Wasteful energy

Ideas@TheCentre – The CIS newsletter (Sydney), 2 March 2012

Sometimes a little economic logic can save a lot of money – $10 billion for starters, which is how much the federal government will commit to its flagship climate change policy, the Clean Energy Finance Corporation (CEFC).

By providing capital to subsidise clean energy projects, the CEFC aims to reduce Australia’s carbon emissions. But the government has multiple climate change policies, including the Emissions Trading Scheme (ETS) to cap greenhouse gas emissions from 2015, a situation in which the CEFC cannot succeed.

Economic logic says if a fully implemented ETS will determine the total amount of emissions for the economy, why subsidise alternative energies at all? By its very construction, the amount of carbon emissions would not change but the price of the right to pollute would be reduced. This may be good for polluters but it is of no consequence to the environment.

In terms of ineffectiveness, the CEFC is going to beat all previous programs – such as Pink Batts, school halls, or Roads to Recovery – that produced dubious outcomes. Under a comprehensive, fully functioning ETS (big assumptions, of course), the CEFC will yield a carbon dioxide saving of precisely zero grams.

A $10 billion cost for a non-existent benefit should secure the Australian government a place in the Guinness World Records for the most wasteful climate change policy. Alas, the German government has already usurped that honour.

For more than a decade, Germany has been trying to combine subsidies for renewable energies with the European Union’s cap-and-trade scheme at a cost of more than $15 billion per year. Even the German government’s own economic advisors have repeatedly stated that these subsidies cannot lower overall emissions as they are locked in via the European Union’s ETS. Unfortunately nobody is listening to them. What do economists know about the environment anyway?

Given Germany’s disastrous experience with this so-called energy policy, it is astonishing that any other country would want to copy it.

Australia is trying to return the budget to surplus, so a saving of $10 billion would be handy. But blinded by activism and without a sense of economic logic, Australia is bound to waste both money and energy.