Tag Archives: australian
RM Williams Agricultural Holdings Is Put Into Receivership
By Patrick Stafford Tuesday, 02 July 2013 RM Williams Agricultural Holdings, which spent several million dollars buying a cattle station in the Northern Territory back in 2007 as part of a plan to build the world’s largest carbon farm, has been placed in receivership. The company was founded and is run by former News director Ken Cowley and counts Australian Competition and Consumer Commission chairman Rod Sims as a shareholder – although Sims was trying to sell his stake as long ago as 2011 . The ACCC was contacted, but no reply was available prior to publication. PPB was appointed as receivers last week, at the behest of Westpac. Partner Steve Parbery said the investigation is still in its “early days”. The appointment comes as the company was attempting to build the world’s largest carbon farm – it actually won a $9 million grant from the federal government to do so. But the apparent failure of this project has sparked a warning from the Australian Farm Institute, which says the company’s situation raises questions about the government’s “Carbon Farming Initiative”. The CFI allows farmers and land managers to earn carbon credits by “storing” carbon or emissions in large areas of land. These credits can be sold to businesses wanting to offset their emissions. RM Williams Agricultural Holdings was created, in part, to take advantage of the CFI. The business bought the Henbury Station in the Northern Territory for several million dollars, and received a federal grant in order to build the world’s largest carbon farm. News Corporation put $30 million into RM Williams Agricultural Holdings back in 2009. Mick Keogh, executive director of the Australian Farming Institute, said it was never clear how the RM Williams project was ever intended to produce carbon credits. “We’ve just remained completely confounded about it and why the Commonwealth put millions of dollars into it.” “We’ve never been able to sort out exactly how the project, under the known rules, was able to make credits.” In a blog post on the AFI’s website , Keogh said the receivership should serve as a warning to any company involved with the Carbon Farming Initiative. He writes that “in the absence of considerably more clarity about carbon prices and future carbon trading rules”, the best option for landholders getting involved in a carbon project is to ensure the project structure transfers risk to the buyer of any carbon offsets generated. However, Keogh says it is unknown whether the company collapsed due to any issues regarding the structure of the carbon deal. “The fact that the Henbury project seems to have encountered difficulties should serve as a caution to landholders contemplating getting involved in a carbon project, but does not mean that the opportunities presented by the development of a carbon market should be completely ignored.” Parbery said it would be premature to determine whether RM Williams Agricultural Holdings had entered difficulties because of problems with the carbon farming plan. “The shareholders and directors having been going through a capital raising which was unsuccessful…at that stage they called in the bank to seek the appointment of receivers.” “Our role at the moment is to keep things operational, and to keep the subsidiary companies operational. We are investigating those businesses as we speak.” RM Williams Agricultural Holdings also owns the Labelle Downs and Welltree stations in the Northern Territory, and the Mirage Plains and Inglewood Farms stations in Queensland. The company is not related to its namesake fashion chain RM Williams, which was recently sold to Louis Vuitton . This article originally appeared on SmartCompany . Continue reading
Carbon Folly Comes At A Price
HENRY ERGAS From: The Australian July 08, 2013 Illustration: Eric Lobbecke Source: The Australian GOOD on the Clean Energy Finance Corporation, the $10 billion fund established by Labor’s climate change package. Other government efforts at picking winners end up shafting taxpayers. The CEFC is doing so from the start. Not that the CEFC has released much information about its maiden “clean” energy project: the refinancing, announced last week, of Victoria’s $1bn Macarthur Wind Farm. But what is known makes intriguing reading. In theory, the CEFC is intended to address “barriers to funding cleaner energy projects”. But there is no evidence Macarthur couldn’t access capital. On the contrary, private investors offered the final tranche of finance the venture required, albeit at a slightly higher interest rate, reflecting the loan’s risk. Faced with that offer, the parties involved in Macarthur turned to the CEFC which, despite the government’s competitive neutrality obligations, undercut the private bid. That largesse was doubtless welcome; yet the beneficiaries, who fall into four groups, hardly seem natural recipients of Australian taxpayers’ generosity. The first are our cousins across the Tasman, with the CEFC’s intervention allowing New Zealand’s government-owned Meridian Energy to more profitably dispose of its investment in Macarthur prior to its privatisation later this year. A second beneficiary is AGL, Meridian’s partner in the venture. The CEFC previously described AGL as exercising “significant market power” in the purchase of renewable energy, meaning it extracts “super profits”; in adding a public subsidy to those profits, perhaps the CEFC was simply abiding by Matthew 13:12, “For whosoever hath, to him shall be given.” The Matthew principle applies with even greater force to the third recipient of the CEFC’s philanthropy, the Malaysian billionaire Syed Mokhtar al-Bukhary, who bought Meridian’s share. Syed Mokhtar’s links to Malaysia’s ruling party have facilitated the construction of a corporate empire that is investing in renewable energy worldwide. Last but not least is Macquarie Bank, with Macquarie Capital advising on the sale to Syed Mokhtar and managing Meridian’s float. With that cast of characters, the CEFC might have been expected to lean over backwards in demonstrating its intervention’s merits, all the more so as the CEFC’s chief executive and two of its board members are former senior employees of Macquarie, which gained directly from the CEFC’s decision. In fact, the sum total of the CEFC’s public disclosure amounts to a two-page press release claiming its funding will facilitate investment in wind generation. If the CEFC relied on a proper cost-benefit analysis, it hasn’t disclosed it; nor is it difficult to understand why: any reasonable appraisal would disclose a large social loss. That can be seen by undertaking the analysis the CEFC should have carried out. Assume that without the CEFC’s intervention, investment in wind generation would decline an implausibly large 10 per cent. That capacity would be replaced by a gas-fired plant, causing greater carbon emissions. By preventing that shift, the CEFC can claim a social benefit; but even assuming the carbon price understates the social value of abatement by $3 per tonne, that benefit is no greater than $6.6 million a year. However, like all bailouts, the CEFC’s will weaken the incentives for wind projects to be selected and operated efficiently. Even if their efficiency only declines by a mere 5 per cent, the social loss would be nearly four times larger than the $6.6m benefit. And to that loss must be added the higher cost of wind generation per unit of power supplied, further offsetting the environmental gain. The aggregate result is that for each $1 of benefit, the CEFC’s intervention makes Australians $5 worse off. That outcome highlights the extent to which carbon policy has degenerated into a mechanism for redistributing income from taxpayers and electricity consumers to favoured constituencies, imposing steep economic costs along the way. And if the CEFC reflects that phenomenon in microcosm, the carbon tax embodies it on a vast scale. After all, prices in European carbon markets have been far below our initial $23 tax since it came into effect. Abatement could therefore have been purchased internationally at a fraction of the cost the carbon tax has imposed on Australian industry. And the consequences of forcing emissions reductions here that could have been done more cheaply elsewhere have been anything but trivial. Rather, Treasury’s own modelling, adjusted for the absence of an integrated world carbon market, suggests that had our tax been aligned with Europe from the outset, national income would be $3.5bn higher by the end of 2014-15. Moreover, over the same period, households would have paid $4.2bn less in electricity prices, saving $450 per household. Why then has the tax remained at such high levels? Because decreasing it to European prices would have slashed government revenues over the period to 2014-15 by $12bn. It would thus have limited the scope to curry favour through tax cuts and the allocation of free permits, cash handouts and exemptions. And it would have provided a far smaller implicit subsidy to the renewable energy industry, which has been the carbon policy’s most vocal supporter. All that points to a crucial lesson: despite the incessant chatter about “market mechanisms”, this policy is an entirely artificial government construct, lacking any anchor linking the burdens it imposes to any gains it creates. In contrast to normal markets, prices can therefore continue indefinitely at levels which do not balance benefits with costs. And in the penumbra of the cash flows it generates, questionable deals can be struck with private interests at taxpayers’ expense. These deficiencies are not minor flaws; they are integral to the system Labor has set up. Until a clean broom is brought to this area, expect decisions such as the CEFC’s to remain the order of the day. Continue reading
What Would A Quick Transition To ETS Really Mean?
July 4, 2013 – 12:05AM Matthew Wright and Trevor Jack Read more: http://www.theage.co…l#ixzz2Y06Kt4Wm The newly minted Rudd government may bring forward the date at which the Gillard carbon tax converts to an emissions trading scheme (ETS), currently legislated for July 1, 2015. What would an earlier transition to an ETS, linked to the European system, mean for the community, business and global warming? An early transition may be impractical or at least fraught with difficulties (ref Greg Combet). If an ETS was linked to the European scheme and the price there remained low (around $6 a tonne), income from issuing ETS permits would be substantially lower than budgeted for the carbon tax ($24.15 a tonne in financial year 2014 and rising). This budget shortfall could be averted by applying a floor price – in which case the resulting ETS would just be the current carbon tax but with window dressing, a different name and substantial logistical and bureaucratic technical difficulties. Although technically different, an ETS and carbon tax have similar objectives. An ETS sets a limit on pollution (supply constraint) and allows the market to determine the price. A carbon tax sets a price for polluting and allows the market to determine demand (which equals supply). If the defining factors of each system are set consistently, each will result in the same price and demand (i.e. volume of pollution). But the factors need to be set in advance of the period in which they are effective. Accordingly, these factors are based on projections. The problems with the European ETS, principally a price that is too low to have any meaningful effect, arose mainly because the key factor (the volume of permits) was based on a projection that didn’t allow for the GFC. This is not a criticism – not many people saw the GFC coming. But it explains why the scheme is so ineffective and the price so low. An argument for transitioning to the ETS earlier than currently legislated is that it would be cheaper. True, in the short term, given that the carbon tax would be around $25 and the ETS cost would be about quarter of this. But this is cheaper in the same sense that buying a five-litre can of fuel is cheaper than buying a 20-litre can. Each is a can of fuel. But the useful content is different by a factor of four. Similarly, a $25 carbon price buys much more real abatement than $6. And the policy objective is surely real carbon abatement and not just “anything so that we can be perceived to be doing something”? Changing to an ETS and linking with Europe would be similar to retaining the carbon tax but reducing it to $6 a tonne – but a lot easier. But what is the effect of a carbon tax at $6 a tonne? On consumers? A lower carbon tax might flow through to lower prices for electricity and goods heavily dependent on electricity for production. But this assumes that generators would pass on resultant cost reductions. Is this likely? Government control/monitoring is likely to be necessary to ensure such behaviour – as it was to ensure price increases were not excessive when the tax was introduced. Assuming the compensation package – including lower personal taxes, based on a higher carbon price – is not changed, the net result would be lower prices. It is likely that such changes in prices would be imperceptibly small. And such lower prices would be offset by the cost of higher taxes/lower services necessary to make up for the forgone tax revenue. (TANSTAAFL – There Ain’t No Such Thing As A Free Lunch.) The effect on businesses not liable for the carbon tax? Essentially similar to consumers – generally imperceptibly lower input prices but with the possibility of higher taxes to make up for forgone government revenue. On businesses liable for the carbon tax? Lower costs, much of which might flow through to higher profits. The effect on global warming? Carbon pricing can affect short-term production decisions and thereby change short-term CO2 production. A lower carbon price should increase, by a small margin, CO2 emissions. But the main imperative for any carbon abatement policy, is to affect long-term investment decisions and transform the community and economy to a cleaner future. For example, any serious response to global warming must result in no new fossil-fuelled power stations. Decisions on investments with 30-year-plus lifetimes are based on all the future circumstances, including explicit carbon costs. If investors perceive the Australian government taking a token approach to global warming and expect this to continue well into the future, they should factor lower future carbon prices into their decision making – i.e. more coal-fired power stations rather than better/smarter grids, energy conservation measures, renewable power. On the other hand, if investors perceive that the government and community generally want action, they will expect carbon pricing to rise steeply over time. Thus, investors would invest in renewable alternatives, rather than fossil fuels. Combined with the Coalition’s policies, which provide no incentive for economy-wide transformation, the effect on global warming of the government implementing a lower carbon price is likely to be further delay in de-carbonising the Australian and global economies. On political standing? With appropriate spin, (possible) lower costs to consumers, higher profits to generators, and omission of the need to fund the revenue shortfall, there may be short-term political gain, relative to the “ban the carbon tax” alternative, in switching to a lower carbon price. But the government’s credibility in terms of having a serious long-term strategy to address global warming would become similar to that of the opposition – essentially non-existent. If the political need is to be seen to be doing something, then an ETS, with a floor around $25, might dissociate Rudd’s “new policy” from Gillard’s so-called dishonestly introduced carbon tax yet maintain the price at a level at which it is plausible, that investors would believe the government to be serious and thereby consider cleaner rather than more carbon-intensive investments. Matthew Wright is the executive director of climate and energy think-tank Zero Emissions. Trevor Jack is an actuary with JAC Actuarial Consulting. Read more: http://www.theage.co…l#ixzz2Y06GVUtC Continue reading
