recession. Dare I suggest we carbon tax coal and LNG exports? That would work out at about $50/t of black thermal coal and half that for LNG. Since carbon tax is supposed to be revenue neutral the importer can ask for the money back if they promise to do green things with it. If on the other hand they get coal from Indonesia instead then we’ll just give less to Indonesia, the $400m language studies program for example.

By taxing carbon exports Australia takes the pain of either lost sales or more expensive imported goods made from formerly cheap coal. This time foreigners also get to share some of that pain. If spot thermal coal ex Newcastle goes from $140/t to $190 that could knock perhaps 80 Mt from all coal exports or nearly 200 Mt from global CO2.

So we’d cut 160 Mt easily if $20 carbon tax applied to all major domestic emission sources (incl. petrol) as well as to exports of coal and LNG.

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John Newlands,

Below are copies of three relevant comment from up thread, plus a link to one important comment:

Alternative to Carbon Pricing

Reasons why we should allow clean electricity to be cheaper than dirty electricity:
1. higher rate of economic growth
2. stronger economy
3. more and better jobs
4. faster real income growth
5. higher income for workers relative to growth in prices of products and services
6. more tax revenue
7. more funds for services such as Health, Education, infrastructure and Environment
8. faster displacement of fossil fuels for electricity generation
9. faster displacement of fossil fuels by electricity for heating and transport
10. faster reduction in CO2 emissions.

Alternative to Carbon Pricing

What do we have to do to get clean electricity?
1. educate the population to reduce the irrational fears about nuclear energy
2. Establish a regulatory environment that has a low impact on the cost of electricity
3. Remove the investor risk premium
4. Avoid/Remove/Offset the ‘First of a Kind’ costs
How?
1. Establish a “Clean Energy” faculty in at least one university in each state
2. Establish “Clean Power Australia” – a government funded agency, that is independent of political interference, like the Reserve Bank of Australia. The terms of reference for ‘Clean Power Australia’ will be something like:
a. Define how Australia should proceed to get clean energy at a cost that is cheaper than dirty energy, (fund research as necessary to achieve this objective)
b. Develop detailed implementation plans
c. Provide policy advice to government
d. Establish and oversee the Australian regulatory authority for clean power.
3. The government shall remove investor risk premium by:
a. Removing all anti-competitive regulations such as RET, RECs, FiT, subsidies, tax and other incentives
b. Removing all legislative bans on nuclear and all other disincentives
c. Legislating that any future changes of laws or government regulations, implemented by any level of government, that disadvantage the generator will be compensated.
d. The government will have a large stake in the success of the ventures. This is necessary to convince the investors that the government will act to prevent public disruption. Delays will cost the government. Best practice risk management is for the party that is best able to control the risk to carry that risk. So, all cost of delays caused by public disruption, union strikes, etc will be compensated by the government.
4. The government shall carry the ‘First of a Kind’ costs. The justification for doing so is:
a. We have been doing so for renewable energy forever
b. Society caused the delay in implementing nuclear, so society, not just the users, should carry this cost
c. Society wants the clean energy, not just the users, so society should carry this cost
d. Society wanted the cheap coal fired power in the past and has now changed its mind. It wasn’t the users who changed their mind. So society should carry the cost of the change

Alternative to Carbon Pricing

Examples of impediments and regulatory distortions to the market that are blocking nuclear in Australia are:
1. ban on nuclear power
2. high investor risk premium because of the politics
3. Renewable Energy Targets
4. Renewable Energy Certificates
5. Feed in Tariffs for renewables
6. Subsidies and tax advantages for renewable energy
7. Subsidies and tax advantages for fossil fuel electricity generators
8. subsidies for transmission and grid enhancements to support renewable energy
9. massive funding for research into renewable energy
10. massive subsidies for research into carbon capture and sequestration (CCS)
11. Guarantees that the government will carry the risk for any leakage from CCS
12. No equivalent guarantee for management of once used nuclear fuel
13. Massive subsidies and government facilitation for the gas industry, coal seam gas and coal to gas industries (despite the latter putting toxic chemicals into the ground water and the Great Artesian Basin water)
14. Fast tracking of the approvals process for wind power, solar power, gas industry, coal industry while nuclear industry remains band from even fair comparative studies by Treasury, Productivity Commission, ABARE, Department of Climate change and more. We can just imagine what the approvals process would be like for a nuclear power plant!!

And, this post that is too long to copy here:

Nuclear cheaper than coal in Australia. How?

Alternative to Carbon Pricing

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Peter the PM seems to agree that the RET shouldn’t be necessary however that is predicated on a carbon price being in place. This is Garnaut’s thinking as well. I note in The Australian article to which you linked that SA has un-excelled with 5% contribution from rated windpower in the last heat wave. It can only be the RET that makes them want to build another 20 wind farms.

Capital assistance for a FOAK nuclear plant is a subsidy by any other name thereby inconsistent with calls to remove subsidies. Perhaps the govt could be a low key equity partner who in turn has access to soft loans. Energy Australia was originally Sydney Council. Genuinely private sector companies should get loan guarantees from the Federal govt in order to remove risk perceptions from their cost of debt.

Thus I suggest all low carbon electricity suppliers get loan guarantees as well the presumed carbon price which handicaps coal and gas. Nobody gets feed-in tariffs, RECs, quotas or mandates. Wind, commercial solar, geothermal, new hydro and nuclear will all have to compete on their merits. If the risk premium is reduced you’d think in an open market the capital would then flow to nuclear.

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Another letter sent to the Australian today:

“Political grenade defused by morphing into an economic debate” (25/2, p13). Carbon pricing cannot achieve the 2020 targets without causing a deep, sustained recession – much deeper than Paul Keating’s “Recession we had to have”.

Emissions are dependent on population, per capita GDP, energy intensity and carbon intensity. Population is growing and energy intensity and carbon intensity cannot be cut sufficiently by 2020. Therefore, to achieve the targets we’d have to cut GDP.

Australia’s targets mean we must cut emissions by 160 Mt/a (million tonnes per year) by 2020. Replacing Hazelwood coal power station with gas would save about 12 Mt/a and be complete by perhaps 2017. Where would the remaining 148 Mt/a come from? Efficiency improvements cannot achieve much and, with higher electricity prices, clean electricity will not replace fossil fuels for transport or direct combustion (e.g. gas for heating). We are left with the only way we could achieve the targets is with a very deep, sustained depression. GDP would have to be cut back to about 2000 levels – given population growth and some offset by efficiency improvements and fuel switching.

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John Newlands,

Yes, we agree that the RET is really bad policy. I think most BNCers have reached that conclusion. Similarly, blocking nuclear for 40 years was and still is really bad policy.

Capital assistance for a FOAK nuclear plant is a subsidy by any other name thereby inconsistent with calls to remove subsidies.

True, but we’ve dealt with that at least ten times. Can we put that to bed, and move on. I’d appreciate it if you could read back over the posts on this, and if you have any remaining issues about it, let’s discuss them and put them to bed once and for all instead of continually rehashing the same old stuff.

Yes, there is a firm called “Energy Australia”. But so what? Call the thing I proposed something different if you want to. You knew what I meant. This is a nit-picking argument that the name I used for making a point has already been taken. How ridiculous. I used that name to align with “Geosciences Australia”, “Reserve Bank Australia” and the like.

Perhaps the govt could be a low key equity partner who in turn has access to soft loans. … Genuinely private sector companies should get loan guarantees from the Federal govt in order to remove risk perceptions from their cost of debt.

I agree these are some of the options. Anything like that is still a subsidy. This is what is being offered in USA, UK etc. Whatever form you want to dress it up, it is covered by what I proposed in the comment I think you are responding to. It doesn’t matter how you dress it up it is still a subsidy. And it can be justified on the basis of precedent, net benefit to society, and the cost of reversing 40 years of bad policy.

Thus I suggest all low carbon electricity suppliers get loan guarantees as well the presumed carbon price which handicaps coal and gas. Nobody gets feed-in tariffs, RECs, quotas or mandates. Wind, commercial solar, geothermal, new hydro and nuclear will all have to compete on their merits. If the risk premium is reduced you’d think in an open market the capital would then flow to nuclear.

I agree with most of this. However, you’ve dodged the important issue of the order that policies should be implemented. If we impose a carbon price before we tackle the issue of removing the impediments to low cost nuclear, we won’t tackle it fully, properly and to the extent needed.

John, you are still avoiding answering the straight questions I’ve put to you and you are avoiding considering a rational alternative to an economically damaging carbon price. The only reason I can see that you would continually avoid answering the questions is that you are obfuscating.

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John,

I think you have missed or forgotten the main point of this thread. The main point is that there is a much better option than pricing carbon. It is to remove the impediments to low cost nuclear so that nuclear can cost less than coal (with a bit of assistance from us to get it over the FAOK stage – something that is normally practices to bring new industries and technologies to a country, but hopefully based on rational analysis that they will actually be profitable and need no further taxpayer subsidy once they are established).

Pricing carbon:

– will not reduce world emissions
– will damage our economy
– will leave us less able to afford to implement the best policies to deal with problems in the future
– will not assist Australia to get low cost nuclear as quickly as we could
– therefore will not put Australia in a position to be able to assist underdeveloped countries to implement low cost clean electricity
– will not set us on the path that will reduce emissions fastest and the most beyond 2030
– and will delay the rate that we can implement nuclear because once we impose the carbon price, the issue of looking into what is causing nuclear to be so costly in Australia will not be confronted (if we can’t confront it now, we certainly wont after it is covered up with a carbon price – which from what the public has been led to believe will solve the climate change issue)>

The policy is another dud Labor policy. It is a continuation of the sort of policies Labor implemented when last in government to try to win and appease the Greens. The policies are irresponsible. All you need to do is to look at it rationally, and challenge your beliefs that are based on political allegiances.

Peter I’m not going to buy into whether current generation nuclear could be built cheaper. For all we know the showpiece UAE project could have horrendous delays and cost overruns. If so it will be hard to blame unions and meddling bureaucrats.

John, that is simply an excuse for not wanting to confront the issue. There are always problems ahead. Why are you even talking about catastrophic climate change a century ahead if you can’t make rational assessments using the information available.

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Isn’t this silly “Carbon tax fight turns to petrol”?
(Lead article on front page of today’s ‘The Australian’)

Isn’t this the opposite of what we should be doing? If we want to reduce emissions we should do the exact opposite of what the government is doing. We need clean electricity at least cost so it can more quickly be implemented and will more quickly displace oil and gas for land transport and direct combustion. To achieve this we need clean electricity at the least possible cost while raising the cost of fossil fuels used in transport and direct combustion. Low-cost nuclear is what we need.

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How do Barry and I differ on AGW, Carbon Pricing and Energy?

It occurred to me it might help if I share what I think are the issues where Barry and I do not agree. I think we agree on most matters relating to energy, but we disagree on these points:

1. I am not persuaded that AGW is a catastrophic problem, nor that it is so urgent that we should risk seriously damaging our economy. I would want to see a thorough and impartial due diligence investigation before we risk squandering hard earned wealth on what could turn out to be really bad policies. The consequences of such policies could cause economic disruption, sustained recession, depression, and retard development of the underdeveloped countries, with all the devastating consequences to humanity that would cause. We require all our companies to do proper due diligence investigations before taking actions that would risk investor’s funds. We should require the same before we risk the country’s and the world’s wealth. No proper due diligence investigation has been done.

2. I am not convinced that pricing carbon is the appropriate policy for Australia as a first step. I believe we should not act to price carbon until two conditions have been met (i) we have removed the impediments to low cost nuclear and (ii) the main emitting countries have agreed an international mechanism for internalising the costs of emissions.

3. I am not convinced that the proposed policies to mitigate climate change will make any significant difference to the climate. I am not persuaded that we would not be better off focusing on a combination of appropriately targeted adaption measures as well as removing the impediments to low cost nuclear energy. Removing the impediments to low cost nuclear energy applies to both the impediments to the existing Gen III plants and the impediments to developing low-cost Gen IV. To achieve this would mean we should probably be focusing on building replacements for IAEA and NRC, from scratch, for Gen IV and all future generations. The new regulatory bodies’ focus should be on providing nuclear power for all peoples of the planet at the least possible cost. I believe that removing the impediments to low-cost nuclear, in combination with removing many of the other impediments to business, would provide massive benefits to the economy. Such reforms could more than offset the costs of mitigation actions. They could provide greater benefits than the economic reforms delivered by the Hawke, Keating and Howard governments.

4. I am not persuaded that the few of us in Australia who have seen the light on nuclear should be spending time advocating Gen IV – at this time. I believe our attention should be focused on attempting to convince the Government (and the population and the media) to remove the impediments to low-cost nuclear and to look seriously at the technological options for providing clean electricity at a cost less than coal.

I perceive that Barry believes AGW is of such critical importance that addressing this issue should have priority over addressing all other issues. For Barry, economics is irrelevant because he believes AGW threatens civilisation and in fact life on Earth. Barry, therefore, is disinterested in the economic consequences of the policies he supports. Barry also wants to avoid a proper due diligence investigation of the evidence for the supposed catastrophic consequences of AGW and wants to avoid proper due diligence of the policies proposed to mitigate AGW.

I do not agree. I think AGW is one of many issues confronting us and it should be assessed in a properly balanced way amongst all issues.

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John Newlands,

I agree with all you say here but would go further than what you say in your first sentence:

I believe it would be foolish to impose carbon constraints on stationary generation[energy] while exempting transport fuels.

I’d say we should not penalise electricity generation. What I’d suggest we should do is to remove the impediments that prevent us having cheap, clean electricity. We want clean electricity to substitute for fossil fuels in other stationary energy and transport. We want the substitution and transition to take place as quickly as possible. We will not do that by raising the cost of electricity. In fact, there may be unintended consequences such as causing transition from electricity to gas is some situations. I am persuaded (at the moment) it is bad policy to raise the cost of electricity, especially while we are not looking seriously at the alternative of removing the impediments to cheap clean electricity..

By the way, Stationary Energy included more than just electricity generation. It includes electricity generation, fossil fule conversion and direct combustion of fuels in industry and residential (residential includes for heating, hot water and cooking).

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Peter I notice there’s only a couple of us who study the money side of things. I agree 160 Mt CO2 cuts by 2020 is the penance Australia should be aiming for since we a major carbon sinner. A less painful way to do that in terms of what I’d call ‘complicit CO2’ would be to slap carbon tax on coal and LNG exports. The importers could go elsewhere and see how they get on or make a case for a carbon tax refund refund.

In the Crikey snippet linking to Business Spectator Alan Kohler says flatly carbon tax will mean new generation is gas. I’m not sure. On the logistic side SA, Vic and Tas may have to get long term gas from Queensland. The other issue is cost.

Without looking at earlier figures suppose air cooled supercritical coal a la Kogan Ck costs $45 per Mwh but it has the same CO2 as pulverised coal. This is since air cooling erases the efficiency gain from supercritical temps. If CO2 is a tonne per Mwh then a $20 carbon tax takes it to $65. if combined cycle gas is $70 add .45 X $20 = $9 so CCGT becomes $79. Nuclear keeps looking better since both the CO2 price and the raw carbon fuel price must steadily increase.

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Letter sent to MPs and Senators today:

Why is the ‘Multi-Party’ Committee prevented from considering all options?

Why doesn’t the government consider alternatives to carbon pricing?

Why didn’t the government consider technological alternatives for cutting emissions?

Is it for the same reason the Labor and Greens blocked, for 40 years, what France has – low cost, clean nuclear?

Could we have electricity from nuclear cheaper than from coal if we removed all the impediments to low cost nuclear?

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John,

Have you read the sections in the EPRI report, ACIL-Tasman, and others where it is all laid out. It would be far too time consuming to go through it all here. You have some assumptions locked in your mind, but me writing stuff here is not going to change them. We’d go around and around in circles forever. So can I urge you to look at these reports. They are authoritative and all are telling roughly the same story (in proprtional costs between the various generating technologies).

Just to show one example of your wrong assumptions, the capital cost of nuclear is not double that of gas. Nuclear capital cost is about 5 or 6 times higher than gas In the EPRI report I linked. I suggest if you are interest in this subject you really do need to put in some hard yards to understand these reports that are accepted by the Government as the best information available.

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Unless, of course, we are prepared to bring nuclear to Australia at a cost as close as possible to the cost Asian countries are implementing them for.

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John,

Peter I’ll try to spot key points of difference between the approaches should they become clearer. Meanwhile WNA cites studies by OECD and IEA that find CCGT and nuclear costs comparable.

Yes, I know about the OECD and IEA cost comparisons (I’ve been following these, on and off, for at about 25 years) and many others, including the study by Martin Nicholson (and Barry and ?). But you are missing an important point. In Australia, under the existing types of political, regulatory and other risks, the costs of nuclear would be higher than in USA, Canada, UK and Europe. We need to determine what all those impediments are as the first step. (I’ve mentioned some up thread in comments some of which are listed here: https://bravenewclimate.com/2010/01/31/alternative-to-cprs/#comment-110262 and in more recent comments.)

I agree that gas fuel prices will rise. This is allowed for in the various comparisons of the LCOE of the different technologies in future years out to 2030. If you want to argue that all these groups have underestimated the future cost of gas, then that is a different argument.

Everyway I look at it, the issue is clear. We need to look, in detail, at what are the impediments to low cost nuclear in Australia. The fact that no one on BNC wants to consider this issue (including Barry), is mind boggling.

John, I agree with you that nuclear could and should be cheaper than coal. But avoiding looking, in detail, into what is preventing that from being the case, is not going to help to get it addressed.

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EN,

The topic of this thread is “Alternative to Carbon Pricing”. Could I urge you to post your comments about Peak Oil on the appropriate thread (the one you wrote the lead article for). Once done, perhaps you could ask Barry to delete the two ‘off topic’ posts. (hoping you will oblige)

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Peter I agree that 160 Mt CO2 cuts by 2020 is what Australia should be aiming for since we are morbidly obese in emission terms. I also agree that such large cuts will cause severe economic pain. I’ve suggested we could spread that pain by slapping the carbon tax on coal and LNG exports. I think others will point this out when/if the carbon tax arrives in 2012.

No-one can yet quantify the effect of declining crude oil production so we might be in trouble by 2020 regardless. Our main customer China might implode. Secondly gas replacing brown coal is not the only form of improbable fuel switching. I doubt either efficiency or renewables could achieve 30% primary energy replacement within a decade. Only a reduction in overall consumption can achieve that short term.

If the carbon tax gets up and it is $20+ with full coverage (petrol etc) then these things should become painfully obvious. Nuclear is the only low carbon energy source which can plug the gap but in the longer time frame. I see Prof. John Quiggin is going to explain on his blog why he thinks otherwise. To some extent we will have to live off our fat for another decade. During that time we will think seriously about what can replace not just 30% of our primary energy but eventually 80%. If it takes a stiff carbon tax to force this realisation then bring it on I say.

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EN, I suggest you take your medication.

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John Newlands,

Peter I don’t subscribe to most of your arguments for cheaper NP. You hold up the UAE contract terms as an example to be followed yet we don’t know yet if they will get close.

John, this is a fair point. (Although, as an aside I’d like to clarify that I am not “holding up UAE contract terms as an example we should follow”). If we can get into discussing what you believe is wrong with the alternative to carbon pricing I’ve proposed, then I’d feel more comfortable that we are actually considering it, instead of simply avoiding it and arguing for carbon pricing. So let’s leave the carbon pricing aside for a while and let’s look at the alternative to carbon pricing.

If the UAE contract can’t get close and EPRI is saying that nuclear in Australia would cost 2.2 times the cost of new coal (without tax), and gas generation is only a little more costly than coal, then it means that nuclear cannot compete even with a carbon price. That means we do not have any feasible solution. However, I am not convinced this is the case. I agree nuclear is not viable as long as the enormous public resistance remains. The resistance causes the many impediments to low cost nuclear to remain in place. However, I believe if I could persuade BNCers to seriously tackle this issue we may be able to attract some bright and knowledgeable people to expose what they know about what are the impediments and how they could be removed. What I really want is for the government to ask a genuine, non partisan question of the Productivity Commission. The question is: “what are the impediments that would prevent Australia implementing nuclear at the least possible cost of electricity? How could they be removed”

An alternative framing of this question is:

What would we need to do in order to implement nuclear energy in Australia at an LCOE less than from new coal?

Since we cannot direct the government to ask this question of the Productivity Commission, all we can hope to do is to have a really intelligent and positive (solution oriented) brainstorming session in a public forum such as BNC. You just never know where this might lead. And you may convince me I am wrong, but that won’t happen if we (by which I mean the best brains BNC can attract) don’t give this a really good, honest try.

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Peter what you are saying is that Cyclone Yasi, the Brisbane floods and the Victorian bushfires are for wimps. They only came with 0.8C of warming not 4 or 5C.

I think you may get your wish for no effective carbon pricing. All the signs point that way
– Combet has assured his coal industry mates they have nothing to fear
– any State politician who supports carbon pricing gets defeated
– Ferguson has been told to pull his head in and make gurgling noises about wind and solar
– Garnaut wants to pay nice green farmers not the nasty brown kind.
I’d say carbon pricing will be near irrelevant in its final form.

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EN I think Alkelett is saying all liquid fuels will be down from about 90 million to 65 million barrels a day by 2030. Others say the decline rate will accelerate due to various factors. Opinions vary on peak coal and gas but the biggie is China with 3.2 Gt of annual coal consumption declining as of now. Some with access to general circulation models say this will limit warming to 2.6C, which is still horrific.

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John Newlands,

Peter what you are saying is that Cyclone Yasi, the Brisbane floods and the Victorian bushfires are for wimps. They only came with 0.8C of warming not 4 or 5C.

That is getting down to a really low level of silliness. Surely you don’t expect any reasonable person to believe the Yasi Cyclone was due to AGW, do you? Do you swallow Bob Brown’s line that it is was due to the coal miners? You are really getting desperate with this sort of argument.

I think you may get your wish for no effective carbon pricing. All the signs point that way
– Combet has assured his coal industry mates they have nothing to fear
– any State politician who supports carbon pricing gets defeated
– Ferguson has been told to pull his head in and make gurgling noises about wind and solar
– Garnaut wants to pay nice green farmers not the nasty brown kind.
I’d say carbon pricing will be near irrelevant in its final form.

Then clearly, the best thing to do is to drop it now and move to developing and implementing rational policy. Why are you still opposed to even considering it?

It is important that no carbon price be implemented until the two preconditions I’ve mentioned up thread are achieved. The reasons are explained upthread. But one of them is that once a carbon price is implemented it will be raised by future governments and will become just another source of revenue. It will be used by incompetent governments for “tax and waste”, to cover up the incompetence of spend thrift governments and for pork-barrelling (handouts at elections to swing voters in marginal electorates). It will also be used as another excuse to redistribute wealth to suite the supporters of the party in power. So, I do not want a carbon price in any form until after the two preconditions have been met. The preconditions are: (i) we have removed the impediments to low-cost, low-emissions electricity generation (e.g. nuclear) and (ii) the main emitting countries have agreed to an economically efficient, international mechanism to internalise the costs of greenhouse gas emissions.

The points I’d urge you to consider are:

1. Carbon pricing needs to be very high to achieve the 2020 targets – high enough to cause a very deep, very long recession.

2. Such a retrenchment of the economy will have devastating consequences for real people – much worse effects than Paul Keating’s “The recession we had to have”.

3. Taking this pain will make absolutely no difference to the climate. So a lot of pain for no gain.

You seem to be advocating and supporting a carbon tax because you don’t want to consider the economically rational alternative. Clearly you are squirming every way possible to avoid considering this alternative.

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Peter it may turn out the carbon tax is a dud with too many escape clauses. However if 2013 is a climate shocker as Barry suggests the blame game will on asking why we didn’t take decisive measures. Therefore I would be wary of advocating inaction as the mob will be looking for scapegoats. Here’s a couple of parallels to the argument for unilateral carbon pricing by Australia

1) the marginal effect of voting
A single vote usually has a tiny influence on the result. However the voter hopes to be part of a bandwagon effect. If Australia adopts carbon constraints that is a powerful signal to other countries which may amplify the effect.
2) compulsory superannuation
Many people will not save for retirement or hold naive ideas about living off the land or whatever. Governments are justified in forcing people to save since they will be blackmailed into assuming the burden anyway. Same goes for retirement of the carbon economy.

I’m suggesting that Australia can justify going it alone on carbon pricing for those two reasons i.e. the demonstration effect and to prepare for an inevitable low carbon future. In fact we are not really that minor if you include coal exports which we supposedly control. 400 Mt of domestic and exported coal times ABARE’s conservative CO2 multiplier of 2.4 comes to nearly a Gt of CO2. The world annual total was 30 Gt when I last looked yet Australia has just 0.3% of world population.

Major CO2 cuts are both in our own interests and our responsibility.

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John Newlands,

Peter it may turn out the carbon tax is a dud with too many escape clauses. However if 2013 is a climate shocker as Barry suggests the blame game will on asking why we didn’t take decisive measures. Therefore I would be wary of advocating inaction as the mob will be looking for scapegoats.

You are still avoiding looking at the alternative. You are dodging and weaving all over the place. The arguments in you latest posts seem to be clutching at straws. To me they are really sill, the last straw you can try to puill, and, in truth are just avoidance. Please address these points:

The points I’d urge you to consider are:

1. Carbon pricing needs to be very high to achieve the 2020 targets – high enough to cause a very deep, very long recession.

2. Such a retrenchment of the economy will have devastating consequences for real people – much worse effects than Paul Keating’s “The recession we had to have”.

3. Taking this pain will make absolutely no difference to the climate. So a lot of pain for no gain.

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