Australia

Australia’s tortured energy debate: what is the state of play?

A look at how we got from national energy guarantee to ‘big stick’ – and what’s next

There are a lot of moving parts in Australia’s tortured energy debate – and many of the parts are moving in the wrong direction. With parliament set to resume next week, and with energy back on the agenda, it is timely to recap the state of play.

Where is energy policy up to?

Energy policy in Australia has been in a state of flux since the Coalition dumped the national energy guarantee (Neg) when it ditched Malcolm Turnbull as prime minister. At the time conservatives moved against Turnbull, the Neg was derided by internal critics as bad policy and “merchant bankers’ gobbledigook”. But now, a year after the turmoil, the energy minister, Angus Taylor, says we don’t need to worry about, or mourn, the abandoned Neg mechanism because all the (unobjectionable) core objectives will be achieved even though it was never legislated (because it was terrible). This opening summary of the state of play sets the tone for the whole debate. You’d laugh if it wasn’t so serious.

What has replaced the Neg?

Instead of the Neg, which was a mechanism to ensure reliability of supply and emissions reduction in the electricity sector, Taylor has proposed government underwriting of new power generation to boost supply. This more ad hoc proposal has been criticised by a number of stakeholders – the Energy Security Board chair, Kerry Schott, said very politely this week it would not encourage “the considerable new investment and innovation that is needed”. The program also seems to be moving slowly – although Taylor insist he’s in “advanced negotiations” with some of the favoured projects.

Where is the ‘big stick up’ to?

Now we arrive at the big stick. This proposal creates a power for the government to break up energy companies if they engage in price gouging. This idea emerged during the frenzy of colleagues moving Turnbull out of his job and dumping the Neg and Turnbull trying, frantically, to stay in his job. The Nationals love this proposal. Liberals have always been uncomfortable about it, and backbenchers have succeeded in getting the original idea amended.

The energy sector, unsurprisingly, hates it. The Australian Energy Council says the current version of the legislation, post amendments, remains a sloppily drafted shocker that will deliver the exact opposite of what its authors intended. Energy retailers argue what the market needs right now is certainty to ensure we get the right investment in the grid to keep the lights on, and emissions coming down – and you don’t create certainty by threatening to break up private companies. The Business Council of Australia has said while it recognises the government has a mandate to implement the big stick, it supports policies to drive down electricity prices: “this will not be achieved by extreme intervention in the electricity market which brings new risks, unintended consequences and has never worked before”.

Is the criticism fair?

Rather than take the industry’s word for it, or the government’s, let’s look for an independent voice – the ACCC. The competition watchdog took a good look at why power prices are so high, and it pointed to a range of contributing factors, not just energy companies behaving badly. Energy companies were certainly bamboozling customers with “discounts” that may or may not be discounts, and the ACCC said there was not enough competition in the generation market. The ACCC chair Rod Sims suggested this week companies could be delaying investments in new generation to protect their profits. But there were other factors at play too: government-owned networks needed to write down the value of their assets; some of the state-based renewable energy subsidies were too generous; and there was prolonged policy uncertainty because of the decade-long partisan war in Canberra. The ACCC said lots of things needed to change. It did not recommend breaking up energy companies. In fact it cautioned explicitly against doing that: “The ACCC does not believe it would be appropriate to intervene to unwind the way in which the market has evolved across the national electricity market”.

On current indications, the big stick looks more likely to pass than not. We need to work through this step by step. In the last parliament, Labor opposed the bill. That sent the government searching for crossbench support. The Centre Alliance bloc telegraphed it would amend the bill to make the proposed divestiture power apply right across the economy – not just the energy sector. It’s possible Nationals would support these amendments because the Nats have always wanted an economy-wide divestiture power to go after the supermarket chains. But Liberals would (how can I put this politely?) go nuts if an economy-wide divestiture power cleared the Senate. Sensitivities are such that during a recent meeting of the backbench committee, ministers agreed to bring the proposal back for backbench approval if it was amended in the Senate.

But Labor has now engaged in a post-election rethink. No final decision has been taken, the putative shift has not yet been to shadow cabinet or caucus, and internal views are mixed – but there’s an inclination to let the legislation pass if the opposition can secure amendments or assurances, including no backdoor privatisation of electricity assets in various states. If the government can proceed with Labor’s support, if it can cop changes the opposition proposes, this will avoid any internal meltdown between Liberals and Nationals over an economy-wide divestiture power.