Albanese faces Senate fight on energy price-relief deal

The Albanese government’s deal with the states on energy will do nothing to increase energy supply. It is designed to contain soaring prices. Across the world, including in Australia, these have been exacerbated by the crisis created by Russia’s invasion of Ukraine. Anthony Albanese’s energy price-relief agreement, reached by national cabinet on Friday, will impose a one-year gas price cap of $12 a gigajoule and a one-year coal price cap of $125 a tonne. Those unprecedented interventions will benefit business and households by slowing down the soaring increases in power costs forecast in the October budget – 56 per cent for electricity over the next two years and 40 per cent for gas. The deal has triggered serious concerns, however, that such a dramatic market intervention will adversely affect investment and supply, driving prices higher in the long term.

Business Council chief executive Jennifer Westacott welcomed relief for households and small businesses but warned the consequences of dramatic intervention could make energy problems worse. “Without careful management, price caps will have long-term consequences that drive up and sustain higher prices for consumers,’’ she said. “Price caps for gas and coal will send the wrong signal to investors at a time when we need to be getting new supply into the market.’’

Ms Westacott said the exclusion of coal and gas from the Capacity Investment Scheme announced four days ago would limit its ability to drive stability, certainty and reliability. “The worst thing for our transition and the community would be a system that simply flicks the switch off on old generation, driving price spikes, putting the reliability of the system at risk and sending perverse investment signals.’’

The deal will have two important benefits. First, jobs will be saved in businesses that would have otherwise struggled to meet the increased costs. And second, the government believes containing price rises will reduce inflation in 2023-24 by 0.5 percentage points, relieving pressure on the Reserve Bank board on interest rates.

Vulnerable households, including pensioners and others in receipt of federal benefits, will receive a further $1.5bn in rebates, to be handled by the states and distributed by further reducing bills. For households not eligible for special assistance, Treasury modelling shows that instead of household electricity prices rising 36 per cent next financial year, bills will increase by 23 per cent as a result of the caps, amounting to a $230 difference.

Energy and Climate Change Minister Chris Bowen acknowledges the deal will take the sting out of power prices but is “no magic bullet’’. He branded Peter Dutton and the opposition “clowns’’ for opposing it. But they are not alone. The Australian Petroleum ­Production & Exploration Association is demanding an emergency meeting with the Prime Minister. Its chief executive, Samantha McCulloch, says the deal is “a fundamental dismantling of the Australian gas market’’ that will “destroy investor confidence in bringing on new supply and that’s the key to bringing down prices’’. Credit Suisse energy analyst Saul Kavonic says the government has “declared war on the gas industry on the east coast” and price caps would lead to “energy shortages, job losses in marginal seats and a strong anti-Labor advertising campaign ahead of the next election”.

The government has recalled parliament on Thursday to pass the deal. But it faces obstacles from Senate crossbenchers. In their determination to punish the coal and gas industries, the Greens, cynically, are misusing the situation to demand stronger action on climate policy. Once again the Greens are putting politics ahead of what Australian households and businesses need.