If you think Kevin Rudd and the labour movement are the chief beneficiaries of the electoral backlash against the Howard Government’s WorkChoices legislation, think again. The real winner was Morris Iemma’s NSW Labor Government.
Weighed down by Bob Carr’s legacy of superb spin and poor policy, Iemma went to the voters in March this year with the less than memorable slogan ‘More to do, but we’re heading in the right direction’. Aided by the implosion of Liberal leader John Brogden and his replacement by the barely electable Peter Debnam, Iemma scraped home on the back of widespread fear about WorkChoices.
Now, with a Federal Labor Government, Iemma is attempting to show that NSW really is ‘heading in the right direction’ with his first big decision since gaining power: selling off the State’s retail electricity businesses and leasing the power generators that supply them.
The privatisation is hoped to raise $10 billion — or even $15 billion according to the more rosy estimates coming out of the NSW Premier’s media offices — which Iemma plans to use on building a subway metro system for Sydney.
It’s just the sort of big, legacy project that Iemma needs as tangible evidence that he can cut through the Gordian knot of NSW’s powerful public sector bureaucracy and unions to get things done.
Most of the current media analysis of the deal has focused on whether Iemma has the clout to defeat the energy unions, who remain bitterly opposed to the privatisation. But the real significance of the decision is what it says about the parlous state of NSW’s public finances, and the implications for Australia’s forthcoming emissions trading scheme.
NSW is not quite broke — yet. But this year’s anaemic surplus of $376 million disguises rising net debt and a tax base highly dependent on property and gaming levies. More than any other State, NSW is feeling the pinch of the post-GST tax carve-up. NSW still gets less than its ‘fair’ share of Commonwealth GST revenue owing to the complicated grants formula that subsidises the smaller States at NSW and Victoria’s expense. And NSW has not enjoyed the huge windfall in mining royalties that Queensland and West Australia have reaped in the past decade.
In other words, the State has essentially run out of money for ambitious new projects. Iemma’s decision was motivated by his tight purse-strings, not any bold desire to take on the unions or deliver slightly cheaper energy to his State.
Cheaper energy? Iemma is selling the sell-off as ‘price-rise insurance’ in the face of the drought and other factors like the Mandatory Renewable Energy Target which are pushing electricity prices up. Consumers in South Australia and Victoria did indeed enjoy a holiday of lower prices in the wake of the big-bang privatisations of the 1990s, but those days are long over. Electricity prices are now ticking up, and any sensible appraisal of the future of energy supply and demand would suggest that electricity prices will go up, not down, in the medium to long term.
The reason is two-fold. First, Australian households are increasingly power-hungry as we fill them with air conditioners, flat-screen TVs and other high-wattage appliances. Secondly, most of our electricity is made by burning fossil fuels, and no-one seriously doubts we will eventually have to pay a price for those carbon emissions.
Set against these rising demands and future emissions charges, the construction of new power generators in NSW has stalled. So Iemma has cleverly decided to handball the problem to the private sector, saying it will be up to the new private sector operators to decide whether to build a coal or gas power plant. ‘We shouldn’t be in the business of picking winners in technology,’ NSW Treasurer Micheal Costa said. Greenpeace’s John Hepburn accused Iemma and Costa of privatising NSW’s climate policy while they were at it.
The truth of the matter is renewable energy is not yet ready to provide base-load power — even if we go nuclear — as the Inquiry headed by Professor Anthony D Owen found earlier this year.
Iemma set up the Owen Inquiry to investigate the issue of energy privatisation and NSW’s future electricity needs. Owen canvassed a wide range of industry experts and found that new base-load power would need to be found by 2013-14. The Conner Wagnall expert submission to the Inquiry demonstrates just how difficult it will be to generate the new base-load capacity from anything but coal. Solar is too expensive, biomass is too dirty, wind is unreliable and nuclear too controversial and too expensive to build. Everything else — like wave power or the promising hot dry rocks technology currently being trialled in South Australia’s Cooper Basin — is at early stages and a long way from commercially proven, ‘off-the-shelf’ technology.
In other words, Greenpeace is right. Iemma and Costa know that the next power station built in NSW will be coal-fired. They’ve cleverly arranged to get someone else to do it.
This is where Kevin Rudd’s climate change advisor, Ross Garnaut, and Climate Change Minister, Penny Wong, come into the picture. As Owen points out, any commercial decision on a new power station will be influenced by what sort of emissions trading scheme Australia eventually adopts. Gas turbine plants are cheap to build and emit around half as much carbon as coal fired plants, so a carbon price which made coal twice as expensive would suddenly make gas competitive. But Australia is still dodging questions at Bali about what our 2020 emissions target will be. Everyone is now waiting for Garnaut’s report, which will shape Australian climate policy to 2050. No wonder he’s not ready to report yet.
As for Morris Iemma and Micheal Costa? Well, this quote from Anthony Owen sums it all up:
The combined impact of both the divestment of generation and retail and the avoidance of new generation investment means that total State net debt would be up to $26 billion lower in 2020 compared to a ‘retain and invest’ scenario. This would significantly improve the State’s fiscal position and the Government’s ability to meet its State Plan objectives.
NSW’s cupboard is bare. Now it will sell off its furniture rather than face up to the nasty problem of climate change. After all, 2013 is a whole election away.
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