The politics and economics of Australia’s energy transition

The last few weeks have been dominated by the Coalition’s nuclear path to net zero, a proposal which is based on a lie about power prices, and which makes no economic or engineering sense.

There is plenty in the government’s energy policy that an opposition could criticize, but Dutton has no intention of engaging in an argument about realistic policies. His tactic is to create enough public and investor uncertainty for the government’s energy transformation to fail, so that he and the Coalition can claim that investors have no confidence in a country with a social-democratic government.

The Coalition’s fantasies – a failure on engineering and economics

“Our Energy Future” was the title of the Dutton-Littleproud-O’Brien media release on Wednesday.

Note the trio – two Nats, one LNP, no Liberals.

No costing, no specification of the generating capacity of each plant. These plants should be operating, generating electricity by 2035! Port Augusta is to be one of two sites with a “small modular reactor” (a technology that is even more expensive than large reactors), even though South Australia is to have 100 percent of its electricity generated from renewable resources within three years. What’s their intention – to send the state’s panels, batteries and windmills to recycling? Will households who have invested in panels be required to disconnect them so that they can pay for inflexible base-load power from a high-cost small modular reactor?

The ABC’s Tom Crowley has a little more detail on the Coalition’s ideas, describing the electorates of the seven sites, for example, and a quote from Littleproud’s “vision for regional Australia, one that is not covered in solar panels and wind turbines".

The Grattan Institute’s Tony Wood makes a point that the media has missed so far. This is not an energy or emissions plan for Australia. It relates only to the electricity sector, responsible for around a third of our emissions: ”Nuclear energy won’t stop cows from burping”: Peter Dutton needs a plan that goes beyond the electricity sector. He goes on to expose the lie in the Coalition’s claim that renewables are responsible for high electricity prices, and to stress the need for investors to have a firm plan with timelines and targets.

The most irresponsible aspect of the Coalition’s policy is its attempt to reverse Australia’s already progressing energy transition. On this you can hear the opinion of one of Australia’s most prominent businesspeople, Fortescue Chair Andrew Forrest in a 13-minute discussion on the ABC. His assessment of their policies is scathing.

Within the Coalition’s ranks it has attracted sharp criticism. Two state Coalition opposition leaders have spoken against it, and former Prime Minister Malcolm Turnbull, speaking on the ABC, calls it a “dangerous and expensive farce”, designed to fuel a political identity war. The danger to which he refers is opportunity forgone should we fail to capitalize on our comparative advantage as a renewable energy superpower.

The Coalition fails to set a credible path for investors, it proposes to entrench a legacy system of “base load” power which does not integrate with renewable sources, it risks wrecking our international trustworthiness, it risks alienating our Pacific neighbours who are being wooed by China, and its idea that it can go from scratch and have plants up and running within ten years lacks credibility – the consensus is 15 years at a minimum. These are all reasonably well covered in the non-Murdoch media. Its major shortfall, however, is the cost of electricity generated from nuclear plants.

The ABC’s David Chau, drawing on data published by the CSIRO and the AEMO, and verified by industry experts, shows that electricity generated from renewable resources is lower cost than electricity generated from fossil fuels and from nuclear reactors. Energy experts and investors say the Coalition's nuclear plan is “virtually impossible” without taxpayer funding.

As is common practice in the industry, Chau’s figures are expressed as $ per MwH, but by an advanced mathematical manipulation (dividing by 10) I have expressed them in terms of cents per KwH, so that we can understand them at a domestic scale and display them on a graph. For reference, in our bills we are paying between 20 and 40 cents per KwH. Only around a third of this is for generation, the other two-thirds are for transmission and distribution.

Probably a graph

Solar and wind, with firming, comes in at between 10 and 14 cents per KwH. Gas, by these estimates almost looks OK, at 12 to 18 cents, but that’s without carbon capture and storage. If gas is not to add to emissions, and if CCS works, it will cost between 18 and 27 cents.

That’s before considering nuclear options, which come in between 15 and 25 cents, while small modular reactors – the reactors the Coalition favours for South Australia and Western Australia – have a range of prices out in the never-never.

These are the costs of generating electricity, to which should be added the costs of transmission and distribution before the electricity arrives at your sockets, but these costs are independent of the technology. The cost of extra transmission associated with solar and wind is built into the firming estimates.

In the same post Chau quotes from Andrew Forrest – “we cannot let politicians, trying to use a point of difference to get elected at any cost, set our country back when we have such a huge opportunity in front of us" – and provides data on construction delays experienced in other countries building nuclear plants.

These figures are all based on established costs. The cost difference between renewables and nuclear sources is likely to be even greater when we consider the directions those technologies are taking. Writing in Renew Economy -- Wind and solar power half the cost of coal and gas, one-third the cost of nuclear, Sophie Vorrath reports on the Levelised Cost of Energy Analysis, undertaken by the US investment bank Lazard. This analysis generally confirms the CSIRO-AMEO calculations, and more importantly traces the cost trajectories of technologies over the last 15 years. Renewable technologies are on a downward cost slope, while the cost of nuclear power is rising.

Perhaps the strongest confirmation that nuclear power stations are unaffordable comes from the Coalition itself. This is the party that has always preached about the wisdom of private investors, and has pioneered privatization, even when it has not been economically justified. But It proposes that these reactors should be built and owned by the Commonwealth.

Will Dutton’s gamble have the desired effect of de-railing the government’s energy transformation? Perhaps he and his colleagues have gone so far into the la-la land of absurdity that no serious business person will take the Coalition’s proposals seriously, and will disregard it. Its silliness may be its positive aspect.  

Making energy policy in a dysfunctional political world

A few days after the Coalition announced its energy policy, Patricia Karvelas mounted on the ABC website an article A new survey suggests the unlikeability of both Dutton and Albanese. It could spell one of the ugliest political campaigns in modern memory.

The poll to which she refers is the Redbridge poll on Immigration and housing, financial decisions, trust in media, and perceptions of party leaders. Climate change and energy don’t appear in that list, but the poll tells a story well-summarized in the headline and well-covered in her article.

It’s informative to turn to the final part of that Redbridge poll, which is about “Trust in media and views of the Prime Minister and Opposition Leader”.

It reveals that we don’t trust the mainstream media and we trust social media even less.

Then there is a set of statements, with which respondents can agree or disagree, relating to our attitudes to the prime minister and the opposition leader. These statements are:

On all four statements the results are terrible for both Albanese and Dutton.

When we consider our negative responses on the first three statements, we should ask ourselves what this says about the choices we make when we vote. Do we choose dislikeable people, or, more likely, do the political processes we have come to accept guide otherwise reasonable people towards unlikeable and dishonest behaviour – an “ugly political campaign” to use Karvelas’s words?

Our negative response on the fourth statement reveals a deeper problem, because we should ask why we should seek a “strong leader”.

Maybe we have an immature idea of leadership. Maybe we hope that those we elect can solve our problems for us. And when they don’t, we throw them out and give the other side a go.

Leadership isn’t about the people we call “leaders”. In a democracy leadership involves the hard work of mobilizing the community’s resources to make progress on the hard problems they face, particularly problems that involve adaptive change. That’s how Ronald Heifetz of Harvard University’s Kennedy School refers to leadership in a democracy.

The hard reality is that in dealing with global warming, and a set of other issues in public policy, we have to make adaptive changes. We have to change our established consumption patterns. Many of us have to re-train, and possibly shift. Some of us have to put up with the mild aesthetic inconvenience of seeing new powerlines and windmills in the landscape. We have to pay much more for things we have come to take for granted such as gasoline and air travel. We will have to pay more taxes to share the burden of adaptation.

But we don’t hear elected politicians talking about the need for shared contribution or shared sacrifice in relation to climate change.

We seemed to do well during the pandemic, when most of our politicians asked us to make huge changes in our lifestyle, and we did our part.

Two years ago there was hope that there would be a continuation of that spirit when the newly-elected Albanese government gave the nation a chance to follow through on what had been a bipartisan promise to the First Nations. But Dutton and a handful of opportunists in the Coalition couldn’t resist the opportunity to revert to politics as usual, and are doing the same now in relation to climate change. Malcolm Turnbull describes the political climate Dutton is creating as “Trumpian”.

The same failure in leadership is evident in Europe and the USA, where it is manifest in people either turning off politics altogether or turning to far-right populists. Here at least we have the established practices of compulsory voting and preferential voting, without which other parties and independent candidates would not have emerged.

As the ABC’s Brett Worthington explains, Dutton’s climate gamble may have given independents a new start. Climate 200 has been re-mobilized, and they have already announced that they will support nine community campaigns. All nine seats are held by the Coalition, but they have not ruled out running in other seats.

Paul Bongiorno, writing in the Saturday Paper – The student becomes the master: Dutton declares Abbott-style climate war (paywalled) – suggests that Dutton may have done Labor a favour in its contests with the Greens. “Dutton has made Labor look far more committed on climate action than it actually is and than the science is demanding” he writes. (You can hear Bongiorno outlining the politics of Dutton’s strategy on Schwartz Media’s 730 podcast.)

What the polls reveal about the Coalition’s policies

On Sunday, after Dutton had announced the main aspects of the Coalition’s energy policy, Australians woke up to the frightening Sydney Morning Herald headline Dutton edges ahead as voters thump Labor on economy. It’s paywalled, but Adrian Beaumont picks up its main points, which related to a National Resolve poll, in a Conversation article Dutton snatches preferred PM lead in Resolve poll as draft redistributions finished.

Subsequently further polls have come in, from Morgan, Freshwater and Essential, two of which could be interpreted as a sharp fall in the Coalition’s fortunes, if one ignores the basic mathematics of sampling error and looks at the difference between subsequent polls.

In fact there is no evidence of any short-term movement in voters’ intentions. The evidence from averaging all recent polls reported on William Bowe’s Poll Bludger is that Labor’s primary support is down by about two percent on the 2022 election, while both the Coalition and the Greens enjoy about a one percent increase in their support. In a contest likely to involve so many parties and independents even the best two party preferred (TPP) estimates are pretty unreliable, but generally they show that an election held today would give about the same outcome as in 2022.

The same Essential poll mentioned above has three sets of questions about the Coalition’s nuclear policies, as they were understood before the locations were announced. The first set of questions asks people to choose between two statements:

The first statement is the government’s general policy: “Australia should stick to its 2030 target and achieving this target is necessary to meet the 2050 target.

or

The second is essentially the opposition’s: “Australia should abandon the 2030 target because it's unachievable and hurting the economy and instead focus on the 2050 target.

On these questions our responses are close to 50:50. Unsurprisingly, there are strong differences relating to age and voting intention, and some difference relating to gender (women are more supportive of the government’s policy).

There is a second set of questions, however, which reveal a strong preference for the government’s plan. Respondents are asked what they think is the better way to achieve our 2050 target:

Continue to develop renewables and decommission old, inefficient fossil fuels.

or

Stop the development of renewables, stick with fossil fuels and wait until nuclear is developed in 15-20 years.

We respond on the government’s side (63 percent), and while there are differences according to age and voting intention, they are not as strong as they are on the first pair of questions.

How might this apparent contradiction be explained? Possibly it’s because the second set of questions has more information (stop renewables) and is specifically concerned with renewable energy and climate change, while the first set of questions is about the idea that our renewable program is hurting the economy. It reveals the power of false impression, generated by the Coalition, the Murdoch media and the fossil fuel industry.

The Essential poll includes a third question which specifically asks people about “support for Peter Dutton removing Australia’s 2030 emissions targets”, which includes a rather long description of the targets and the Paris Agreement. We’re more on the government’s side than on Dutton’s, and there are predictable age and voting intention differences, but what stands out, particularly for younger responders, is a high proportion of “neither support, nor oppose”.

A further question on the better party to handle issues puts Labor well ahead of the Coalition on “driving the transition to renewable energy”, but almost half of respondents respond “neither”.

It seems that the government has a communication problem, particularly with younger people. The Resolve Political Monitor – the source of the Sydney Morning Herald article referred to above, includes a set of questions asking “which party you think would perform better” in selected areas. The responses:

Economic management: Liberal 40 percent, Labor 24 percent;

National security and defence: Liberal 42 percent, Labor 23 percent;

Health care and aged care: tied at 30 percent;

Education: Liberal 27 percent, Labor 26 percent.

A subsequent set of questions reveals that we think the Liberals are better than Labor at listening and focussing on the right issues.

In view of the economic mess the Coalition left to the incoming Labor government, the idiocy of the Coalition’s energy policy, the Coalition’s promise to cut taxes and therefore standards of health and education, and the absence of any policy proposals to address the economy’s structural problems, these results are surprising.

They carry many political messages for the government. In terms of energy policy the government still has to get the message through that an economic transformation based on renewable energy is the surest way we can take ourselves out of the path the Coalition has been taking us down for the best part of 25 years. That path leads to social division, worsening inequality, and the slow descent into poverty that South American countries experienced last century.