Grattan Institute energy credibility collapses

Advertisement

I have previously labelled the Grattan Institute a stealth business lobby because of its rabid support for mass immigration alongside sounding like a mouthpiece for the property development industry.

An explosive article penned by Richard Denniss, chief economist at The Australia Institute, also reveals that the Grattan Institute lobbied hard against domestic gas reservation, thus contributing to east coast Australia’s current energy crisis [my emphasis]:

Back in 2015, in the lead-up to the Paris climate talks, none of the gas extracted from Australia’s east coast was exported and our wholesale gas price averaged around $5 per gigajoule. Since then, our production of gas has tripled but the wholesale gas price has surged, ultimately being capped at $40 a gigajoule in June this year…

Australia is now the world’s largest exporter of liquified natural gas and many businesses now pay more for it than some export customers. Australian households are also paying record prices to heat their water and their homes. This is no accident. To be crystal clear, Australian policy makers did not see high gas prices as a problem to be avoided. This was the plan all along. The Grattan Institute’s Tony Wood reflected this thinking in 2013: “With more than $160 billion forecast to be invested in LNG production, the export industry is good for the economy. Governments should therefore resist self-interested calls from some industries to cap prices or reserve gas for the domestic market. Western Australia should go further, and end its policy of reserving gas for domestic use. Protectionism may provide some short-term price relief for targeted industries, but ultimately it leads to higher prices and damages the economy.”

It’s easier for some people to tell themselves today that politicians are hopeless and can’t plan ahead than admit that, like the gas industry, Australia’s political leaders, state and federal, Labor and Liberal, knew exactly what would happen when they let the gas industry build enormous export facilities. They knew the gas industry wasn’t spending tens of billions of dollars to make gas cheaper for Australians, and they knew that all of the fracking and the environmental harms weren’t going to drive down the price of gas for Australians. They knew it would all be exported for enormous profit, and that customers would pay a heavy price…

It was inevitable that linking up Australia’s east coast gas market to the world market in 2016 would drive up the price of gas by at least 300 per cent. It’s currently around 700 per cent higher, and would have gone further if prices hadn’t been capped by the market operator…

But that’s all in the rear-view mirror. The question is what we should do now. Should we keep taking advice from the gas industry and its parliamentary boosters, or should we think for ourselves about what’s best for Australia and who to trust to achieve our goals?…

East-coast gas production has risen by almost 300 per cent over the past decades, but the “shortage” story is still used by gas boosters to crash through the social, economic and environmental barriers to their endless expansion plans…

The gas industry will never stop gaslighting Australia, the only question is whether the public, and our parliament, will keep falling for it. The Norwegian government taxes oil companies at 78 per cent. The United Kingdom’s PM Boris Johnson recently imposed a 25 per cent windfall profits tax. But here in Australia, four out of the five biggest gas miners paid no income tax at all in the seven years to 2020… The first thing we should do is follow the UK and introduce a windfall profits tax on the gas profits driven by the war in Ukraine. The second thing we should do is hold a royal commission into who knew what and when about one of the most expensive policy mistakes in Australian history. And the third thing we need to do is stop falling for the idea that it is market forces, rather than political decisions, that are driving up our cost of living.

A quick glance at the Grattan Institute’s Energy Policy section shows zero mention of domestic gas reservation, export levies, or windfall profits taxes. All I could find on the issue was a November 2020 report again lobbying against government intervention in the gas market, while hanging our manufacturing sector out to dry:

Advertisement

The east coast has already burned most of its low-cost gas, and will not go back to the good old days of low prices, so gas will become an increasingly expensive energy source…

Rather than indulging in wishful thinking or living in denial, the Federal Government and the gas industry – and its customers – should start planning now for a future without natural gas, or at least with a dramatically reduced role for natural gas…

Eastern Australia faces inexorably more expensive gas. If the Government tries to swim against this tide by directly intervening in the market, taxpayers will pay the price via big subsidies.

Even if the Government could significantly reduce gas prices, the benefits to manufacturing are overstated. The companies that would benefit most contribute only about 0.1 per cent of gross domestic product, and employ only a little more than 10,000 people. And much of this gas-intensive industry is in Western Australia, which has low gas prices already…

Gas will play an important backstop role in power generation when the sun isn’t shining, and the wind isn’t blowing – but this role does not require large volumes of gas.

Clearly, the Grattan Institute’s stance against gas reservation has not aged well and has helped place Australia’s east coast in its current energy crisis, while West Australians enjoy cheap and reliable gas thanks to their reservation policy (which Grattan called to be abolished).

The bigger question is why Grattan hasn’t done a mea culpa, admitted its past error, and lobbied for east coast gas reservation and/or export controls? Or does Grattan still believe that “capping prices for the domestic gas market is a very bad idea [because] it amounts to a tax on producers and a subsidy for domestic gas users, [and] ultimately it leads to higher prices and damages the economy for us all”.

Advertisement

Why is Grattan continuing to protect the interests of the 95% foreign-owned gas cartel over Australians? Is it because the Grattan Institute is indeed a stealth big business lobby?

Perhaps its because Grattan’s Energy and Climate Change Policy Director, Tony Wood, was a former executive at gas cartelier Origin Energy:

From 2002 to 2008 he was executive general manager of Origin Energy, where he held executive positions for a total of 14 years. Wood has declared interests as a shareholder of BHP Billiton and Origin Energy.

Advertisement

You be the judge.

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.