Spencer Wright,

>”It seems to me that the only thing we disagree on is what that different approach should be.”

OK. I may have misunderstood you. Perhaps you can restate where we differ, what your alternative is and why you disagree what I advocate for.

I argue that we need to aim to achieve France’s electricity generation mix by 2040. That would reduce Australia’s emissions intensity of electricity by 90%. It provides the safest, most reliable and most sustainable supply of electricity. It can be implemented over two three decades at negligible costs IF…

The IF is that the US and EU must remove the regulatory impediments they have implemented. Australia probably cannot implement nuclear power economically until that happens because I can’t see Australia being prepared to buy Korean or Chinese reactors yet. However, this could happen in about a decade from now if they are exporting small modular reactors to other OECD countries.

I don’t believe any policy that raises the cost of energy is sustainable. Renewables will always be a very high cost way to generate electricity so they will not supply a large proportion of electricity. The fact that prices are reducing (from a very high current price) is irrelevant because they cannot be economic in the system and they are not sustainable (reference in earlier comment).

The main benefits of Direct Action are:

1. It pays for the actual emissions avoided, not simply a policy to raise revenue and raise energy prices – which damages Australia’s economy and destroys jobs. There is no environmental gain because of emissions leakage.

2. Its budget cost is $2.55 billion over 4 years versus the previous government’s policies that cost about $20 billion per year.

3. It is flexible. This is very important. The previous government’s policy was a monster and enormously difficult to unwind (see chart here: http://resources.news.com.au/files/2013/09/10/1226716/439140-130911-climate.pdf ). Direct Action is easily modified so it can be adapted to fit with whatever scheme the world agrees to – if it ever does.

Luciferase, I have little doubt that eventually your sort of proposal will become a reality.

Peter, I do like direct action, but I still take issue because of the cost to government.

Where I differ is that I believe Australia should invest (by way of loan) in renewable projects. In particular Ernst & Young score China (1st) and India (5th) above Australia (10th) for renewable investment. These countries in particular are expected to increase their gross capacity by 1,536 GW (China) and 675 GW (India) by 2030 (compared to Australia's 36 GW).

If the CEFC can achieve project finance of 8.1% in Australia, it may be able to increase its margin in these countries ranked higher for renewable investment.

I noticed before you made a point about risk. You're right, there is risk, in addition to operational costs associated with the yield. 8.1% isn't all profit; there is wholesale costs, bad debts and operational costs that must be taken out of that.

The risks are largely mitigated though a method consistent with modern portfolio theory. The CEFC only invests in a minority share, so for the $1 billion Macarthur Wind Farm the CEFC loaned only $50 million. ANZ, NAB, ING, Shinsei, ICBC and EKF loaned a further $479. The rest of the capital was committed by owners AGL and Meridian.

As we've discussed, a project like this is in most part viable because of the distortion of our market - due to the RET.

What I believe we should do instead is:
1. Repeal the LRET;
2. Repeal section 61 of the CEFC Act that limits investment in Australia; and
3. Loan money to other countries (maybe loan a maximum of 10% of the total cost).

Summary benefits:
- We can profit off China's distorted market;

- No net cost to government or taxpayers;

- We can reduce the distortion in our economy; and

- It will save overall jobs in the short to medium term (until coal power plants finish their effective life).

Let me know your thoughts.

Spencer Wright,

I do not understand the justification for much of what you argue.

>” I still take issue because of the cost to government. “
Why do you think that?
“To put this into context, the first auction of the ERF – limited as it was by a relatively small number of new ERF methods – delivered more than four times the total emissions reduction of Labor’s $15.4 billion carbon tax, and at a fraction of the cost.”

“Through its various industry assistance packages associated with the carbon tax, Labor allocated over $30 billion of taxpayers’ money to underpin the carbon tax. The taxpayers paid the tax through higher electricity prices, then they paid the polluters to keep polluting.” http://www.greghunt.com.au/Media/Speeches/tabid/87/articleType/ArticleView/articleId/3270/Speech--2nd-Emissions-Reduction-Fund-Summit.aspx

See this chart: http://resources.news.com.au/files/2013/09/10/1226716/439140-130911-climate.pdf

Direct action is $2.55 billion over 4 years c.f, the previous government’s policies were costing about $20 billion per year.

“If the CEFC can achieve project finance of 8.1% in Australia, it may be able to increase its margin in these countries ranked higher for renewable investment. “

8.1% is not a commercial rate of return for the risk. It’s a taxpayer subsidy. You’d need to pay around 20% for a commercial loan for these projects because they are entirely dependent on government support. The regulatory risk is enormous because eventually the electorate will wake up to this boondoggle, as they are in UK, Germany, and elsewhere.

There is no valid justification for government’s being involved in funding projects like renewable energy. The government should not be competing with the private sector for services like electricity supply.

If you genuinely want to cut global GHG emissions, why aren’t you advocating for nuclear power? A rational analysis would show you nuclear is the key to large cuts in global GHG emissions by 2050. Renewables cannot make a significant contribution. See previous comments.

Why do you avoid the obvious solution? Most people who avoid doing options analyses objectively do so for ideological and emotional reasons. Motivated reasoning prevents rational analysis. I’d like to see you present a rational options analysis.

Peter, we will not be able to meet eye to eye on these points.

Nonetheless, I have appreciated and enjoyed our discussion. Thank you for being apart of it.

Thank you to everyone else for contributing to the discussion and reading my article.

Spencer
Author.

Spencer Wright,

>"Peter, we will not be able to meet eye to eye on these points. "

That is disappointing and frustrating. So may discussions end up this way when it gets down to debating points of fact rather than belief about renewables v nuclear as the best way to reduce global GHG emissions. The same happens with discussions about CAGW. It sometimes seems like we are reverting to pre-Enlightenment times.

Are you familiar with the Pareto Principle, commonly taught to middle level management:

"The value of the Pareto Principle for a manager is that it reminds you to focus on the 20 percent that matters" http://management.about.com/cs/generalmanagement/a/Pareto081202.htm .

Nuclear power can deliver 90% reduction in emissions intensity of electricity (as has been demonstrated by France for the past 30 years or more). Australia could achieve that before 2040.

However, renewables can achieve no significant GHG emission reduction. They are not viable and not likely to be. The risk of betting on them is huge. The EMV of that risk is around $ /MWh.

You are wasting your time advocating for renewables. You could be far more effective if you learnt about nuclear and explained the benefits to the public.

But it needs a change in beliefs. People like you should conduct your own objective policy options analyses and then explain it to others.

Peter, I don't mean to disappoint you.

I think we are just in two different mindsets, and we could argue all day. From my perspective I come to this conclusion:

The governments auction abated 47 million tonnes for $660 million at a cost of $13.50 per tonne to taxpayers.

The CEFC makes a profit of $2.40 each tonne they abate. If they abated 47 million tonnes, they'd make a profit of $112.8 million.

You can come to your own conclusion about this.

But my biggest issue is that you have the exact fundamental problem that I clearly outline in my article. Your idea suggests Australia could achieve 90% reduction by 2040.

This means you have to shut down coal power plants - there is no other way around that. This is effectively what the CEFC is doing too.

End result? Coal companies export the coal they were selling in Australia - completely negating any advantage that your idea proposes.

Building renewables in Australia, building nuclear, it's the same fundamental problem.

That is one of the reasons why I advocate loaning money in countries that have growing demand.

Your idea won't work unless Australia has strong demand for electricity. Unfortunately it doesn't.