Energy Can Be One of Our Great Advantages: Article by Jennifer Westacott in The Australian

This opinion article, by Business Council of Australia Chief Executive Jennifer Westacott, was published in The Australian on 27 February 2014 under the title ‘Let’s Scrap Carbon Tax and Get Our Energy And Climate Policy Right’.

Repealing the carbon tax could be the first step towards regaining lost ground on energy, which is one of this country’s great competitive advantages.

It is an opportunity to reorient our energy and climate change policies to deliver competitively priced energy and drive growth in our energy exports.

We can reduce our emissions and grow our economy in a globally competitive environment. We just need to implement the right policy measures.

The federal government’s processes on the energy white paper, the Renewable Energy Target, the Eastern Australian Gas Supply Strategy and the Emissions Reduction Fund need to work together to reduce the pressure on energy prices.

They need to provide the platform for our energy markets to deliver least-cost outcomes to Australian households and businesses, while minimising the impact on sunk capital.

The present disjointed array of state and federal carbon, renewable and energy-efficiency schemes are just plain inefficient.

They are adding a huge cost impost to the productive parts of our economy. Based on 2013–14 data from the Independent Pricing and Regulatory Tribunal, various green schemes (including the RET, the carbon tax and state-based schemes) are accounting for about 30 per cent of a typical commercial and industrial electricity customer in NSW, compared with 14 per cent for an average NSW household.

It must be recognised that some households and large energy users receive assistance to partially offset the costs of these federal schemes, but small businesses face the full hit of these costs.

This is on top of the biggest increase in electricity prices in Australia’s history largely because of the increase in network costs.

Reforms are being carried out that seek to mitigate many of the inefficient drivers behind the blowout in network costs, but more efficient reliability standards and privatisation are key outstanding reforms, for some states, that must be delivered on.

As recent analysis published by the Energy Policy Institute of Australia shows, during the six years between 2007 and 2013 Australian electricity and gas prices have gone through an extraordinary escalation, both rising more than 100 per cent in some states.

This is adding a deadweight to the economy.

To reduce these costs, Labor should step aside and let the government repeal the carbon tax legislation.

Without the legislation passing both houses this financial year, the economy faces the highest carbon price of any country at $25.40. Added to that will be the uncertainty around retrospectivity and the complexity for those with a carbon tax liability.

What we can then focus on is alternatives to meet our abatement goals and not compromise the competitiveness of the economy. This should include recognition of the scientific fact that one tonne of greenhouse gas abatement in Australia has the same impact on global climate change as one tonne from any other country.

Accordingly, the government should keep an open mind when considering the use of international credits as part of its development of the Emissions Reduction Fund.

International emission units present the least-cost way of meeting the bipartisan commitment of a 5 per cent reduction in greenhouse gas emissions by 2020, and would pose minimal compliance cost on businesses and households.

We shouldn’t forget Australia is just one country in a global market and adding to the cost of producing goods here will only push their production overseas. This thinking needs to go into Australia’s participation in the international climate change negotiations to ensure the Australian economy is not disadvantaged.

Australia should not set its emissions reduction target without knowing what our competitors are signing up for. To do otherwise puts the economy at risk by getting ahead of our global competitors, many of whom are major emitters with no legally binding emissions reduction targets.

One area of growing global trade and a much needed resource for Australia’s domestic market is natural gas. Our gas resources are a source of competitive advantage.

At a time when our economy is going through a period of major restructuring, Australia should be looking to the industries of the future.

Natural gas is an industry that is not asking for government handouts to prosper, just sensible and efficient regulation so it can get on with the business of job and wealth creation, as well as putting downward pressure on gas prices through increased supply.

If state and federal governments are serious about creating new jobs for displaced workers, they should be looking to facilitate the development of natural gas projects that meet best practice environmental standards. There are billions of dollars in investment in new gas projects sitting there waiting for the green light.

We have the opportunity to ensure Australia’s competitiveness and growth are underpinned by complementary energy and climate change policy that supports export growth and reduces the pressure on energy prices, while reducing greenhouse gas emissions in line with global efforts.

This means ensuring we have efficient energy markets, repealing the carbon tax, getting the detail of Direct Action right, assessing the economic costs of the RET, progressing the removal of state-based energy efficiency schemes, and political leadership in supporting the development of a modern natural gas industry.

Submission to the Department of Industry on the Energy White Paper Issues Paper (February 2014)