First published in the Courier-Mail on 26 March 2007

Clean coal is all hot air

Dr Alex Robson

Last month Federal Opposition Leader Kevin Rudd announced Labor's National Clean Coal Initiative.

Roughly speaking, the term clean coal refers to various technologies for removing carbon dioxide from coal when it is used to generate electricity, both before and after combustion occurs. The term encompasses carbon capture and storage technologies.

Rudd's policy commits $500 million of taxpayer funds on the development of these technologies, with the proviso that each taxpayer dollar must be matched by two private sector dollars.

Rudd also proclaimed that Labor would establish an emissions trading scheme, set renewable energy targets, develop plans for reducing greenhouse gas emissions, convene a summit on climate change and ratify the Kyoto protocol.

Apart from ratifying an obsolete international treaty and organising yet another Canberra talkfest, Labor's policy of subsidising corporations, making grandiose plans and setting impressive-sounding targets is eerily similar to existing Government policy.

The Howard Government happily boasts about Australia meeting its Kyoto targets and has already set up a taskforce to examine emissions trading schemes.

Its Low Emissions Technology Demonstration Fund has committed taxpayer funds of $500 million for research, with the proviso that each taxpayer dollar must be matched by---you guessed it---two private sector dollars. Additional funding is planned for future years.

This subsidy is simply a form of taxpayer-funded corporate welfare, with no discernible benefit to Australia in terms of the effect on climate change.

Neither Rudd, Howard nor any other Canberra politician seem to be willing to admit that none of these policies will have any impact on global temperatures. Indeed, even if Tasmanian Senator Bob Brown got his wish and shut down Australia's coal industry overnight, it would not make a whit of difference to climate change.

So much for Rudd providing sensible policy alternatives. The only real difference between the two spending initiatives is that Labor will revert to its unhealthy old ways and explicitly try to pick winners by directly focusing the subsidy on clean coal technology. In contrast, the current government subsidy is neutral with respect to the technology used to reduce carbon dioxide emissions.

These minor differences are simply political manoeuvring. Labor is attempting to appeal to green voters, appease the coal mining unions, and shore up votes in marginal coal-producing electorates. But in the rush to get on board the clean coal bandwagon, both parties seem to have ignored the Howard battlers---ordinary taxpayers with mortgages and electricity bills.

When it comes to clean coal, there is a gigantic elephant in the room. Although $500 million is a significant amount of money to spend on corporate welfare, it is a drop in the ocean compared with the higher costs of electricity generation that are involved in the use of clean coal technology, and the effects that these higher costs will have on consumer prices.

The vast majority (77 per cent) of Australia's electricity is produced using black and brown coal. As Labor's policy announcement acknowledges, CSIRO scientists have estimated that carbon capture and storage technologies are not commercially viable (and will not be for many years), and would effectively double the cost of producing electricity.

It is also estimated that electricity prices could rise by 40 per cent.

There is no way that individual electricity producers will voluntarily double their generating costs unless they plan on going out of business.

Thus clean coal technology will not be adopted unless governments force producers to use it, taxpayers directly subsidise it or if an artificial price (effectively a tax) is placed on carbon emissions.

Forcing electricity generators to adopt this cost-doubling technology is equivalent to imposing a 100 per cent tax on the consumption of coal, without the government collecting any revenue.

Both parties seem to believe that such a policy will somehow put the coal industry on a sustainable footing and protect coal jobs. This is pure economic fantasy. Doubling the effective cost of coal will likely lead to a significant reduction in coal demand and significant job cuts in the coal industry.

Similarly, the idea that such large increases in consumer electricity prices will not lead to higher inflation and higher mortgage interest rates is completely divorced from economic reality.

The only alternative is to shift the costs to the taxpayer by directly subsidising clean coal electricity generation.

Inevitably Howard's battlers will end up footing the bill for a bipartisan clean coal policy that will have absolutely no effect on climate change. No wonder neither side wants to acknowledge the elephant in the room.

* Dr Alex Robson lectures in economics at the Australian National University.