March 27, 2020
TAX WHAT YOU DON'T WANT:
Origin pulls plug on gas exploration in Northern Territory. Who's next? (Bruce Robertson, 27 March 2020, Renew Economy)
The price of producing renewable energy globally has been continually falling, and it's getting harder and harder for fossil fuels to compete.In Australia, renewable energy already supplies 23% of the national electricity market (NEM).Globally, renewable energy is the cheapest source of power generation. Increasingly, it will be more so. It is a matter of time. In China, this will happen as soon as 2027. In Australia it's already the case. Wind and solar are already cheaper, even unsubsidised.Inside the industry, gas executives see very little demand for their product beyond 30 years from now. The proposed Burrup project in Western Australia has a 50 year life. The Northern Territory fracking projects have a minimum 30 year life. But for both, it's unlikely they will see their 30 year life out.Prior to covid-19, the gas industry saw increasing demand for their product, even if only within the 30-year projected life span. It will take a long while for all of us to crawl out of the economic effects this virus will heave. It will last for years.Then there is another issue: there's an oversupply of gas. The global gas glut will not resolve now until about 2030. It was previously projected to resolve by 2025. So why would any gas company look to build new gas now?The largest cost of renewable energy is the financing. Running a solar plant, for instance, costs very little. In our current climate, financing costs are declining for renewables as interest rates fall, while financing costs for fossil fuels are going up. This is because the debt markets have lost patience. They are downgrading the debt of oil and gas companies.Currently, the U.S. fracking industry is experiencing a flood of bankruptcies, and soon, some US$86 billion dollars of debt will be due. This will be very difficult for the industry to manage. When enough fracking companies go broke in the U.S., this will force prices back up, at which point gas will become uneconomic to produce.Whether prices are low or high, it is not good for the fracking industry. Too low and they can't make money, and too high and they lose market share to renewables.
The main problem with Nancy's Coronavirus rescue was its lack of ambition. There's entirely too little money going to taxpayers (who are focus should be on saving during the pandemic), too much going to industry (which we should be euthanizing) and more complication of government taxes and regulation. A better package would have retained the strictly medical expenditures, transferred more cash to individuals and replaced income and corporate taxes with consumption taxes, starting with an extortionate one on gasoline.
Posted by Orrin Judd at March 27, 2020 7:07 AM