NSW Premier Bob Carr has spearheaded a move by Australian State Governments to introduce a system of carbon trading. This aims to implement a more aggressive reduction in carbon dioxide emission than that favoured by the Commonwealth.
It is modelled on the European Union's (EU) carbon dioxide trading market which commenced operating this year. The EU scheme itself is an outcome of the Kyoto treaty on greenhouse gas.
The Commonwealth, like the US, China, India and others has not ratified the treaty, because it considers the resulting cost increases in energy would be too great.
Under its carbon dioxide trading scheme, all the EU's 12,000 electricity generation plants and major factories have been given an annual quota of carbon dioxide units. Fossil fuel burning electricity generators are allowed to produce more energy if they don't increase their outputs of carbon dioxide. Those that are able to reduce their outputs of carbon dioxide (either by reducing overall production or doing things differently) can sell their surplus quotas.
The going price in the market now in place for European carbon dioxide quotas is $22 per tonne. Much higher prices would be necessary to meet the jeremiahs calls for progressively deeper cuts in carbon emissions -- and Bob Carr has called for a massive 60 per cent cut in greenhouse gas emissions.
Because electricity plants use different forms of fuel, carbon quotas have different impacts on their cost structures. Wind, hydro and nuclear plants do not use fossil fuels and are favoured over plants emitting relatively little carbon (gas) and those with high carbon emissions (coal).
Based on present European prices, a carbon dioxide trading system would raise the cost of electricity from NSW's coal plants, centred on the Hunter region from about $40 per MWh to $60. Gas plants like that proposed at Tomago would see initial costs rising to about $56 per MWh, though increases in gas demand would soon push this above the coal plants' costs.
Wind, hydro and nuclear fuel plants would see no cost increase. For hydro this is immaterial since Australia has limited additional potential. In the case of windpower, it is largely irrelevant since the technology is a dead-end that will always be uneconomic no matter what burden is placed on its competitive energy sources.
Nuclear however is another matter. Even at current European carbon dioxide prices, nuclear would be more competitive than coal generation if a carbon trading regime were to be introduced.
Of course, Australia's mindless rent-a-crowd protesters would bring additional political obstacles to nuclear. However Labor leaders like Britain's Tony Blair are conditioning their flocks into accepting nuclear power which is, after all, safe clean and reliable. Premier Carr has refused to go so far, but Peter Garrett after a lifetime of opposition to all things nuclear has recently raised his hat to the nuclear power option.
A nuclear electricity future for NSW could be brought about by quotas on carbon dioxide emissions that would penalise coal. This would mean higher electricity prices and bring the loss of energy intensive industries like aluminium, but it would avert a need to return us all to the energy-less cave.
Unfortunately, it would also destroy the State's fabulous low cost steaming coal asset. As well as raising the entire electricity cost structure, this means writing-off tens of billions of dollars worth of wealth.
The carbon trading proposals are among a suite of measures the NSW Government has introduced that target electricity generation from coal.
These include the decision to recruit state financed green action groups to oppose the Hunter Valley Redbank II Power Station. The Government had initially paraded this as an example of environmental excellence; however it later fomented environmental opposition to renege on a contract that turned out to be high cost.
This sort of action destroys confidence in the Government's integrity. As a consequence, it is doubtful that another private sector supplier will take a chance on state owned companies' assurances -- new power industry suppliers would need a sovereign guarantee, placing NSW in the banana republic category of investment risk.
In addition, coal powered generation faces a hidden state tax levied on energy consumers, the Greenhouse Gas Abatement Scheme. By 2012 this will impose a $220 million tax on coal power. As well as an imposition on households, this puts the State at a massive disadvantage compared to Queensland and Victoria.
Measures that penalise coal generation can only prove damaging to NSW's competitiveness and to the industry that underpins the Hunter region.
The Carr Government's pursuit of such proposals sacrifices its responsibilities for the economic well-being of people in NSW to the green zealotry of its political leaders.
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