Other economics
Powering Australia
Even if climate change is “absolute crap”, to quote Tony Abbott, we would still have to replace coal-fired power stations that are reaching the end of their lives, and build new electricity capacity to cope with a growing economy. That investment should be in the lowest-cost means of providing reliable supply.
The consensus among engineers and economists is that the lowest-cost technology to meet those needs is through renewable sources. Research by the CSIRO – GenCost: Annual insights into the cost of future electricity generation in Australia – confirms that renewables (including firming) are lower cost than fossil-fuel sources, and that they will become more competitive in future years as their costs come down. That’s even before the environmental costs of climate change and local pollution resulting from coal and gas combustion are considered.
Even so, the fossil fuel lobby and politicians on the right who have made climate change a matter of identity politics, are mounting a campaign against renewables. We hear the idiotic claim by Gina Rinehart that a third of agricultural land could be taken over by renewables. Then there is the National Party suggestion, which seems to be morphing into Coalition policy, that we should halt the renewable rollout and pin our hopes on the cost of small-scale nuclear plants becoming competitive in time. The economics of that idea were covered in last week’s roundup. Then there is the suggestion, such as this (paywalled) article in the Financial Review – How the renewables rush could push up interest rates – that a renewable transition would be inflationary, because of the high investment required.
We need many km of these too
Guy Debelle and Toby Phillips deal with this claim in a research report Capital for kilowatts, the (non) inflationary impacts of the green transition, published by the Centre for Policy Development.
They confirm that whatever the chosen technology, we need to invest in replacement and new capacity. Our present electricity capacity is about 55 GW. We have to replace 12 GW of ageing coal and gas power by 2030, another 26 GW by 2050, and invest in another 20 GW by 2050 to cope with increasing demand.
There has been a great deal of publicity, and some panic, around closures of big power stations: Liddell (2.2 GW last year), Eraring (2.9 GW next year) and Yallourn (1.5 GW in 2028). Nationally it’s not quite so lumpy as these figures imply. Debelle and Phillips, drawing on AEMO data, show that there is a reasonably linear trajectory of closures, and that there can therefore be a reasonably steady rate of investment in replacement capacity.
They estimate that if we were to rely only on fossil fuel we would have to spend about $400 billion to meet these needs. Renewables would be more expensive, presumably because they require investment in transmission lines to connect hot spots, and investment in small and large storage systems to provide firming. They estimate that the renewable investment required would be $625 billion – $225 billion more than for fossil fuel, but that’s a small price to pay for a more reliable and environmentally-responsible power system.
Their approach is very conservative. They acknowledge that they have not allowed for the likely continuing movement down the cost curve of renewable technologies. They also point out, without quantification, that renewables are less subject to the price and supply shocks of fossil fuels.
One conservative aspect of their analysis is that they’re considering only capital costs, not running costs of different technologies. They could make the more general point that the fuel cost of renewables is zero, while for coal, apart from some Victorian generators sitting on lignite deposits, fossil fuels have an opportunity cost on the export market.
Even more conservatively they do not factor in any carbon price, such as will be set by Europe’s Carbon Border Adjustment Mechanism. Nor do they acknowledge that fossil fuel powered generators are probably more labour-intensive than renewable powered generators. If they were not, there would be fewer scare campaigns about renewables costing jobs. In other words, the variable cost of renewables, which translates into a lower cost per kWh, is likely to be much lower than the variable cost of fossil fuel: that is surely deflationary.
In any event, there is no reason why capital investment should be intrinsically inflationary. Only if a capital project, be it a road, a factory building, a transmission line, or a solar farm, requires resources that are in demand in other sectors, will investment be inflationary. There is no reason to expect that these physical demands of renewable investment would be any greater than the physical demands of fossil fuel investment. If that $625 billion is spread over 25 years, that’s only $25 billion a year. The incremental investment of renewables, by the authors’ calculation, is only $9 billion a year – in an economy where total investment is around $500 billion a year. It’s hard to see that small figure having any macroeconomic effect.
It’s not clear why the authors have taken such a conservative approach, giving the Murdoch media the chance to run a headline “Left-wing think tank acknowledges green energy will cost another $225 billion”. Fortunately it has been well-received. The Financial Review’s Jacob Greber gives it a positive response: Debelle rings alarm on green energy backlash (Paywalled). Marion Rae, writing for Renew Economy, summarizes the report: Fear of inflation from renewables spend “unfounded,” experts say.
This work from the CPD confirms other recent research on the relationship between inflation and renewables. Research on European energy prices by Dezernat Zukunft finds that while the price trend of energy produced by fossil fuel is inflationary the opposite holds for the price of energy based on renewables: Fossil fuel to the fire: energy and inflation in Europe. Peer-reviewed research by Łukasz Markowski and Kamili Kotliński of Poland’s University of Warmia and Mazury – Renewables, energy mix and inflation in the European Union countries – has similar findings. If renewable energy is economically efficient in Europe, most of which lies in high latitudes and has cold winters, it is surely even more efficient in Australia.
It’s a pity that so much effort has to be devoted to rebutting the scare campaigns run by the fossil fuel industry and the Coalition. Even though these campaigns prove to be distractions, they still delay our energy transition, putting us behind in a globally competitive environment.
The gender pay gap – still wide but closing
Under legislation passed last year, private firms with 100 or more employees are required to publish data on their gender pay gap. This data is provided in both detailed and aggregated forms, by the Commonwealth Workplace Gender Equality Agency.
An informative starting point is the agency’s main page, What is the gender pay gap?, where the “gap” is clearly explained. It is not about equal pay for equal work: there could be perfectly neutral pay scales in every firm and industry, but there would still be a gender pay gap if men dominate the senior management or professional positions, for example.
That page shows that the pay gap has been closing from 29 percent in 2015 to 22 percent in 2023. It explains the way the gap is measured, based on median rather than average pay, so that the data is not distorted by one overpaid female CEO. And it explains why the pay gap differs in different industries.
Data aggregated by industry is on a separate page. Some industries with the lowest pay gaps, such as accommodation and food services, are female-dominated industries in which the pay for all employees is low. That’s why we shouldn’t rush to judgement based on single numbers.
One revelation from the data is that smaller firms tend to have larger pay gaps. This is yet another reason we might question the sacred status enjoyed by “small business”.
If you want to drill down further, you can go to specific employer data in the agency’s data explorer. The ABC’s Daniel Ziffer has done his own drilling, drawing attention to some firms with high pay gaps, and differences between firms in the same industries: Which big employers have the largest and smallest gender pay gaps?. On the latter it is notable that many firms selling women’s clothing have high pay gaps (covered in a separate article by Ziffer), and that Virgin has a slightly higher pay gap than Qantas, but both are around 40 percent.
Jean Bell of ABC South West Victoria also reports on comments about the agency’s data from women in non-metropolitan regions: New gender pay gap reporting may not benefit women in regional [non metropolitan] Australia, advocates say. Those commentators suggest the pay gap may be highest and more entrenched in those regions, in part because of the domination of small businesses with fewer than 100 employees.
Quite separately the media and technology company Financy reported that gender equality tracked backwards in 2023. While the gender pay gap as reported by the Workplace Gender Equality Agency improved a little, those modest gains were offset by worsening unemployment and underemployment rates for women, and by women taking on a greater share of unpaid work.
Nicki Hutley, who is one of the advisers to Financy, has given a 3-minute summary of the report’s findings on the ABC’s AM program.