Kenneth Davidson at the SMH has a dim view of the proposed emissions trading scheme - Major parties are polluting the climate change message.

Australia's carbon pollution reduction scheme is a Luddite's delight. The CPRS is structured so that the coal industry, including Victoria's brown coal, can expand, providing it can expand its export markets.

All the coal industry and other heavy polluters have to do to meet their carbon reduction obligations is to purchase carbon credits from unlogged rainforests or some other equally dubious ''emissions reduction'' offset scam from developing countries such as Papua New Guinea or Indonesia. (The credits are similar in nature to the ''indulgences'' that were sold by the Catholic Church in the Middle Ages so the rich could continue sinning without fear of going to hell.)

Treasury modelling of CPRS from 2005 to 2050 shows that Australian emissions will still be above the 1990 baseline until after 2035.

Unless global emissions peak in the next five years, it becomes nearly impossible to avoid 2 degrees of warming. Containing global warming to 2 degrees is no longer acceptable. The latest science suggests that a 2-degree rise means there will be no Arctic sea ice, Greenland and the Himalayas will be past their melting tipping points, and in Australia the probable destruction of the Murray-Goulburn basin as our most important agricultural production zone and the death of the Great Barrier Reef.

The risk of destruction of Australian economic assets, even with 2 degrees of warming, is in the order of tens of billions of dollars. Incremental politics won't do. While the Greens' amendments to the CPRS are a mile ahead of the major parties, they are still well short of what needs to be done for a safe climate.

Also at the SMH, Ross Gittins also has a jaundiced look at the proposed emissions trading scheme and handouts of permits to the big polluters - Rudd buys off business on carbon trading. John Quiggin has a post in a similar vein - Buying out brown coal.

When the Government sells the emissions permits to big polluters such as power stations, this means the value of the price increases suffered by consumers (and intended to discourage them from using so much electricity) is transferred to consolidated revenue, as with any other tax.

But when the Government gives emissions permits to the polluters, in effect it allows them to keep the proceeds of its tax. And the budget balance is worse off to that extent.

What the generators want you to think is that if they don't have to pay for their permits, they won't have to put up their prices. Don't believe it.

The Europeans fell for that when they set up their emissions trading scheme and were amazed and appalled when the power companies whacked up their prices anyway.

Since Rudd must know this, I'm all the more fearful that he is weak-kneed when it comes to protecting the Government's coffers against raids by marauding businessmen.

And when the day comes that the retail price of electricity rises anyway, don't imagine the Opposition's complicity in procuring more compensation for the generators will in any way inhibit it from proclaiming from the rooftops this further example of Labor's economic incompetence.

The power generators' basic claim is that the instigation of an emissions trading scheme will, at a stroke, slash the capital value of their business. Unless they are compensated for this loss, no one will want to lend to them and they may be forced to cut their losses and walk away, leaving households and businesses without power.

But the Garnaut report exposed the weakness of this argument - a case of deception and special pleading if ever there was.

For a start, they'll be able to pass on to customers most, if not all, of their increased costs, which will preserve their profitability.

But to the extent that the capital value of their asset is reduced by the scheme, they have no moral, legal or economic argument to demand that taxpayers compensate them for their loss.

There's no insurance against loss for capitalists in a capitalist economy. Market-caused change raises or lowers the capital value of businesses every day. No one suggests losers should be compensated by the taxpayer.

Similarly, businesses gain or lose from changes in government policy all the time. No one suggests the losers should be compensated, nor that windfall gains be confiscated. To wish otherwise would be to put elected governments in an intolerable straitjacket, greatly constraining their ability to act in the public interest.

No one compensated the tobacco companies when governments took to discouraging smoking, nor James Hardie when governments acted against asbestos. No one has compensated the smash repair industry for all the things governments have done to reduce road accidents and deaths.

In any case, any investor in power stations who didn't see restrictions on carbon emissions coming was a fool.

If the private owners paid too much for their power stations the capitalist solution is clear: cop the loss and sell to new operators at a more realistic price without the station losing an hour's production.

Ross Gittins has an article in the SMH on the state of play for climate politics in Oz - in short, the government doesn't seem likely to achieve anything at all - It's gamesmanship, and we all lose.

We are on the verge of a national failure of will to reduce our greenhouse gas emissions. It's doubtful if Kevin Rudd's revised proposal will get his carbon pollution reduction scheme passed by the Senate.

If his latest compromise fails, it will be because of an impasse between those decrying the scheme as too tough and those objecting it isn't tough enough. Such a failure of will reflects no credit on any political party or interest group involved. All the political parties are playing games for their own short-term advantage.

Fortunately, however, if a scheme can't be agreed, all will not be lost. Australia's contribution to reducing global emissions will be unchanged - a truth the Government seems anxious to conceal from us.

The unavoidable truth is that the Rudd Government doesn't have the power to implement any scheme, good or bad, because it doesn't have the numbers in the Senate. It had to propose a considerable compromise, either with the preferences of the Coalition or with those of the Greens (plus two unpredictable and aggrandising independent senators).

Rudd decided from the start to avoid dealing with the Greens, believing they would insist on a scheme far too radical for business and the public to swallow. They seem to regard burning or exporting coal as an immoral act that should cease forthwith, deluding themselves that job losses would be instantly and painlessly overwhelmed by the far greater job opportunities created by the expansion of renewable energy.

What's more, on an issue so central to their political justification for existing, the Greens could easily have preferred to stay pure and refuse any compromise.

So Rudd's initial proposal was purpose-built to be irresistible to the Coalition. It adopted the lowest possible go-it-alone emissions reduction target - 5 per cent - and a pathetically low 15 per cent reduction in the event of an international agreement in Copenhagen in December.

It accommodated the demands of business lobby groups to an extent Rudd's own expert, Professor Ross Garnaut, found repugnant. (At another level, however, the need to accommodate the Coalition's biases was a convenient excuse for Rudd who, even if he'd had the Senate numbers, is unlikely to have had the courage to resist the business groups' begging bowl.)

So Rudd offered the Coalition a scheme little different to the one it took to the last election (both schemes having been designed by the same bureaucrats). What was Malcolm Turnbull's reaction? Nothing doing. He rejected it, contriving to claim it was simultaneously too weak and too tough.

Coming from the man who'd championed the Coalition's scheme and had seemed genuinely committed, this was puzzling. The explanation was his tenuous grip on the leadership and loyalty of the Liberals.

In the vacuum left by the departure of the party strongman, John Howard, its climate change sceptics - led by the powerful Nick Minchin - asserted themselves. Worse, under the de facto leadership of the agrarian populist Barnaby Joyce, the Nationals rejected the carbon reduction scheme outright.

Turnbull's strategy for staying at the head of this fractious rabble has been to oppose anything and everything the Government says or does. He's applied that approach to the carbon scheme, with the additional motives that to have supported the scheme would have exposed the Coalition's divisions for all to see, as well as emboldening his opponents within the party.

This is the background to Monday's backdown by Rudd. It's designed solely to increase the pressure on Turnbull. It does so by acting on many of the criticisms he was making, but also by winning some formerly absent support from the main environmental groups and, more significantly, the main business lobby groups.

The environmentalists were won over by the promise to up the reduction in emissions to 25 per cent by 2020, but under conditions about an agreement in Copenhagen so stringent they're unlikely to be met. (Not that this matters, as we'll see.) Environmentalists are suckers for empty symbolism.

The business groups were won over by a further big increase in handouts, plus the decision - in deference to the global recession - to delay the scheme by, in effect, two years, to July 2012.

The business lobbies have probably realised this is the most lenient deal they'll ever con the pollies into. Their behaviour has been self-serving and short-sighted, using grossly exaggerated claims of how much they'll suffer to persuade Rudd to shift the cost of adjusting to the scheme onto other industries - or better, onto consumers and taxpayers.

The lobbies have used misleading arguments about the need for "certainty" to achieve their goal of having a scheme locked in before Copenhagen so that, whatever deal emerges from that meeting, their contribution can't be increased. This is the only convincing reason for Rudd's insistence that the scheme be enacted this year despite the delayed starting date.

It's possible the pressure business now applies to the Liberals to pass the revised scheme is sufficient to oblige Turnbull to capitulate. I doubt he will. In this affair he's acting like all the other big players, putting self-interest well ahead of our grandchildren's interests.

But if the nation can't agree on a scheme, all will not be lost. Australia's contribution to reducing global emissions will be unchanged. Why? Because our contribution to reducing global emissions will be determined by whatever international agreement is reached (or not reached) at Copenhagen. With all the big countries at the table, we'll have little scope to say what we will or won't accept. Our only (unthinkable) option would be to refuse to ratify the protocol.

Should we not have a domestic scheme to reduce our emissions sufficiently, we'd have to meet our international obligations by buying credits from other (probably developing) countries. The cost, which, roughly, could range between $5 and $10 billion a year by 2020, would have to be picked up by the taxpayer.

Al Gore's speech yesterday was a masterpiece from my point of view - outlining most of the solutions to our energy issues (fixing and expanding the grids, energy efficiency, solar, wind, geothermal, electric cars etc etc etc) and many of the political factors involved (especially Iraq and the defenders of the status quo who took us there, and the culture war that has paralysed America).

Best of all (unlike "An Inconvenient Truth") he set an ambitious target for implementing the solutions - a switch to 100% renewable energy by 2020 for the United States (none of this 20% by 2020 nonsense that the weak-kneed keep offering up as a way forward) - something we should be attempting globally.

The speech is online now.

It was interesting that one of the people he thanked for attending was the Libertarian candidate for President - hopefully the libertarians are all starting to get on board with the idea of market based solutions to global warming and peak oil.

From The New York Times' review - Gore Calls for Carbon-Free Electric Power.

Former Vice President Al Gore said on Thursday that Americans must abandon electricity generated by fossil fuels within a decade and rely on the sun, the winds and other environmentally friendly sources of power, or risk losing their national security as well as their creature comforts. “The survival of the United States of America as we know it is at risk,” Mr. Gore said in a speech to an energy conference here. “The future of human civilization is at stake.”

Mr. Gore called for the kind of concerted national effort that enabled Americans to walk on the moon 39 years ago this month, just eight years after President John F. Kennedy famously embraced that goal. He said the goal of producing all of the nation’s electricity from “renewable energy and truly clean, carbon-free sources” within 10 years is not some farfetched vision, although he said it would require fundamental changes in political thinking and personal expectations.

“This goal is achievable, affordable and transformative,” Mr. Gore said in his remarks at the conference. “It represents a challenge to all Americans, in every walk of life — to our political leaders, entrepreneurs, innovators, engineers, and to every citizen.”

Although Mr. Gore has made global warming and energy conservation his signature issues, winning a Nobel Prize for his efforts, his speech on Thursday argued that the reasons for renouncing fossil fuels go far beyond concern for the climate.

In it, he cited military-intelligence studies warning of “dangerous national security implications” tied to climate change, including the possibility of “hundreds of millions of climate refugees” causing instability around the world, and said the United States is dangerously vulnerable because of its reliance on foreign oil. ...

Mr. Gore said the most important policy change in the transformation would be taxes on carbon dioxide production, with an accompanying reduction in payroll taxes. “We should tax what we burn, not what we earn,” he said.

The former vice president said in his speech that he could not recall a worse confluence of problems facing the country: higher gasoline prices, jobs being “outsourced,” the home mortgage industry in turmoil. “Meanwhile, the war in Iraq continues, and now the war in Afghanistan appears to be getting worse,” he said.

By calling for new political leadership and speaking disdainfully of “defenders of the status quo,” Mr. Gore was hurling a dart at the man who defeated him for the presidency in 2000, George W. Bush. Critics of Mr. Bush say that his policies are too often colored by his background in the oil business.

A crucial shortcoming in the country’s political leadership is a failure to view interlocking problems as basically one problem that is “deeply ironic in its simplicity,” Mr. Gore said, namely “our dangerous over-reliance on carbon-based fuels.”

“We’re borrowing money from China to buy oil from the Persian Gulf to burn it in ways that destroy the planet,” Mr. Gore said. “Every bit of that’s got to change.”

And it can change, he said, citing some scientists’ estimates that enough solar energy falls on the surface of the earth in 40 minutes to meet the world’s energy needs for a year, and that the winds that blow across the Midwest every day could meet the country’s daily electricity needs.

More at the FT - Gore seeks 100% green energy.

Energy Bulletin has a transcript of the speech.

Jerome Guillet has a run down of how the solution could be implemented at TOD, focussing primarily on wind power, which is his area of expertise (I think he greatly understates the potential for solar in the time frame available) - Gore sets goal of 100% carbon-free electricity by 2020.

Al Gore has made a major speech in Washington this morning, setting out an ambitious goal for the USA to produce all of its electricity from carbon-free sources by 2020. I thought I'd comment on the technical feasibility of the plan, and the underlying economics of such an endeavour.

The short answer is: while 100% is probably unrealistic, it's not unreasonable to expect to be able to get pretty close to that number (say, in the 50-90% range) in that timeframe, and it is very likely that it makes a LOT of sense economically. ...

For the simplicity of this discussion, I will focus on wind, given that it presents a bigger challenge on the intermittency front (which the inclusion of solar can only help improve), and that it would drive the ecohnomics of such a plan given its larger scale deployment.

The main questions, of course are as follows:
1) is it technically feasible to build the requisite capacity within 12 years?
2) what will it cost, and what will it mean for power prices?
3) how can the intermittency issue be dealt with?

Technical feasibility

To get 2,000 TWh of electricity from wind, roughly 800GW of wind power capacity would be needed, considering that windfarms would get an annual production equivalent to 2,500 full hours (a pretty conservative estimate, given that the existing wind farms are closer to 3,000 hours today). 800GW is roughly equal to 30 times the currently installed capacity (which should reach about 23GW at the end of this year) and 100 times the capacity installed in 2008 (expected to be close to 8,000MW, after 5,000MW were installed in 2007).

To build 800 GW in 12 years would require a significant increase in annual installations - but actually not an unrealistic one. ...

Altogether, the plan would require boosting investment in wind production capacity to about $100-150 billion per year, a significant number but hardly one that would require a complete retooling of the US economy. With a stable regulatory framework (presumably provided if this were made a national priority) and guaranteed demand (which could come via very simple mechanisms, like a feed-in tariffs, ie mandatory purchases by local utilities at regulated rates), there is absolutely no reason to doubt that this could be done.

I'll address the requirement to boost the grid separately below.

Wind power economics are quite simple: most of the levelised production cost per MWh comes from the initial investment. It is thus naturally sensitive to investment costs, and even more so to financing costs, both of which are determined at the time of construction. Once a windfarm is built, its production costs are essentially set for the rest of its operating life, ie 20-25 years. The fixed nature of its cost base makes it a difficult bet in a deregulated universe, where prices can swing wildy (including to low prices that can be insufficient for the windfarm to service its debt burden, thus the requirement for feed-in tariffs or similar mechanisms to guarantee a floor to wind electricity). But such fixed prices make wind a great proposition at times of increasing oil&gas costs: wind power prices will NOT increase even if oil & gas or coal prices continue to go up, as is quite possible.

Thus wind power is a wonderful hedge against future energy prices. And given that today it already costs less than power from a ges-fired plant (the plants that typically drive the price of electricity on wholesale markets), it is both competitive and likely to remain so in the coming years.

And given the cost structure of wind, a very simple way for government to support wind at very little cost would be to provide funding for the sector at low interest rates. One big advantage of government is its ability to borrow at lower rates - indeed, government sets the lowest rates that are by the rest of the economy. By passing on its low cost of funding to wind developments, the final cost of wind power could be lowered significantly, and passed on to consumers (banks would still be required to hold onto operational and other risks linked to wind production, they would just get cheaper funding for that specific purpose, which the'd have to fully pass on to projects. Germany has successfully used such a mechanism for years).

Studies in Germany and Denmark show that wind power lowers wholesale prices by 30 to 70% when wind blows, and that the overall savings for consumers far outstrip the cost of guaranteeing to wind producers a regulated tariff. Ironically, the more wind power there is in the system, and the lower the wholesale marker price will be most of the time, which means that the regulated tariff remains a necessity to ensure that wind producers are able to pay off the debt linked to their initial investment. But that regulated tariff is known, is realtively low, and,again, will not need to increase over time, thus ensuring to consumers similarly stable retail prices. ...

Overall, network operators with actual wind experience seem confident that a combination of additional investment, smart grid management, and maintaining available (but not using much) a large gas-fired capacity can make it possible to cope with large amounts of wind power in the system.

While a goal of 100% of carbon-free electricity is probably unrealistic, it therefore seems possible to get pretty close to that, especially if nuclear and hydro are included in the mix. A plan that announced a specific goal of 40-50% of wind-generated electricity by 2020 and 10-20% of solar, with the appropriate feed-in mechanisms, demand guarantees for manufacturers and investment in the grid would therefore be realistic, make economic sense, and fulfill two major strategic goals: reduce carbon emissions, and lower fossil fuel demand.

One story from last week that I missed while I was on holiday was local refiner Caltex Australia calling for a carbon tax to be introduced.

While I think carbon taxes are a great idea, it appears Caltex were more interested in shielding themselves from the cost of carbon trading schemes than in good policy. Caltex's preferred policy option is for refiners to be exempt from any future carbon trading market - with drivers instead paying a direct carbon tax on petrol.

The claimed benefit of this policy is that it would shield refiners from "unacceptable" levels of risk - with the Caltex spokesman further recommending that the tax on petrol be "clearly identifiable at the fuel pump", as this would be "more effective at changing driver behaviour" compared to the costs of carbon trading which would have "much less carbon price visibility" and that this "hidden" tax would be "far less environmentally effective".

Just in case your head isn't spinning yet with all this balderdash, the spokesman went on further to whinge that under an emissions trading scheme exposed them to a risk that "middlemen", such as "financial institutions and offshore speculators" would become involved in the market and push carbon prices higher. Who knew that the oil industry was openly afraid of markets. What next - calls for the government to regulate the price of petrol ?

John Connor of the Climate Institute said that this proposal would set a dangerous precedent, and that other groups would also demand exclusions. The RACV dubbed the idea "very cheeky", further noting "It is far too early for Caltex to be calling for this burden to be put on motorists when we are already struggling with record high petrol prices, in a country that is devoid of an alternative fuel policy".