Fossil Fuels Distort Energy Costs

By Victor Bivell

September 2009

The Gorgon liquefied natural gas project in Western Australia got a multi billion dollar customer in China in August, and did Australia ever see so much hoopla and hype from politicians, business and their cheer squads in the media.

Around the same time, the Australian Government’s 20 per cent Renewable Energy Target was passed, and while many Australians took it in their stride with a simple sense of “about time”, the pro-carbon lobby let loose another cavalcade of hoopla about “distorted” markets, “picking winners”, “mad, bad tokenism”, and “renewable energy sham”, among others.

Yet the gas deal is also picking winners and distorting markets. In fact, comparing the costs of different energy sources is much harder than we are led to believe as no one really knows what the real costs are.

First, let’s be clear. I have been a supporter of gas as a transition fuel for 20 years. Gas is good. But let’s try and be cleared-eyed about it.

The Gorgon deal looks terrific, but what was under-discussed in the hype was the Federal and WA Government’s agreeing to take responsibility for “any long term liability arising from the storage of CO2 from the Gorgon LNG project” deep under the ocean floor.

If sometime after the project is finished the CO2 leaks out and someone has to clean up any mess, or decides to sue, the bill goes to the two governments.

WA premier Colin Barnett said on Perth radio “look no one expects the gas to escape”. But that’s not an argument, and it avoids the big question.

If gas is so economically viable as an energy source and no one expects the gas to escape, why do the governments have to assume liability?

Why can’t the very wealthy proponents - Chevron, ExxonMobil and Shell, take responsibility? Why don’t they take out normal, tax deductible, commercial insurance?

Or does the long time frame and nature of the risk mean the real cost is prohibitive? If the project’s proponents won’t pay, why don’t the Chinese clients or the Chinese Government take the responsibility?

If none of these will pay the real cost, perhaps LNG is not really as economically viable as we are told?

So who is paying? Who is silly enough to take on such an open-ended liability so far into the future? Future Australian generations, of course, who didn’t get a say about it but have been signed up anyway by the two Australian governments.

What does an undersea CO2 leak look like? What does it do? Who knows? Who cares? It’s someone else’s problem. Let’s party!

The issues are similar burying truckloads of radioactive nuclear power station waste in the Australian desert for tens of thousands of years. Can that be insured for under normal commercial terms? So who’s problem is it? Who pays if something goes wrong? Same answer. Someone in the future. Let’s party!

With open-ended liabilities like these, no one can say what the real cost of LNG or nuclear power actually is or could be. The numbers we are given are at best misleading as they only give immediate costs. They ignore future potential costs and massive real costs incurred in the past.

Ditto with coal, oil, solar, wind, geothermal and everything else.

All have been getting government help of one sort or another since about day one. Whether it was allowing cheap child labour in the coal mines or the $500 million announced, also in August, by the Queensland Government to upgrade the rail network so it can better carry coal to ports, which no doubt were also built with government money.

If coal is so viable, why don’t the coal producers pay for the railway, or the coal consumers? Why don’t they pay for their own port? The answer is that without government help many of these projects were not viable to begin with.

Because they have been around for so much longer, coal, oil and gas have received, and continue to receive, far more government money and help than solar, wind, geothermal and ocean energy will receive for a long time to come.

So which energy sources are distorting markets? Those that have received the most government help. What looks like economics is still politics.


Victor Bivell is editor of Eco Investor Magazine. See www.ecoinvestor.com.au