Clean coal project ‘will fail’ under emissions trading scheme.

http://www.abc.net.au/news/stories/2009/01/19/2468820.htm

Opposition environment spokesman Greg Hunt says a major clean coal project in central Queensland will fail unless the Federal Government changes its emissions trading scheme.

ZeroGen is working to develop a low emissions plant but says under the proposed carbon pollution reduction scheme it may be forced to buy permits.

If this “clean coal” is so clean, and actually does not have any significant emission of carbon dioxide to the atmosphere, why are GHG emissions permits any significant issue at all? Any and all technologies which are truly “clean” obviously have a competitive advantage under the emissions trading scheme – so how exactly is the coal industry able to complain about a financial disadvantage faced by “clean coal”?

Of course they should be forced to buy permits – as should every power station – corresponding to their quantitative greenhouse gas emissions. If you don’t want to sink money into GHG permits, then you deploy low-emissions or zero-emissions technologies.

Even after what is basically an admission that “clean coal” is still associated with very high emissions of carbon dioxide to the atmosphere, more than natural gas and more than essentially any other energy generation technology with the exception of conventional coal-firing, the coal industry is still expecting even more handouts for the government for purported “clean coal” – and the government will probably give in, since “clean coal” is the only example the Australian Government has that they can try and meaningfully show as evidence of their supposed commitment to the management of anthropogenic greenhouse gas emissions. If Big Coal threatens to walk away on the “clean coal” projects if they don’t get the additional taxpayer-funded pork they demand, the government is left with nothing to show off.

In a letter to Resources and Energy Minister Martin Ferguson the company said it should be exempted from buying carbon permits as it is a research and development project.

It has warned that if it has to buy permits the project may become unviable.

The Queensland Government has provided $100 million for the project and Prime Minister Kevin Rudd has voiced his support for it.
Mr Hunt has accused the Commonwealth of “turning its back” on clean energy.

“The project will fail under Mr Rudd’s regime,” he said.

“Very clearly ZeroGen, clean coal, the future of Australian clean energy will fail under Mr Rudd’s regime.”

What a bunch of ridiculous rhetoric.
Given that we’re seeing so much government money being handed out to the coal-fired generation industry in relation to coal and emissions trading, and so many exemptions from emissions trading and the issuing of free permits, it might almost come as a surprise that there is interest in “clean coal”, when there is no real significant economic disincentive to the use of conventional coal-fired technology. The answer does indeed seem to be that these mendaciously small-scale “clean coal” projects seem to be an attractive source of easy government handouts for Big Coal.

Mr Hunt says the Government’s stance on emissions trading has already hurt the company.

“We’ve learnt that there are already job losses at ZeroGen,” he said.

The entire business development and corporate affairs section has been sacked in the last few days, the company is already winding down.”

A spokesperson for Mr Ferguson says the minister will address the issues raised in ZeroGen’s letter in “due course”.

Last year the Government allocated $100 million to the formation of the Carbon Capture and Storage Institute.

About 80 per cent of Australia’s electricity is created by coal-fired power generators.

Under the proposed carbon pollution reduction scheme, all revenue from the sale of permits will be used to compensate households for rising costs.

The Government’s climate change adviser, Professor Ross Garnaut, had urged the Government to allocate about a third of collected revenue to clean energy research and development.

Carbon Emissions Reduction Scheme: The Green Paper (Part 1)

An extract from the green paper:

The key supply-side factor to consider is the relative emissions intensity of different production processes. If all entities in an industry use similar technology, they will all face a similar increase in costs under the scheme and entities will be able to pass these costs through to consumers to the extent allowed by their price elasticity of demand.

However, if an entity is significantly more emissions-intensive than others that sell the same product, it will not be able to increase its prices without fear that its lower emissions competitors will undercut them.

Competitors for such emissions-intensive entities are not limited to existing producers, but include potential new entrants that can use less emissions-intensive technologies.

Demand for electricity is relatively inelastic. This is important, because it indicates that, absent particular supply side issues, the industry as a whole may be able to pass a large share of its carbon costs to consumers.

Some generators may be constrained in their ability to pass on carbon costs to consumers. Different technologies are used to generate electricity in Australia, and they vary significantly in emissions intensity. Highly emissions-intensive coal-fired generators compete with lower emissions (but still emissions-intensive) gas-fired generators, and with zero emissions electricity sources such as wind or hydro generation.

In the context of the competitive structure of Australia’s major electricity markets, this variability might prevent coal-fired electricity generators, in particular, from passing on a significant portion of their carbon costs, reducing their profitability.

The profitability of emissions-intensive generators could be reduced in two ways.

First, generators could lose market share to generators with lower emissions intensity.
A reduction in volume is particularly significant for coal-fired generators, because they need to sell significant quantities of electricity to cover their high fixed capital and maintenance costs.

Second, competition with less emissions-intensive generators could reduce the margins earned on electricity sold by more emissions-intensive generators.

I can’t help but think they’ve overlooked something here. Here’s a bit of a tip for the federal government: emissions-intensive generators losing market share to generators with lower emissions intensity results in a reduction of the GHG emissions intensity of the market.

We can’t have that now, can we?