Energy Crisis: Households Pay For Safety Mechanism

Written by:
16 February 2023
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In this article, Saxon Davidson contextualises and disseminates the findings of the IPA’s research into energy security, conducted as part of the IPA’s Net Zero Program. The IPA’s Net Zero Program aims to research the various ways net zero policies negatively affect Australia’s energy security, national security capabilities, and household electricity prices.

The energy crisis that became real for many Australians in 2022 is at severe risk of becoming the norm.

Last month, the Australian Competition and Consumer Commission released their latest gas inquiry report which gave a stark warning to Australia’s leaders about the perilous state of the east coast’s energy security.

The report stated that investment in gas production is urgently required to avoid shortages and blackouts along Australia’s east coast:

Without additional gas supply, transportation, and storage infrastructure, there remain significant risks to domestic energy security over the medium to longer term. It is important therefore that governments continue to support the efficient, competitive, and timely development of new sources of supply and infrastructure.’

Despite this, the federal government has continued to pursue policies that deter investment in the gas sector, causing higher prices through lower supply.

The Albanese government’s announcement of reforms to the ‘safeguard mechanism’ to, effectively, re-introduce the carbon tax first pursued by the Rudd and Gillard governments, which was subsequently and overwhelmingly rejected by Australians a decade ago, is a prime example.

The reformed ‘safeguard mechanism’ will mandate that certain businesses purchase carbon credits from other businesses that emit below their regulated levels. If they cannot trade, they must pay a levy to the federal government.

Recent analysis by the Institute of Public Affairs has identified that 88 per cent of the facilities that this policy targets are in our critical resources and manufacturing sectors, and over eight in ten facilities are located in regional Australia.

BHP has indicated that Australia’s current and proposed energy policy settings will bring forward, by four years, the closure of its Mt Arthur coal mine in the Hunter Valley, which will only further increase power prices.

The Albanese government has pointed to a 205 million tonne reduction of CO2 emissions by the end of the decade, which will be equivalent to just 0.08 per cent of global carbon emissions in that period. All this economic pain, for little to no environmental gain.

Fortunately for mainstream Australians, the Federal Opposition have come out and publicly opposed this policy, which means the federal government will now have to deal with the Greens and the crossbench.

However, the Greens have publicly and repeatedly stated that their support for the reforms hinges on the federal government banning of all future coal and gas projects in Australia.

IPA research has identified such demands would see the cancellation of 86 coal and gas projects currently in the construction pipeline, 473,000 new jobs located in regional Australia foregone and up to $268.5 billion in direct and indirect economic activity squandered.

This latest energy policy proposal from the federal government follows hot on the heels of the Prime Minister’s emergency sitting of parliament to rush through a price cap on the domestic coal and gas supply.

The Prime Minister claimed without these measures, household energy bills would rise $230 per year over and above the already record increases we all face.

Unsurprisingly, the move to cap the price of gas saw a number of energy retailers cease taking on new customers, along with increasing their prices, as they struggled to secure supply from producers.

Of course, this was entirely predictable. When you artificially limit a company’s ability to get a return on investment, through a carbon tax or restricted revenue, it naturally makes them less likely to invest in the production of gas.

The policy settings being pursued by the Albanese government are diametrically opposed to the advice of Australia’s energy market experts and participants. The bottom line is, a further limited gas supply leaves everyday Australians with higher household energy bills.

These policies will also impact Australia’s trade revenue, domestic manufacturing capabilities, domestic energy generation capabilities, employment opportunities, and the development of regional Australia. Again, all for minimal future environmental gain.

Australia’s current energy crisis is entirely of our own making. It has been caused by deliberate policy decisions by our leaders and it is mainstream Australians who are paying the price daily.

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