08/10/2019 - 14:41

The piper must be paid

08/10/2019 - 14:41

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OPINION: Sensible debate about the cost of progressive environmental policy is missing amid the noise from politicians and green activists.

The piper must be paid
Switching power provision totally to renewables will be costly. Photo: Stockphoto

Sensible debate about the cost of progressive environmental policy is missing amid the noise from politicians and green activists.

Who pays? It’s a two-word question that needs to be asked of multiple issues confronting the world.

Perhaps unsurprisingly, however, it’s a question everyone seems to be dodging like a freeloader sneaking away from a bar when it’s his turn to buy a round of drinks.

The environment is the headline grabber of the day thanks to global protests over climate change, which has produced a frenzy of finger pointing and demands that all carbon emissions be stopped immediately, if not sooner.

Unfortunately, there is the question of who pays if the protestors get their way and the world’s major power sources of coal, oil and gas are banned.

The answer is that the protestors themselves will foot a big share of the bill, because the dream of quickly replacing deeply entrenched sources of power with renewable energy from wind, solar radiation and tidal movements has a big price tag attached.

Not only will there be the cost of phasing-out existing power sources, which will lead to the closure of energy intensive industries of the sort that are major job and wealth creators, there’s also the problem of paying for the renewable energy systems to replace what’s being closed – unless we are ready to embrace yesterday’s bogeyman, nuclear power.

Government is seen by the climate-change protestors as the mechanism to pay for the changeover from fossil fuel to renewables, but as every taxpayer knows the least efficient way of doing anything is to hand the job to a government agency.

Invariably, a government solution to a problem is to throw money at it, and the only way a government can get money is to raise taxes. Of course that leads naturally back to the question of who pays, only this time the answer is a little more obvious – you pay.

A small example of the monetary side of the climate and environment issue is electric vehicles (EVs). Everyone might want one but there’s no escaping the question of what they cost.

As has been proven in Europe and China, the only way EVs can win over a hesitant public, which has understandable reservations about the range of an all-electric vehicle and the availability of charging stations, is to provide a taxpayer-funded subsidy.

Every time a subsidy is lowered, EV sales collapse.

The retort from climate protestors is that unless carbon emissions are curtailed the planet will become unliveable and the changes have to be made immediately; at no stage is there a sensible debate about who foots the bill.

Sensible debate about the environment has largely disappeared as quickly as an EV buyer who discovers he can’t get a government handout to buy his new car.

Social licence

Another aspect of the ‘who pays’ question relates to corporate responsibility and the role of a company in society.

Some high-profile directors believe that a business has a higher duty than generating profits for shareholders, the sometimes-forgotten owners of a business.

Along with calls to overhaul capitalism as we know it, there are specific human rights and environmental issues that some directors believe should be funded with an allocation of shareholders’ funds, describing that sort of expenditure as a ‘social licence’ to operate.

The cause being supported might be admirable but there is a real problem with company managers spending money that is not theirs on social issues that might not be supported by all shareholders.

The question, which falls directly under the heading of ‘who pays’, could one day make for an interesting legal challenge that would pit shareholders, who are understandably interested in a financial return on their capital, against managers who are keen to pursue social causes – using somebody else’s money.

 

Profit forecast
All good things come to an end, and that might be the case for Andrew Forrest’s cash machine Fortescue Metals Group, if the latest investment bank forecast is correct.

Citi reckons that 2020 will be the last big year for Fortescue with a whopping $4 billion net profit expected, but with iron ore stockpiles starting to rise the price of the material is expected to slip back to around $US60 a tonne, taking Fortescue’s profit down to $1.9 billion in 2021 (and ‘just’ $1.1 billion in 2022).

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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