LitFuse

I enjoyed reading this well researched Climate Progress blog post regarding the proposed Clean Energy Bank  in the US.

“Last week House Energy and Commerce members approved by 51-6 an amendment to the Waxman-Markey bill offered by Rep. John Dingell (D-MI) to create a clean energy bank .  As Greenwire explained, the amendment would “create an autonomous Clean Energy Deployment Administration (CEDA) within the Energy Department” that would “provide a suite of financing options, including direct loans, letters of credit, loan guarantees, insurance products and others” for “energy production, transmission, storage and other areas that could reduce greenhouse gases, diversify energy supplies and save energy.”

At the same time as investment in clean technology increases around the world, investment in oil exploration is falling,which may lead to another oil price spike in the medium term.

“…Oil firms must work doubly hard to replace declining fields and to increase output. Yet the oil industry is short of equipment and manpower, thanks to underinvestment in the 1980s and 1990s, when prices were low. As soon as the world economy starts growing again, the theory runs, demand for oil will once again outstrip the industry’s ability to supply it. In other words, the global recession has only interrupted the “supercycle” of which many analysts used to speak, during which the normal boom-and-bust cycle of oil and other commodities would give way to a protracted period of high prices, as ever-growing demand from emerging markets swallowed everything the extractive industries could produce.”

Where does this leave Australia? Weak and vulnerable in my view. The recent Federal Budget was analysed by Professor Barry Brook from the Environment Institute at the University of Adelaide. There is little cheer in the budget for entrepreneurs in the clean energy game according to Barry’s analysis, particularly in relation to the flawed design and inadequate targets of the CPRS. And Australia is an economy heavily reliant on energy. It’s a big place with relatively few people, extreme climates, and all of our capaital cities will be reliant on energy-hungry desalination for their water supplies. We are rich in coal, but produce only 60% of our oil consumption, so we rely on imported oil and petroleum products. A spike in energy prices will result in pressure on Australia’s economy, and leave us reliant on imported technology to meet renewable energy targets and needs, much like we rely on imported desalination technology.

I would add a note of optimism. The changes to the research and development (R&D) tax credit scheme will “double the level of assistance currently available to small companies and remove the cap on the amount of R&D expenditure subject to a tax credit. Large companies with more than $20 million annual turnover will receive a 40% R&D tax credit instead of tax deductions, which is a 10% net – benefit – one third higher than the current regime.  Small companies will receive a 45% R&D tax credit, which amounts to a 15% benefit – twice the current level.  Small companies with tax losses will be able to ‘cash out’ their R&D credit when they file their income tax return.”

As a modest investor in commercial R&D myself, this is a great incentive, and one that the Rudd government should be applauded for. Let’s hope it stimulates Australian businesses and entrepreneurs to invest in clean energy. More targeted approaches, such as a national feed in tariff, and a redesigned CPRS system along the lines suggested by Professor Brook would be even better. An increase in oil price would be a much more economically damaging driver of investment by Australian researchers and entrepreneurs in clean energy solutions. A Clean Energy Bank for Australia would be visionary.

Written by Paul Dalby on 24 May 2009