Which party has a sensible energy policy?

The short answer to my question is ‘None’, and I doubt that either of the major parties has one in preparation, while the Greens certainly would find that a difficult task. And it is increasingly clear to me that energy policy is a must. Our whole society depends, absolutely, on reliable and cheap energy. We also need to be in control of it — in our case, that means having not to depend on imports that might be threatened should an international crisis arise. Coal and gas we have in decent abundance. Oil is much more problematic.

But before I get into party policies, consider the following summary:

‘In this note we conclude that:

1)  Policy-makers have grossly underestimated the difficulties and risks of their drive to decarbonise the power sector.

2)  Policy-makers have failed to take into account huge changes in the economic, commodity and financial environments, and adjusted policy accordingly.

3) The economic arguments supporting the current climate-change-dominated energy policy look weak, and public support is uncertain.

4) Given the hostile rhetoric that utility companies face today from across the political spectrum on charges and profits, it takes quite a leap of faith to believe that future governments will steadfastly defend the huge increases in charges and profits  that will inevitably result from current policy.

5) Political risk is bound to rise sharply in the energy space in the coming years, as the inherent implausibility and contradictory nature of the policy goals are exposed by events.

6) A crisis in energy policy looks increasingly likely and therefore utility companies, and investors, would be prudent in limiting their future exposure.’

Does any of it sound familiar? It should, because we in Australia are faced with aspects of it, and in very recent times both Commonwealth and State Governments have been trying to reduce energy prices for consumers, particular in the electricity and gas markets. But in fact these concluding remarks come from a lengthy analysis of the UK energy sector, and all I did was leave out the identifiers (and tidy up the prose a little). The report is entitled A Crisis in UK Energy Policy Looks Inevitable, and you can read the whole report here. It was assembled by Liberum Capital, a UK investment advice firm, and is sobering reading.

Its basic assessment is that both UK and EU policymakers have gone so far down the road of preferring ‘climate change’ policies over energy-reliability policies that some kind of crunch simply has to come. And other evidence seems to suggest that while EU politicians and bureaucrats keep talking about climate change, they are now building coal-fired power stations once again. The run of freezing winters with, in 2013, a freezing autumn, has made them realise that they may have gone down the wrong path several years ago, and they need quickly to ensure reliable energy for both households and businesses. There may be a race to avoid brown-outs, if the northern hemisphere keeps having cold seasons.

Ms Gillard and Mr Abbott might take particular note of the report’s prophecy, too: ‘When the crisis hits there will be three possible casualties, the government of the day, the consumer, and the investors who have funded the government’s radical energy policy. Whilst no doubt there will be plenty of pain to go around, in our view investors should be under no illusions that the government of the day will seek to protect itself and the consumers (who are also the electorate) by heaping most of the financial pain on to investors.’

Now I am reliably informed — perhaps ‘confidently’ would be better — that our electricity generating system is unlikely to be in serious trouble in meeting demand for at least several years, time enough to add more capacity. But it is the increasing price of power that is the real menace, both here and in Europe. For it is cheap energy, not just reliable energy, that has underpinned the great increase in general standards of living over the past two generations.

As it happens, the current Liberal Party Policy document, of January 2013, has 21 priorities, and not one of them mentions ‘energy’.The Government’s equivalent document, which is neither as long nor as systematic, has no mention of ‘energy’, though it does refer to ‘infrastructure’, by which it means the National Broadband Network. If the carbon tax is repealed that will mean some kind of reduction in energy prices to the household, and also to businesses, which should lower other prices.

But we are also still paying subsidies to solar and wind energy producers, and they represent an additional burden. And you can add to that the opposition of environmental groups to any further dams for hydro power, for any nuclear power station at all, and to any further coal-fired or oil-fired generators.

I wrote yesterday that a Coalition government might do very little other after abolishing the carbon tax and the Climate Commission (and perhaps the Department of Climate Change, though the Gillard Government seems to have done most of that already). But I hope that someone connected to it, even in waiting, is thinking about a Coalition Government’s dealing with the whole ‘climate change’ mess by turning it into a forthright energy policy, one that starts with the proposition that cheap reliable energy is the foundation of our present way of life. Greenhouse gas emissions come second (or later still).

I think it might have a high level of popular support.


Join the discussion 2 Comments

  • Mike O'Ceirin says:

    I have read a report in the AFR that since we are not
    building new power stations the eastern power grid is two years away from
    shortages. Back to my youth when power was being switched off in large areas.
    The report though was more than two years ago so your information more likely to
    be correct!

    The concentration on generation costs puzzles me for that is not where the cost
    is. In NSW only 26% is generation and the rest is broken up as follows. Network
    51%, RET 10%, Carbon Tax 9% and retailing the other 4%. Overall to that is the
    GST and a hidden cost is the large subsidies paid into “alternative” energy. I
    suspect the network costs are so large because state governments who largely control
    them see them as a cash cow. I agree that there should by a policy on energy.

    There is no recognition by government that it is essential and
    that any increase in its cost flows on to raise the price of everything else.
    Instead the unwritten policy is to gouge as much out of it as possible. My estimate
    is that at least 50% electricity expenditure goes into government revenue. Then
    consider petrol, if I buy a litre at $1.50 then 15c is GST and 41c excise so
    56c to internal revenue. How the rest is divided I do not know but I do know service
    stations get a few cents per litre. Perhaps we will see notices at servos
    recognising that they are a major arm of the ATO.

  • Peter Lang says:

    Professor Don Aitkin,

    Than k you for an excellent artilce.

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