2.1
This chapter canvasses the key issues that were raised by stakeholders in relation to the bill. The committee's overall conclusions on the bill are included at the end of the chapter.
Overall views on the bill
2.2
Submitters to the inquiry expressed strong views both for and against the passage of the bill.
2.3
Arguments presented in support of the bill emphasised the need for Australia to transition away from coal-fired power and pointed to the environmental and health impacts of not doing so.
2.4
Submitters opposed to the bill raised concerns in relation to the bill's potential distortion of the energy market and the impact of unplanned closures of coal‑fired power stations on local communities.
Support for the bill
Need to transition away from fossil fuels
2.5
Many submitters to the inquiry argued that precluding support for coal-fired power was an important step in mitigating the environmental and health impacts of fossil fuels and emphasised the need for Australia to meet its emissions reduction targets.
2.6
For example, WWF-Australia argued:
A global transition away from thermal coal is already underway, and Australia is exposed to significant and rising social, environmental and economic risks if it does not make a well-planned 'just transition' away from its reliance on thermal coal.
2.7
At the hearing, Ms Monica Richter, the Senior Manager of the Low Carbon Futures Program at WWF-Australia, elaborated on this point:
Australia is a signatory to the Paris agreement, under which it committed to pursue efforts to limit global warming to below 1.5 degrees. Achieving this goal will require Australia and other countries to stop mining, exporting and burning thermal coal. If we are to keep warming below 1.5 degrees, scientists say we need to halve global emissions by 2030 and deliver net zero emissions before 2050 globally.
2.8
Similarly, the Law Institute of Victoria's Environmental Issues Committee (EIC) supported the intent of the bill:
The Committee supports the introduction of legislation that seeks to reduce coal-based emissions. The severe and negative impact of coal power generation on emissions and climate change was recently highlighted in Victoria by the Final Report of the Independent Expert Plan – Interim Emissions Reduction Targets for Victoria (2012-2030) March 2019. This report also recorded the economic, community and environmental benefits arising from a transition to renewable energy.
2.9
The EIC also noted 'that the decision to cease funding to coal-fired power stations should be done in an orderly fashion, not alone, or in a vacuum, but as part of a holistic plan to manage climate and environmental change'.
2.10
The Australia Institute (TAI) argued against any new investment in coal-fired power generation and submitted that previous government involvement in coal generation had been expensive and ineffective and questioned the reliability of existing power stations. At the hearing, Mr Richard Merzian, the Director of TAI's Climate and Energy Program, argued:
Part of that unreliability is because they break down more often in extreme heat because of how they operate. Extreme heat will only increase as more and more of the climate impacts come home to roost. So new coal-fired power stations are going to be problematic in terms of meeting our pollution targets, but they're also problematic in terms of the other elements of the energy trifecta: reliability and price.
2.11
Evidence received by the committee also highlighted the multifarious adverse effects on local, national and global public health of the continued use of fossil fuels. For example, the Public Health Association of Australia (PHAA) pointed to the health effects for local communities:
The coal mining and electricity generation industries in the Hunter Valley in NSW are responsible for 85% of the health-damaging fine-particulate matter produced from all sources in the entire state of NSW – 29 times the amount produced by motor vehicles, 4 times that of burning including bushfires, 120 times that of farming, and 5 times that of metal ore mining.
2.12
The PHAA also commented on the costs associated with these effects:
The estimated costs of health damages associated with coal combustion for electricity in Australia are over $2.6 billion annually. Globally, the annual health toll from coal combustion is estimated at nearly 400,000 deaths, almost 2 million serious illnesses and over 151 million minor illnesses.
Policy and investment certainty
2.13
Some submitters noted that the bill would provide certainty on the need to move away from coal-fired power to renewable alternatives. For example, EDOs of Australia pointed to the Commonwealth’s recent announcements on initiatives that would support public investment in coal-fired power, such as the UNGI program:
…there is a need for a clear unequivocal prohibition on the use of public funds to support coal-fired power generation. The critical need now is for the managed exit of coal-fired generation from our electricity infrastructure and the introduction of additional renewable generation, firmed by storage.
2.14
EDOs of Australia also argued that support for renewable power generation would be a more cost effective use of public funds:
Renewable generation has been the cheapest form of new electricity generation for some years now. More recently new renewable energy generation has reached parity with, or is cheaper than, existing coal-fired generation (even when the coal-fired asset is fully depreciated). The CSIRO and the Australian Energy Market Operator (AEMO) recently found that the cost of new wind and solar generation, even when firmed with storage, is cheaper than new coal-fired generation.
2.15
Likewise, the Wide Bay Burnett Environmental Council (WBBEC) submitted that allowing investment in coal-fired power stations would be a poor use of public funds 'because the emissions reduction that would be achieved per dollar of funding will be either small or negligible, relative to funding renewable power generation alternatives'.
2.16
The TAI argued that publicly funding coal-fired power could create uncertainty and economic risks for coal communities which would be better served by providing transitional assistance. At the hearing, Mr Tom Swann, the Senior Researcher at the TAI's Climate and Energy Program, commented:
While ABS figures show coal makes up less than one in 200 jobs, in a small number of regional communities it is a more significant employer and the ability of these communities to plan for a future beyond coal is put at risk by subsidising the expansion or extension of the coal industry. We know that there are provisions in the bill to allow Commonwealth funding to go towards transition planning and support for that transition.
2.17
The TAI also commented on the record of government subsidies for coal-fired power:
The failure to build any large-scale coal plant with carbon capture and storage, despite significant taxpayer subsidies, shows that the government has a fraught history with supporting coal projects.
Australian governments have been closely involved in the failed roll-out of several carbon capture and storage projects, including at proposed coal‑fired power plants. This poor record warns against government involvement in coal plants.
2.18
The PHAA highlighted decreasing levels of investment in coal capacity and moves by governments, institutions and organisations to divest from assets involved in fossil fuels.
2.19
The WBBEC also raised the moral hazard of public funding directed to coal‑fired power, stating:
…allowing public funding to be available to coal-fired power generation creates a moral hazard for owners of those coal-fired power generators to abandon scheduled maintenance of their asset, instead relying on the public purse to provide remedial funding; further, the allocation of taxpayer funds to coal-fired power makes such funds unavailable for zero emission generation proposals.
Comments on specific provisions
2.20
The EIC proposed giving further consideration to the wording of the bill in order to tighten its provisions and improve its effectiveness. This included consideration of the scope of any affected Commonwealth authorities, defining the sources of Commonwealth funding to coal-fired power stations, and better definition of key terms such as 'managed closure' and 'transitional assistance'.
Opposition to the bill
Potential impact of unplanned closures
2.21
While acknowledging a general trend towards the greater uptake of renewable energy, some stakeholders highlighted a range of negative impacts of the bill which would result in the premature and unplanned closure of coal-fired power stations. For example, the Latrobe City Council expressed 'strong opposition' to the bill:
Council is particularly concerned about the anticipated impact of this Bill on Latrobe Valley’s brown-coal fired power stations and the potential for any early or unplanned power station closures. Given the concentration of the power generation activity in the Latrobe Valley, any early or unplanned closures would have significant implications on the power station workers, their families, this community and our economy at large. Additionally, Council is concerned that in the longer-term this Bill, if passed, would significantly restrict the use for any purpose of this essential energy generating infrastructure.
2.22
In its submission, Latrobe City Council also highlighted the economic impact of the closure of the Hazelwood power station in 2017 on communities in the Latrobe valley region:
The Hazelwood Power Station closure resulted in approximately 750 direct and 300 indirect job losses in the region, decrease of $1,220 million in output, reduction by $255 million in demand for intermediate goods and services, and consumption effects reduced by $103 million. Overall, the Hazelwood closure resulted in a decrease in total regional output of more than $1,580 million. It is estimated that the loss of Latrobe City’s gross regional product from the closure of Hazelwood was close to $340 million. These impacts are still deeply felt across our community and our economy.
2.23
The Latrobe City Council emphasised the need for a collaborative and just transition so that any economic impacts are not disproportionally felt in regions reliant on the coal-fired power generation industry. This included economic diversification through government support for research and development of low emissions technologies and alternative uses of carbon from the region's brown coal.
2.24
At the hearing, Mr Steven Piasente, the Chief Executive Officer of Latrobe City Council, commented on how the bill might pose a barrier to such investment:
One of the other key points I want to highlight is the impact of the bill and what that might mean for this community; for example, if there were to be support for investment. Most of that investment, I understand, would come from the private sector, in terms of maintaining the existing assets. If government support were not provided in some circumstances, potentially, that might mean an earlier closure of a power station. In this community, that would adversely impact this community more than it would any other community.
2.25
The Energy Policy Institute of Australia (EPIA), while committed to technology neutrality as an essential element of the energy sector, also argued:
…that it could be economically suicidal for the national and state economies if the existing coal-fired or gas-fired generation fleets in the National Electricity Market were to close down prematurely and cause electricity demand curtailment. A reliable, fully functioning power system that is able to balance supply and demand continuously is indispensable for the welfare of the community.
Affordability and reliability of electricity generation
2.26
Submitters opposed to the bill commented on the detrimental effect of unplanned closures on the reliability and affordability of the electricity system. For example, the Institute of Public Affairs (IPA) argued against further government involvement in the electricity market submitting that 'government management of the energy market has contributed to significant increases in electricity prices above inflation'. The IPA further argued:
Continued government subsidisation of high-cost electricity production, combined with restrictions on coal and gas-fired power, has artificially increased the price of electricity and undermined the stability of the grid. Existing gas and coal-fired power stations are forced to respond to fluctuations in electricity production coming from weather dependent sources. This means that coal-fired plants are required to reduce capacity when weather conditions happen to be favourable to wind and solar energy generators. When the weather is less favourable to wind and solar, coal-fired power stations are required to enter the market to fill the energy shortfall. This is a particular strain on coal-fired stations that are less suited to rapid changes in operation, and has reduced profitability both by adding significant costs to operation, and by reducing revenue due to government subsidisation of competitors.
2.27
The Latrobe City Council also pointed to the impact on affordability and reliability of the premature closure of coal-fired power stations:
Any Government policies and regulations resulting in an early or unplanned closure of the coal-fired power stations would have a further impact that reaches beyond this region. The early retirement of power stations could significantly affect the affordable baseload capacity, and the security and stability of the nation’s energy supply which are fundamentally important to the efficient operation of the Australian economy.
Technological neutrality
2.28
Several organisations argued against the bill on the basis that it represented a further distortion of the energy market and any intervention should be technology neutral in effect. For example, EPIA submitted:
As Australia's energy sector seeks to respond to the challenges of the global transition to a decarbonised world, EPIA considers that an overall policy of technology neutrality is essential to underpin long-term investment.
2.29
The IPA also argued against the bill on the grounds that it would violate the principle of technological neutrality:
A position more consistent with technological neutrality would be to prohibit the Commonwealth government or its agencies from funding the refurbishment, building or purchase, or assisting in the transfer of ownership, of all forms of energy generation, including wind, solar, coal‑fired, gas-fired, hydro, and nuclear.
2.30
Mr Kurt Wallace, a Research Fellow at the IPA, further elaborated on this point at the hearing:
Given the high level of government intervention in the market, it would be a mistake to view the prohibition of government support for coal-fired power as a removal of government intrusion in the market. The energy market is fundamentally not neutral. Renewables are favoured at the expense of non-renewables such as coal and gas. The narrow prohibition of government support for coal-fired power would represent a further move away from technological neutrality. The government should prioritise the needs of Australian individuals and businesses by allowing the market to select a technological method best suited to providing affordable and reliable power.
2.31
The Australian Energy Council (AEC) also argued that in principle it 'opposes any legislation which unfairly targets specific assets within a sector of the economy'. It argued for a market mechanism to apply across all sectors as the most equitable means to reduce emissions through clear targets.
2.32
The potential reduction in technological diversity and competition in the system was also raised as a potential unintended consequence of the bill. For example, the IPA submitted that 'government policy that discourages investment in new coal-fired technology is counterproductively preventing the implementation of technological improvements to coal-fired power that would improve efficiency and reduce emissions.'
2.33
Similarly, the AEC also argued that such a proposed intervention would discourage innovation, submitting that 'explicitly prohibiting funding for coal‑fired power stations will potentially limit innovative projects that actually assist Australia's transition to lower emissions' including carbon capture and storage or improved plant efficiency to reduce emissions.
2.34
At the hearing, Mr Rob Heferen, the Acting Secretary of the former Department of the Environment and Energy, also noted that the potential upgrade of the Vales Point coal-fired power station under the UNGI program aimed 'to make it more efficient, so to reduce its emissions per unit of electricity produced'. Mr Heferen also added that the government has articulated a clear plan of 'what it proposes to do about a range of issues to make sure that it meets the CO₂ abatement that's necessary to maintain our commitment under the Paris Agreement'. This supports the contention that Australia will meet its 2030 emissions reduction target of 26–28 per cent below 2005 levels.
Committee view
2.35
The energy sector is essential to Australians' wellbeing and standard of living, and plays a pivotal role in Australia’s ongoing prosperity. The committee notes that coal-fired power is a key element in our energy networks.
2.36
The committee also notes the general longer-term transition that is taking place in the electricity market, driven by network and technological developments, and as certain long-lived, conventional thermal generators reach the end of their operational capacity.
2.37
The committee is conscious of the need to manage this transition in the energy sector in coming years in a way that balances the needs of reliability, affordability and the transition of energy markets to lower emissions technologies. The committee accepts that this is a complex and dynamic field of public policy, engaging multiple interests and competing objectives.
2.38
The committee acknowledges the arguments raised by those organisations which support the bill, such as helping Australia to meet its emissions reduction targets. However the committee notes that as a result of the Government's broader policy response, Australia is on track to achieve its Paris Target of reducing greenhouse gas emission to 26–28 per cent below 2005 levels by 2030.
2.39
The committee also notes the arguments raised by opponents of the bill including the need to refrain from further market interventions in the electricity market and the need to maintain technology neutrality as an essential element of the energy sector.
2.40
Finally and most persuasively, the committee notes the serious concerns expressed by stakeholders from coal-producing regions of Australia, such as those clearly expressed by the Latrobe City Council. The sudden closure of the Hazelwood power station in 2017 highlights the significant economic and social impacts that can be inflicted on these vital regional centres. The committee is acutely aware of the effect that any premature and unplanned closure of coal-fired power stations would have on workers, their families and surrounding communities.
2.41
Given the significant negative effects of the bill, the committee does not support its passage.
2.42
The committee recommends that the bill not be passed.
Senator the Hon David Fawcett
Chair