Former oil chief calls for autonomous regulator to set policy
If only tackling contentious - and deteriorating - energy and environmental challenges could generate such equanimity.
That is the call of John Hofmeister, a former president of Shell Oil in the US and now an advocate for a shift to a carbon-free energy system over the next half century. "We are building ourselves a heck of trouble and we don't have the systems that can accommodate for it," he said.
He proposes an independent "Energy Reserve Authority" with as many as 10 governors drawn from a range of fields. Each would serve a 10-year term after winning federal parliamentary approval, enabling them to act with "total autonomy".
Such a body was needed in Australia and other democracies because they were subject to "flavour of the day" policies unsuited to developing and implementing the long-term decisions needed to transition away from fossil fuels, he said.
Mr Hofmeister, who will address the All-Energy Australia 2013 conference in Melbourne on October, dubbed Australia's handling of the carbon tax a debacle because it had been ditched barely a year into its existence. "Who knows what the outcome will be post elections?"
Rich nations would not be able to resolve the threats to land, sea and air from carbon dioxide and other pollutants without new tools, such as an ERA, he said. "We can't get there from here."
Separately, the head of California's carbon emissions trading scheme said the dismantling of Australia's carbon price mechanism should the federal Coalition win office "would be of real concern" across the Pacific.
Mary Nichols, chairman of the California Air Resources Board, told a Carbon Market Institute breakfast in Sydney on Friday that such a move would be seen in the US as a "retreat" by a fellow well-developed democratic country. "We also are concerned that you have a long target and you keep to it," she said.
She said California's market - potentially the world's third largest when it expands in 2015 - could be linked up with Australia's. The Rudd government last month proposed beginning the Australian emissions market a year early, starting next July, if it retains office.
"All of these programs are going to end up linking with each other," Ms Nichols said, adding that the possibility exists for at least a partial link, as proposed between Australia and the European Union. "I think the steps we are taking are on the way to a formal linkage" between California and Australia.
Issues, though, include the price differential, which has hampered the integration of California's market with the one operated by nine north-eastern US states. The latter's price per tonne of carbon is roughly a quarter of California's $US13.70 ($15.30).
The government expects the Australian carbon price to drop from the fixed rate of $24.15 a tonne to about $6 next July if a trading market is created.
Frequently Asked Questions about this Article…
The Energy Reserve Authority (ERA) is a proposal championed by John Hofmeister, a former president of Shell Oil in the US. It would be an independent body of up to 10 governors drawn from different fields, each serving 10-year terms after federal parliamentary approval, with the aim of having 'total autonomy' to set long-term energy policy. The ERA is suggested to avoid short-term, politically driven 'flavour of the day' policies and to provide the consistent, long-range decision-making Hofmeister says is needed to transition away from fossil fuels toward a carbon-free energy system.
An independent ERA is designed to create long-term policy consistency by insulating energy decisions from short-term political shifts. For investors, that could reduce policy risk in the energy and emissions markets by providing clearer, multi-decade signals for investment in low-carbon technologies and infrastructure—compared with the uncertainty caused by policies that can be changed or repealed within election cycles.
John Hofmeister is a former president of Shell Oil in the US who now advocates for a transition to a carbon-free energy system. Investors should note his views because he brings industry leadership experience and is arguing for structural policy changes—like the ERA—that could influence regulatory frameworks, market design and long-term returns in energy and emissions-exposed sectors.
The article describes Australia’s handling of the carbon tax as a 'debacle'—it was introduced and then ditched barely a year into its existence. That kind of policy reversal highlights the political risk in emissions pricing and can undermine market certainty, making it harder for investors and businesses to plan long-term capital projects tied to carbon pricing.
There is discussion about linking markets. Mary Nichols, chair of the California Air Resources Board, said California’s market could be linked with Australia’s and that steps are being taken toward formal linkage with jurisdictions like the EU. The Rudd government proposed starting the Australian emissions market early, which could facilitate connections. However, linkage talks must address issues such as price differentials between markets.
Price differentials are a major hurdle for market integration. The article notes that the price per tonne in nine north-eastern US states is roughly a quarter of California’s price (California about US$13.70/tonne or A$15.30). Such gaps can complicate linkage and create risks or arbitrage opportunities that investors need to monitor if markets are connected.
According to the article, the government expected the Australian carbon price to drop from a fixed rate of $24.15 per tonne to about $6 per tonne next July if a trading market is created. Investors should treat this as a policy-driven price projection to watch rather than a guarantee, since market design and political decisions can change outcomes.
Keep an eye on federal policy decisions and election outcomes that could affect the carbon price mechanism, announcements about the start date for Australia’s emissions market, progress in talks to link with California or the EU, and any signals from industry conferences (like All-Energy Australia). Also monitor carbon price levels and reported differentials between regions, since those factors influence market integration and investment risk in emissions-exposed sectors.
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