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California dreaming is nuts in NSW
The Australian
Maurice Newman
30 July 2014
There will be national fallout from our biggest state’s clean energy stance
NSW Environment Minister Rob Stokes told a Clean Energy Week forum last week, “We are making NSW No 1 in energy and environmental policy.” He added: “When it comes to clean energy, we can be Australia’s answer to California.”
Really? This is an extraordinary decision that flies in the face of the Abbott government’s efforts to arrest the alarming slide in Australia’s international competitiveness and the evident failure of these policies in California and elsewhere. It suggests appalling lack of judgment and is a measure of the degree to which green fantasies have penetrated the thinking of otherwise sensible governments.
Macquarie Street’s decision overlooks what Joel Kotkin refers to in New Geography as “the futility and delusion embodied in California’s ultra-green energy policies”. Kotkin reveals, “By embracing solar and wind as preferred sources of generating power, the state promotes an ever-widening gap between its declining middle and working-class populations and a smaller, self-satisfied group of environmental campaigners and their corporate backers”.
The NSW government must also be oblivious to the steady exodus of Californian businesses and jobs. Companies like Toyota, which after 60 years has moved its US headquarters to Texas, or Occidental Petroleum, which after 50 years has left for Houston. Chevron is next. Other stalwarts like ARCO, Getty Oil, Union Oil, Fluor, Calpine and Intel have all moved in search of a more business friendly environment and lower energy costs. Texas has been the main beneficiary. It has added 200,000 jobs in the energy sector in the past decade while California has barely managed 20,000. Texas leads California in the export of hi-tech goods.
“Big Oil” may be unwelcome in his brave new world, but California’s Governor Jerry Brown is not doing well at replacing jobs and investments lost to the Lone Star state. Brown promised to create 500,000 clean-energy jobs by the end of the decade, but this is now accepted as just a pipe dream.
Meanwhile, in the real world, California’s unemployment rate is 7.4 per cent (fourth highest in the country). It compares to 5.1 per cent for Texas and the national rate of 6.1 per cent. California’s relative joblessness lends weight to the UK Versa Economics study, which found that for every job created in the wind industry 3.7 jobs are lost elsewhere.
While it is America’s biggest economy, (it’s outside the top 10 for growth), California has serious fiscal imbalances with huge off-balance sheet unfunded pension and medical liabilities. To achieve a surplus this year, it borrowed $500 million from the state’s cap-and-trade emissions reduction program. It remains the country’s highest taxer.
This is not a strong position from which to pursue growth-limiting green policies. San Francisco and LA are already the most expensive cities in the US to create a startup. In its agricultural and manufacturing regions, one person in five lives in poverty. Economist John Husing observes, “California’s green-energy fixations are widening an ever-growing chasm based on geography, class and race”.
Yet, with electricity prices already 40 per cent above the national average and twice as high as Texas, its aggressive policies are set to push up prices 47 per cent in real terms over the next 16 years. Is this really what the Baird government wants?
California is not alone in experiencing significantly adverse unintended consequences from large-scale integration of renewable power. Europe, too, has learned that it increases costs to consumers, leads to unreliable electricity supply, relegates base-load generators to inefficient back-up services and yields problematic emissions reduction. The European Commission has been forced to acknowledge the macroeconomic effects are just too negative, particularly for manufacturing industries and job creation.
As in California, energy poverty in Europe is a growing green phenomenon. So, in deference to reality, the EC has approved new guidelines for renewable energy which will see the removal of all feed-in tariffs from 2017. Previous support mechanisms will be replaced by technology agnostic auctions, which will effectively create a level playing field for all generators. This poses a serious threat to further investment in renewables.
The financial markets are alive to this. Last year, The Economist ran a story (“How to lose half a trillion euros. Europe’s electricity providers face an existential threat”) highlighting the dreadful performance of utility stocks.
A recent article in the Financial Times was headed “Private equity retreats from renewables fad” with CalPERS, the world’s sixth largest pension fund, admitting to annualised losses of 12 per cent from this sector. CalPERS’s chief investment officer describes clean tech as “a noble way to lose money”.
Last December, ratings agency Fitch warned: “The outlook for the overall renewables sector is negative. This reflects increased political risk and the expectations that the industry will need to adapt to less favourable operating requirements and economic incentives.”
Windfarm operators are warning they will abandon the Australian market if the Renewable Energy Target is adjusted downwards to a true 20 per cent from what has become in reality a 27 per cent to 28 per cent target. This is a measure of their rent-seeking dependence. But NSW is indicating that, regardless, it will stay with the old RET.
It is an extraordinary stance to take at such a late stage, especially given the compelling evidence against it. It will certainly set back planned reform of the national economy, already beset with too many self-imposed rigidities.
While NSW will offer fresh opportunities to Queensland and Victoria, there will be national fallout as our biggest state comes to grips with the economic and social consequences of its actions.
However strong Mr Stokes’s faith in green delusions, belief and enthusiasm are insufficient grounds for him and his government to find noble ways to squander pensioners’ and taxpayers’ money.
Maurice Newman is chairman of the Prime Minister’s Business Advisory Council. The views expressed here are his own.
The Australian
STOP THESE THINGS 
NSW heading down the SA path to destruction by not taking notice of what is happening overseas and ignoring what is happening in their own country. SA is an example of what has been happening in other countries – why would any Australian Government Federal or State follow so obvious a self destructive path?
Maurice Newman is spot on with his critique of the NSW government’s clean energy policy (ie ‘fantasy’). There has been, and will no doubt continueto be an absolute plethora of articles in Australia’s only truly national and properly resourced newspaper, The Australian, on the absurdity of continuing with current RET arrangements. The reason for this is not because the paper is ideologically sterile but simply because it’s journalists and professional commentators are doing their job and analysing and reporting on the facts.
As predicted, NSW premier Mike Baird made the biggest mistake of his political career by appointing a ‘wind farm tragic’ as his Minister for the Environment. NSW will not and cannot be an economically viable hub by pursuing its current disastrous policy on renewable energy. Abbott and Hockey can now only look to Queensland, Western Australia and, to a lesser extent, Victoria to try and save our nation for future generations — a tough call. You blew it Mr. Baird!