Last week, the Melbourne-based think tanker, Julie Novak, made a splash with 866-word column on The Mercury’s opinion page railing against the economic credentials of the Greens and expressing alarm about the prospects of an increased vote for the Greens. Amongst other things Novak, who is a Research Fellow with the Institute of Public Affairs (IPA), complained about the Greens commitment to substantial cuts in greenhouse gas emissions, support for demand management polices and their promotion of renewable electricity.
It was notable that there wasn’t a single aspect of any of the policy commitments made by either the Labor or Liberal Party that Novak criticised. But the IPA has form. As a corporate funded think-tank the IPA is more akin to a non-profit PR firm which wraps PR messages for sponsors in a veneer of pro-business, free-market, soft-libertarian rhetoric. It’s sponsors have ranged from the tobacco industry to mining, logging and power generation companies. Oh, and, for a while, Rupert Murdoch’s News Limited.
For decades the IPA has fulfilled the role of being a free-market policy ginger group and training ground for Liberal Party career aspirants. It’s leadership has http://tiny.cc/DHaiC had close ties to the Liberals spanning back to its foundation years in the 1940’s. The IPA’s current Executive Director, John Roskam, is a member of the Liberal Party and has had several unsuccessful pre-selection bids in Victoria. His predecessor, Mike Nahan, is now a Liberal Party Member of the Legislative Assembly in Western Australia.
Cuddling up with sponsors
Back in 2006, when I was researching my book Inside Spin, IPA Executive Director, John Roskam, explained to me that the relationship with sponsors “can get very up close and friendly”. He insisted, though, that the IPA didn’t let sponsors determine the outcomes of its research.
How close does the IPA get to its sponsors? A freedom of Information request to Telstra, which was part publicly-owned at the time and was a sponsor of the IPA, revealed that in mid-August 2005, Roskam met with Telstra’s Group Manager of Regulatory Public Affairs, Julia Foley, to discuss the think tank’s work plan. The following week Roskam sent her a copy of the IPA’s work program for the telecommunications and media unit. It was, Roskam noted, “derived from the things that we talked about.” Needless to say, it was Telstra-friendly. (See “Line rental” for the full account of the IPA/Telstra deal).
The IPA has also been a beneficiary of logging industry largesse. For the first half of this decade the IPA ran what it referred to as the “NGO Project” which argued that non-government organisations (NGO’s) such as The Wilderness Society and Greenpeace should be stripped of its tax-deductible status. The project was largely sponsored by companies such as Monsanto and Gunns. Not surprisingly though, many of the tests the IPA advocated be imposed on others it failed itself.
Turning a blind eye to corporate welfare
The IPA, which has long been funded by various companies with fossil fuel interests, has been notable for its decades long support for the climate change skeptics. So Novak’s opinions on the Greens climate change policies come as no surprise.
More surprising was her complaint that “the Greens intend on the one hand to reverse energy demand growth through demand management practices (read: price hikes), while on the other subsidise renewable energies that presently lack the capacity to provide sufficient base load power.”
While “demand management” can include price increases, though most commonly for loads at specific times, it is usually associated with a broader package of energy efficiency measures and strategies by utilities to align loads to capacity and avoid investments in expensive additional generation capacity. So to attempt to dismiss demand management as constituting “price hikes” alone is simplistic in the extreme.
Nor does Novak’s line about “base load power” make much sense in the Tasmanian context where the system is overwhelmingly hydro-based, which can meet either base load or peak load demands. Even though wind farms only generate power when the wind blows or solar panels when the sun shines, they not only provide electricity but they help drought-proof an otherwise climate vulnerable system.
But the elephants in the room when it comes to any discussion of base load demand, energy efficiency or power pricing in Tasmania are the three largest bulk power consumers, Comalco, Temco and Nystar. The three consume two thirds of the state’s electricity while employing just 1400 people. (Comalco is a wholly owned subsidiary of Rio Tinto, Temco is 60% owned by BHP-Billiton and Nystar is a Belgian company created from the merger of Zinifex and Umicore.)
So the biggest gains in terms of efficiency and avoiding the expense and environmental impacts associated with additional supply side measures—or imports of dirty brown coal power from Victoria—hinge on the re-negotiation of the bulk power contracts. The prices can be increased when they expire or, as happened in the late 1970’s in New Zealand under the National Party government of Robert Muldoon, the contracts renegotiated ahead of schedule.
Last year, Professor Jonathan West proposed in his Innovation Strategy for Tasmania that as the bulk power contracts were coming up for renewal in the near future, the power currently dedicated to the big three consumers should be auctioned off to either other Tasmanian buyers or exported at higher prices via Basslink. He estimated that selling the power via Basslink for an additional 1 cent per kilowatt hour would yield the state and addition $43.8 million per year or as much as $219 million a year if a 5 cents per kilowatt hour premium were achieved. West noted that the subsidy could represent as much as 8% of Tasmanian government expenditures.
The magnitude of the subsidy has prompted the normally reserved Hydro Tasmania to note in its 2008 annual report that “the average cost of generation was significantly higher than the prices received under existing long-term contracts with major industrial customers.”
Comalco’s Bell Bay smelter alone consumes approximately one-quarter of Tasmania’s entire electricity production, which it gets at heavily subsidised prices under a secret bulk power contract. Back in 1982 copies of the bulk power contracts and the details of the prices paid under them were leaked to The Wilderness Society. Analysis of the power prices revealed that the largest subsidies went to Comalco, even though it was least labor-intensive of the big power consumers.The magnitude of Comalco’s subsidies is testimony to the gullibility of past governments and the desperation of the HEC in flogging off potentially embarrassing surpluses at ludicrous prices in order to breathe life into new dam-building proposals.
To subsidise Comalco, all other power consumers—but particularly small business customers and households—pay far higher power costs than they otherwise would. The reality is that the massive subsidies to Comalco and the other big power users cost jobs elsewhere in the economy. If the big three bulk power consumers are charged more and they stay, there will be considerable incentive for them to be much more efficient in their energy use. If they refuse to pay more and leave, Tasmania would be financially far better off, even after funding retraining programs for those affected who want to remain in the state.
To principled free-marketeers, subsidies are anathema and secret ones doubly so. In their lexicon, subsidies smack of rent-seeking protectionism that supports one company at the expense of others. Secrecy, they argue, insulates the rent-seekers from real world political accountability and demands by other industries to level the playing field. In effect, the subsidies to the big power consumers are a tax on all other electricity customers.
But when it comes to the bulk power subsidy, it is a tax that the IPA won’t broach. Peculiarly, Novak doesn’t mention the Comalco, Nystrar or Temco at all in her column.
While the IPA doesn’t disclose which companies fund it, back in 2006 Roskam confirmed that Rio Tinto was one of its major supporters. When contacted for this article, Roskam did not respond to a question on whether BHP-Billiton and Rio Tinto are current funders of the think tank.
While Novak was silent on the issue of the bulk power contracts, the Liberals have recently been busy defending the existing contracts.
Last weekend the Liberals’ Shadow Treasurer, Peter Gutwein, complained in a Press Release (HERE) about the Greens support for “renegotiating corporate bulk electricity contracts in line with the national market.” This, Gutwein stated, “is Green code for forcing major employers such as Nystrar and Rio Tinto to pay more for their electricity, and would place hundreds of Tasmanian jobs at risk.”
Gutwein’s line is breathtakingly simplistic. The cost of subsidising Comalco, Nystar and Temco’s power bills is a drag on the other more labour-intensive sectors of the Tasmanian economy and a form of corporate welfare that is due for an overhaul. After all, if the power prices and the contracts are such a good deal for Tasmania, why are they secret?
Why won’t the Liberals, Labor or the IPA champion the cause of this micro-economic reform?