President Obama delivered his most important national security and jobs speech last week. I think he also mentioned something about climate change.

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The headline from Obama’s speech was his decision to cut America’s carbon emissions by bypassing a dysfunctional Congress and directing the Environmental Protection Agency to implement cleaner air-quality standards. If the rules are enacted — they will face many legal challenges — it would hasten our switching from coal to natural gas for electricity generation. Natural gas emits about half the global-warming carbon dioxide of coal, and it is in growing supply in our own country. As a result of market forces alone, coal has already fallen from about one-half to one-third of America’s electric power supply.

But I would not get caught up in the anti-carbon pollution details of the president’s speech. I’d focus on the larger messages. The first is that we need to reorder our priorities and start talking about the things that are most consequential for our families, communities, nation and world. That starts with how we’re going to power the global economy at a time when the planet is on track to grow from seven billion to nine billion people in 40 years, and most of them will want to live like Americans, with American-style cars, homes and consumption patterns. If we don’t find a cleaner way for them to grow, we’re going to smoke up, choke up and burn up this planet so much faster than anyone predicts. That traffic jam on the Beijing-Tibet highway in 2010 that stretched for 60 miles, involved 10,000 vehicles and took 10 days to unlock is a harbinger of what will come.

“In reducing coal’s historic dominance, the president is formalizing a market trend that was already taking shape,” remarked Andy Karsner, who was an assistant secretary of energy in the last Bush administration. His bigger message, though, was “no matter where you find yourself on the political spectrum, it’s useful for the nation to discuss, debate and consider a strategy for climate change. The consequences of inaction are potentially greater than all the other noise out there.”

Sadly, many Republican “leaders” rejected Obama’s initiative, claiming it would cost jobs. Really? Marvin Odum, the president of the Shell Oil Company, told me in an interview that phasing out coal for cleaner natural gas — and shifting more transport, such as big trucks and ships, to natural gas instead of diesel — “is a no-brainer, no-lose, net-win that you can’t fight with a straight face.”

But, remember, natural gas is a fine gift to our country if, and only if, we extract it in a way that does not leak methane into the atmosphere (methane being worse than carbon dioxide when it comes to global warming) and if, and only if, we extract it in ways that don’t despoil land, air or water. The Environmental Defense Fund is working with big oil companies, like Shell, to ensure both.

But there is one more huge caveat: We also have to ensure that cheap natural gas displaces coal but doesn’t also displace energy efficiency and renewables, like solar or wind, so that natural gas becomes a bridge to a clean energy future, not a ditch. It would be ideal to do this through legislation and not E.P.A. fiat, but Republicans have blocked that route, which is pathetic because the best way to do it is with a Republican idea from the last Bush administration: a national clean energy standard for electricity generation — an idea the G.O.P. only began to oppose when Obama said he favored it.

Such a standard would say to every utility: “Your power plants can use any fuel and technology you want to generate electricity as long as the total amount of air pollutants and greenhouse gases they emit (in both fuel handling and its electricity conversion) meet steadily increasing standards for cleaner air and fewer greenhouse gases. If you want to meet that standard with natural gas, sequestered coal, biomass, hydro, solar, wind or nuclear, be our guest. Let the most cost-effective clean technology win.”

By raising the standard a small amount every year, we’d ensure continuous innovation in clean power technologies — and jobs that are a lot better than coal mining. You can’t make an appliance, power plant, factory or vehicle cleaner without making it smarter — with smarter materials, smarter software or smarter designs. Nothing would do more to ensure America’s national security, stimulate more good jobs and global exports — the whole world needs these technologies — than a national clean energy standard. And, of course, the climate would hugely benefit.

Improving our energy system plays to our innovation strength. Clinging to our fossil-fuel past plays to the strengths of Russia and Iran. Why would we do that? Why would the G.O.P.? It’s already losing young voters. Question: How many college campuses today have environmental clubs and how many have coal clubs?

“The Germans and the Chinese are already in this clean energy race, and we’re still just talking about it,” said Hal Harvey, the chief executive of Energy Innovation. “The question is: Do we want to control our energy future, or continue to rent it from other countries?”

Date

July 3, 2013 – 6:08AM

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(Week in Review reprinted with permission of Bloomberg New Energy Finance)

Ahead of the US Independence Day holiday this week, American and UK leaders set forward their plans of attack in the on-going effort to curb the globe’s rising temperatures.

And on the other side of the world, Kevin Rudd’s ouster of Julia Gillard as Prime Minister of Australia left some observers to wonder whether he will speed up plans to link the nation’s carbon market with Europe.

It used to be a word that made some US politicians blush, but President Barack Obama does not seem to be afraid to say it anymore.

‘‘Climate’’ was the focus of the President’s speech at Georgetown University in Washington 25 June. Obama proposed a sweeping plan that sets goals to reduce carbon emissions and bolster renewable energy while also preparing the country for the consequences of planetary warming.

His ‘‘climate action plan’’ includes an order to the Environmental Protection Agency to limit carbon dioxidemissions from existing power plants. Mr Obama has directed the EPA to issue a revised proposal for new power plants by 20 September 2013, with a final rule following in a ‘‘timely fashion’’.

EPA draft rules for existing power plants are now due by 1 June 2014, with final standards to be issued by 1 June 2015. If the standards for existing plants are similar to those that have been proposed for new plants so far, they would likely spell the end of coal-fired generation in the US.

Some clean energy portions of the plan include an initiative to increase renewables’ share of federal power procurement to 20 per cent by 2020, from 7.5 per cent now. Another proposal would direct the Interior Department to permit 10 gigawatts more renewables capacity on public lands by 2020.

As much as possible, the plan is designed to be carried out without Congressional assent. Yet, actions that Obama may consider to be entirely within his administrative purview, such as public land use and energy efficiency at federal properties, will likely be targeted by Congressional opponents.

Looking abroad, Obama pledged to end US government financing of overseas coal projects, a promise that could end millions of dollars in support for power plants in nations such as Vietnam and India. He called for ending US support, unless these projects are in the poorest nations or have expensive carbon-capture technology.

UK reforms

Over in the UK, energy companies were given new details relating to the nation’s Electricity Market Reform, which promises ‘‘low-carbon, affordable and reliable power for the long term’’. Just a few weeks prior, the House of Commons narrowly voted against an amendment to the Energy Bill that would introduce a 2030 carbon intensity target for the power sector in 2014, rather than potentially in 2016, as the government proposes.

The most important of the new announcements last week was of the strike prices for the contracts for difference for all renewable technologies. Though the incentives are roughly in line with current Renewable Obligation Certificates, the announcement now allows developers to compare the attractiveness of the two schemes while they overlap in the period 2014-17.

The government also said it will run its first capacity market auctions next year, for delivery by the winter of 2018-19. The purpose of the mechanism is to ensure there is enough generation capacity that can be brought online at times of peak demand.

The UK is concerned that it is facing a capacity shortfall as coal plants retire due to EU emissions regulations and gas power stations are mothballed on account of poor generation economics.

Political shift

In Australia, politics caught many people’s attention last week, including that of carbon market watchers.

Some media reports have suggested Mr Rudd may now be forced to give way on the country’s controversial fixed carbon price now that he is back in power after three years.
The Australia market is set to link with the European Union in July 2015. Until then, emitters pay a fixed price of $23, about four times the market price in Europe.

Now Mr Rudd may be pressured to move from a fixed carbon price to a trading scheme earlier than planned. However, this requires legislative change so it could not occur until after Australia’s election in September, if he were to win.

Finally, the WilderHill New Energy Global Innovation Index (NEX) recovered from an early swoon to finish up 2.3 per cent in the trading week ended 28 June. The top NEX weekly gainer was US biofuels source KiOR, which was up 39.3 oer cent.

Advanced biofuels producers such as KiOR are benefiting from expectations that there will be insufficient supply to meet the US Renewable Fuel Standard blending mandate for 2013.

Carbon prices

European carbon slipped last week as traders closed positions ahead of a vote on an emergency plan to fix the region’s oversupplied emissions market.

European Union allowances for December 2013 lost 3.9 per cent over the week to close at 4.21 euros per tonne on Friday, compared with 4.38 euros per tonne at the end of the previous week.

EUAs had a bearish start to the week, dropping to an intraday low of 4.05 euros per tonne on Tuesday, after the majority of European People’s Party (EPP) working group spoke out against the carbon-market rescue proposal.

The European Parliament is set to vote 3 July on the plan, known as backloading, which would delay sales of some carbon permits.

Prices later recovered and stabilised below 4.50 euros per tonne over the next few days, on low trading volumes. UN Certified Emission Reduction credits (CERs) for December 2013 gained 6.4 per cent last week to close at 0.50 euros per tonne.

State scraps Cobbora mine and will pay liabilities

Finalised: Eraring power station has been sold. Photo: Darren Pateman

The NSW government has abandoned plans to develop the controversial $1.5 billion Cobbora coalmine near Mudgee, and has agreed to pay $300 million in compensation to Origin Energy, one of the main buyers of coal from the mine.

It has also finalised the sale of the Eraring power station to Origin for just $50 million.

Earlier, Origin entered into long-term agreements to buy the output from the power station for $659 million.

As part of the original sale agreement, the government had to pay damages to Origin whenever the station was out of action. When the sale agreement was finalised under the Keneally state government, it is believed these damages were estimated at $100 million to $150 million over the life of the contract.

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However, a recent assessment by KPMG put the liability at $250 million. The sale of Eraring, and the small Shoalhaven dam, removes this potential liability.

”We pulled back the curtain and found $1.75 billion of extra liabilities,” Treasurer Mike Baird said of the extent of the Cobbora mine and Origin exposure.

”We’ve paid just $75 million to clear it up.” The original cost to develop the Cobbora mine was put at up to $1.2 billion, which has risen to $1.5 billion.

The Keneally government had agreed to develop the mine to supply cheap coal to Eraring along with Macquarie Generation and Delta Electricity’s central coast power stations.

Cancelling these contracts has potentially boosted the value of these power stations since they are able to source coal more cheaply from nearby mines.

It is believed coal sales contracts would have covered little more than the operating costs of the mine, leaving a significant potential risk from construction and production at the mine.

Planning approval is being sought for the mine and after it is received the government plans to either sell, or lease, the mine. Whitehaven, Xstrata or perhaps Peabody could be interested in coal from the mine for blending to sell in export markets, industry sources said.

The NSW government is also negotiating with Hong Kong-owned EnergyAustralia for the sale of two power stations at Lithgow.

Completion of this deal is awaiting approvals for a mine extension made by one of its coal suppliers, Coalpac.

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Malcolm Fraser to campaign with Greens

Former Liberal prime minister Malcolm Fraser will campaign with the Greens to prevent Tony Abbott gaining control of the Senate, should he win the upcoming federal election.

Date

July 3, 2013

Category

Opinion

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Illustration: Harry Afentoglou

With the departure of senator Stephen Conroy after Labor’s recent switch to Kevin Rudd, it is opportune to consider what might now happen to the national broadband network.

There is no doubt the NBN was Conroy’s ”baby” with the Victorian politician having nurtured, protected and driven the project with the zeal of a religious leader determined to recruit as many new followers as possible. For Conroy, the NBN was a vision to be pursued at seemingly any cost.

Conroy’s line was simple. We were asked repeatedly: How could anyone doubt the superiority of fibre to the premises?

The super speed of fibre and the view that fibre would enable endless amounts of content to be streamed into almost every Australian home were the cornerstone arguments in Conroy’s passionate pursuit of his version of the NBN.

It has been a devastating line of attack and Conroy has been relentless in pursuing any critic of the NBN who dared to speak out. The problem was always going to be that Conroy’s NBN was just one possible path to high-speed broadband. Much like different religious leaders having different paths to the ultimate goal, there was always going to be a difference of opinion as to the most appropriate path to a national high-speed broadband network.

Fixed versus wireless was going to be the obvious first point of contention. This is closely followed by the debate about fibre to the premises or fibre to the node. Ultimately, however, the real debate would always centre on the relative time and cost of pursuing the different paths to a national high speed broadband network.

Here the point is simply that Conroy’s NBN is by far the most expensive version of a national high-speed broadband network.

Trying to connect almost every home with fibre was always going to the stumbling block and the ever-present threat to the NBN. That is assuming there would be a sufficient, ongoing amount of skilled labour and technical expertise at an affordable price to sustain a project of an increasingly unknown duration.

Just think about it. Walk down any street of Australia and you will see many houses that would need to be individually connected under Conroy’s NBN. Multiply the number of houses by the thousands upon thousands of streets across Australia and you start to get some idea of the magnitude of the task ahead for Conroy’s NBN.

The danger of a large cost blow-out will constantly hang over Conroy’s NBN. A nice-sounding vision of connecting almost every home to fibre can soon become an economic nightmare. Ongoing delays in deploying Conroy’s NBN will add considerable costs to an already very expensive project.

These cost blow-outs eventually get passed on to consumers one way or another. More problematic for consumers is that construction delays in the NBN would mean that it would take longer for consumers to get access to the promised higher broadband speeds.

So, while Conroy pursued his NBN with zeal, it was always going to be a race against time. The NBN was only guaranteed while he remained the the Broadband and Communications Minister and so long as Labor stayed in power. Any change in minister or government would inevitably cause a rethink, or at least a risk of a new minister wanting to put his or her mark on the project.

If there’s one thing that is certain in politics, it is that each minister wants to cast a project in his or her image. A new minister often means a new approach or nuances on the previous minister’s approach.

Will Conroy’s NBN survive in its present form? Time will tell if the new Minister for Broadband and Communications, Anthony Albanese, has any new ideas of his own. With the NBN still in the relatively early construction stage it is clearly vulnerable to change now that Conroy has gone.

The workforce and engineering challenges that have delayed the construction of the NBN are likely to cause a reassessment sometime soon. Then there is the lingering debate as to whether fibre to the premises is ”superior” as claimed. Yes, fibre may be superior if you want to be connected to a landline and download lots of content on a regular basis, but it may not be superior if you want the mobility and convenience that wireless provides.

Any assessment of ”superiority” depends on the requirements of each individual consumer and a ”one-solution-fits-all” view was the inherent flaw in Conroy’s NBN.

At the end of the day, a national high-speed broadband network is really all about access, convenience and affordability. What’s the point of building the most expensive fixed broadband network if it can only be accessed from your home?

It makes more economic sense to provide a fixed broadband network that provides a basic high-speed service with fibre to the node, with the potential for high-end users of broadband to be able to upgrade to fibre from the node to the premises. And let’s not forget that wireless will become the preference for all but the people who prolifically download content.

Frank Zumbo is an associate professor at the school of business law and taxation at the University of New South Wales.

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