Time to break the cycle on poor energy policy

The Energy Policy Institute says the politicisation of environmental issues in Australia has come at the expense of an adequate energy policy. A taskforce – not another government inquiry – is the only solution.

Of the millions of words now pouring in to Canberra on the energy white paper, few may sting more than the submission from the Energy Policy Institute, which is pointing a finger collectively at governments around the country.

The institute’s core message is that, thanks to excessive politicisation of issues, energy policy in Australia is no longer reliable or predictable, the limits of 'co-operative federalism' have been exposed and the shortcomings of governments as efficient regulators of the modern industry are on display.

The institute asserts that Australia lacks “an investment-grade energy policy” and has done so for some years because politicisation of climate change and environmental issues have spilled over into the industry.

It sets out the sins that have been committed as a result: discriminatory policy treatment of competing technologies, an uneven playing field with unpredictable rules and an industry fractured into rival interests competing for subsidies or favourable treatment.

“This has led to high electricity and gas prices for consumers and a high level of political risk for investors,” it says, and this has impacted on the willingness of financiers to support development. In turn, the situation is impacting on all energy-intensive and energy cost-exposed businesses, triggering major reassessments of their future in Australia.

In the present environment, it says, it is all too easy for policymakers to be side-tracked by short-term tactical issues and to overlook, or not even recognise, the underlying policy shortcomings.

The complexity, duration and cost of project approval processes and the number, complexity and cost of attached conditions “have increased alarmingly to the point where they pose a level of sovereign risk that is a significant disincentive to develop energy resources”.

The institute cites as an example the inability of the current set-up to bring sufficient gas resources to the east coast market to avoid price hikes and shortages.

As a result, it says, eastern Australia, and mainly New South Wales, faces a potential gas supply crisis.

“There is plenty of gas in the ground but it is too often blocked from getting in to any market by a combination of regulatory, environmental and social constraints (and) some elements of the industry contributed to the problem in its early days by not appreciating – and not adequately responding to – community concerns.”

It calls for this policy failure to be addressed by a “well-resourced, action-oriented task force involving all affected shareholders to eliminate the blockages” rather than further government inquiries or reports.

And the institute tells the Abbott government that it can’t remedy the overall situation by calling for submissions and publishing a white paper – it needs to embrace two key steps: a process that is not vulnerable to electoral cycles and an institutional mechanism to provide regular, independent review of policy over the long term.

The institute is deeply critical of the Council of Australian Governments process.

It says: “Energy policy formulation cannot succeed behind closed doors. The so-called comprehensive reform agenda of CoAG (is) consultation among governments each with its own agenda.”

The process, it argues, can never be a substitute for a “wholly-inclusive, intelligible and well-rounded” approach and Australians are fooling themselves if they think the present arrangement will deliver satisfactory policy.

The institute slams CoAG for its level of transparency, its lack of accountability, its protracted and excessively political decision-making and its tendency to focus on agendas relating to only the most pressing issues of the time.

Meanwhile, it says, “the public is now very wary of having the wool pulled over its eyes by governments, it is far better educated about politics than a decade ago and (it doesn’t want) second-best outcomes in which it has played no effective part”.

The institute’s solution is for the establishment of an “permanent, fit-for-purpose, independent national institution, with appropriate resources and predictable and transparent processes, accountable not only to jurisdictions but also to stakeholders, to formulate, implement and review energy policy and energy market reform”.

It adds that “the fact that the development of (this) institution is likely to involve trade-offs and costs for governments and other stakeholders is no reason to cling to a sub-optimal status quo".

The institute says the federal government has unilateral capacity under the trade and commerce power and the corporations power of the constitution to legislate to govern national energy markets.

It argues that the lack of accountability for efficient regulation of the national energy industry “that is inherent in the current CoAG arrangements” can be addressed by federal legislation without diminishing the legitimate interests of the states.

In considering what the Energy Policy Institute is putting forward, it is worth noting, I think, that in the first energy white paper published in September 1988 the Hawke government underlined the importance of “shared government responsibilities” in co-ordination of national energy policies and called for the establishment of a consultative group of governments, the energy industries and the trade union movement to identify major changes and to advise on what should be done to address them.

The step never happened and a quarter century later we are where we are: the policy swamp is wider and deeper, draining it is ever so much harder and the energy problems are far greater than was envisaged by Hawke and his cabinet.

The cure, in the Energy Policy Institute’s view, is to go well beyond consultation to create a decision-making body that takes over where the politicians have failed.