The price of carbon

In recent weeks we have been subjected to the full vigour of the Environmentalist Movement’s demand for a “carbon price” This is their response to the collapse of their ambitions for a world-wide decarbonisation regime which was to have been born at Copenhagen last December, but which was aborted unceremoniously by the Chinese, the Indians, the Brazilians and their third world supporters. 

After the failure of the Bolshevik Revolution of 1917 to ignite similar, successful revolutions in post-war Europe, the Soviet regime abandoned hopes for at least a European wide communist international and opted instead for “Socialism in One Country”. Similarly our contemporary revolutionaries have opted for “salvation in one country”, and their current slogan is “we must have a price for carbon”. 

PM Julia Gillard, on 13 July, commenting on this demand said: 

I understand there are millions of Australians disappointed that we have not yet been able to put a price on carbon, I am disappointed by that too.

In all of these environmentalist campaigns we must look for the elements of a Baptist-bootlegger coalition which is essential if a campaign of this kind is to “move forward” . (Baptists-bootlegger coalitions were a feature of the Prohibition era in the US. The Baptists provided moral high ground for prohibition, and the bootleggers made huge profits from which they provided slush funds to politicians.) 

With the CPRS bill the bootlegger role was filled primarily by the financial sector, where the prospect of making large sums of money by trading what were in effect tax receipts, called “emissions permits”, excited banks, insurance companies and other financial sector players. 

In this current campaign the bootlegger role is energetically played by the gas industry. Their ambition is to replace the coal industry as the main source of energy for base load power stations and AGL CEO Michael Fraser has been speaking frequently at business lunches extolling the virtues, and the benign economics, of gas fired, base-load power stations. They have had considerable success in their campaign. The Shadow Environment Minister, Greg Hunt, is convinced that Hazelwood Power Station (providing one quarter of Victoria’s electricity) could be converted to gas without technical difficulty or economic pain. The Brumby government has announced plans to shut down 400 of the 1600 MW which Hazelwood supplies at an availability factor of close to 90 percent. 

The only thing that needs to be known in this particular debate is that coal is cheap, and that gas is currently relatively expensive, and will increase in price if the demand for gas as fuel for power stations is mandated by government fiat. 

What is of greater interest is the use of the phrase “carbon price”. We already have carbon prices – quite a few of them. As with any commodity the price varies according to the form and quality of the product but carbon is unique in the range of prices which it commands. The diamond industry begins with carbon obtained from volcanic pipes and either transforms this carbon into industrial diamonds which are used for cutting and abrasive purposes or into cut diamonds for the jewellery trade where they fetch large sums of money. A tonne of cut diamonds, ready for the international diamond trade, would be worth billions.

A different form of carbon, graphite powder, is used for making pencil leads and as a lubricant in a wide range of circumstances. It can be bought at most hardware stores. A 100 gm container costs $9 and a reasonable guess at the price of graphite at the factory gate would be $1000 per tonne. 

Neither the Greens nor the gas industry is interested in buying diamonds or selling graphite. Their common interest, for the moment, is in shutting down Australia’s coal fired power stations. After that their ambitions will diverge. The Greens object to all power stations except for windmills and solar installations. If these ambitions were to be realised Australians would be forced to live as their 19^th century forebears lived. So this alliance can only be a temporary arrangement, but so far it has been a very successful one. 

The price of carbon as a fuel for power stations, also varies widely.  If we take the price of black coal in the US as providing a datum, then gas is 3,5 times, oil is 6.3 times and brown coal from the Latrobe Valley is 0.4 times the price of this coal. These ratios vary of course as new technologies emerge. But the overall picture has not changed much in recent years. So the demand for a “carbon price” is a demand for a tax on coal which will raise its price to the point where gas will be able to supplant it as fuel for the power station. The cost to Australia’s electricity consumers will be huge and the impact on the economy profound. 

Ray Evans is Secretary of the Lavoisier Group.