Kevin Rudd’s decision to spend hundreds of millions of dollars on technology to capture and store carbon has failed to deliver.
They’ve conferenced in empire-style Parisian ballrooms and dined in Kyoto on food cooked by a genuine Iron Chef. But deeply disgruntled former staffers believe Australia’s $300 million Global Carbon Capture and Storage Institute has not achieved very much.
In 2008 the then prime minister Kevin Rudd decided a fledgling technology called carbon capture and storage was the key to two of his government’s big aims: joining a successful international fight to reduce global warming and continuing to be the world’s largest exporter of coal.
In his grandiloquent style, he promised $400 million to a new not-for-profit company, the Global Carbon Capture and Storage Institute, which would get CCS up and running at home and also “lead the world”.
High society … the Global Carbon Capture and Storage Institute put Kevin Rudd on stage with Barack Obama. Photo: Reuters
The funding was pared back over time, but industry and government sources and former staff of the institute are frustrated that much of the $300 million spent on the institute has been “squandered”.
Even the man appointed to haul it away from government hand-outs and into the world of commercial reality – Brad Page, the former head of the peak electricity industry body – concedes the original $100 million a year “seed funding” given to the institute was more that it knew how to spend.
“It’s actually impossible to spend that amount of money responsibly,” he tells The Sun-Herald.
But his predecessors tried, in lavish ways that raised the ire of senior bureaucrats and ministers. Since 2009, more than $235 million has been delivered to the institute, $122 million of it already spent and another $113 million in its bank account, beyond the reach of Treasury’s razor, information provided at a Senate estimates hearing reveals.
Treasury managed to claw back more than $80 million of the promised $400 million before it was handed over. Only about $80 million remains to be paid over the next five years.
The institute has 78 staff, including nine permanent employees overseas – two in Washington, three in Tokyo and four in Paris. Former senior employees say its first chief executive, the British businessman Nick Otter, was paid well over $500,000 a year – more than the Prime Minister.
Page insists he has “no idea” what his predecessor was paid and his own salary is “nothing like that”. The institute’s five board members are paid from a budget of $400,000 a year and are entitled to first-class air travel.
The first members’ meeting was in Canberra, where the institute is based, in early 2009. But its second, in November 2009, attended by more than 15 Australia-based staff, was in the luxurious ballroom of the InterContinental Hotel in Paris, opposite the Paris Opera and decorated in similar ornate style.
Both industry sources and former staff concede the jaw-dropping opulence sent “all the wrong messages” to the 180 members who attended.
“The spending was very difficult to justify,” said one former employee.
And it did not end in Paris. In 2010 when they met in Kyoto, they enjoyed a dinner cooked by a celebrity Iron Chef ( the institute says his services were thrown in for no extra charge by the hotel).
Documents released under freedom of information show a staggering $54,257,000 was spent on “operational expenses” in the first two years.
The spending began before the institute even existed. Rudd – who decided at a G8 meeting in Japan in 2008 that the success of CCS was vital to Australia’s interest – set it up on advice from Boston Consulting, rather than the public service, at a cost of $1.5 million. By September 2008, he summoned business leaders to Canberra for a 30-minute presentation unveiling his plan.
Many were nonplussed, unsure about its aims or how it would be different from the CO2 co-operative research centre set up under the Howard government ( with almost $50 million in federal funds), Dick Wells’s National Low Emissions Coal Council ($400 million in federal funding) or another international body set up by the US, the Carbon Sequestration Leadership Forum.
”I still have no real idea how it will work or what it will do,” one chief executive said at the time.
But the public service was already doling out $65 million to future institute “partners”, including $21 million to the Asian Development Bank, almost $20 million to the International Energy Agency, $10 million to the Clinton Foundation headed by the former US president, and a grant to a body called the Climate Group to “advance” CCS. The Sun-Herald understands there is deep concern about what Australia is achieving from these contracts.
The institute was soon seeking global members and now boasts more than 300, including foreign governments, corporations, industry organisations and research bodies. There was no reason not to sign up. There is no joining fee.
In July 2009, the grand idea was paraded on the international stage, its reannouncement the key initiative at the G8 summit in L’Aquila, Italy. It was a heady moment for the Australian prime minister, who shared the podium with the US President, Barack Obama, the leaders of the developed world listening behind him.
At the time, Australia’s $400 million was termed “seed funding” with hundreds of millions from other governments also anticipated. But it took years for the US government to come good with $1 million and the European Union has only this year contributed €3 million ($3.8 million) for the institute to take over work it had previously contracted elsewhere.
Its advisory panel included the world’s best and brightest, among them former World Bank boss James Wolfensohn and influential climate economist Sir Nicholas Stern. Wolfensohn has since left.
Despite all its money, it took the institute some time to clarify exactly what it would do to meet its ambitious brief. At its inception, a spokesman for Rudd said the institute would not “actually fund demonstration projects overseas” but would “provide expertise … and research”.
However, in its first report to the Minister for Resources, Martin Ferguson, revealed under freedom-of-information laws, the institute said it was planning to “make approximately $50 million per annum available to support a substantial portfolio of CCS projects around the world”.
And in a letter to Ferguson in February 2010, institute chairman Russell Higgins wrote proudly that the initial offer to support international projects received an “extremely encouraging” response. The institute had received requests from overseas projects asking for a total of $500 million of Australia’s money. So far, the institute has spent $37 million on projects, mostly overseas. Several have failed. Only about $6 million has been spent on projects in Australia.
A total of $8 million was spent on a single CCS plant proposed by the energy company Tenaska, in Texas. In a recent report, Tenaska conceded it was still unable to bridge a “financing gap” required before the project could proceed because the US government had not provided any assistance. Internationally, the only CCS projects working on power plants are where the injected carbon dioxide serves an additional revenue-raising purpose – helping to recover more oil deposits from underground.
“They thought they could purchase an acceleration of projects overseas, but it was clear from the start that even though we had a lot of money, doing that would cost a lot more money than we had,” the former employee says.
Peter Cook, the former head of the research centre CO2CRC and a professorial fellow at the University of Melbourne, says Australia should have used its money to make sure at least one domestic carbon capture and storage project was built to prove to investors that the technology worked at commercial scale.
“Some of the other countries must think we are wonderfully generous, but I believe we could be getting a lot more bang for our buck,” he said.
Page says the institute’s function is now “knowledge sharing” – to make sure each new project around the world does not repeat the mistakes of the last. He says the money was initially paid to overseas projects to begin building up the institute’s publicly available “knowledge bank”, but from now on it will commission specific research and will no longer fund projects on the ground.
As the government funding runs out, Page’s job over the next two years “is to develop a strategy for the future … where our services are attractive enough to be paid for by our customers.” It will almost inevitably involve fewer staff and pared back operations.
But the main knowledge being “shared” is that, like all low-emission technologies, CCS is more expensive than coal, and therefore (unless it can make a revenue stream through enhanced oil recovery) it requires upfront capital assistance from governments, and ongoing subsidies while a carbon price remains low.
The institute itself came to this conclusion after its first global “audit”, released in October 2009 and Page concedes this remains the reason for slow progress on CCS around the world.