The enigma: When laws and government programmes compete

How does one make sense of a law which competes with a programme meant to improve quality of life, when that law authorises subsidies for polluting and health-harming technologies? South Africa can learn from, and should avoid, the mistakes other countries make.

Roger Lilley

The American state of Ohio is a case in point. The Guardian reported recently that Ohio’s governor, Mike DeWine, has signed a law, dubbed HB6, which will authorise the state to subsidise old, dirty, coal-fired power stations, which it calls “legacy assets”. Many believe coal-fired power to no longer be the cheapest way of generating electricity when all associated costs are properly factored into the calculation, which is surely why these power stations need state subsidisation.

Over and above the actual operating cost of a coal-fired power station, including the maintenance and upgrading of equipment, etc., is the cost of ensuring that fine particulates and noxious gases are kept from being emitted into the atmosphere. On top of that are all the costs associated with mining and transporting coal to the power station. Together, these add up to significant costs.

The enigma is that the State of Ohio has a clean air programme in place which seeks, at least on paper, to improve the state’s air quality. Ohio has a history of heavy industry: steel production and automobile manufacturing have supported the state’s growth since the early 20th century, drawing thousands of people to the area and helping the state capital, Columbus, to become, according to Wikipedia, the 14th-most populous city and one of the fastest growing cities in the US. Air quality suffered over the years as these industries, and the power stations which powered them, grew.

Forms of clean energy generation include nuclear power and renewable energy. This new bill, which paradoxically limits the amount of renewable energy generation in the state, offers protection to nuclear and coal-fired power stations, but offers no support to renewable energy.

According to the report, over $150-million per year of taxpayers’ money will be provided to the Davis-Besse nuclear power plant near Toledo and the Perry nuclear plant near Cleveland, which together generate 15% of the state’s electricity, potentially saving them from early closure. Renewable energy provides 2,5% of the state’s electricity. The balance is generated from coal and gas.

The operators claim that in the face of low-priced gas and wind, they cannot operate the plants without financial support from the state. The legislation is expected to cause electric bills to increase considerably for both consumers and industrial customers.

In a country where capitalism rules the realm of business, companies which cannot turn a profit usually fail, or operators move to more profitable technologies. To support these power stations with taxpayers’ money – and still increase their electric bills – can’t be right.

The new law virtually phases out support for wind and solar, while providing $60-million per year for two coal-fired power plants. The two subsidy programmes end in 2026 and 2030 for nuclear plants and coal-burning plants respectively. Ohio is the first US state to bring in ratepayer-funded assistance to coal and nuclear powered electricity generation through direct subsidies and cutting renewable energy subsidies and energy efficiency standards.

At the same time, The Guardian also reports that BlackRock, a global investment manager, lost an estimated $90-billion investing in fossil fuel companies and has been urged to invest in clean energy for the good of the climate and its investors. The company is now facing growing pressure to divest from fossil fuels by investors and environmental groups, which have accused the asset manager of dragging its feet on the climate crisis. The Bank of England has also warned of the “significant risks to the economy and to the financial system” posed by fossil fuel investments, estimating that investments worth $20-trillion could be left “stranded” as governments set more ambitious climate targets.

In the light of these international events, should South Africa really push ahead with its new coal-fired power stations? Eskom announced recently that Kusile – which, after eleven years of construction time, is yet to put power onto the grid – will have three of the six units operational by year-end.

But will it? Previously stated dates have been missed. Should the remaining three not be abandoned? After all, the power utility can’t afford to build them and relies on government bailouts year after year. It therefore seems unwise to bank on coal for the long term given the associated environmental costs while the real cost of renewable energy, even with the additional cost of storage, which receives no subsidy from the South African government, continues to fall.

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