Energy bill to increase cost, regulation but not supply

In years to come, December 15 will be regarded as a watershed day in Australian politics, energy policy and relations between the Labor Party and business. Anthony Albanese won the politics, at least in the short term, but is no closer to winning the war on energy supplies. Passage of the government’s energy price relief bill has moved the nation markedly to the left on domestic policy such as energy, business regulation and even enlarging the government’s footprint in shaping household spending choices on appliances. On top of the leftward lurch on industrial relations towards rigid regulation, it is a major shift. Thursday was all about Labor’s intervention in markets and its willingness, yet again, to dip into taxpayers’ funds to sweeten the politics. The price of coal will be capped at $125 a tonne and gas at $12 a gigajoule for 12 months to hold down price rises for consumers. The government also is considering a gas reservation policy. It also will spend $1.5bn to ease power bills for some businesses and recipients of commonwealth benefits. For all the upheaval, there were no gains on the vital issue of energy supply, which is the key to reducing prices long-term and ensuring reliability. The outcomes are more likely to deter investors.

As Robert Gottliebsen wrote this week, local and international companies have invested billions of dollars to develop Australian gas resources on the basis of a set of rules that gave them independence in long-term production, marketing and pricing: “Western countries around the world attract capital to develop their resources on the basis of these clear rules.” Poorer countries with political instability, particularly in Africa, are seen as high-risk places to invest because governments often change the rules. Energy producer Santos accused the Prime Minister of running a Soviet-style nationalisation policy. Companies would need fiscal stability agreements with the government before new gas supply projects could take investment decisions to secure capital, “just as would be the case if they were operating in Argentina, Venezuela or Nigeria”, Santos chief executive Kevin Gallagher says.

When he was campaigning, Mr Albanese reassured voters that Labor would not make deals with the Greens on climate policy. “If we win government we will implement our plan, not negotiate with fringe groups,” he said in February. “I won’t be negotiating or doing deals with the Greens after the election.” Despite that, when the Greens helped the government pass its legislation in the Senate, they did so at a price, forcing Mr Albanese to dip into taxpayers’ funds to subsidise low-income households to replace gas stoves and heaters with electric appliances. These cost several hundred to several thousand dollars.

Australian Greens leader Adam Bandt took credit: ‘‘As a result of the changes the Greens have secured, we’re going to see a significant package in the next budget to help households, especially low-income households, with the upfront costs of getting off expensive and dirty gas.” It remains to be seen, however, if meddling such as scrapping gas appliances would cut carbon. Seeley, one of Australia’s largest gas heating appliance manufacturers, insists it will do the opposite and add to the cost of electricity. Managing director Jon Seeley told The Australian: “Less gas to heat our homes and cook our meals equals more coal required to keep the lights on.” Transformation from fossil fuels was needed to meet the nation’s climate ambitions, he said. But even proponents of full electrification knew the grid required billions of dollars of investment over many years before it could cope with the additional demand from switching off gas. “Our political leaders should be honest about that scenario instead of using their ideology to shield the truth,” Mr Seeley said.

Mr Bandt boasted on Thursday that “gas’s time is over”. Until it is no longer needed, that is, to bridge the gap between coal and a time when pumped hydro, wind and solar power can provide baseload power. Last month, Energy Minister Chris Bowen gave an insight into the challenge ahead to meet the target of reducing emissions by 43 per cent by 2030, with 82 per cent of the national electricity market powered by renewables. Australia must install 22,000 500-watt solar panels every day for eight years, he reportedly said, along with 40 seven-megawatt wind turbines every month, plus 10,000km of additional transmission lines.

Many European nations, with landscapes and shorelines covered in wind turbines, followed a similar credo for many years – until the Russian invasion of Ukraine precipitated a crisis resulting in shortages and soaring prices. That crisis is the major factor, but not the only one, in Australia’s soaring power prices. In the absence of Nord Stream gas, nations such as Germany that eagerly fashioned themselves as renewable energy powerhouses, and were phasing out coal, rediscovered the commodity and a sense of pragmatism. While the transition to renewables continues, German companies and governments reluctantly have brought back idle coal units to boost energy supplies. In a striking paradox, energy company RWE even dismantled one of its aged wind turbines in North Rhine-Westphalia to allow an adjacent coalmine to expand.

Mr Bowen says Australia is “10 years late” in the renewable energy race. The time lag, however, should allow government to learn from others’ mistakes. That includes the reality that over-regulation of supply and price does not encourage investment.