Is Carbon Tax Economic Vandalism?

Recent tragedies in Japan must inform a debate on coal alternatives such as nuclear energy, not stifle it.  If the Greens want to be taken seriously, they must allow and participate in such a debate without hysteria, and without vilifying their opponents.  The only sources of ‘base-power’ are coal and nuclear.  All others are complimentary, but do not make coal redundant.  Nuclear must be debated if anthropogenic climate change is real. – The Philtheist

A CARBON tax will have to be set at $60 a tonne — three times the expected $20 tax to be set next year — to force electricity generators to switch from dirty brown coal in southeastern Australia to cleaner gas to reduce greenhouse emissions.

Gas-fired electricity generation would not become a commercially viable replacement for brown coal in southeastern Victoria because coal is so relatively cheap and gas prices are rising, according to industry projections.

Industry and investment analyses have also found compensation lower than Kevin Rudd promised would destroy up to 60 per cent of the value of brown coal electricity generators, place the electricity network “at risk”, cut power, create cost spikes and close generating companies.

Julia Gillard has announced a fixed price will be placed on every tonne of carbon emissions from July 1 next year in an effort to cut coal use and reduce greenhouse gas emissions. The key issues being debated on a carbon tax between the Greens and the government are the price per tonne and compensation for households and industry.

Confidential analyses conducted by global financial services giant Morgan Stanley and Victorian power companies examining Labor’s plans, obtained by The Weekend Australian, find a carbon price of $20 a tonne will not significantly cut carbon emissions but will damage companies and push up retail power costs.

Morgan Stanley’s March 1 report into the risks to Australian utilities from a carbon tax found the main risk for energy companies was from adding carbon costs to retail electricity prices — “a potential increase of 15-20 per cent at the retail point”.

The financier found that even if the full costs were passed on gradually to consumers, energy generator AGL would face a pre-tax earnings hit of $130 million and Victorian brown coal generators would face asset destruction of 20-60 per cent. The research paper said that without compensation the debt burden on the brown coal electricity plants would place “the network at risk”.

It warned that even with the compensation proposed in the original carbon pollution reduction scheme — which the Greens are opposing — there would be asset destruction of 10-30 per cent and “equity holders would bear a large loss”.

“With no compensation, debt covenants could possibly be breached, risking the assets being placed in administration,” the report said.

The financiers also said that starting a carbon price at a relatively low $5-$10 a tonne to limit the impact on households would hit the coal industry but be “unlikely to have any significant impact on carbon emissions in the generation sector”.

The government, working with the Greens and independent MPs, has not set a target for greenhouse gas emissions or a price per tonne for carbon, which will be a fixed price from July 1 next year until at least 2015.

Other industry analysis has found that investment in the medium term, taking into account rising gas prices and a “carbon price of $20-$25 a tonne, simply destroys existing coal-fired generation without providing financial incentive replacement gas generation”.

“Any investment decision for a new gas-fired Combined Cycle Gas Turbine has to assume a gas price of $7 per gigajoule and this means a carbon price of at least $60-70 a tonne,” the report said.

Morgan Stanley said a carbon price of $60 a tonne or more was needed to “have any medium term impact on electricity dispatch”.

According to carbon emission figures provided to the Climate Change Department, several of the nation’s biggest power generators could face additional costs of more than $1 billion a year if the carbon price was set at $60-$70 a tonne.

At $70 a tonne, NSW Hunter Valley power station operator Macquarie Generation would face an annual bill of $1.64bn based on emissions of 23.4 million tonnes a year. BlueScope Steel, which emits 10.8 million tonnes a year, would face a bill of about $750m.

The Prime Minister reassured businesses in the US she was working to ensure their companies would be compensated.