It is easy to forget how essential reliable and competitively priced energy is to the Australian economy. But to do so puts at risk the nation’s long-term economic wellbeing.
Our energy resources are a source of great wealth, with revenue from exports of coal, gas and uranium accounting for about a third of the value of Australia’s total exports.
Yet our ability to manage one of our long-held competitive advantages, our energy, is slipping, with the cost of developing energy resource projects in Australia and the cost of energy – electricity and gas – to households and businesses rising.
Some of the reasons for these increases are outside the control of governments and businesses, including the increased cost of extracting harder to access and more remote resources, and the need to replace electricity network infrastructure at the end of its useful life. But there are many factors within our control and we should be acting on them.
It is time to rethink our approach to energy policy in four key ways.
First, we need to address the lack of integration in Australia’s energy policy.
Higher energy costs, restructuring in the energy-intensive sectors of the economy, changing consumer behaviour, the uptake of renewable energy, increasing imports of liquid fuels and our burgeoning LNG export industry require a coherent and comprehensive energy policy.
We need to have in place the appropriate energy policy settings that respond to these changes, maintain our competitive advantages and ensure we have a stable investment environment for new sources of energy.
A coherent and comprehensive energy policy then provides the framework to drive emissions reduction policy. For too long, energy policy has taken a back seat to emissions reduction policy with little regard for Australia’s economic competitiveness.
Second, we need to complete unfinished energy market reforms so that we can ensure reliable and competitively priced electricity.
What is required is for state governments to progress privatisation of electricity assets and remove controls on prices. The evidence is clear that there are major benefits for consumers. As the Australian Energy Market Commission has found in its recent report, NSW is well placed to follow Victoria and South Australia and move to market-based energy pricing because energy retail competition in the state is robust enough to put downward pressure on prices.
With respect to privatisation, the Productivity Commission found in its recent report on energy networks that the sale of state-owned energy assets facilitates more efficient service delivery, with benefits flowing to consumers. The other big plus is the government revenue it frees up to invest in critical infrastructure.
Reform is also needed in our gas markets, such as developing a comprehensive gas strategy and putting in place the steps to support a more transparent and liquid domestic gas market, so that we have a predictable long-term supply for domestic use and exports.
Third, we need to reduce the cost of delivering resources projects in Australia.
Australia is blessed with abundant energy resources – but that is just one factor when it comes to where an international board will decide to invest billions of dollars in its next resources project.
Australia is a high-cost place to do business. Our research shows that Australian resources projects are 40 per cent more expensive to deliver than projects in the US Gulf Coast. The relative remoteness of Australian resources projects explains part of this, but many of the drivers of cost are within our control.
We must improve the efficiency of our project assessment and approval processes; invest more in skills and training and ensure our workplace relations laws support productivity and competitiveness such as the timely commencement of greenfield developments.
These issues do not all rest with governments – businesses also need to lift their performance in terms of project management.
But we no longer have the luxury of being able to put off tackling these outstanding issues if we are to have any chance of capturing a second pipeline of investment in our energy resources.
Fourth, if we want reliable and competitively priced gas we need to increase supply.
The emergence of Australia’s coal-seam gas to LNG export industry demonstrates the economic wealth that investment in our energy resources can bring to the nation as a whole through taxation revenue and ongoing employment.
But the sector faces mixed messages from governments that are hampering further investment in gas projects that could supply the Australian market.
State and federal governments should support a coal-seam gas industry that is meeting its environmental and social obligations by streamlining environmental approvals, while maintaining high standards.
The approach of the NSW Government, to increase restrictions on gas exploration when the state only provides 5 per cent of its own gas needs, is a backward step that will only contribute to higher prices and risks supply shortages.
With NSW facing such supply constraints, the commonwealth and the state should be working together to facilitate approvals, such as those in the Pillaga and Gloucester region, while ensuring that environmental standards are met.
The federal Senate must also step up to its national interest obligations and accept the mandate of the Coalition government to implement its one-stop shop for environmental approvals that will help reduce the uncertainty and delays associated with major project investments in Australia.
Now is the time for Australian governments to show leadership by committing to an overarching, integrated energy policy framework that provides for the reliable and competitively priced supply of energy to continue to underpin our economy and way of life.