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Investment of Commonwealth and state funds in public passenger transport

CHAIR —I now welcome Mr Wal Walker of FAQ Consulting. You have lodged submission No. 145. Do you wish to make any alterations or amendments to your submission?

Mr Walker —I will make one alteration to the submission. In the submission I said that there was electrification to Goulburn, but it appears that I was wrong there and electrification only goes as far as Campbelltown. This was where I was talking about an electric train service in Canberra.

CHAIR —Thank you. Would you like to make an opening statement before we move to questions?

Mr Walker —Yes, I would. I have given out some brochures on the things that I am going to say, and I will lead straight off onto the things that they cover. There are three or four things that I want to bring out to you. One is the problem that oil is running out, and I know that you have already been told this. I attended a Senate committee hearing back in 1979 for which I produced a book, amongst other things. I appeared with a group. We had run a conference called Energy Options. I am saying the same things today as I was saying 30 years ago, but why I am more interested in saying them now is because they are more urgent. They have been made more complex by the carbon emission problem, which was not considered 30 years ago. The other thing is that the urgency is much greater now. Those are the changes. At the risk of being boring, I am going to be saying again what we were saying then. I will not read the whole thing to you. I will just pull out a few things, if I may. Is that all right?

CHAIR —That is fine, Mr Walker. What we might do—because we have got the written submission and the statement, which is excellent—is ask you to perhaps take a couple of minutes to highlight a couple of key things. I am sure the questioning itself will then come to the things that you would like to highlight anyway. So just speak for a couple of minutes and then we can move to questions.

Mr Walker —Back in the 1960s I worked for a considerable time, maybe eight years, in the oil industry. I wrote my thesis on the oil industry when I did my degree, and I have followed it ever since, and I have been the laughing stock of everybody for promoting disaster and all the rest of it. But the thing that people have not understood is the prediction made by Hubbert in 1956. When he made it he was made a sort of an outlaw in the industry, too; he was an outcast. I have put that on page three. You can see that production goes up very quickly. Petroleum is a finite resource. In 1956 Hubbert drew a graph of peak oil based on a statistical bell curve as a production possibility curve, which illustrated the rapid rate of exploration and exploitation and the rapid depletion of oil. By way of explanation, this graph was not Hubbert’s original graph. This is a revised one that I have just uplifted out of the Wikipedia, so that is my source. Hubbert’s principles are universally accepted. This is what we have to understand. I have superimposed the demand curve, written in ink over the top, to show that once the demand passes this peak point there is a big gap between the potential to supply oil to fill the demand. We are now nearly at that point.

Where we are now, we do not really know, and we probably will not know until four or five years after. In other words, we have to get cracking on the project. Australia has lacked any incentive to do anything. We have fallen behind everybody in the world, particularly Europe. America was slow because initially Bush would not sign up, and Mr Howard would not sign up to these carbon emission protocols. We have now adopted the Kyoto one. I should not blame anybody; it is just what has happened, so we have got further and further behind. The Americans got further behind too because, during Reagan’s time as President, the move into the solar industry just collapsed completely. They withdrew all the funding—it all went into the space race and all the rest of it—and all these people who worked at the leading edge lost their jobs. They all had to go to work for the labs, into mining and into nuclear things. Anyhow, they are now all back there again and things have moved terrifically fast forward, especially in Europe and now in California.

When you look at the second diagram with the world production, you can see that it has flattened off. I do make a comment about that because, when you look at the two graphs, it can be clearly seen that at the peak point there is no possibility that the demand will be satisfied. At that point, those willing to pay the most will get oil and those who cannot miss out. What price will we have to pay? What we do know is that each and every oil price spike causes recession. This peak point is imminent and, according to some economists, may have already occurred in 2007-08. That is the flat area there that you see. But that might not be true. This has been masked now by the subprime mortgage crisis, which in turn has caused the contraction in demand for oil; it has fallen back. So this flattening out might be due to the falling back as a consequence of the financial mortgage crisis.

In 2009, when oil prices went to $140 a barrel, demand had clearly been greater than the supply. It was not just solely due to OPEC, rogue traders or hedge funds. That comes from reports. The market knows who is buying and selling. Gradually the information will tell you which one. Now they are saying that it appears not to be the case. We need to make rapid transition from our dependence on oil and the best route is the renewable electricity option. Gas will play an enormous role in the transition from oil to electricity, but its ever increasing price as a substitute for oil, together with ever increasing carbon emission restrictions, will mean it would be a short-run substitute. Having said that, how are we going to do it? Electricity will replace oil. Car companies are underway making hybrid, plug-in electric and battery cars. The new plug-in electric cars are clean, but they too need to be supplied with clean electricity. Where will this clean electricity come from?

CHAIR —Mr Walker, I will stop you there for the moment. We have that information. My colleagues are very keen to ask you some questions. We will go to the questions and then we can go back to some more statements at the end if we have some time available.

Senator O’BRIEN —We have had significant evidence on this subject in this inquiry and in previous inquiries. I am not familiar with the inquiry that you were talking about in 1979. I have not gone back into the records and have not been around for that long in the Senate—that is for sure—but I have been around that long in other capacities. Essentially what you are saying is that, if we cut to the chase, we have been using one of the most efficient portable energy sources, with oil and its derivatives. That is running out and we need to replace it. The only feasible alternative at present is electricity, which is not as portable but may be the only feasible solution in the short to medium term. Am I understanding you correctly so far?

Mr Walker —Exactly right.

Senator O’BRIEN —What we have at the moment is a slow but, I suppose, getting-more-urgent reaction to the inevitable, as you put it, by the motor vehicle producers in producing cars that will operate in this new environment. We have government policy settings which are encouraging our domestic manufacturing capacity to become more attuned to the inevitable. There seems to be, whether you agree with the pace or not, a move in the direction that you are suggesting. There are also private companies that are talking about setting up refuelling stations for the new electric vehicle fleet in their infancy at present. What more do we need to do at the moment?

Mr Walker —This is a good question. Where will clean electricity come from? The electricity will need to come from solar or be wind generated as we will be obliged to phase out carbon and coal/gas/oil fired power stations. Nuclear reactors have not been considered by me because of their long construction, commissioning and expense. They are not needed. We can achieve a better and quicker outcome using renewables such as wind, photovoltaics and concentrated solar power, CSP—or, as it is known, solar thermal. If you turn the page you will see what they are doing in Europe. On 13 July, Munich Re and several European companies underwrote DESERTEC for €400 billion to build a network of concentrated solar power plants through North Africa to supply 15 per cent of Europe’s total electricity demand through high voltage, direct current, HVDC, submarine power cables from North Africa to Europe.

The scale of this, and their confidence, must be a challenge to the rest of the world. You can see that they are spending real money. They are going to spend billions more euros on linking all the wind farms from the Baltic right through to Greenland into this high voltage direct current grid. When they bring those together, 30 per cent of Europe’s electricity demand will be met by renewable electricity.

We could establish a supergrid to provide clean electricity to fuel transport. A similar small scheme of HVDC linked concentrated solar power plants would be suitable for our desert areas. The reason for HVDC linkage is that it creates a supergrid where electricity can be moved over long distances with energy loss minimised to three per cent per 1,000 kilometres. The rationale for CSP is that big quantities of dispatchable electricity are produced. And the power is produced at the time that it is most needed—that is, during daylight hours.

Senator O’BRIEN —I see in your submission that you talk about using sunlight on the east coast and the west coast and transferring it across. There is already a high voltage direct current cable between Tasmania and Victoria, known as Basslink, which is used to transfer energy both ways. Tasmania has a renewable energy main generation source which is mostly hydro, but there is an increasing amount of wind power being built into the system to allow the efficiency of hydro and wind together to work well for that state, subject to appropriate rainfall. But getting back to transport, your hypothesis is based upon the requirement to phase out coal generated power, which might otherwise fuel those recharging stations.

Mr Walker —That is exactly right. We are going to have an enormous increase in demand for electricity. There are three basic CSP systems used—the tower, the trough and the dish, an example of which is the Stirling engine. I have mentioned these because all of them have application to Australia. The tower system can provide good storage for heat for prolonging electricity production. The trough system can be used to hybridise existing power stations. In other words, it can make a transition from coal to solar by just heating the steam by solar power and driving the existing power generation stations. And I mentioned the Stirling engine because they use no water at all for cooling. So you can put them in the desert or anywhere. The reason you would put them in the desert is that they will have access to sunlight. They will not be affected much by cloud cover. But you can put them anywhere.

Senator O’BRIEN —I understand where you are going to. But the question is: what particular recommendations are you asking this committee to make in relation to the steps government might best take? Clearly you are suggesting that we need to implement some sort of system to mitigate our carbon emissions.

Mr Walker —Carbon emissions become minor compared with the urgency of this peak oil crisis. At the G8 summit in June they agreed to aim for the two degree limit and one of the things that came out of this is that they are now looking at putting one of these high-voltage direct-current cables right around the whole world so everybody can link onto it. They are going to have everybody feeding into it with renewable energy. It is important, because the car is our principal means of transport, that electricity has to be solar generated. It is the only option that we can see. Can you see any way of going other than by using electricity for electric cars?

Senator O’BRIEN —I am not certain that there are not some other technologies that we may not have even thought of, but that is another question.

Senator LUDLAM —Can you tell us what you believe to be the state of readiness for the Territory or perhaps for Darwin in particular for the kind of oil shock that you are describing? How ready do you think we are?

Mr Walker —Looking at Europe, Europe looks like it is 30 per cent solar energy, or will be by 2030. But Australia is about two per cent ready. California aims to be 20 per cent ready by 2010. We are nowhere near ready. We are one of the countries that are in the worst position of all developed countries. We have made no plans and no provision. The thing is just lying in limbo and has been for a very long time.

Senator LUDLAM —You have been giving evidence on this subject since, I think you said, 1979. We also heard evidence from the Association for the Study of Peak Oil earlier in this inquiry. Why do you think Australia has been so slow to pick up the message?

Mr Walker —I think that, politically, nobody has been interested. Mr Howard was not interested and the former Minister for the Environment, Mr Malcolm Turnbull, did not believe it could be done. I think we just lacked the vision; we have been distracted by too many other things.

Senator LUDLAM —I have no other questions. Thank you for bringing some solutions to the table as well. It is greatly appreciated.

CHAIR —Senator O’Brien, do you have any other questions?

Senator O’BRIEN —No, I am content with the information I have and the material in the submission, unless Mr Walker wants to add anything that is not in his submission that he thinks might assist us.

Mr Walker —I will just say that for some of these heavier duty applications we can already move to gas for haulage and agriculture and public buses and replace diesel with gas. High-pressure direct injection LNG engines are available and these engines reduce greenhouse gas emissions by up to 20 to 25 per cent.

But one of the major issues I want to bring up here is land use, urban design and transport. We have dealt with the Northern Territory planning people. They have no idea that they are facing an imminent problem. One vital area of neglect since the oil crisis of the 70s has been the lack of focus on urban development. No-one wanted to think that we might one day face a situation without oil. All levels of government put their heads in the sand. Have we created millions of transport-disadvantaged people by spreading our cities endlessly through poor urban design? Have we created a big social problem? It is time for serious government intervention. The problem is twofold: urban sprawl and lack of transport infrastructure.

CHAIR —Thank you very much, Mr Walker.

Mr Walker —I have a few more points to make.

CHAIR —That is fine—we have another few minutes.

Mr Walker —There are two other issues. There are the economic issues. I will give you an example. For our rail we should consider electrification. In New South Wales attempts to get haulage operators to use electric locomotives on sections of the electrified lines failed. Partly the operators did not want to contribute to the overhead power supply installations and partly because they needed to change locomotives and drivers. These locomotives were abandoned. Thus, one attempt to reduce our dependency on imported oil failed and the balance of payments has suffered. Now in New South Wales no freight haulage is done using electrification whereas Queensland has electrified many of its freight lines.

The government has not given enough consideration to the extremely adverse impact of oil on our balance of payments. The problem is worsening. The production of Australian crude has fallen dramatically while our ever-growing dependence on the car based lifestyle has dramatically increased our need for imported fuel. Thirty per cent of our total import bill is for petroleum products. If we are unable to satisfy our demand from overseas, it will be necessary for the Rudd government to introduce rationing and controls on who uses our scant locally produced resources. So there is a recommendation. I have taken a graph from the peak oil people. It is expected that by 2015 the petroleum trade deficit could grow from $12 billion in 2005 to $40 billion. It makes better sense to invest $40 billion annually in solar generation than in recurrent expenditure on imported crude oil. In other words, why pay an extra $40 billion for importing oil? It makes more sense to be paying $40 billion in infrastructure for our changeover. That is what I would say there.

The other thing that I would bring out is that some credit is due to the foresight of both state and federal governments for maintaining high levels of tax, excise and GST on crude oil and fuels for motor vehicles. This policy has given both the state and federal governments revenue streams so that they have funds for schools, hospitals and social services—as well as roads. They should not weaken their resolve. One can only feel that at least part of the problem in the US has been the inability to get the motorist to make a sufficient financial contribution. This has caused a great waste of a scarce resource. The rationale of continuing high tax and excise regimes and the implementation of greenhouse emission control legislation clearly must be to reduce the consumption of oil and to increase the price to the end consumer. These measures must clearly act as a disincentive.

I just want to make another comment that is pertinent. We are now putting in place carbon taxes. One element of carbon control legislation should be a provision for border adjustment. This would make an additional charge on imports from countries where those goods in the exporting countries have been excluded from a carbon tax. This would mean that goods are not landed in Australia with an unfair advantage over goods produced locally in Australia. This principle has been adopted in the US, even though they are avoiding calling it a tariff. It is recognising a different situation: the difference between those people who are being hit with a carbon tax and those who are avoiding it.

Many economists believe that globalisation is now going in reverse. This is because of the rising cost of oil driving up the cost of sea and air transport. This they see as removing low-wage advantage of Asian producers. This, together with border adjustment, will improve employment prospects in Australia. If we do not apply the border adjustment, we will lose all our manufacturing to the countries that do not have carbon taxes. Some Americans are now predicting a renewal of manufacturing in the rust belt of the USA. For Australian industry, it again opens the possibility for domestic production. It may provide a real financial opportunity to produce an all-Australian electric plug-in car.

It is estimated that the global electricity market will be forced to spend over $10 trillion over the next three decades to expand supply capacity in a bid to meet demand. It would seem that this impending energy crisis should be given funding preference above the National Broadband Network and the enormous capital expenditures on Defence procurement. It is my humble belief that this is Australia’s most pressing need. We are now in a historic period of scarcity of capital. The federal government should set aside low-interest funding for companies interested in making the large capital investments necessary to change Australia to a country that generates electricity from clean renewable sources. This would be a more effective way to get investment than a strategy of offering grant incentives. That came out of conference that I was at in America on concentrated solar power last month. They recommended this as a model for Australia.

Traditionally, transmission and distribution have been the more profitable part of the electricity industry—more profitable than the generation. For this reason, if governments want to ensure investment in new forms of electricity generation they need to guarantee a feed-in tariff for producers—this has been up before the Senate—which is sufficiently high to ensure satisfactory return on investment for the large-scale capital investments. They are getting poor returns. They are at the lower end of the income part of electricity generation. Distribution and transmission do better than producers. So you have to watch it very carefully. You have to make sure that they are going to make a profit on their investment so that they can pay their loans back to the government. You have to guarantee a feed-in tariff so it will be attractive for these companies to come in and invest. We have companies in Australia who want to do it, such as Worley Parsons.

We have a lot of good technology here. There is good technology such as Lloyd graphite. It prolongs the storage. We talked about the storage and being able to send electricity across Australia. They are storing heat energy in 15-tonne graphite blocks. They hold the heat at 800 or 900 degrees. If you put your finger two inches from the slab of graphite, you feel nothing. But if you touched it you would lose your arm. It holds the heat. It can disperse it into steam, which can supply electricity for up to 24 hours after its generation—electricity on demand.

CHAIR —Very interesting. Mr Walker, I am going to have to stop you there. We are constrained by flight times, unfortunately. Thank you very much for appearing today, and thank you very much for the level of detail that you have provided us in your submissions. We appreciate it. That concludes today’s hearing. Thank you to all witnesses who appeared.

Committee adjourned at 11.45 am