Painful extraction from an energy morass

With even modest policy skills Australia could have enjoyed the energy benefits the US is preparing for. Instead, just about everything we've done has been wrong – and the inevitable clean-up will be monumental.

One of the biggest challenges for whoever wins the 2013 election is to sort out what has become a horrible Australian energy mess.

I don’t think I can every recall such a combination of misjudgments and bad policy in recent decades. 

And this Australian mess comes as the Americans are really getting their energy act together and are going to have it drive their national economy. With even modest policy skills we could have enjoyed the same benefits but, instead, just about everything we did in the last few years has been proved wrong.

For example, we allowed three massive LNG plants in Gladstone to export all the coal gas available in the nearby area. As a result the construction and operating costs have risen sharply and we are having trouble meeting the gas requirements, at least in the short term. We have had to take gas from the Cooper Basin, which might have otherwise been earmarked for new South Wales. And in New South Wales they have stopped exploitation of coal gas reserves on environmental grounds, which means they really do need the Cooper gas. 

We introduced a carbon price to encourage electricity production to move from coal to gas but we have now halved that tax in 2015 and Tony Abbott, if he wins the election, is promising faithfully to abandon it. It really has been a very stupid distraction. 

We have a policy which prices local gas well below export gas so there is no incentive to develop Australia’s reserves for the local markets. Instead we set a target for renewables at 20 per cent but we expressed that target as an amount of electricity. Our demand for electricity has not grown in the way that was expected and so the renewable target is now 25-30 per cent of our power. 

This means the cost of Australian power is going to continue to rise as renewables are much more expensive than coal. And we haven’t done the work to better harness our renewables. 

For example, wind power is inefficient because you often need back-up gas power. To make wind power efficient you need a way of storing it and that is where the electric car is so important. 

In Canberra those sorts of thoughts are too hard to understand.

The New South Wales and Queensland governments run deficits and they desperately need the revenue from their power authorities to limit those deficits. The Queensland government has suddenly reduced power prices but has not changed the cost structure – and has simply caused a strike of capital investment in much the same way as Western Australia did back some five years ago. In due course Queensland power prices must go through the roof. 

Julia Gillard vows she can cut electricity prices by $250 a year. In consumer land during 2013 consumers found the government politicians were right and the $250 was about right. However it was an increase, not a decrease.

Australia needs a clean energy policy that harnesses our gas. As it turns out the Americans are going to gradually harmonise the price of their local gas and export gas, which may deliver large amounts of profit for BHP Billiton in the US. We will have to do the same thing in due course. But unravelling the morass will not be easy.

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