Ross Garnaut plays out his previous government agenda in criticising the White Paper on Energy.
He says it is deficient because it has no carbon tax and fails to enhance the merits of the Renewable Energy Target.
He says “do the math” and you will see that forcing the substitution of energy that is three times the cost of energy otherwise available will lower prices. This from an economist who claims some renown! Yes if one forces high cost products on a market that is oversupplied and where supplier exit entails costs, prices will fall as existing suppliers battle it out. But the outcome beyond the short term sugar hit can be nothing other than high prices.
The carbon tax is just one manifestation of a penalty on energy designed to drive up its price. The more sensible people within the government are trying to ease us away from all these imposts, although there are key ministers who are believers in harmful global warming and seeking ways to introduce it by another means.
Price rises primarily as a result of network charges (with RET and other regulatory measures having a secondary role) have placed the spotlight on the industry. Electricity prices are likely to fall over the coming years and in the case of gas falls in demand have eased concerns about availability. The falls would be even greater if sensibe privatisation and competition policies are in place and the White Paper seeks to nudge governemtns in that direction.
The RET is largely absent from the White Paper to avoid the impasse that was the ALP’s White Paper where four years of deliberations amounted to an absence of any progress due to the greenhouse policy remaining unresolved.
There is likely to be an agreement on the RET future shortly as the 33,500 GWh by 2020 that the rent-seekers have called for is now quite close to the 32,000 offered by the Minister. This is an appalling decision and here is my own take on it.
The Government’s greenhouse policy to be taken to Paris in December will be determined by mid year.
The key reforms in the White Paper are to promote privatisation, cost reflective pricing, and competition in supply as a means of getting better economies. And the arbitrary and highly ambitious goal is to achieve a productivity increase of 40 per cent by 2030.
The 40 per cent improvement is to come from a mixture of efficiencies presently in the pipeline (retail competition, better pricing of poles and wires, a younger car fleet) plus building regulations forcing energy efficiency. Elimination of cross subsidies to renewables and peak users is seen to be crucial and smart meters better enables this to take place. There are also regulations in the pipeline like on buildings which force energy use reductions but do so at a cost of general efficiency by distorting producers’ designs.
On top of that are specific measures being implemented in the form of market reforms but the estimated outcome looks to be difficult given:
Some bright clouds are indicated with takeover activity – Shell (Arrow) and BG may bring a better balance between domestic and export usage and other rationalisations are likely.
One aspect that has received some publicity is the need under IEA rules for Australia to double the storage capacity for oil. In fact there are over 30 ships en route to Australia at any one time and the security that a strategic facility offers would be negligible. Its cost would be $5.5 billion at present oil prices and although there is a Senate Committee examining it, the likelihood of this being given priority is slim and this would be a great excuse for Australia to leave the membership of the utterly useless regulatory, exhortative IEA.