ACTU demands regulation of “rapacious” energy cartels

No change yesterday as the gas cartel squeezed prices higher to $19Gj and NEM prices followed suit:

The ACTU pulled no punches in a new report today:

Implement a fairer inflation-reducing policy that protects workers’ incomes, prevents price gouging, and tackles the underlying sources of inflation, especially in energy and housing, and reduces the cost of key public services such as early childhood education and care.

If inflation control is no longer the sole responsibility of the RBA, and no longer dependent solely on interest rate adjustments, then the Commonwealth government needs to design and implement a more effective and comprehensive inflation strategy alongside the RBA’s actions. This policy should include several key elements:

a. Workers and low-income Australians must be protected against falling real incomes while the true causes of current inflation are tackled. This means wages must keep up with inflation, and social benefits and income supports (such as JobSeeker, Aged Pension, and child benefits) must be fully and promptly indexed to the actual consumer prices paid by recipients.
b. Some key prices (such as prices for energy) should be directly regulated to prevent pricegouging and limit inflationary pressures. Most industrial countries regulate prices for electricity and gas in line with long-run supply costs (rather than the booms and busts of private energy markets). Australia should do the same to protect consumers against the rapacious behaviour of private energy oligopolies, up to and including placing key segments of the energy industry back in the hands of public ownership. Similar approaches can help to reduce inflationary pressure in other heavily concentrated industries (such as telecommunications or transportation).
c. The biggest single sources of recent price inflation reflect the failure of government policy to facilitate the roll-out of affordable supply of key commodities. Key examples are energy and housing. Inconsistent and contradictory energy policies during the Coalition’s time in office slowed Australia’s transition to renewable energy sources, and prolonged our dependence on fossil fuels – with devastating impact right now, given skyrocketing petrol and other petroleum-related prices. Speeding the transition to renewable sources (which are not subject to price volatility… in fact, their primary energy sources are free!) will reduce our vulnerability to future fossil fuel price shocks. The same is true of housing, which has been distorted by private speculation and price bubbles fueled by once-cheap credit.

Quite right. The ACTU is describing the “cost plus” that governs most utility systems worldwide. Why? Because rational folks know that monopolised, capital-intensive assets are rife with cartel potential. Here is it what it looks like if you don’t do it:

If you think is about to end by itself then guess again. Credit Suisse:

The gas scenarios. Bundesbank says hit to German GDP is 5%; IMF says 2.7% hit to German GDP & ECB a 1.7% hit.

• It would require the entire spot LNG market to replace the rest of Russian gas (remembering that only20% to 30% of the global LNG market is spot). There are logistical problems (all there-gasification plants in theSouth and Germany no LNG port and gets its first floating rate LNG in December).
• In February, Gas accounted for 25% of European energy market–with Russia supplying around 40% and thus supplied 10% of total energy market. Since then, gas imports from Russia has halved (ergo accounts for 5%of energy market).
• In the 19 July 2022 working paper on “The Economic Impacts on Germany of a Potential Russian Gas Shutoff”, the IMF highlights that in a scenario where the remaining Russian gas supplies are shut off, consumption of gas would need to contract by 10% to 20% each month.
• Under Germany’s current Emergency Plan for Gas, households would be protected from rationing and therefore the responsibility of compensating for these shortfalls would fall on firms.
• In this case, firms would be required to cut consumption by 13% in the remainder of 2022 and 14% in2023. However, business leaders are already pushing back on the idea of household protection.
• Our economists highlight that within industries priority would be given to food, hospitals and petrochemicals (e.g.fertilisers), followed by steel, machinery, mining and construction, and only then by textiles & leather, paper & pulp,ceramics and other non-essentials).
• The Bundesbank thinks that the impact on global supply chains could “increase the original shock two and halftimes the size”–the hope is that the well-telegraphed nature has limited this impact.

“Cost plus” is the only sensible solution to protect Australians from the war-profiteering cartels.

The Albanese Government must urgently break the gas and coal cartels with some combination of domestic reservation, export levies, and super-profits taxes.