2
Sep
2018

Morrison’s Energy Policy

Why Have We Changed Government?

At his first press conference with Frydenbrg (held before Turnbull’s resignation had been effected legally), Scott Morrison said “I want to start by thanking, and he still is the Prime Minister, Malcolm Turnbull. I have known Malcolm for a long time, as you know. He has been a dear friend. He has served his country, in a noble, and professional way. Josh and I have watched and worked with him as he has led our Cabinets and the achievements. We have been proud to serve with him as a government, whether it is in the economy, whether it is in all the other areas that Malcolm has outlined today at his earlier press conference. He is a great Australian who has contributed a great deal to this country and our party and our nation will be very grateful for his contribution” (See Morrison First Pres Con). At that press conference, he had little to say about his government’s policies but was questioned about energy policy and answered as follows

Is the national energy guarantee, and perhaps Josh might care to answer this, still the government’s policy? Are there areas you are looking at changing? And if this is the end of the Turnbull-Abbott era, is there any prospect of Tony Abbott joining the ministry?

These are going to matters of detail, at this stage they are not going to go into. Don’t you said that our government is going to put electricity prices down. We will put in place what we have said from the CCC report, which is to put in the safety net on price. We will put the big stick to ensure that the big energy companies to the right thing by you, the customers. And we will be backing investment in a new energy generation capacity. That is what we will be doing. Specific matters of policy and any changes in that area, I’ll consult with the new Cabinet.

Chris Kenny has argued (see Kenny on Energy as Pivotal) that

“Energy is the pivotal issue. Turnbull’s desire for emissions reductions, Paris compliance and bipartisanship triggered his demise. Morrison has done well in splitting the portfolio from environment and installing Angus Taylor. Now the lignite hits the road. Price and reliability must trump all else, and the clearest way to send that signal would be to withdraw from Paris. But for reasons of diplomatic consistency and trade positioning the Coalition seems loath to do that. It will need not only to articulate how the Paris targets will not drive policy — as Taylor has started to do — but also to demonstrate this reality. Whether it acts to extend the life of the Liddell coal-fired power station in NSW’s Hunter Valley or underwrites new investment in dispatchable generation, it must get something done before the election. It needs a fierce battle with Labor: lower prices versus lower emissions”.

But it is difficult to see from Environment Minister Taylor’s first speech on 30 August that there will be much difference between the major elements of the policy foreshadowed by Turnbull and those now canvassed by Morrison in a 5 page document (see Taylor on Energy Policy).  The main points include the following:

  • He is the minister for reducing power prices and acknowledges that “we had a mess and we are now fixing it, with one aim only – to reduce power prices”;
  • He makes no reference to the implications of Morrison’s decision to stick to the 26% reduction in emissions and no indication is given to whether this went to Cabinet. Nor does he acknowledge that the substitution of expensive renewable for the usage of coal will in itself add to power prices;
  • He acknowledges however that there has been “sharp increase in retail electricity [prices], particularly the doubling” under Labor. But he makes no reference to the doubling in whole sale prices since 2015 under Turnbull or to the increase in retail prices which has also occurred in that period. He claims that ”retail and wholesale prices have turned a corner” but does not explain why;
  • He sees a “strong role for commercially viable renewable, alongside continued focus on coal and gas”. But he says nothing about reducing/eliminating renewable, despite acknowledging that “as more intermittent generation has come into the market, baseload coal generators have left”. He claims new supply can come from “many different sources”  and ”we can create an environment where there is sufficient confidence to invest”. No indication is given as to how this could occur for coal-fired generators;
  • He is “not skeptical about climate science” but he is about the emissions reduction schemes. And he acknowledges that hitherto Governments have done little more than raise electricity prices or government spending. Yet ”we are well past the point” of leaving it to the industry to fix the problems in the electricity industry. Hence,  “We need to “empower customers with a price safety net”. As the ACCC has recommended a “default market price”,  “we will require retailers to use this” when advertising;
  • He notes that the PM and Treasurer have already announced “a programme to underwrite new stable, low cost generation for commercial and industrial customers” and that work is being done on the detail;
  • Price gouging needs to stop and the government accepts ACCC proposals to address this. It may include divestment;
  • Taylor concludes that ”If industry steps up and does the right thing on price, government can step back and focus on other things”.

No doubt more detail will emerge on energy policy. But the basic situation seems to be unchanged compared with that being developed under Turnbull/Frydenberg. The cost raising targets for emissions and renewable remain extant and the thesis also remains that the government will intervene in the electricity market to an even greater extent, including by guaranteeing “low cost” (ie subsidized) generation. Labor will probably accept the basic approach, but without saying so.

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