Labor is wasting money and holding back deeper cuts to carbon emissions by subsidising renewable energy schemes such as wind turbines and roof-top solar panels.
The Productivity Commission has urged that subsidies for renewable energy be scrapped with the introduction of a carbon price, saying they are extremely expensive and make any form of carbon market less efficient.
While business lobbies have pressed for a carbon price no higher than $10 a tonne, the Productivity Commission estimates that taxpayers have been subsidising the reduction of emissions at prices of up to $1000 a tonne through rooftop solar panels.
“A carbon price in combination with other measures will generally be less cost-effective than one operating on its own,” the commission says.
“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.”
Dennis Wellington, the deputy mayor of Albany, which has 12 wind turbines on its outskirts, said despite the price of generating renewable energy, the wind farm was a fantastic resource.
“It’s a very clean resource . . . and it works basically 24 hours a day, unlike solar power,” Mr Wellington said.
“Obviously they are expensive and they are a wearing item. They last 20 years before they’ve got to be replaced. But we’re in the process of extending ours.”
There are plans to put in another six turbines in Albany that would bring the total generation capacity to more than 70 per cent of the city’s electricity.
Wind farms have been opposed by land owners, concerned at the possible adverse health effects, excessive noise, falling property values and the visual eyesore of the turbines, some as tall as a 45-storey building. Others worry about their effects on birds, which can be killed by the wind turbulence created by the blades slicing through the air.
Critics also argue that wind turbines cannot exist without back-up power provided by generators.
The Productivity Commission says the most effective form of abatement in Europe has been the switch from coal to gas-fired electricity, which has been prompted by its emissions trading system.
This has been achieved at an effective cost of about $20 a tonne of carbon. Subsidies to wind or solar production can stop this switch from occurring.
“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 says. It estimates that without the subsidies, a medium-sized solar plant generates electricity at more than $400 a megawatt hour, while wind power costs from $150 to $214, gas is $97 and coal is from $78 to $91.
The commission estimates the value of subsidies to wind producers in Australia at between $40 and $60 a megawatt hour, compared with $24 in the US.
Wind farm developments are subsidised through the federal government’s Mandatory Renewable Energy Target scheme.
In Australia, power companies have been given a target of generating 20 per cent of their power from renewable sources by 2020.
Power companies are obliged to buy their share of renewable energy each year, but can trade their obligations through renewable energy certificates.
In the case of Albany, Verve Energy, the state-owned electricity generator, produces the renewable wind energy, which has a value in renewable energy certificates.
A spokesman for Verve said this energy was then sold to the state-owned energy retailer Synergy to enable it to meet its 20 per cent renewable energy targets.
State governments have also subsidised renewable energy with guaranteed feed-in tariffs for selling power to the grid.
The commission’s greatest scorn is reserved for the state-based subsidies for rooftop solar systems. It argues that until the scheme was overhauled this year, the subsidies had the perverse effect of increasing emissions.
It was so much cheaper to buy renewable energy certificates from inefficient roof-top solar producers than larger-scale wind producers that the total investment in renewables would have been cut.
The commission says that because the state and territory schemes overlapped with the commonwealth scheme, “they did not lead to any additional abatement and only added to the total financial costs of meeting the target”.
Australia is not alone.
The commission comments that Japan and South Korea had the most inefficient greenhouse gas abatement programs because of the large subsidies paid to producers of solar panels.
The other massively inefficient investment being made in Australia and all other countries in the study is biofuels.
The commission estimates that the subsidies to biofuels work out to between $300 and $400 for every tonne of carbon saved.
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