21/07/2011 - 00:00

As the boy scouts say: ‘be prepared’

21/07/2011 - 00:00

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Early preparation brings advantage, and more confidence of a good outcome.

GOOD business practice recognises that early action is likely to be obtained at a lower cost than delayed action.

There are plenty of analogies that demonstrate the point.

Using a sporting one, to be competitive in the Tour de France, Cadel Evans didn’t start his competition by turning up on the first race day after everyone else had arrived and then start shopping for lycra.

The competition for all riders with any reasonable chance started with years of preparation, building teams, and being strong enough and organised enough to be in the race. No cyclist would be concerned that some competitors hadn’t started training yet. Indeed a suggestion that training should not start until everyone else had started would bring scorn.

Early preparation brings advantage, and more confidence of a good outcome.

In the same way, tackling the issue of pricing carbon early should not create disadvantage, but rather position the economy to be in the best state to respond to the challenge of reducing global greenhouse gas emissions.

Despite what the shock jocks say, Australia must be both prepared and competitive in a world that is actually acting to do just that.

What’s the evidence the world is really responding?

Global investments in renewable energy, according to Bloomberg New Energy Finance analysis released earlier this month, were up 32 per cent in 2010. At $211 billion, the total investment in renewable energy projects in 2010 is now greater than expenditure on all conventional energy projects in the same year.

Significantly, developing nations spent more on renewable energy utility projects ($72 billion) than developed ones ($70 billion).

China led all nations with $49.8 billion in investments in 2010, ahead of German spending of $41 billion and US spending of $29.6 billion.

A price on carbon is one element that delivers greater certainty to businesses seeking to invest in sustainable energy solutions to reduce greenhouse gas emissions; certainty that has been lacking in Australia for a decade.

Action on sustainable energy around the world has delivered new jobs in the education, research, government, business and community sectors, and will do so across Australia too.

But are we there yet? Is Australia now leading? Well, no, not yet. We have certainly created an impression of leadership, but until we actually start action on July 1 2012, we are really in the back of the pack.

And there will still be politics creating uncertainty. Regardless of what’s being promised right now, there are a few things that will hamper action in any response to a carbon price.

First, Tony Abbott has promised that, if he becomes prime minister, he will roll back the carbon tax. (Although he has also qualified that by saying ‘unless circumstances have changed’.)

But this has ramifications for investments; banks are unlikely to provide significant loans to any project to reduce carbon emissions in response to a price on carbon until we actually have a price after July 1 2011.

After the tax is passed into law, assuming this occurs in the next few months, the possibility that it might be repealed before it starts will keep the uncertainty in play.

Even after July 1 next year, the promise to repeal carbon pricing might keep the brakes on some projects that rely on financial institution funds.

Businesses responding to the perceived threat of a carbon price with their own funds may make more proactive decisions – as they should, as early action is likely to be obtained at a lower cost.

What will they do? An energy audit to plan energy efficiency measures that reduce electricity consumption is a logical first step – logical because energy costs are certain to rise from sources that price greenhouse gas emissions.

As those in electricity markets know only too well, previous Western Australian governments failed to increase the price charged for electricity over a 17-year period, despite increases in costs, and in particular network cost pressures.

The most significant cost pressures have nothing to do with making energy use more sustainable.

Renewable energy, with less than a 5 per cent generation share, has contributed only a few percentage points to recent electricity price rises in WA, and Treasury figures suggest that the carbon tax will add around 8 per cent, a much smaller proportion than will result from cost revisions primarily related to continuing network pressures.

So, while the cost of carbon will prove to have a smaller impact on price than other factors, it is certainly acting to focus attention on energy sources.

Will a $23 carbon tax prompt changes to WA’s energy mix?

Verve’s CEO Shirley In’t Veld has clearly stated her particular expectation of a business-as-usual response as a generator while carbon prices are below $70 per tonne.

However, there is no doubt that commercial and political interests will affect this view. Premier Colin Barnett has stated unequivocally that he expects a carbon price on electricity to be passed through to consumers, reflecting the same proper resolve he has on cost-reflective electricity pricing.

The increasing wholesale price of electricity will open up new competitive opportunities to lower emissions energy solutions, particularly better energy management that integrates renewables.

Conventional energy has yet to deal with two realities of renewables – increasingly competitive pricing of technology, and generation that is minimally exposed to future fuel price rises.

At some point in much less than five years, small-scale renewables will reach retail parity with the grid so that customers will be much more interested in self-supply, and from the time of installation, price can be reasonably forecast for the life of the system, meaning electricity will be far less inflationary.

As this happens, WA and the nation will be coming to an election. If we actually manage to get past July 1 2012 and have a price on carbon, any future election campaigns will have to deal with the reality that the carbon price (like the GST) didn’t end the world, and indeed, things seem to be getting better.

In those circumstances, all sides of politics will be talking what more they can do to be sustainable, not how to reverse it.

• Ray Wills is chief executive of the Sustainable Energy Association.

 

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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