Energy package costs soar as taxpayers fund coal price caps

As we said last month, December 15 will be regarded as a watershed day in Australian politics. The Albanese government ended 2022 on a high political note with its energy legislation passing the Senate thanks to the Greens and independent ACT senator David Pocock. But that victory, we noted at the time, would come at immense cost to taxpayers and consolidated revenue. A fortnight later the first penny dropped as the overlooked consequences of the package started to become apparent. As we reported, federal and Queensland taxpayers will be slugged at least $450m to reimburse owners of the Gladstone Power Station, including mining giant Rio Tinto, for the temporary $125-a-tonne domestic coal price cap that was central to the Albanese government’s legislation. There was no alternative. The power must stay on. And the reimbursement is essential to maintain Australia’s reputation as a fair investment destination.

While Anthony Albanese claimed the compensation for Rio and its partners would be “nothing like” $450m, Queensland Premier Annastacia Palaszczuk confirmed the federal and state governments knew taxpayers could be slugged up to $450m to compensate Rio Tinto when the national energy plan was rushed through federal parliament last month. It clearly came as something of a surprise to the Prime Minister that one coal-fired power plant in Queensland could receive $450m in compensation for the coal price cap, as Judith Sloan wrote on Tuesday. “And that’s just for starters. At this rate, taxpayers could end up paying as much to power plants as the financial compensation to low-income households ($1.5bn) hit by higher electricity prices.”

Now the second penny is dropping. As reported on Wednesday’s front page, energy companies in NSW are likely to be compensated more than $500m by federal and state taxpayers for anticipated losses incurred under the national energy plan. Eraring, owned by Origin, is likely to be the main beneficiary as the Newcastle plant is one of the biggest coal-fired power stations in the state. For a relatively modest return under the plan of reducing the projected rise in energy bills this year by $230, the costs to consolidated revenue and/or taxpayers are rapidly piling up. After clinching the deal with the Greens and Senator Pocock, Mr Albanese claimed: “This is a very modest package … a modest intervention that’s required because of the extraordinary circumstances.” Taken together, the compensation to industry and the $1.5bn cost-of-living relief to households and small business may not be so modest.

That is especially the case considering the cap on the domestic coal price will last for just 12 months. And that is not counting the cost of the Albanese’s government’s absurd agreement to dip into consolidated revenue – again – to subsidise low-income households and all recipients of commonwealth benefits to replace gas stoves and heaters with electric appliances. Few details of that bonanza have been announced. But the decision was taken to win the support of the Greens in the Senate. “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,” Greens leader Adam Bandt boasted.

It remains to be seen how much that package costs, with new electric stoves and water heaters retailing from several hundred to several thousand dollars an appliance. It also remains to be seen, however, if government meddling in minutiae such as paying households to scrap gas appliances will cut carbon. Mr Albanese agreed to the deal on gas appliances regardless of two important considerations. They are, first, the importance of gas during the transition to a low-emissions economy. And, second, Mr Albanese’s repeated promises during the election campaign not to negotiate or do deals with the Greens.

The $500m compensation for the effects of the cap on coal prices in NSW comes a fortnight after the Albanese and Perrottet governments agreed on a $7.8bn deal to connect Snowy Hydro 2.0 and a bank of renewable energy zones into the national grid. Mr Albanese reportedly offered to provide $4.7bn in funding to the NSW government for the transmission as a sweetener to get Premier Dominic Perrottet over the line on the energy agreement. The federal component will be funded under Mr Albanese’s $20bn Rewiring the Nation policy. The NSW funding will be provided through the NSW Transmission Acceleration Facility.

These costs, largely precipitated by the international energy crisis created by Russia’s invasion of Ukraine, are also a start in Australia’s transition to lower emissions. When federal Climate Change and Energy Minister Chris Bowen gave an insight into the challenge late last year, he said that 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, along with 40 seven-megawatt wind turbines every month, plus 10,000km of additional transmission lines. At what cost to taxpayers and consolidated revenue? That question needs to be asked.