Two good pieces in a row from Jennifer Hewett and I’m beginning to wonder if the earth’s polarity has quietly reversed:
Despite Labor’s promise to boost local manufacturing, the Albanese cabinet is suffering a bout of policy paralysis about how to achieve this given the outlook for international gas prices.
The recent broadside about the unacceptably high domestic gas prices from Dan Walton at the Australian Workers’ Union adds to the pressure. But it’s not just the union movement warning of the dire consequences of inaction.
Energy-intensive manufacturers on the east coast are sounding increasingly desperate about their ability to survive, let alone thrive. Little wonder Industry Minister Ed Husic has been insisting more must be done to make gas more affordable for Australian customers. But what exactly?
The government clearly doesn’t want to follow the UK and other European governments in giving massively expensive subsidies to businesses and households to compensate them. Treasurer Jim Chalmers has also rejected imposing windfall profits taxes on producers getting the benefits of much higher prices.
That leaves some form of potential direct action on prices. The government is trying to figure out its least-worst options on this issue. Is insisting on greater pricing transparency enough? What about stiffer regulatory tests? Perhaps even a price cap of some sort?
“They just don’t know what to do,” says one observer. The government has clearly been reluctant to make a drastic intervention. Yet it knows that without it, domestic prices will remain at unprecedented levels – with the prospect of worse to come next year.
It is not that they don’t know what to do. It is that they are afraid to do it:
A Labor source said Dr Chalmers was still “scarred” from the failed “super profits” mining tax in 2010 when he was a senior adviser to then treasurer Wayne Swan, and that he did not want to revisit the idea.
The solutions are simple:
- $7Gj price-capped domestic reservation. It will need to be expanded to coal to fix electricity prices in NSW and QLD.
- Super profits taxes recycled as energy subsidies.
- Export levies benchmarked to pre-Ukraine prices that crash the local price of gas and coal, and channel the entire war revenue windfall into the budget.
The first will do. The second is inflationary and a bad idea. The third is the best possible solution.
Meanwhile, the Evil Gas Cartel’s campaign to gut the regulator is getting sell-side support:
“The new AEMO powers appear a rushed government overreach that lacks sufficient oversight or accountability, being undertaken with a concerning lack of consultation,” said Credit Suisse energy analyst Saul Kavonic.
“The new AEMO powers can almost amount to a redesign of the national gas market, with AEMO to make up the rules as they go, interfere with any contract as they see fit, and act as both a regulator and competing market participant at the same time, but with no one to regulate the regulator.”
Under the new powers, which federal and state energy ministers agreed to in principle on August 12 after the early winter crisis in east coast electricity and gas supply, AEMO will have control to signal and manage supply shortfalls in the east coast market next winter.
Err, the electricity futures market is freezing as forward prices are out of control. Gas futures likewise. All signs point to another major breakdown of the NEM the moment the Evil Gas Cartel lifts prices again.
AEMO needs these powers or we could face total energy system collapse as wholesale power prices overwhelm retail margins.
You want energy cartels? Then you need a big stick.
