Green and Left pull in different directions

Despite good news on the carbon tax, the Productivity Commission's draft electricity networks report was a mixed bag for the Greens, with privatisation appearing to be the best way to reduce emissions.

The Productivity Commission's draft report on how electricity networks should be regulated is out today, and contains both good and bad news for the Greens.

The good news is that the report clearly backs the Gillard government's repeated claim that the deal they struck with the Greens in creating the 'Clean Energy Future' package – the 'carbon tax' – is not the main driver of higher electricity costs.

A great many people already accepted the argument that it was, in fact, the 'gold plating' of electricity distribution networks that was the main problem. The PC report, released today, goes through the gold-plating argument in painstaking detail and concludes that "network cost rises are responsible for much of the surge in electricity prices over the last five years".

It also confirms that 25 per cent of people's power bills cover just 40 hours of peak demand a year. The Greens, and Labor, have long argued that better demand management, including the use of smart meters, can shave off a good part of that cost.

In the context of the carbon tax, that means there are potential savings to be had in electricity distribution that far outstrip the cost of the pricing carbon.

The bad news for the Greens is that the PC report also comes out very strongly in favour of privatising remaining electricity distribution assets. While the Greens at a national level have not taken a strong stance of this issue, at a state level they have fiercely resisted various proposed privatisations.

The PC report states: "While firms have taken different approaches to network capacity, the networks that have undertaken the most rapid expansion have been under state ownership. While governments have a legitimate role in owning and operating many services in Australia, the rationale for state-ownership of electricity network businesses no longer holds. "

Damningly, it adds: "State ownership produces perverse interactions with the existing rules, which are likely to lead to overinvestment and ineffective cost controls."

At a door-stop briefing this morning, Greens leader Christine Milne kept the focus tightly on changing those rules. She said: "Whether it's private or public investment, it's governed by the rules – it's the rules that need to change so that consumers come out best so we don't have a situation that incentivises guaranteed profits whether it's public or private, whether it's a cash cow for governments or the private sector."

But that's not what today's PC report says. It argues: "The regulatory incentive arrangements for the NEM were designed to encourage cost minimisation by profit-maximising businesses. The implicit assumption was that corporatised state-owned businesses resembled private entities and that they would behave the same way. That does not appear to have occurred.

"The evidence appears to suggest that state-owned enterprises are less efficient than their private sector peers. The best remedy is privatisation."

That puts a lot of pressure on the Greens. With a left-leaning support base that just does not like privatisation, they look to have been presented with all the evidence needed that lowering carbon emissions will be easier with a privatised network. The Green/Left nexus looks more strained than ever.