Freer market for energy is welcome

Below is an opinion piece by CEDA Chief Executive, Professor the Hon. Stephen Martin,  published in the Australian Financial Review on Wednesday, 14 December, 2011, on the Federal Government's draft energy white paper.

In a year of less than spectacular policy successes, the Gillard Government appears to be on the right track with its draft Energy White Paper, recognising that market reform, further privatisation of government owned energy assets and deregulation of retail energy prices are the way forward. However, the continued disregard of nuclear as a clean energy option is a fundamental flaw.

A number of positives in the draft provide the right basis for shielding Australian households, industry and our economy in general from the inevitable energy price rises we will face in coming years and decades. Energy Minister Martin Ferguson has been refreshingly honest in acknowledging that energy price rises will be inevitable, and proposing a series of policies that endeavour to mitigate against the negative effects.

The changing nature in demand and sources of energy in Australia will mean the energy sector will evolve quickly in coming years and many of these changes will not be in the control of Government. The best policy from Government is to ensure a competitive and free market and that's where the Energy White Paper has got it right.

This will ensure that it is the market that determines everything from the economic value of energy projects that inform investment decisions through to the size of the average household energy bill.

The deregulated retail energy market in Victoria is proof this works. While Victoria has experienced energy price increases, these have been less than in other states due to competition among retailers. The proposal to review policy initiatives from all levels of government that are distorting energy investment and bills, such as feed-in tariffs, is therefore a welcome initiative.

Once the price on carbon is introduced to be effective it is critical that it is the primary driver of clean energy investment. While there is a role for Government funding to support R&D and innovation, we need to see deployment of technologies where the economics stack up if they are to survive long-term.

The carbon tax will allow the market to decide which clean energy technologies are economically sustainable. It is vital this is allowed to happen without price distortions from other policy initiatives favouring deployment of specific technologies.

While the draft White Paper supports full privatisation and deregulation of energy assets the big question is how quickly and how far governments are prepared to go to ensure this is implemented. The economy is littered with partial privatisations of public assets that fail the efficiency and productivity enhancement tests. It must not be allowed to happen in the energy sector.

What the energy sector needs right now is clear and secure policy settings that ensure they can make long-term investment decisions.

The other concern is the omission of nuclear energy. Australia's economic prosperity has been hard won and this has been significantly aided by our abundant natural resources, including low-cost energy sources such as coal. Setting targets and spending billions on renewable energy research and programs may contribute to a cleaner, greener future but as we move into a carbon constrained economy, nuclear must be recognised as viable option.

While there are political constraints and sensitivities around nuclear energy, tough decisions need to be made in the national interest. It is most certainly in the national interest (not to mention political interest) to keep household and industry energy costs as low as possible if we are to continue to protect our economy from the impacts of global economic uncertainty and the cost of mitigating carbon-emissions.

Minister Ferguson has acknowledged that while nuclear was not part of the Government's current policy for clean energy options, he expected if the promised or anticipated technological breakthroughs in other sources did not eventuate the debate on nuclear would intensify. CEDA's concern is will this be too late? If climate change wasn't an issue, nuclear wouldn't need to be on the table. But it is, and we need to start shifting to low-cost clean accessible energy supplies. Renewables simply do not currently offer a reliable base-load solution. They may in the future but realistically we are looking at 20 to 30 years away. By then the damage to our economy of skyrocketing energy costs will be done and it may take decades to recover lost ground.

Nuclear energy provides a proven, low-emission, low-cost technological option at a time when there appears to be no others. That is why CEDA will continue to support the full consideration by policy-makers of nuclear energy as a long-term, clean energy source for Australia's economic prosperity.

By CEDA Chief Executive, Professor the Hon. Stephen Martin