In the last week clean coal has been back in the news with energy minister Josh Frydenberg looking to Japan as an example for Australia. Since the Fukushima disaster Japan has replaced most of its nuclear capacity with new clean coal/ low emissions technology. With much of Australia’s existing power infrastructure due for replace, its large coal reserves and the relative infant state of renewable energy technologies clean coal seems like the perfect solution to Australia’s energy problems. But, is clean coal just a pipedream? Should Australia be subsidising it?
Australia has set the goal of reducing its emissions to 26-28 per cent on 2005 levels by 2030. Since the repeal of the unpopular carbon tax Australia’s primary method of achieving these reductions has been a 23.5% renewable energy target by 2020. In addition to this various State governments have set even more ambitious RETs such as Queensland 50% target by 2030. Due to both price and reliability concerns this has proven to be highly controversial with many claiming the RET will damage Australian industry.
Clean coal or new generation low emission coal power plants seems like an easy solution. However the University of Melbourne claims that replacing Australia’s existing coal power plants with new generation low emission plants would cost $62 billion dollars. Renewable energy would according to the university only cost $24 billion. The advocates of clean coal would argue that these figures are inaccurate and that renewable energy would also require significant upgrades to the energy grid to provide energy security.
At present current subsidies to renewable energy in the Australia add up to $5 billion per annum and will increase if Australia is to meet its renewable energy target. These subsidies have resulted in considerable distortions in Australia’s energy market making the wholesale price of renewables ‘cheaper’ than traditional baseload power resulting in the closer of older coal power plants such as was seen with Hazelwood brown coal power plant. In the case of South Australia this resulted in that state relying on the importation of coal power from Victoria and reliance on expensive gas power when renewables haven’t been able to meet demand. The overall result has been increased power prices and damage to the South Australian industry.
Australia’s experience with renewables should be warning of what happens when governments interfere with markets and pick winners. As is constantly claimed by renewable energy advocates the price of renewables continues to drop and their competitiveness continues to increase. In many situations wind and solar maybe the best option to replace aging power plants. This however should negate the arguments for subsidising them. The same is true of clean coal if it truly is the best option it should not require government subsidy.
The Austrian economist Friedrich Hayek warned of the local knowledge problem stating, “Today it is almost heresy to suggest that scientific knowledge is not the sum of all knowledge. But a little reflection will show that there is beyond question a body of very important but unorganized knowledge which cannot possibly be called scientific in the sense of knowledge of general rules: the knowledge of the particular circumstances of time and place.” When Hayek said this he was arguing against central planning the scientific planning of its day. Energy policy in response to the challenge of climate change is the central planning. Just as the socialists of the 20th century thought markets were too messy and imperfect today’s experts think they can plan energy policy more effectively than the free market.
Whether these experts are advocating clean coal or renewable energy they are wrong. Australia’s energy future will have no single solution, it will be a mix of new technologies, efficiency gains and the continuation of old solutions were appropriate. Those best place to make the decisions are those with the local knowledge. It will come from thousands of investors weighing risk and determining the best solution. Where solar makes sense it will be solar, where wind it will be wind and where coal it will be coal.
Josh Frydenberg, Richard Di Natale or the University of Melbourne don’t possess the local knowledge to plan Australia’s energy future – this knowledge is held by thousands of dispersed people investing in the energy network. The Australian government can help by getting out of the way by repealing its renewable energy target and by letting local knowledge prevail.
Justin Campbell is General Manager of LibertyWorks Inc.