Solar tariffs, subsidies hit in Productivity Commission report on carbon

Tariffs for renewable energy alternatives and smaller initiatives have actually helped push up prices on carbon to more than $40 per tonne, the Productivity Commission has warned, arguing that subsidises should be scrapped and replaced with a market-based alternative.

The report on the development of a carbon price comes after debate on the effectiveness of so-called token subsidies, with New South Wales premier Barry O’Farrell attempting to retrospectively reduce the solar feed-in rate from 60 cents to 40 cents.

The response to the report – which looked at Australia’s major trading partners – has been mixed. While the business community says it legitimises its view that a carbon price should be decided by the market, the Greens say the Commission has ignored the viability of renewable alternatives.

At the same time, the Government argues the report shows Australia is not alone by imposing prices on carbon, saying countries including Britain and Germany are already devoting many of the resources to abating emissions.

“The report finds Australia is now significantly behind the United Kingdom and Germany in terms of the resources devoted to policies to reduce emissions, and the effectiveness of those policies,” Treasurer Wayne Swan said yesterday.

“The report completely debunks any scare campaigns suggesting Australia is acting alone and provides more evidence that putting a price on carbon pollution is the best way to cut pollution and protect our economy.”

Across all the studied economies, the report found hundreds of different carbon abatement programs, including those in China, the United States and Japan, saying that Australia’s approach was in the “middle of the pack”.

It said that while emissions trading schemes were “relatively cost-effective… policies encouraging small-scale renewable generation and biofuels have generated little abatement for substantially higher cost”.

Indeed, it found that subsidising the installation of small-scale solar PV systems increased the average cost per tonne of abatement to over $1,000.

But the Greens said in a statement that the report shows major countries are moving to introduce prices on carbon. However, it also noted that the Commission has “fallen into the trap” of measuring policy effectiveness based only on how much pollution they cut in the short-term.

“There are good reasons to invest early in innovation and commercialisation of renewable energy because this reduces the cost of achieving deep cuts in emissions in the longer term,” deputy leader Christine Milne said.

“By investing now in making clean, renewable energy cheaper, we will make the transformation to a cleaner, healthier more secure economy cheaper over time.”

The Commission report points out it was cheaper to buy renewable energy certificates from roof-top solar produces than for wind-power producers, and that overlapping of Commonwealth and State schemes added to the costs of such schemes without abating emissions.

“A carbon price in combination with other measures will generally be less cost-effective than one operating on its own,” the report states.

“Policies supporting renewable energy sources are more expensive, reflecting the higher costs of large-scale renewables production and particularly small-scale solar technology, which was found to be very expensive in all countries examined.”

The report also found that the 12.5 million tonnes of carbon that was abated from the electricity sector could have been achieved with a $9 carbon price, but instead a number of smaller initiatives, including the 20% renewable energy targets, have increased the cost-per carbon tonne of abatement.

“If subsidised renewable electricity sourced from wind or solar displaces gas-fired electricity, the abatement achieved will be far less than if coal-fired electricity generation were displaced,” the commission states.

It also says that the value of subsidies to wind producers are valued at between $40-60 per megawatt hour, while in the United States this is $US24.

Overall in Australia, the average abatement cost for electricity is $44, contrasted with $35 in China and $43 in the United States.

Instead, it says the market should be looking at alternatives like gas-fuelled power, which will eventually bring down the cost per carbon tonne of abatement, along with overall prices on carbon rather than a combination of smaller initiatives.

However, others have attacked the report. Coalition leader Tony Abbott said yesterday the report shows that to impose an emissions scheme would raise electricity prices.

“It would dramatically erode the competitiveness of our industries and it would place us on our own in the world because no other comparable country is proposing to do likewise,” he told the ABC yesterday.

“A carbon tax ultimately means death for the coal industry.”

Independent Tony Windsor, who sits on the multiparty committee currently negotiating a deal about a carbon price, said while he supports the initiative he would not put his name to something if it “simply churns money through the economy”.

”If you’ve got a given amount of resources for doing this [addressing climate change], then the message is let a market do it,” he told Fairfax.