Taxpayers to be slugged for impact of coal price cap

From consumers paying too much for cars when successive governments coddled the domestic automotive industry with heavy tariffs, to first-home buyers’ subsidies distorting real estate prices, governments interfering in markets, even for seemingly sensible reasons, often produce unintended adverse consequences. That principle applies to the Albanese government’s coal price cap, which is why taxpayers will be slugged about $450m to compensate mining giant Rio Tinto and its partners for anticipated losses. As reported on Wednesday’s front page, Queensland Treasury is close to finalising a deal on behalf of the federal government to reimburse owners of Gladstone Power Station for the $125-a-tonne cap agreed at national cabinet a few weeks ago. The power station owners will be reimbursed to ensure supply of electricity during the 12-month domestic coal price cap.

Under the circumstances created by the government, the move makes sense; the power must stay on, even if it will incense the Greens and crossbenchers, who oppose compensation for fossil-fuel companies. ACT independent senator David Pocock, whose vote, along with the Greens’, was essential to passing the government’s energy legislation, said it was “unconscionable that Australian taxpayers should have to pay compensation to companies to put a limit on the record wartime profits they have been making in selling our own resources back to us”. That addled argument overlooks the importance and cost of investment in energy projects. As Anthony Albanese said on December 12: “If there is a cost of production that is higher than $125 per tonne, then it is reasonable that there be payments made for that to make sure that there isn’t a disincentive to continue to supply.” The final compensation bill for the Gladstone Power Station, of which Rio owns the largest share, will be split 50-50 between the federal and Queensland governments, with the costs of the rebate to be based on actual cost. That is only fair and will help maintain Australia’s reputation as a place to invest. The government needs to be careful, however.

As Australian Chamber of Commerce and Industry policy and advocacy chief David Alexander wrote on Wednesday, the government’s gas price cap is establishing new principles that invite an extension of state intervention in the economy, with an accompanying shrinkage of private investment. “Up until now it has been well understood that price capping products is bad policy because it reduces the incentive to supply those products and makes the problem worse down the track,” he wrote. “If you force down the price of wool, for example, you will find farmers exiting wool production, and so on.”

Nor will this be the last time taxpayers are forced to foot the bill during the nation’s costly transition to renewable energy sources and to make up for soaring power prices caused by Russia’s invasion of Ukraine. Government sources told The Australian “maybe three or four” power stations in NSW also will be reimbursed, including those that were already locked into contracts to buy coal above the $125 cap. Price caps on coal and gas are part of the Albanese government’s market intervention designed to reduce the rise in household energy bills by about $230 next year. It is no free pass, however. Taxpayers will also be slugged for a scheme demanded by the Greens in return for supporting the energy legislation. That scheme will subsidise low-income earners and recipients of federal benefits to replace gas appliances with electric appliances. Again, the government must be wary of unintended consequences.