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The Guardian - AU
The Guardian - AU
National
Peter Hannam

Renewable energy scare campaign adds apples and oranges to get $500bn

A windfarm at sunset in Albany, Western Australia
Is News Corp’s ‘$500B GREEN HOLE’ front page the start of scary claims about the cost of climate action before the next federal election? A WA windfarm at sunset. Photograph: PomInPerth/Shutterstock

Friday’s front page in Murdoch media’s the Daily Telegraph, declaring a “$500B GREEN HOLE”, could mark the opening salvo of scary claims about the cost of climate action in the run-up to next year’s federal election.

Similarly bold claims worked well in the US presidential election to confound or confuse voters. Expect a barrage of such reports, particularly around contested issues such as energy.

That $500bn “gap” is derived from new analysis by Frontier Economics. The consultancy took the $122bn sum estimated by the Australian Energy Market Operator (Aemo) to be the cost of decarbonising the country’s main power grid by 2050.

If you don’t adjust for inflation, you end up (with a couple of adjustments) with $642bn. And voilà, there’s what the Telegraph dubs a half a trillion-dollar “bombshell”.

Ted O’Brien, the climate change and energy minister Chris Bowen’s opposition counterpart, was conveniently provided a copy of the report in time for a speech at a Telegraph function in Sydney on Friday.

“Anthony Albanese and Chris Bowen are engaging in one of the most scandalous con jobs ever attempted on the Australian people,” O’Brien said, according to a copy of his speech provided to Guardian Australia. “Stop treating Australians like mugs.”

So, are we mugs?

Well, Frontier’s own findings actually match Aemo’s pretty closely.

Adjusting for inflation is standard accounting practice. We expect we’ll always be dogged by some inflation, so we place higher value on money in our hand (or mobile account) today than in the future.

The federal Treasury applies a 5% annual discount rate – though that can change – to make that adjustment.

Excluding that change to anticipate what future Australians will pay for what Aemo has in mind, Aemo’s $122bn tally swells to $580bn.

The $62bn difference, by Frontier’s calculus, comes down to estimated transmission costs. (Recent history – and the below chart from Frontier – suggest that blowout might be an underestimate.)

It’s a long way shy of a $500bn “hole” – the Telegraph’s framing of Frontier’s report, by not adjusting for inflation, compares apples with oranges.

Still, Danny Price, Frontier’s co-founder and managing director, told Guardian Australia he took the work on himself at his own cost (not the Coalition’s), as he was “irritated” the $122bn figure underplayed the scale of future (unadjusted) outlays.

Price said he was also irked that Aemo omitted a lot, such as the cost of transforming the grid in Western Australia and the Northern Territory, which are not part of the National Electricity Market (Nem). Also excluded were the costs for so-called consumer energy resources, such as rooftop solar and home batteries.

“The community needs to be clear what they’re in for, either way,” he said.

Discounting the discount rate, though, is not without political risks.

Many long-term projects might lose public backing if their future costs are not adjusted to present terms. Aukus submarines, at $368bn and counting, will certainly bear a sticker price far higher when or if they arrive after the late-2030s.

Aemo declined to comment, as did O’Brien’s office and the Telegraph’s editor, Ben English.

A spokesperson for Bowen said the opposition leader, Peter Dutton, and O’Brien “have made up costings for every single policy except their own nuclear scheme”.

“Experts say Peter Dutton’s taxpayer-funded nuclear plan will cost $600bn, take 20 years to build, only deliver 4% of our energy needs and push up emissions by extending coal,” she said.

Energy experts had mixed views on Frontier’s findings.

Bruce Mountain, the director of the Victoria Energy Policy Centre, said Aemo was “being hoisted by its own petard”.

“Least-cost modellers [such as Aemo] can get these sorts of models to tell them whatever they want to hear,” Mountain said.

“[I]f it really was the case that policymakers thought they could rely on this sort of thing, then why do we bother with an electricity market?”

Tristan Edis, a director of Green Energy Markets, said the Frontier report was “the first consultant modelling report I can recall … which omits to actually model the alternative case which it is advocating for”.

“The reality, based on experience from Europe and North America, is that nuclear is very expensive and will lead to higher power bills for Australian households. Bill increases of $600 to $1,000 are possible.”

Frontier’s Price, though, says he’s working on a second report, assessing the cost of nuclear energy. That should reload the rhetorical guns in a few weeks’ time.

• Peter Hannam is Guardian Australia’s economics correspondent

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