TiP

I’m looking forward to the “Energy State of the Nation” forum that Robert Pritchard’s Energy Policy Institute of Australia is planning to stage in Sydney on 23 March, not least because it will focus on the federal energy white paper and star Resources & Energy Minister Martin Ferguson as a keynote speaker.

Meanwhile the institute hosted a closed-door workshop in Canberra last month to enable energy producers and energy-dependent industries to discuss the white paper and its impact on them. Bob has been kind enough to shoot me a copy of his notes on the discussions.

Managers from coal, oil and gas, electricity, mining, rail transport, aluminium and the plastics and chemicals industries participated and some of the issues on which they focused resonate with my own concerns about the current situation and some of the commentaries I have published in this blog, on the adjacent Coolibah newsletter and in “Business Spectator.”

One of my hobby horses, as readers will know, is the lack of transparency in the Federal Treasury modelling supporting the Gillard government’s “clean energy future” policies – a set of projections the energy white paper, of course, has also picked up.

Workshop participants reportedly expressed considerable concern that the draft white paper accepts without questioning the Treasury position that growth in emissions-intensive, trade-exposed industries will slow.

I think the answer so far as the white paper drafters is concerned, is how could they do otherwise?

The problem lies with the opaque Treasury modelling.

Wayne Swan and his department have resisted all requests to provide the assumptions on which the modelling was based.

Personally, as I have explained here and elsewhere, I have difficulty with the Treasury belief about the low overall growth in electricity generation out to the ‘Thirties, never mind mid-century, given that we are expecting to see a substantial increase in population (and therefore households), a concomitant rise in commercial demand and the continuation of the mining boom.

The manufacturing sector, which accounted for 28 per cent of total power consumption when demand peaked in 2008-09 before the global financial crisis, was then using almost 67,000 giagwatt hours a year.

It would be simple – although political dynamite – for Treasury to reveal its modelling of what manufacturing demand for power will be in 2020, 2030 and (because this is the time horizon now used by the Bureau of Resources & Energy Economics) 2034-35.

With 992,000 jobs provided at present by manufacturing – less those losses recently announced and causing the government such angst – a model that suggests a sharp decline in the industrial sector would cause a large amount of new shouting and political explosions.

How – or whether – government policies which erode the competititiveness of energy-intensive industries will be mitigated over the longer term is of national importance.

At least some of the hollering once the obvious decline in manufacturing contained in the government/Treasury assumptions was revealed would, as workshop participants point out, be the official view that a co-ordinated global response to greenhouse gas abatement will be in place by 2016.

Few things are more certain than that it won’t be.

One of the problems for the workshop participants is that the draft white paper focuses as much on the export of energy resources for transformation overseas as on the transformation of energy in Australia.

They see a need for the paper to be much stronger in acknowledging the economic benefits of domestic value-adding.

Many of those participating are concerned about the level of ongoing government participation in the domestic energy sector – think Clean Energy Finance Corporation – and the level of market distortion created by inefficient regulation, including schemes such as the renewable energy target, which of course is one aspect of policy that has bipartisan support.

They took the opportunity again to make the point that their burden of regulated costs is exacerbated by those imposed on them for clean energy schemes they cannot use.

“Aluminium smelters, for example,” the institute records, “pay a very significant subsidy towards the renewable energy sector through the RET for absolutely no return.”

Unlike the Greens, the workshop participants want a reduction in regulation to optimise energy security and minimise end-user costs – and for rent-seeking behaviour by market participants to be diminished.

Given the people involved in the forum, it is also not surprising that they are bothered by perceived over-investment in electricity networks and resulting “unnecessary and inefficient” increases in power prices.

One of the stand-out factors of the current energy debate is the way networks, consumers, regulators and politicians are talking past each other on this issue – in some cases, and especially in the body politic, out of both sides of their mouths.

The forum members do praise the white paper for recognising the need to develop alternative retail pricing options such as the promotion of interruptibility across networks.

“Some,” the notes say, “will welcome retailers selling both firm and non-firm interuptible capabilities for lower energy costs.”

While noting the draft white paper comment that the era of cheap energy is over – which it certainly is – and the government’s commitment to pursue competitively-priced energy, the workshop attendees are concerned that the “clean energy future” plan in fact represents the end of the age of energy supplies that are affordable and uninterruptible

They make another good point, I think: end-user companies cannot hedge against the long-term risk inherent in politically-controlled costs such as the carbon price; nor can they include transmission and distribution costs in long-term contracts – but these unhedgeable costs are a significant and growing proportion of the final bill.

I will be interested to hear how Martin Ferguson tackles this and other white paper issues when he comes to the ESON forum on 23 March.

You can find the program on www.energyalliance.com.au.

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