Real reform needed to make Abbott’s Australian ‘energy super-power’ more than a dream

Energy Systems, Resilience and Sustainability: the innovation imperative Post No 2

Reforms for Australia to be an ‘energy super-power’ need to be based on real choices

Right now the Australian public debate about energy seems not to be so much about asking the big questions like how to make our system resilient, sustainable or even optimally efficient.  Rather, political and media attention seems to be much more narrowly focussed on consumer affordability, stirring up arguments that weaken the case for mandated renewable energy, and ensuring that the industry competitiveness benefits of fossil fuels are restored over the short term.

To enshrine all of this in a coherent policy tablet Industry Minister Ian Macfarlane has been charged with delivering a White Paper for the Abbott Government by September 2014.

Prompting the White Paper consultative process a Federal Government discussion paper was released in early December 2013 which while reassuringly calling for “ongoing reform” did so in a measured investment-encouraging manner:

“Australia’s plentiful energy resources, well-developed transmission and distribution infrastructure, open energy markets and improving energy productivity provide a solid basis for continued high living standards and a growing economy. Ongoing reforms are needed to address cost-of-living pressures and improve small, medium and large business competitiveness, ensure growth in energy exports and encourage investment”[i].

Reinvigorating economic development is very much the core focus of the Abbott Coalition Government and it wants its Energy White Paper to encompass a review of issues including:

• better governance through regulatory reform
• securing improved workforce skills and productivity
• technology innovation in the development of both traditional and new energy sources; and
• maximising export opportunities for energy commodities, products, technologies and services.

The weighting each of these topics will receive in the White Paper will be critical in determining the utility of the whole exercise and the durability of its impact.   While investment and economic development is uppermost in the mind of the Minister for Industry, also at stake is the future structure and performance of the Australian energy system in all its parts.

To that end, the Government should be commended for  flagging that it wants a holistic approach to energy.  It is setting a goal of ensuring that “consumers pay no more than is necessary for a reliable and secure supply of electricity” through the inclusion of “the lowest cost combination of supply and demand-side action, including moves to increase energy efficiency.[ii]”   Focussing on one part of the system without equivalent emphasis on other critical parts would only distort and diminish Australia’s capacity to achieve economic competitiveness underpinned by a resilient energy capacity.

For Australians wanting to see our comparative advantage with natural resources leverage new economic capacities in the 21^st century, a problematic  issue arises in what Dow Chemical CEO Andrew Liveris calls “the scandalous mismanagement of natural gas”?

Pointing to lost investment opportunities for downstream manufacturing, Liveris bemoans Australia passing up the opportunity to build internationally competitive industries based on abundant local sources of cheap natural gas in favour of the prohibitively expensive alternative delivered by domestic-LNG export price parity. Asking for a systems approach to the major policy challenges facing us, Liveris writes of the “need to have all the parts in shape” and “to be asking the right questions”. 

 “We need to be sure that our high-value labour force is engaged with contemporary technology and that the design of policy fits today’s highly contestable global markets. And we need to project our relevance to global investors looking at the next generation of technologies and skills.” [iii]

It doesn’t take a rocket scientist to work out that Australia’s most important expatriate manufacturer and the chair of President Barack Obama’s Business Advisory Council sees Australia dropping the ball on securing long term prosperity and a complex economy, having been seduced largely by the prospect of resources royalties for depleted State coffers.   The old conundrum about value adding and using Australia’s natural resources to underwrite advanced manufacturing and complex economic development keeps recurring and looks likely to be ignored by the energy white paper process.

Of course the economic rationalist viewing our globalised economy and environment would likely argue that greater productivity and environmental dividends flow to the global consumer and to the planet by more efficient Asian industries utilising the vast amounts of energy sourced from Australia.  Asking the right questions is essential in any problem solving process – but how do we deal with the subjective nature of the problem in the first place?

On safer political ground taking up the cudgels for the cause of small government and private enterprise, the Abbott Government sees a need for regulatory reforms in the energy sector that it believes “could reduce the regulatory burden on business and maintain appropriate levels of disclosure and transparency in energy and related markets”.   The scope of such reforms, it is suggested in the issues paper, could encompass:

• the reform of electricity and gas markets to improve efficiency and user choice;
• the development of a more flexible and informed trading environment for gas markets;
• encouraging productivity and market efficiency by privatisation of the energy utilities; and
• streamlined environmental approvals and creation of a one-stop-shop approach to simplify development processes[iv].

While much of this agenda can be argued and advanced through the Council of Australian Governments (COAG) many of the crucial decisions to give effect to this wish-list of sector reforms will have to be made by State Governments – with risk sharing incentives provided by the Federal Government.  It will be an uneven progress and depend on close political alignment between national and state levels.  An array of political considerations plays in the privatisation of State infrastructure debate and across Australia there is almost universal public antagonism to the notion of sell-offs of utility assets.

It seems certain the Newman LNP Government will go to the polls no later than early 2015 arguing for at least a part privatisation of the Queensland generation industry.  How many other States and Territories will follow with substantial privatisation initiatives is anyone’s guess.

In the meantime a much safer and surer option for a new conservative government wanting to make a difference to the national energy equation is peeling back “green tape.”   Steamrolling the blockages in the development process for hundreds of proposals caught up in green politics and Federal regulatory processes has become a recent bragging topic for the Abbot Government.

To show that he will deliver on the PM’s election night clarion declaring “Australia is open for Business,” in just a few months Environment Minister Greg Hunt has given the thumbs up to $400 billion worth of resources and infrastructure projects.  For those concerned about global warming and Australia’s contribution, they include projects like the $1.4bn Abbot Point coal terminal expansion and Clive Palmer’s Galilee Basin coal mine[v].   The process is not done yet – Macfarlane will want his own “green tape” reduction initiatives to flow from the White Paper and RET review.

The question that comes out of all this for me is: Can the Australian Government realise its ‘energy super-power’ vision to be affordable and competitive without trading off Australia’s environmental performance?  Can we do the least cost version of energy and still build a resilient energy system?

A resilient sustainable energy system will acknowledge and value its externalities – impacts like pollution and resource depletion and inputs involving fiscal transfers and subsidies for example.  Policymakers planning for a resilient energy system which involves an electricity fuel mix derived largely from coal (69.1% for Australia in 2011-12) and which sources just 10.4% from renewables (over half of which is Tasmanian hydro) will either plan for increased fuel diversification or work out quickly how to clean up fossil fuels by emissions reductions technologies and sequestration – all of which will change the affordability of the dominant mix[vi].

So the real question  that lingers is how open minded will be the Abbott Government  in positing energy scenarios for Australia’s future that are unprejudiced by ideology, vested commercial interests,  or the experience of policy initiatives which in ‘corporate speak’ have turned out not to be transformative stars but costly dogs.  Professor Peter Cook correctly asserts when canvassing the potential merits of a direct action program for emissions reductions, markets can only work where there are real informed choices[vii]. If the Government through its Energy White Paper informs a policy framework that delivers real transparently costed choices for Australian investors and consumers, it will have done its job well.