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A slivery (aluminium) lining?

10 July 2020

It was announced yesterday that Rio Tinto are closing the Bluff aluminium smelter.

While this will be done at the cost of many jobs, there is a very silver lining... if only our politicians are smart enough to spot it.

If we live in a market free from artificially induced distortions and the pressures of oligopolies, consumers should also be winners in the wake of this announcement.

Firstly, the laws of supply and demand would suggest (no... INSIST) that if we are suddenly going to have 13 percent more electricity available, the price to the consumer should fall. That's a bonus for everyone except power company execs and shareholders.

This will also reduce the pressure on our environment by making more green (aka renewable) energy available for our use.

However, there is a bigger; I would say FAR bigger bonus available.

I am talking about the way that this sudden re-availability of an extra 13 perecent electricity generation capacity can help support our move to electric vehicles.

As I have stated so many times before in this column, EVs are the future of personal transport and we must promote a shift from fossil fuel to electricity as quickly as we can.

New Zealand is 100% self-sufficient in terms of electrical generation but we must constantly keep importing fossil fuel to power our vehicles. Continuing to waste valuable overseas earnings on diesel and petrol when we have a far more effective fuel (electricity) flowing out of our dams and windfarms is sheer lunacy.

Many other countries have realised the benefits of promoting the shift to EVs and offer subsidies for new-car purchasers. Those subsidies can even be revenue-neutral to taxpayers if they are accompanied by a levy on fossil-fueled cars, inversely proportional to their fuel-efficiency.

Why this government hasn't jumped on that bandwagon already beggars belief. Is it because Winston and Jacinda still prefer the smell of petrol in the morning? I doubt it.

We only have to look at how much cleaner the air was during lock-down, even in smaller population centres, to realise just how many other benefits might come from a switch to EVs.

Once again I'll state that EVs are coming whether the government is ready or not and the loss of the Tiwai Point smelter is a fantastic blessing because, to be honest, I don't think we could have otherwise boosted our generation capacity quickly enough to meet the demand that will soon appear.

Of course although I am elated at our good fortune (cheaper power, room for EV growth), I must admit that I very much doubt that our politicians are sufficiently smart to ensure either of these things take place.

Firstly, government remains a major player in the electricity game and it is unlikely they will want market forces pushing down the price of power (and thus the dividends paid to it by SOEs in the industry). I am pretty sure there will be a lot of rigging going on to make sure that we all end up paying just as much as before for each and every unit we consume.

In fact, we're already seeing news reports that claim the closure will actually result in higher prices.

Secondly, I would not be surprised if the government actually does a deal with Rio Tinto to avert this closure and, in the process, turn a windfall into a liability for future generations.

What's the bet that our cloth-head politicians "reluctantly" agree to drop the price of power to Rio Tinto and offer them a guaranteed extended price guarantee -- thus not only squandering our chance to become an EV nation but also pushing up the price everyone else must pay for power to compensate for the loss-leader they're creating.

The excuse will be (of course) that in these tough times we simply can't afford the job losses that the smelter's closure would create.

Utter garbage... right now, the job losses from the smelter's closure would be but a drop in the ocean compared to the job losses from CV19 so what better time to absorb them into the system?

Let's hope I am totally wrong on this... but I fear the worst.

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