Nothing makes sense about Renewable Energy Targets, except at a “Bumper-Sticker” level. Today the AFR front page suggests* the federal government is shifting to remove the scheme (by closing it to new entrants) rather than just scaling it back. It can’t come a day too soon. Right now, the Greens who care about CO2 emissions should be cheering too. The scheme was designed to promote an  industry, not to cut CO2.

UPDATE: Mathias Cormann later says “that the government’s position was to “keep the renewable energy target in place” SMH.  Mixed messages indeed.

We’ve been sold the idea that if we subsidize “renewable” energy (which produces less CO2) we’d get a world with lower CO2 emissions. But it ain’t so. The fake “free” market in renewables does not remotely achieve what it was advertised to do — the perverse incentives make the RET good for increasing “renewables” but bad for reducing CO2, and, worse, the more wind power you have, the less CO2 you save. Coal fired electricity is so cheap that doing anything other than making it more efficient is a wildly expensive and inefficient way to reduce CO2. But the Greens hate coal more than they want to reduce carbon dioxide. The dilemma!

The RET scheme in Australian pays a subsidy to wind farms and solar installations. Below, Tom Quirk shows that this is effectively a carbon tax (but a lousy one), and it shifts supply — perversely taxing brown coal at $27/ton, black coal at $40/ton and gas at up to $100/ton. Because it’s applied to renewables rather than CO2 directly, it’s effectively a higher tax rate for the non-renewable but lower CO2 emitters.

Calculating the true cost of electricity is fiendishly difficult. “Levelized costs” is the simple idea that we can add up the entire lifecycle cost of each energy type, but it’s almost impossible to calculate meaningful numbers. Because wind power is fickle, yet electricity demand is most definitely not, the real cost of wind power is not just the construction, maintenance and final disposal, but also the cost of having a gas back-up or expensive battery (give-us-your-gold) storage. It’s just inefficient every which way. Coal and nuclear stations are cheaper when run constantly rather than in a stop-start fashion (just like your car is). So the cost of renewables also includes the cost of shifting these “base load” suppliers from efficient to inefficient use — and in the case of coal it means producing more CO2 for the same megawatts. South Australia is the most renewable-dependent state in mainland Australia, and it’s a basketcase (look at the cost stack below). Real costs only come with modeling, and we all know how difficult that is.

If the aim is really the research and development of renewables (and not “low CO2″) then I’ve long said that we should pay for the research and development directly, not pay companies to put up inefficient and fairly useless versions in the hope that companies might earn enough to pay for the research out of the profits. Tom Quirk points out that it’s all frightfully perverse again, because most innovations come from industry, not government funded research, but in Australia we hardly have any industry making parts used in power generation — we don’t have the teams of electrical engineers working on the problem anymore. I suppose the theory is that Chinese companies will profit from solar panels and do the R&D for us (keeping “our” patents too)? It would be cheaper just to gift them the money direct wouldn’t it — rather than pay an industry to produce and install a product that no one would buy, which doesn’t work, and hope that the “profits” translate into discoveries that will produce royalties and jobs for people overseas. I’m sure Chinese workers and entrepreneurs will be grateful. Yay.

Meanwhile, Green fans have suddenly discovered the idea of sovereign risk (where were they while the Rudd-Gillard team blitzed Australia’s reputation for stable, predictable policy?). According to the AFR, the government is scornful (and rightly so):

The government source said the market was oversupplied with energy and there was no longer any cause for a mandated use of any specific type of power. The source said while there would be investment losses if the RET was abolished, or even scaled back, investors “would have to have been blind to know this wasn’t coming’’.

On Catalaxy files, Judith Sloan mocks the Fin for pushing a press release from a rent-seeking firm, and guesses the Abbott government will be too “gutless” to ditch this economic and environmental dog of a policy.

—   Jo