Australia has a wealth of natural energy resources. Historically we attracted industry by harnessing our enormous coal reserves. We have abundant quantities of natural gas and uranium and, until a decade or two ago, we were largely self-sufficient in oil. Energy-intensive industry was attracted to Australia by low cost power and relatively cheap gas.
However, poor policy decisions and a lack of focus on the efficient use of energy over decades are creating a competitive disadvantage. Energy costs have escalated at a time when Australian manufacturers are struggling under the high dollar and labour costs.
There are two key issues driving energy costs in Australia: escalating energy prices and poor energy productivity (the GDP generated as primary energy is consumed).
Over-investment in our electricity transmission and distribution sectors over the past five years almost doubled our electricity prices. Eastern Australian markets now face a similar escalation in gas prices in the next three to five years. The rapidly developing coal seam methane resources in Queensland are going to be exported as LNG, exposing the domestic gas industry to prevailing export gas prices. The expected doubling of gas prices will heavily impact our gas-intensive manufacturing industries.
With the increases in local energy costs, we have moved from a nation of relatively low energy prices, to one in the middle of the pack. When combined with our poor energy efficiency, the result is high energy costs in comparison to our competitors.
The US is one example of a nation taking deliberate steps to drive competitive advantage through low cost, efficiently-used energy. They are pursuing a policy objective to double their energy productivity over the period to 2030 to maintain and expand their competitive advantage.
Australia’s energy productivity has been increasing at a lower rate than most other developed countries. This is an area of opportunity where we can reduce the impact of high energy prices – and quickly. The Australian Alliance to Save Energy is working on a project which proposes to define how Australia can double its energy productivity by 2030 to match the USA; but we may have to do better than this to regain our competitive advantage. This is surely an approach that is not contentious and should gain bipartisan support.
Unless we take urgent action, our rising energy costs will continue to undermine the ability of Australian businesses to compete.
Jonathan Jutsen is Executive Director of Energetics and Chairman of the Australian Alliance to Save Energy.