Balance Solves Energy Equation

The Australian Financial Review

By Hugh Morgan
President
Business Council of Australia

The Business Council of Australia has long called for the development and implementation of a comprehensive, national and transparent energy policy for Australia. The importance of this issue cannot be overstated and reflects the essential part that energy plays in all sectors of our economy, including business and households, and the importance of energy and natural resources in determining Australia's competitive advantage.

However, the poor state of the energy framework in Australia, in concert with the uncertainty around future greenhouse policy, threatens to undermine the long-term planning, investment and security of energy supply, and hence long-term growth prospects in Australia.

Our approach to energy development and management has become fragmented, distorted and overly complicated as a result ofad hoc decision making and differing policy objectives, over time and across jurisdictions.

Our successes in developing new sources of competitiveness cannot allow us to overlook the fact that Australia has a clear long-term competitive advantage related to its natural endowments in energy. Low-cost energy underpins our competitiveness in many areas; energy exports directly account for about 20 per cent of export earnings; and the energy sector provides substantial investment opportunities, income and jobs for many Australians.

Appropriate long-term policies and planning can support these natural advantages to the benefit of all Australians. Poor policies and a lack of planning will undermine them.

Absolute demand for energy will continue to increase, particularly as developing economies grow and achieve higher levels of income. The reality remains that fossil fuels will continue to be the main source of energy supplies for the foreseeable future. Australia should do what it can to maximise the benefits of these trends. At the same time, the BCA recognises that Australia must improve energy efficiency and reduce greenhouse gas emissions.

The challenge for policy is to strike the right long-term balance. That is, balancing security of supply and reduced greenhouse emissions. The recent energy white paper, Securing Australia's Energy Future, goes a long way towards achieving this.

The market plays a fundamental role in providing incentives to reduce energy consumption and to seek out alternative production technologies. With the cost of crude oil and petrol continuing to rise, the incentive to reduce consumption both by industry and by each household is a powerful and inescapable one. The document recognises that renewable energies also have the potential to play a significant role in Australia's future energy mix. The government's Low Emission Technology Fund is a major additional incentive to concentrate attention on the need to develop alternative energy production methods with reduced emissions.

The white paper incorporates a balanced approach to addressing environmental issues. Ultimately, what is being sought is a reduction in the interconnectedness between economic growth, energy use and the environment over time. It cannot be reasonably expected that a single solution exists to achieve this. Nor can it be reasonably expected that substantial ongoing government spending is sustainable in the long run. That is to say, the solutions adopted must over time be capable of standing on their own merits and must be consistent with sustaining business competitiveness in Australia.

The approach adopted by the government, which includes a variety of measures aimed at supporting new technologies, innovation, reductions in emissions and the development of renewable energy sources, is appropriate.

The energy white paper represents real progress and the BCA supports its implementation, but it is a framework that largely targets the supply side of the market. Long-term sustainability and market efficiency require that there are fair pricing and incentives on both the demand and supply side of the market.

There is a natural alliance between industry and the public in seeking reductions in greenhouse gases. That alliance stems from appreciating the costs of wasteful use of energy, in terms of unnecessary emissions and business costs, and the well-recognised loss of public reputation for entities that disregard the need to reduce greenhouse emissions wherever practicable. But it also needs to be acknowledged that the household sector is the single largest contributor to greenhouse emissions. It is in everyone's interest to ensure that Australia's energy use is environmentally sustainable.